As filed with the Securities and Exchange Commission on October 27 , 2017July 7, 2020

File No. 333-220952

 

Registration No. 333-239055

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER THE

Under
The Securities Act ofSECURITIES ACT OF 1933

 

nFüsz, Inc.VERB TECHNOLOGY COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada
7200
90-1118043

(State or other jurisdiction of

incorporation or organization)

7200

(Primary Standard Industrial

Classification Code Number)No.)

90-1118043

(I.R.S. Employer

Identification No.)

 

2210 Newport Boulevard, Suite 200

344 S. Hauser Blvd, Suite 414

Los Angeles, CA 90036

Newport Beach, California 92663

(855) 250-2300

(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive offices)

Rory J. Cutaia

Chairman of the Board, Chief Executive Officer, President and Secretary
Verb Technology Company, Inc.

2210 Newport Boulevard, Suite 200

Newport Beach, California 92663

(855) 250-2300

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Larry A. Cerutti, Esq.

Dean Longfield, Esq.

Troutman Pepper Hamilton Sanders LLP

5 Park Plaza, Suite 1400

Irvine, California 92614

(949) 622-2700/(949) 622-2739 (fax)

 

Action Stock Transfer CorporationSamuel E. Feigin, Esq.

2469 East Fort Union Boulevard, Suite 214Crowell & Moring LLP

Salt Lake City, Utah 841211001 Pennsylvania Avenue NW

(801) 274-1088Washington, District of Columbia 20004

(202) 624-2594/(202) 624-2500 (fax)

(Address, including zip code and telephone
number, including area code, of registrant’s
principal executive offices)
(Name, address, including zip code and telephone
number, including area code, of agent for service)

Copies to:
David Ficksman

TroyGould PC

1801 Century Park East, 16th Floor

Los Angeles, California 90067

 

Approximate date of commencement of proposed sale to publicthe public:: From time to time after the effective date of this registration statement, as shall be determined by the selling stockholder identified herein.becomes effective.

 

If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:box. [X]

 

If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. [  ]

 

If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. [  ]

 

Indicate by check mark whether the Registrantregistrant 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”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):Act.

 

 Large accelerated filer [  ]Accelerated filer [  ]
Non-accelerated filer [  ]
(Do not check if a smaller reporting company)
[X]

Smaller reporting company [X]

Emerging growth company [X]

[  ]

 

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)7(a)(2)(B) of the ExchangeSecurities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of

Securities to be Registered

 Proposed Maximum Aggregate Offering Price (1)  Amount of Registration Fee(2) 

Common Stock, $0.0001 par value per share

  11,500,000   1,492.70 
Total $11,500,000  $1,492.70(3)

 

Title of each class of securities to
be registered
 Amount to be
Registered
(1)(2)
  Proposed
Maximum
Offering Price
Per Share (2)(3)
  Proposed
Maximum
Aggregate
Offering Price
(2)(3)
  Amount of
Registration Fee
(2)(3)
 
Common Stock, par value $0.0001 per share  25,000,000  $NA  $2,000,000  $249 
                 
Total         $  $ 
(1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”). In accordance with Rule 416 under the Securities Act, the registrant is also registering hereunder an indeterminate number of shares of common stock that may be issued as a result of stock splits, stock dividends or similar transactions. Also includes the offering price of additional common stock that the underwriter has the option to purchase to cover over-allotments, if any.
(2)Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum offering price of all securities being registered.
(3)

Previously paid with the original filing of this registration statement.

 

 

(1) The shares of our common stock being registered hereunder are being registered for sale by the selling stockholder, as defined in the accompanying prospectus.

(2) Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issuable to prevent dilution from stock splits, stock dividends, or similar transactions.

 

(3)Estimated solely for purposes of calculating the registration fee according to Rule 457(c) under the Securities Act of 1933, as amended. Common stock shares issuable under the Purchase Agreement are calculated on the basis of the average of the bid and asked prices of the Registrant’s common stock reported on the OTCQB market on October 11, 2017.

The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statementregistration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. The selling stockholders shallWe may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale of these securities is not permitted.

Subject to Completion, dated July 7, 2020

PRELIMINARY PROSPECTUS

 

PRELIMINARY PROSPECTUS7,751,900 Shares

Subject to Completion, Dated October 27 , 2017of Common Stock

 

nFüsz, Inc.

25,000,000 Shares of Common Stock

This prospectus relates to the offer and resale by Kodiak Capital Group, LLC (“Kodiak”), a Delaware limited liability company, of up to 25,000,000We are offering 7,751,900 shares of our common stock, that Kodiak has agreed to purchase from us in accordance with$0.0001 par value per share, at an assumed public offering price of $1.29 per share, the terms and conditions of an Equity Purchase Agreement, dated September 15, 2017 (the “Purchase Agreement”), between us and Kodiak, pursuant to which we have the right to “put” to Kodiak (the “Put”) up to $2 million in sharesclosing price of our common stock. All of the shares, when sold, will be sold by Kodiak.

We are not selling any shares of common stock in this offering. We, therefore, will not receive any proceeds from the sale of the shares by Kodiak. We will, however, receive proceeds from the sale of securities pursuant to our exercise of the Put under the Purchase Agreement.

Kodiak is an “underwriter” within the meaning of the Section 2(a)(11) of the Securities Act of 1933, as amended.

Kodiak may sell common stock from time to time in the principal market on which the stock will be traded at the prevailing market price or in negotiated transactions. See “Plan of Distribution” for more information about how Kodiak may sell the shares of common stock being registered pursuant to this prospectus. Kodiak has informed us that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

We have paid and will pay the expenses incurred in registering the shares, including legal and accounting fees. See “Plan of Distribution.”July 6, 2020.

 

Our common stock is currently quotedlisted on the OTCQB marketThe Nasdaq Capital Market under the symbol “FUSZ”. On October 11, 2017, the“VERB.” The last quoted salereported price of our common stock as reported on the OTCQB MarketJuly 6, 2020, was $0.10$1.29 per share.

We may amend or supplement The recent market price of our common stock used throughout this prospectus frommay not be indicative of the final offering price for each share of common stock. The final public offering price will be determined through negotiation between us and the underwriter based upon a number of factors, including our history and our prospects, the industry in which we operate, our past and present operating results, the previous experience of our executive officers and the general condition of the securities markets at the time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.of this offering.

 

Investing in our securitiescommon stock involves significant risks, including those set forth in thea high degree of risk. See “Risk Factors” section of this prospectus beginning on page 5.8 of this prospectus.

Per Share

Total(1)
Public offering price$$
Underwriting discounts and commissions(2)$$
Proceeds, before expenses, to Verb Technology, Inc.$$

(1)

Assumes no exercise of the underwriter’s option to purchase additional shares of our common stock as described below.

(2)We have also agreed to reimburse Ladenburg Thalmann & Co. Inc. (“Ladenburg”) for certain expenses. See “Underwriting” on page 89 for additional information regarding underwriting expenses.

We have granted a 45-day option to the underwriter to purchase additional shares of common stock (up to 15% of the number of shares of common stock sold in the primary offering) solely to cover over-allotments, if any.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The underwriter expects to deliver the shares against payment on or about          , 2020.

Ladenburg Thalmann

The date of this prospectus is          October 27 , 20172020.

 

 

 

TABLE OF CONTENTS

 

 Page
PROSPECTUS SUMMARY1
THE OFFERING2
RISK FACTORS5
8
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS12
23
USE OF PROCEEDS1224
MARKET INFORMATION24
DIVIDEND POLICY13
24
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSCAPITALIZATION13
25
DILUTION1526
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS16
27
DESCRIPTION OF BUSINESS2842
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS31
51
EXECUTIVE COMPENSATION36
59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSCertain Relationships and Related Transactions41
75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT42
SELLING STOCKHOLDER44
PLAN OF DISTRIBUTION45
78
DESCRIPTION OF CAPITAL STOCKsecurities47
79
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIESUNDERWRITING49
89
LEGAL MATTERS50
94
EXPERTS5094
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE94
WHERE YOU CAN FIND MORE INFORMATION50
94
INDEX TO FINANCIAL STATEMENTS52F-1

You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information.

We have not authorized the placement agent or any underwriters, brokers or dealers to make an offer of the securities in any jurisdiction where the offer is not permitted.

You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

 i 
 

You should rely only on the information contained in this prospectus or in any related free writing prospectus filed by us with the Securities and Exchange Commission, or SEC. We have not, and the underwriter and its affiliates have not, authorized anyone to provide you with any information or to make any representation not contained in this prospectus. We do not, and the underwriter and its affiliates do not, take any responsibility for, and can provide no assurance as to the reliability of, any information that others may provide to you. This prospectus is not an offer to sell or an offer to buy securities in any jurisdiction where offers and sales are not permitted. The information in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or any sale of securities. You should also read and consider the information in the documents to which we have referred you under the caption “Where You Can Find More Information” in the prospectus.

Neither we nor the underwriter have done anything that would permit a public offering of the securities or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside of the United States.

We urge you to read carefully this prospectus, as supplemented and amended, before deciding whether to invest in any of the common stock being offered.

Unless the context indicates otherwise, as used in this prospectus, the terms “Verb,” “the Company,” “we,” “us,” “our” or similar terms refer to Verb Technology Company, Inc. and our wholly-owned subsidiary, Verb Direct, LLC.

This prospectus includes industry and market data that we obtained from our own internal estimates, industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third party research, surveys and studies are reliable, we have not independently verified such data. Accordingly, you are cautioned not to give undue weight to such information.

Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

We use various trademarks and trade names in our business, including without limitation our corporate name and logo. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

ii
 

 

 

PROSPECTUS SUMMARY

 

This summary highlights certainselected information appearingincluded elsewhere in this prospectus. For a more complete understandingprospectus and does not contain all of this offering,the information you should consider before investing in our securities. You should read the entire prospectus carefully, includingespecially the risk factors“Risk Factors” section and historical financial statements and the financial statements. Referencesrelated notes appearing at the end of this prospectus, before deciding to invest in our securities. Some of the statements in this prospectus to “we,constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements. “us,” “our,” the “Company” and “nFüsz” refer tonFüsz, Inc.You should read both this prospectus together with additional information described below under the heading “Where You Can Find More Information.”

 

Organization

Cutaia Media Group, LLC (“CMG”) was a limited liability company formed on December 12, 2012 under the laws of the State of Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG was merged into bBooth, Inc. and bBooth, Inc. changed its name to bBooth (USA), Inc. The operations of CMG and bBooth (USA), Inc. are collectively referred to as “bBoothUSA”.

On October 16, 2014, bBoothUSA completed a Share Exchange Agreement with Global System Designs, Inc. (“GSD”) which was accounted for as a reverse merger transaction. In connection with the closing of the Share Exchange Agreement, GSD management was replaced by bBoothUSA management, and GSD changed its name to bBooth, Inc.

Effective April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger with the Secretary of State of the State of Nevada on April 4, 2017 and a Certificate of Correction with the Secretary of State of the State of Nevada on April 17, 2017. The merger became effective on April 21, 2017. Our board of directors approved the merger, which resulted in the name change on that date. In accordance with Section 92A.180 of the Nevada Revised Statutes, stockholder approval of the merger was not required.

On the effective date of the merger, our name was changed to “nFüsz, Inc.” and our Articles of Incorporation, as amended (the “Articles”), were further amended to reflect our new legal name. With the exception of the name change, there were no other changes to our Articles.Business

 

NatureOverview

We are a Software-as-a-Service, or SaaS, applications platform developer. Our platform is comprised of Businessa suite of sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management application; verbLEARN, our Learning Management System application; and verbLIVE, our Live Broadcast Video Webinar application.

Our Technology

Our suite of applications can be distinguished from other sales enablement applications because our applications utilize our proprietary interactive video technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics capabilities of our applications inform our users in real time, on their devices, when and for how long their prospects have watched a video, how many times such prospects watched it, and what they clicked-on, which allows our users to focus their time and efforts on ‘hot leads’ or interested prospects rather than on those that have not seen such video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation. Our clients report that these capabilities provide for a much more efficient and effective sales process resulting in increased sales conversion rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all of our platform applications.

Our Products

verbCRM combines the capabilities of customer relationship management, or CRM, lead-generation, content management, and in-video e-commerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons which, when clicked, allow viewers to respond to the user’s call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, which are among the many novel features and functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate, and takes little time and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email, text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any mobile or desktop device, including smart TVs.

verbLEARN is an interactive video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM application, however adapted for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about new products, or elicit feedback about existing products. It also incorporates Verb’s proprietary data collection and analytics capabilities that inform users in real time, when and for how long the viewers watched the video, how many times they watched it, and what they clicked-on.

verbLIVE builds on popular video-based platforms such as Facebook Live, Zoom, WebEx, and Go2Meeting, among others, by adding Verb’s proprietary interactive in-video ecommerce capabilities – including an in-video Shopify shopping cart integrated for Shopify account holders - to our own live stream video broadcasting application. verbLIVE is a next-generation webinar platform that allows webinar hosts to utilize a variety of novel sales-driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the host with real-time viewer engagement data and interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download software, and is secured through end-to-end encryption. verbLIVE is currently in pre-sales, accepting customer deposits, and is expected to launch commercially in summer 2020.

The Verb In-App Eco-System

To more effectively and efficiently monetize our current large user base, we have developed and have begun to deploy in-app purchase capabilities for all verbCRM users. This feature is currently being distributed and deployed as an automatic software update to enterprise client users whose monthly subscription fees and use of the application are paid by their corporate employer, sponsor, or principal. The in-app purchase capability will allow these users to pay for subscriptions directly in the app with their own credit card in order to access upgraded or unlocked verbCRM features and additional functionality within the app.

In addition, these users will have in-app access to our forthcoming “app store” where users can subscribe for third-party apps that are complimentary to verbCRM user demographics, such as specialized expense tracking applications, tax software, among other third-party apps offered directly to our user base on a revenue share basis with the third-party developers. In addition, we are expecting to introduce during 2020 an “Open API” architecture, allowing third-party developers to create specialized apps with features and functionality that integrate seamlessly into our verbCRM application. These will be offered directly to our user base through our verbCRM app store on a revenue-sharing basis.

Verb Partnerships and Integrations

 

We have developed proprietary interactive video technology which servescompleted the integration of verbCRM into systems offered by 17 of the most popular direct sales back-office system providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, and Party Plan. Direct sales back-office systems provide many of the basissupport functions required for certain productsdirect sales operations, including payroll, customer genealogy management, statistics, rankings, and services that we offer under the brand name “notifi”. Our notifiCRM, notifiADS, notifiLINKS, and notifiWEB products are cloud-based, software-as-a-service (“SaaS”), customer relationship management (“CRM”),earnings, among other direct sales lead generation, advertising and social engagement software, accessible on mobile and desktop platforms, that we license to individual consumers, sales-based organizations, consumer brands, marketing and advertising agencies,financial tracking capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as to artistsenhanced data analytics and social influencers. Our notifiCRM platform is an enterprise scalable customer relationship management programreporting capabilities for all users. We believe that incorporates proprietary, interactive audio/video messagingour integration into these back-end platforms accelerates the adoption of verbCRM by large direct sales enterprises that rely on these systems and interactive on-screen “virtual salesperson” communications technology. Our notifiTVas such, we believe this represents a competitive advantage.

We are also in various stages of development, testing and notifiLIVE products are partdeployment for the integration of our proprietarylatest generation interactive video platformand enhanced analytics and reporting technology, and more recently, a core package that allows viewersincludes verbLIVE, into popular CRM providers, including Salesforce, Microsoft, Oracle/NetSuite, and Adobe/Marketo, among others with whom we have executed partnership agreements. Each of these agreements provides for revenue share arrangements resulting from sales of our product to interacttheir respective clients. The integrations for Salesforce and Microsoft represent new build integrations, while those for Oracle/NetSuite and Adobe/Marketo represent replacement integrations. We have intentionally, though temporarily, delayed further action on and deployment of these integrations in order to allocate design, engineering and development resources to those initiatives that we believe will become revenue producing opportunities sooner, especially those that we believe will likely produce greater market demand due to the current and anticipated continued effects of the COVID-19 pandemic. We expect to resume action on and deployment of these integrations in the summer of 2020.

Non-Digital Products and Services

Historically, we have also provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events. We also managed the fulfillment of our clients’ product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects.

However, on May 20, 2020, we executed a contract with pre-recordedRange Printing, a company in the business of providing enterprise class printing, sample assembly, warehousing, packaging, shipping, and fulfillment services. Pursuant to the contract, through an automated process we have established for this purpose, Range will receive orders for samples and merchandise from us as and when we receive them from our clients and users, and print, assemble, store, package and ship such samples and merchandise on our behalf. The Range contract provides for a revenue share arrangement based upon the specific services to be provided by Range that is designed to maintain our relationship with our clients by continuing to service their non-digital needs, while eliminating the labor and overhead costs associated with the provision of such services by us. The transition to Range Printing is in progress.

Our Market

Our client base consists primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products. Our clients also include large professional associations, educational institutions, including school districts, auto sales, auto leasing, insurance, real estate, home security, not-for-profits, as well as live broadcast video content by clicking on links that we embed in people, objects, graphics or sponsors’ signage displayed on the screen. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices availableclients in the market today withouthealth care industry, and the needburgeoning CBD industry, among other business sectors. Currently, we provide subscription-based application services to download special software or proprietary video players.approximately 100 enterprise clients for use in over 60 countries, in over 48 languages, which collectively account for a user base generated through more than 1.3 million downloads of our verbCRM application. Among the new business sectors targeted for this year are pharmaceutical sales, government institutions, and political parties and candidates.

 

CorporationIn April 2020, we commenced local language sales, sales support, customer support, and marketing operations in Japan. In order to ensure compliance with Japan’s laws, rules and regulations, our operations were established pursuant to, and in accordance with, an exclusive reseller agreement with an existing Tokyo-based Japanese corporation operated by a team with over 30-years’ experience in the Japan direct sales industry. They operate and market our applications in Japan under the Verb brand.

Revenue Generation

We generate revenue from the following sources:

recurring subscription fees paid by enterprise users and affiliates;
recurring subscription fees paid by non-enterprise, small business, and individual users;
recurring subscription fees paid by users who access in-app purchases of various premium services, features, functionality, and upgrades;
recurring subscription fees paid by users who access in-app purchases of third-party software provider apps in our forthcoming app store;
recurring subscription fees paid by users of Salesforce, Microsoft, Oracle/NetSuite, and Adobe/Marketo, among others with whom we have executed partnership agreements, for access to our applications that we intend to integrate into these platforms, including recurring subscription fees paid by users who subscribe to bundled service offerings from these partners and/or their respective value-added resellers;
recurring subscription fees paid by users for all of the foregoing products and services generated through our recently launched Japan operations;
recurring subscription fees paid by users generated through our forthcoming reseller and affiliate distribution programs; and
fees paid by enterprise clients for non-digital products and services through our Range Printing venture.

Risks Associated with our Business

Our business is subject to numerous risks. These risks are more fully described in the section entitled “Risk Factors” beginning on page 8. You should read these risks before you invest in our securities. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include the following:

We have incurred significant net losses and cannot assure you that we will achieve or maintain profitable operations.
Our independent registered public accounting firm’s reports for the fiscal years ended December 31, 2019 and 2018 have raised substantial doubt as to our ability to continue as a “going concern.”
We have identified material weaknesses in our internal control over financial reporting which have, and in the future could, if not remediated, result in material misstatements in our financial statements.
The recent outbreak of COVID-19 may have a significant negative impact on our business, sales, results of operations and financial condition.
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.
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.
The market in which we operate is intensely competitive and, if we do not compete effectively, 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 may not be able to develop enhancements and new features to our existing service or acceptable new services that keep pace with technological developments.

Corporate Information

 

We are a Nevada corporation that was incorporated in February 2005. Our principal executive offices are located at 344 S. Hauser Blvd.,2210 Newport Boulevard, Suite 414, Los Angeles, CA 90036,200, Newport Beach, California 92663, and our telephone number is (855) 250-2300.Our website address is www.nfusz.com, although the information on ourInternet website is https://www.verb.tech/. The content of our Internet website does not deemed to beconstitute a part of this prospectus.

 

 

THE OFFERING

This prospectus relates to the resale from time to time of up to 25,000,000 shares of our common stock, par value $0.0001 per share, by Kodiak pursuant to the Purchase Agreement, dated September 15, 2017.

Effective September 26, 2017,we entered into the Purchase Agreement, dated September 15, 2017 with Kodiak. Under the Purchase Agreement, we may from time to time, in our discretion, sell shares of our common stock to Kodiak for aggregate grossproceedsof up to $2,000,000. Unless terminated earlier, Kodiak’s purchase commitment will automatically terminate on the earlier of the date on which Kodiak shall have purchased our shares pursuant to the Purchase Agreement for an aggregate purchase price of $2,000,000, or September 15, 2019. We have no obligation to sell any shares under the Purchase Agreement.

As provided in the Purchase Agreement, we may require Kodiak to purchase shares of common stock from time to time by delivering a put notice (“Put Notice”) to Kodiak specifying the total number of shares to be purchased (such number of shares multiplied by the Purchase Price described below, equals the “Investment Amount”); provided there must be a minimum of ten trading days between delivery of each Put Notice. We may determine the Investment Amount provided that such amount may not be less than $25,000. Our ability to issue Put Notices to Kodiak and require Kodiak to purchase our common stock is not contingent on the trading volume of our common stock. Kodiak will have no obligation to purchase shares under the applicable Purchase Agreement to the extent that such purchase would cause Kodiak to own more than 9.99% of our then-issued and outstanding common stock (the “Beneficial Ownership Limitation”).

For each share of our common stock purchased under the Purchase Agreement, Kodiak will pay a Purchase Price equal to 80% of the Market Price. The Market Price is defined as the volume weighted average price (the “VWAP”) on the principal trading platform for the Common Stock, as reported by OTC Markets Group, Inc. (“OTC Markets”), for the five consecutive trading days immediately preceding the date (“Closing Request Date”) that Kodiak receives a Put Notice from us (the “Valuation Period”). Kodiak’s obligation to purchase shares is subject to customary closing conditions, including without limitation a requirement that this registration statement remain effective registering the resale by Kodiak of the shares to be issued under the Purchase Agreement (the “Registration Statement”). The Purchase Agreement also contains covenants, representations and warranties by us and Kodiak that are typical for transactions of this type, including customary mutual indemnification rights. The Purchase Agreement is not transferable and any benefits attached thereto may not be assigned.Offering

 

Effective September 26, 2017, as a commitment fee under the Purchase Agreement for which we received no proceeds, we issued to Kodiak an unsecured Promissory Note (the “Commitment Note”), dated September 15, 2017, for the principalamountof $100,000 with interest at the rate of 5% per annum, payable nine months from the issue date. The Purchase Agreement provides that in the event this Registration Statement is not effective by December 31, 2017, through no fault of ours, the Commitment Note shall be deemed cancelled, null and void, and of no further force and effect. In exchange for proceeds of $100,000, we issued to Kodiak an additional unsecured Promissory Note (the “First Note”), dated September 15, 2017 and effective September 26, 2017, in the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. Upon the filing of this Registration Statement, and in exchange for additional proceeds of $100,000, we issued to Kodiak an additional note (the “Second Note”) for the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. (the Commitment Note, the First Note, and the Second Note hereinafter referred to collectively as the “Notes”) The principal amount and accrued interest under the Notes are not convertible except in the event of default. In the event of default, the conversion price for the Notes shall be the lesser of $0.25 per share or 70% of the lowest trading price during the ten-trading-day period prior to the conversion date. Conversion of the Notes is subject to the Beneficial Ownership Limitation. None of the shares underlying any of the Notes is being registered under this Registration Statement.

Effective September 26, 2017, and as an additional commitment fee under the Purchase Agreement, we issued to Kodiak two Common Stock Purchase Warrants, each dated September 15, 2017, the first of which entitles Kodiak to purchase up to 1,000,000 shares of our Common Stock at an exercise price of $0.15 per share (the “First Warrant”), and the second of which entitles Kodiak to purchase up to 1,000,000 shares of our Common Stock at an exercise price of $0.20 per share (the “Second Warrant”). The Purchase Agreement also provides for the issuance of a third Common Stock Purchase Warrant as an additional commitment fee, entitling Kodiak to purchase up to 4,000,000 shares of our common stock at an exercise price of $0.25 per share (the “Third Warrant”), to be issued only upon, and subject to, the occurrence of the first Closing Date. (The First, Second, and Third Warrants are hereinafter referred to collectively as the “Warrants”). The exercise price and number of common shares to be issued under each of the Warrants are subject to adjustments provided for in each such Warrant and are also subject to the Beneficial Ownership Limitation. None of the shares underlying any of the Warrants is being registered under this Registration Statement.

In connection with the Purchase Agreement, we also entered into a Registration Rights Agreement with Kodiak requiring us to prepare and file, within 30 days of the date hereof, this Registration Statement registering the resale by Kodiak of shares to be issued under the Purchase Agreement, to use commercially reasonable efforts to cause the Registration Statement to be declared effective, and to keep the Registration Statement effective until (i) the date on which Kodiak may sell all the shares under Rule 144 without volume limitations, or (ii) the date on which Kodiak no longer owns any of the shares.

The foregoing description of the terms of the Purchase Agreement, the Notes, the Warrants, and the Registration Rights Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to the agreements/instructions themselves, copies of which were filed as exhibits to our Current Report on Form 8-K /A , filed October 27 , 2017, the terms of which are incorporated herein by reference. The benefits, representations, and warranties set forth in such documents (if any) are not intended to, and do not constitute our continuing representations and warranties or those of any other party to persons not a party thereto.

As of September 30, 2017, there were 112,735,353 shares of our common stock outstanding, of which 83,479,055 shares were held by non-affiliates. If all of the 25,000,000 shares offered by Kodiak under this prospectus were issued and outstanding as of the date hereof, such shares would represent approximately 18% of the total number of shares of our common stock outstanding, and approximately 23% of the total number of outstanding shares held by non-affiliates, in each case, as of the date hereof. The number of shares ultimately offered for resale by Kodiak is dependent upon the number of shares that we issue and sell to Kodiak under the Purchase Agreement.

Issuances of our common stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of each of such issuance and sales. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after each such issuance and sale to Kodiak.

Securities Offered

IssuerVerb Technology Company, Inc.
Shares of Common StockOfferedWe are offering 7,751,900 shares of our common stock.
Offering Price Per Share$1.29.
Over-allotment OptionThe underwriter has the option to purchase up to additional shares of common stock solely to be offered by Kodiak:Upcover over-allotments, if any, at the price to 25,000,000 shares that we may issuethe public less the underwriting discounts and sell to Kodiakcommissions. Purchases under the Purchase Agreement.over-allotment option cannot exceed an aggregate of 15% of the number of shares of common stock sold in the primary offering. The over-allotment option is exercisable for 45 days from the date of this prospectus.
   
Shares of commonCommon stock outstanding prior to the offering:this offering 

112,735,353

30,271,230 shares.
   
Shares of commonCommon stock to be outstanding immediately after giving effectthis offering36,714,489 shares, or 37,877,289 shares if the underwriter exercises in full its option to the issuance and sale of an aggregate of 25,000,000purchase additional shares of common stock to Kodiak under the Purchase Agreement, which shares are registered hereunder:

137,735,353

stock.
   
Shares ofThe Nasdaq Capital Market symbol for our common stock issuable upon exercise of outstanding warrants and convertible promissory notes: 

The total number of shares of our common stock outstanding prior to the Offering, and to be outstanding after giving effect to the total issuance sale of 25,000,000 shares to Kodiak under the Purchase Agreement registered hereunder, excludes the following:“VERB”

 

●             21,815,456 shares of common stock issuable upon exercise of outstanding warrants as of the date of this prospectus with a weighted average exercise price of $0.13 per share. (Includes the first one million Warrants issued to Kodiak as of 9/30/17).

22,430,953shares of common stock issuable upon exercise of outstanding stock options as of the date of this prospectus with a weighted average exercise price of $0.26 per share.

●     15,995,260 shares of common stock issuable upon exercise of outstanding convertible promissory notes as of the date of this prospectus with a weighted average exercise price of $0.08 per share. (Excludes redemption rights under the outstanding convertible preferred shares issued to RedDiamond Partners LLC).

●     Excludes any common stock issuable under the redemption rights of the outstanding convertible preferred shares issued to RedDiamond Partners LLC.

Use of proceeds:Proceeds We estimate that the net proceeds to us from this offering will not receive anybe approximately $8.9 million, based on an assumed offering price of $1.29 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from the sale of shares of common stock by Kodiak in this offering. However, we may receive upoffering to $2 Million from the salefund market awareness campaigns for our existing and issuance of shares of common stock to Kodiak pursuant to Put Notices that we may issue to Kodiak under the Purchase Agreement. Any proceeds that we receive from salesforthcoming products, such as verbLIVE, and issuances to Kodiak under the Purchase Agreement will be used for general corporate purposes, and, potentially, certain expenses in connection with the redemption of shares of our Series A Preferred Stock.including working capital. See “Use of Proceeds.”Proceeds” beginning on page 24 of this prospectus for additional information.
   
Risk factors:Factors This investment involves a high degree of risk. SeeYou should read the description of risks set forth under “Risk Factors” forbeginning on page 8 of this prospectus, as well as other cautionary statements throughout this prospectus, before deciding to purchase our securities.

The number of shares of common stock that will be outstanding upon the completion of this offering is based on the 30,271,230 shares outstanding as of June 29, 2020, and excludes the following:

4,510,358 shares of common stock issuable upon the exercise of outstanding stock options as of June 29, 2020, with a discussionweighted-average exercise price of factors you should consider carefully before making an investment decision.$1.71 per share;

   
OTC Markets (OTCQB) symbol:2,064,428 shares of common stock issuable under restricted stock awards as of June 29, 2020, with a weighted-average exercise price of $1.39 per share;
 FUSZ

2,771,717 shares of common stock reserved for future issuance under our 2019 Omnibus Incentive Plan, or Incentive Plan;

13,534,038 shares of common stock issuable upon exercise of warrants to purchase common stock outstanding as of June 29, 2020, with a weighted-average exercise price of $2.59 per share;
2,094,197 shares of common stock issuable upon conversion of our Series A Convertible Preferred Stock, or Series A Preferred Stock; and
any additional shares of common stock we may issue from time to time after that date.
Unless otherwise indicated, all information in this prospectus assumes the following:

no exercise of outstanding options and warrants;
no conversion of outstanding shares of our Series A Preferred Stock, or our convertible notes; and
no exercise by the underwriter of its option to purchase additional shares of common stock and/or warrants to cover over-allotments, if any.

 

Selected Historical Consolidated Financial Data

Our selected historical consolidated financial data for the years ended December 31, 2019 and 2018 have been derived from our audited consolidated financial statements and related notes, included elsewhere in this prospectus. Our selected historical consolidated financial data for the three months ended March 31, 2020 and 2019 and as of March 31, 2020 have been derived from our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. The information set forth below is only a summary and is not necessarily indicative of the results of our future operations, and you should read the following information together with our audited consolidated financial statements, the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 27.

  As of and for the Three Months
Ended March 31,
  As of and for the Years Ended
December 31,
 
  2020  2019  2019  2018 
  (Unaudited)  

(Unaudited) 

       
Consolidated Statements of Operations Data:                
Revenue $2,354,000  $9,000  $9,100,000  $32,000 
Cost of revenue  1,063,000   30,000   4,870,000   52,000 
Gross margin  1,291,000   (21,000)  4,230,000   (20,000)
Operating expenses  5,151,000   2,753,000   20,064,000   7,772,000 
Other income (expense), net  1,914,000   (234,000)  (82,000)  (4,334,000)
Income tax expense  -   -   2,000   1,000 
Net loss  (1,946,000)  (3,008,000)  (15,918,000)  (12,127,000)
Deemed dividends to Series A stockholders  (3,951,000)  -   -   - 
Net loss to attributed to common stockholders $(5,897,000) $(3,008,000) $(15,918,000) $(12,127,000)
Loss per share to common stockholders - basic and diluted $(0.23) $(0.25) $(0.79) $(1.23)
Shares used in per share calculation  25,992,426   12,239,044   20,186,249   9,870,890 
Issued and outstanding  28,962,589   12,334,451   24,496,197   12,055,491 
                 

Consolidated Balance Sheet Data:

                
Cash $1,615,000  $59,000  $983,000  $634,000 
Total assets $28,585,000  $824,000  $28,359,000  $898,000 
Notes payable, net of discount (current and non-current) $1,177,000  $3,457,000  $1,177,000  $1,995,000 
Total liabilities $18,664,000  $7,908,000  $16,914,000  $5,953,000 
Total stockholders’ equity $9,921,000  $824,000  $11,445,000  $898,000 

7

RISK FACTORS

 

An investmentInvesting in our securitiescommon stock involves a high degree of risk. You should carefully consider the following information about these risks described below, together with the other information about these risks contained in this prospectus, as well as the other information contained in this prospectus, generally,including the consolidated financial statements and the related notes appearing at the end of this prospectus, before decidingmaking your decision to buyinvest in our securities. AnyWe cannot assure you that any of the events discussed in the risk factors below will not occur. These risks we describe below could adversely affecthave a material and adverse impact on our business, results of operations, financial condition operating results or prospects. The market prices forIf that were to happen, the trading price of our securitiescommon stock could decline, if one or more of these risks and uncertainties develop into actual events and you could lose all or part of your investment. Additional risks and uncertainties that we do not yet know of, or that we currently think are immaterial, may also impair our business operations. You should also refer to the other information contained in this prospectus, including our financial statements and the related notes.

 

This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus. See “Cautionary Note Regarding Forward-Looking Statements” for information relating to these forward-looking statements.

Risks Related to Our Business

We have incurred significant net losses and cannot assure you that we will achieve or maintain profitable operations, and our auditors have issued a “going concern” audit opinion.operations.

 

To date, we have not derived any revenues from our operations and have incurred recurring losses since inception. Our net loss was $4,274,105$15,918,000 for the year ended December 31, 2016 and $6,955,2282019, $12,127,000 for the year ended December 31, 2015. As of December 31, 2016, we had a stockholders’ deficit of $3,468,223.We had a stockholders’ deficit of $3,995,900 as of June 30, 20172018 and utilized $794,754 of cash$1,946,000 for the period then ended.three months ended March 31, 2020. We will needmay continue to raise additional working capital to continue our normalincur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications, and planned operations. We will need to generatedelays, 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. other unknown events.

We anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake increased technology and production efforts to support our business and increase our marketing and sales efforts to drive an increase in the number of customers and clients utilizing our services. In addition, since we became a public company in 2014, we have been incurring significantly increased accounting, legal and other expenses that we were incurring as a private company. These expenditures willmay make it necessary for us to continue to raise additional working capital and make it harder for usmore difficult to achieve and maintain profitability. OurIn addition, our efforts to grow our business may be costliermore expensive than we expect, and we may not be able to generate sufficient revenue to offset our increased operating expenses. If we are forced to reduce our operating expenses, our growth strategy could be compromised. WeTo offset these anticipated increased 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 incur significant losses in the future for a numbernot be able to maintain or increase our level of reasons, including unforeseen expenses, difficulties, complications and delays and other unknown events. profitability.

Accordingly, substantial doubt exists about our ability to continue as a going concern and we cannot assure you that we will achieve sustainable operating profits as we continue to expand our infrastructure, 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.

Our independent registered public accounting firm’s reports for the fiscal years ended December 31, 2019 and 2018 have raised substantial doubt as to our ability to continue as a “going concern.”

 

Our independent auditors haveregistered public accounting firm indicated in theirits report on our December 31, 2016audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 that there is substantial doubt about our ability to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of liquidation. The presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.

There is 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. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

We have identified material weaknesses in our internal control over financial reporting which have, and in the future could, if not remediated, result in material misstatements in our financial statements.

Our management is responsible for establishing and maintaining adequate internal controls over our financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, or Exchange Act. As disclosed in Item 9A of Part II of our Annual Report filed with the SEC on May 14, 2020, we identified two material weaknesses in our internal control over financial reporting related to inadequate segregation of duties and effective risk assessment and to insufficient staffing resources in connection with our financial statement closing processes. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of the last day of the period covered by this report.

We are actively engaged in developing a remediation plan designed to address these material weaknesses. We have taken, and continue to take, the actions discussed in this report to remediate the identified material weaknesses. As we continue to evaluate and work to improve our internal controls over financial reporting, our senior management may determine to take additional measures to address control deficiencies or modify the remediation efforts described in this report. While the Audit Committee and senior management are closely monitoring the implementation, until the remediation efforts discussed in this report, including any additional remediation efforts that our senior management identifies as necessary, are completed, tested, and determined effective, the material weaknesses described in this report could continue to exist. If in the future, the measures are insufficient to address the material weaknesses or if additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future, the consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect our business and results of operations or financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the weaknesses or deficiencies, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investor confidence.

9

 

The recent outbreak of COVID-19 may have a significant negative impact on our business, sales, results of operations and financial condition.

The global outbreak of COVID-19 has led to severe disruptions in general economic activities, as businesses and federal, state, and local governments take increasingly broad actions to mitigate this public health crisis. We have experienced disruption to our business, both in terms of disruption of our operations and the adverse effect on overall economic conditions. These conditions will significantly negatively impact all aspects of our business. Our business is dependent on the continued health and productivity of our employees, including our software engineers, sales staff and corporate management team. Individually and collectively, the consequences of the COVID-19 outbreak could have a material adverse effect on our business, sales, results of operations and financial condition.

Additionally, our liquidity could be negatively impacted if these conditions continue for a significant period of time and we may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial obligations. Currently, capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the continued impact of the crisis, further actions may be required to improve our cash position and capital structure.

The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.

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.

 

The abilityWe have limited capital resources. To date, we have financed our operations entirely through equity investments by founders and other investors and the incurrence of our businessdebt, and we expect to continue itsto 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 grow and compete in our industry will depend on the availability of adequate capital. We cannot assure you that we will be able to obtain equity or debt financing on acceptable terms, or at all, to continue our normal and planned operations and to implement our growth strategy. As a result, we cannot assure you that adequate capital will be available to continue our normal and planned operations and to finance our current growth plans, take advantage of business opportunities, or respond to competitive pressures, any of which could harm our business.

We will need substantial additional funding to continue our operations, which could result in dilution to our stockholders. We may not be able to raise capital when needed, if at all, which could cause us to have insufficient funds to pursue our operations, or to delay, reduce or eliminate our development of new programs or commercialization efforts.

We expect to incur additional costs associated with continuing to operate as a public company and to require substantial additional funding to continue to pursue our business and continue with our expansion plans. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we expect that we will need to obtain substantial additional funding in order to continue our operations. To date, we have financed our operations entirely through equity and debt investments by founders and other investors and the incurrence of debt, and we expect to continue to do so in the foreseeable future. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale and issuance of equity, or securities convertible into equity, it would result in dilution to our existingthen-existing stockholders, which could be significant depending on the price at which we may be able to sell and issue our securities. If we raise additional capital through the incurrence of additional indebtedness, we would likely become subject to further covenants that could restricting our business activities, and holders of debt instruments will likelymay have rights and privileges senior to those of our equity investors.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 acceptableattractive terms, we could be forced to delay, reduce, or eliminate development of new programs or future marketing efforts.efforts, or reduce or discontinue our operations. Any of these events could significantly harm our business, financial condition, and prospects.

The success of our business is dependent upon our ability to maintain and expand our customer base and our ability to convince our customers to increase the use of our services and/or platform. If we are unable to expand our customer base and/or the use of our services and/or platform by our customers declines, our business will be harmed.

Our ability to expand and generate revenue depends, in part, on our ability to maintain and expand our relationships with existing customers and convince them to increase their use of our platform. If our customers do not increase their use of our platform, then our revenue may not grow and our results of operations may be harmed. It is difficult to predict customers’ usage levels accurately and the loss of customers or reductions in their usage levels may have a negative impact on our business, results of operations, and financial condition. If a significant number of customers cease using, or reduce their usage of, our platform, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue. These additional expenditures could adversely affect our business, results of operations, and financial condition. Most of our customers do not have long-term contractual financial commitments to us and, therefore, most of our customers could reduce or cease their use of our platform at any time without penalty or termination charges.

The market in which we operate is intensely competitive and, if we do not compete effectively, our operating results could be harmed.

The market for CRM applications is intensely competitive and rapidly changing, barriers to entry are relatively low, and many of our competitors, including Salesforce.com, Microsoft, Oracle, SAP SE, and Adobe, which collectively account for approximately 41% of industry sales1, 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, or customer requirements. 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 marketing and CRM platforms, such as Oracle NetSuite and Adobe Market, to incorporate and integrate our interactive video technology 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.

1 Forbes.com [https://www.forbes.com/sites/louiscolumbus/2019/06/22/salesforce-now-has-over-19-of-the-crm-market/#7014e4a333a5]

We may not be able to develop enhancements and new features to our existing service or acceptable new services that keep pace with technological developments.

If we are unable to develop enhancements to, and new features for, our sales enablement applications that keep pace with rapid technological developments, such as verbLIVE which we plan to introduce during the summer of 2020, 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, and thatproprietary 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. DespiteAs such, we are subject to 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, in the European Union and elsewhere, including, but not limited to, the General Data Protection Regulation, which we refer to as GDPR, and the California Consumer Privacy Act of 2018, 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 measures,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. Any such breach could compromise our networks and the information stored thereWe also could be accessed, publicly disclosed, lostnegatively impacted by software bugs or stolen.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, or 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.

 

Our business is highly competitivesuccess depends, in part, on the capacity, reliability, and any failure to adapt to changing consumer preferences may adversely affectsecurity of our businessinformation technology hardware and financial results.

We operate in a highly competitive, consumer-driven and rapidly changing environment. Our success will, to a large extent, be dependent onsoftware infrastructure, as well as our ability to acquire, develop, adopt, upgradeadapt and exploit new and existing technologies to address consumers’ changing demands and distinguishexpand our services from those of our competitors. We may not be able to accurately predict technological trends or the success of new products and services. If we choose technologies or equipment that are less effective, cost-efficient or attractive to our customers than those chosen by our competitors, or if we offer services that fail to appeal to consumers, are not available at competitive prices or that do not function as expected, our competitive position could deteriorate, and our business and financial results could suffer. The ability of our competitors to introduce new technologies, products and services more quickly than we do may adversely affect our competitive position. Furthermore, advances in technology, decreases in the cost of existing technologies or changes in competitors’ product and service offerings may require us in the future to incur additional research and development expenditures or to offer products and services at no additional charge or at a lower price. In addition, the uncertainty of our ability, and the costs to obtain intellectual property rights from third parties could impact our ability to respond to technological advances in a timely and effective manner.

We expect that the success of our business will be highly correlated to general economic conditions.infrastructure.

We expect that demand for our products and services will be highly correlated with general economic conditions, as we expect a substantial portion of our revenue will be derived from discretionary spending by individuals, which typically falls during times of economic instability. Declines in economic conditions in the United States or in other countries in which we may operate may adversely impact our financial results. Because such declines in demand are difficult to predict, we or the 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.

Legal challenges to our intellectual property rights could adversely affect our financial results and operations.

We rely on licenses and other agreements with our vendors and other parties and other intellectual property rights to conduct our operations. Legal challenges to our intellectual property rights and claims of intellectual property infringement by third parties could require that we enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question or from the continuation of our businesses as currently conducted. We may need to change our business practices if any of these events occur, which may limit our ability to compete effectively and could have an adverse effect on our results of operations. Even if we believe any such challenges or claims are without merit, they can be time-consuming and costly to defend and divert management’s attention and resources away from our business.

 

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, which could includeincluding 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 or no 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.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.

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. Without these developers, we may not be able to further develop and maintain our software, which is the most important aspect of our business development.

The success of our business is highly correlated to general economic conditions.

Demand for our products and services is highly correlated with general economic conditions, as a substantial portion of our revenue is derived from discretionary spending by individuals, which typically declines during times of economic instability. Declines in economic conditions in the United States or in other countries in which we operate, including declines as a result of the COVID-19 pandemic, and may operate in the future may adversely impact our financial results. Because such declines in demand are difficult to predict, we or our industry may have increased excess capacity as a result. An increase in excess capacity may result in declines in prices for our products and services. Our ability to grow or maintain our business may be adversely affected by sustained economic weakness and uncertainty, including the effect of wavering consumer confidence, high unemployment, and other factors. The inability to grow or maintain our business would adversely affect our business, financial conditions, and results of operations, and thereby an investment in our common stock.

 

Our business may be affected by changing consumer preferencesfailure to 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 failure of the public to accept any new product offerings we may pursue.us, could have a material adverse effect.

 

The productionWe regard the protection of our intellectual property, which includes patents, trade secrets, copyrights, trademarks and distributiondomain 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, entertainmentour proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.

We have two patents related to our system for providing access to, storing and distributing content, is an inherently risky business becauseand we recently filed a provisional patent application with the revenueU.S. Patent and Trademark Office, or PTO, with respect to our interactive video technology. Our provisional patent application may not result in the issuance of a patent, or certain claims may be rejected or may need to be narrowed, which may limit the protection we are attempting to obtain. In addition, our existing patents and any future patents that may be derived depends primarilyissued to us, may not protect commercially important aspects of our technology. Furthermore, the validity and enforceability of our patents may be challenged by third parties, which may result in our patents being invalidated or modified by the PTO, various legal actions against us, the need to develop or obtain alternative technology, and/or obtain appropriate licenses under third party patents, which may not be available on acceptable terms or at all.

We have registered domain names and trademarks in the public’s acceptance of the content, which is difficult to predict. ConsumerUnited States and audience tastes change frequently and it is a challenge to anticipate what offerings, if any, will be successful at a certain point in time. In addition, competing entertainment content, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, piracy and increasing digital and on-demand distribution offerings may also affectpursue additional registrations both in and outside the audience forUnited 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 content. Our expensesrights. We may increase as we investbe required to protect our intellectual property in new programming ideas,an increasing number of jurisdictions, a process that is expensive and there is no guarantee that the new programming willmay not be successful or generate sufficient revenuewhich we may not pursue in every location.

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to recoupprotect 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 expenditures.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.

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 President and Chief Executive Officer 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.

 8

Risks Related to Ownershipan Investment in Our Securities

Raising additional capital, including through future sales and issuances of our Commoncommon stock, or 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 Preferred Stockcould restrict our operations.

We expect that significant additional capital will be needed 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 8,000,000 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 boardissuance of directors is authorized to issue additional shares of preferred stock could adversely affect the market value of our common stock, that would dilute existing stockholders.the voting power of common stockholders and delay or prevent a change of control.

 

We are currently authorized to issue up to 200,000,000 shares of common stock and 15,000,000 shares of preferred stock, of which112,735,353 shares of common stock and 346,500 shares of preferred stock are currently issued and outstanding as of September 30, 2017. We expect to seek additional financing in order to provide working capital to our business. Our board of directors has the powerauthority to cause us to issue, without any further vote or allaction by the stockholders, up to an additional 14,994,000 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 authorized but unissuedseries. As of June 29, 2020, we had 3,246 shares at any price it considers sufficient, without stockholder approval. of preferred stock outstanding that are convertible into 2,094,197 shares of common stock.

The issuance of additional 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 future will reducecommon stock less attractive. For example, investors in the proportionate ownership andcommon 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 then current stockholders.

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.

Trading on the OTC Bulletin Board and the OTCQB may be volatile and sporadic, which could depress theThe market price of our common stock and make it difficultthe value of your investment could substantially decline if shares of our Series A Preferred Stock are converted into shares of our common stock and if our options and warrants are exercised for shares of our stockholders to resell their shares.common stock and all of these shares of common stock are resold into the market, or if a perception exists that a substantial number of shares of common stock will be issued upon conversion of our Series A Preferred Stock or upon exercise of our warrants or options and then resold into the market.

 

OurSales of a substantial number of shares of common stock is quoted onissued upon conversion of our Series A Preferred Stock and upon exercise of our warrants and options, or even the Over the Counter Bulletin Board (an interdealer quotation systemperception that is used by subscribing FINRA members)and on the OTCQB operated by the OTC Markets Group, Inc. Trading in stock quoted on these markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatilitysales could depressoccur, could adversely affect the market price of our common stock. As a result, you could experience a substantial decline in the value of your investment as a result of both the actual and potential conversion of our outstanding shares of Series A Preferred Stock and exercise of our outstanding warrants or options.

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;
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 virus) 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 reasonsthe securities of many companies, and which often have appeared unrelated to ourthe operating performance. Moreover, the neitherperformance of such companies. Any of these markets is a “stock exchange,”factors could negatively affect our stockholders’ ability to sell their shares of common stock at the time and trading of securities on these markets is often more sporadic than the trading of securities listed on a national securities exchange like The NASDAQ Stock Market or the NYSE American. Accordingly, stockholders may have difficulty reselling any of our shares owned by them.

price they desire.

A decline in the price of our common stock could affect our ability to raise further working capital, it maywhich could adversely impact our ability to continue operations and we may go out of business.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. Because weWe may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale and issuance of equity securities,securities; thus, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to chooseadversely affect investors’ desire to invest in our stock.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 we 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 not be successful and we may go out of business.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 and issuance of our common stock and we may be forced to go out of business.reduce or discontinue operations.

 

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 weour board of directors determines to pay dividends, our stockholders will not be ablerequired to receive a return on their shareslook to appreciation of our common stock unless they sell them.

If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and haverealize a negative effectgain on the market price for shares of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports and to prevent fraud effectively. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonabletheir investment. There can be no assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

As a public company, we have significant requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of theSarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and economic and regulatory environments, and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

We cannot assure you that wethis appreciation will in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

The market price of shares of our common stock may be volatile.

The market price of our common stock may be highly volatile. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate, or sales of shares of our common stock. These factors may materially adversely affect the market price of shares of our common stock, regardless of our performance. In addition, public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of shares of our common stock.occur.

 

Because our directors and executive officers are among our largest stockholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from those of investors.

 

Certain of our executive officers and directors own a significant percentage of shares of our outstanding capital stock. As of the date of this prospectus,Annual Report, we estimate that our executive officers and directors and their respective affiliates beneficially own over 40%approximately 17.1% of our outstanding voting stock.stock as of June 29, 2020. The holdings of our directors and executive officers may increase further in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted, or if they otherwise acquire additional shares of our common stock. The interests of such persons may differ from the interests of our other stockholders. As a result, in addition to their board seats and offices, such persons will have significant influence and control over all corporate actions requiring stockholder approval, irrespective of how our company’s other stockholders may vote, including the following actions:

 

 to elect or defeat the election of our directors;
   
 to amend or prevent amendment ofto our articles of incorporation or by-laws;bylaws;
   
 to effect or prevent a merger, sale of assets or other corporate transaction; and
   
 to control the outcome of any other matter submitted to our stockholders for a vote.

 

This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover, or other business consolidation, or discouraging a potential acquirer from making a tender offer for our common stock, which in turn could reduce the price of the shares of our common stock price or prevent our stockholders from realizing a premium over the price of our common stock.

stock price.

PennyOur common stock rules will limit the ability of our stockholdershas been categorized as “penny stock,” which may make it more difficult for investors to sell their stock.shares of common stock due to suitability requirements.

 

The Securities and Exchange CommissionSEC has adopted regulations thatwhich 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 Securities and Exchange CommissionSEC 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., or FINRA, has adopted sales practice requirements that historically may also limithave 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, 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 makehistorically has made it more difficult for broker-dealers to recommend that their customers buy our common stock, which maycould limit your ability to buy and sell our common stock, and have an adverse effect on the market for our shares.shares, and thereby depress our price per share of common stock.

 11

Trends, RisksThe elimination of monetary liability against our directors, officers, and Uncertaintiesemployees 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 soughtcontractual indemnification obligations under any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to identify whatcover the cost of settlement or damage awards against directors and officers, which we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guaranteeunable 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.

Our ability to attract and retain qualified members of our board of directors may be impacted due to new state laws, including recently enacted gender quotas.

In September 2018, California enacted SB 826 requiring public companies headquartered in California to maintain minimum female representation on their boards of directors as follows: by the end of 2019, at least one woman on its board, by the end of 2021, public company boards with five members will be required to have at least two female directors, and public company boards with six or more members will be required to have at least three female directors. Failure to achieve designated minimum levels in a timely manner exposes such companies to costly financial penalties and reputational harm. We cannot assure that we have identified all possible riskscan recruit, attract and/or retain qualified members of the board and meet gender quotas as a result of the California law (should is not be repealed before the compliance deadlines), which may cause certain investors to divert their holdings in our stock and expose us to penalties and/or reputational harm.

Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us.

Nevada has a business combination law that might arise. Investors should carefully consider allprohibits 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 such risk factors before makingdirectors approves the combination in advance. For purposes of Nevada law, an investment decision with respect“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, or NRS, 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 of 1933, as amended, or 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.

Risks Related to this Offering

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of the shares offered in this offering at an assumed public offering price of $1.29 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of approximately $1.36 per share. See “Dilution” on page 26 of this prospectus for a more detailed discussion of the dilution you will incur if you purchase our common stock in the offering.

Management will have broad discretion as to the use of the proceeds from this offering and may not use the proceeds effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that may not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of our common stock to decline.

The offering price will be set by our board of directors and does not necessarily indicate the actual or market value of our common stock.

Our board of directors (or a committee thereof) will approve the offering price and other terms of this offering after considering, among other things: the number of shares authorized in our articles of incorporation; the current market price of our common stock; trading prices of our common stock over time; the volatility of our common stock; our current financial condition and the prospects for our future cash flows; the availability of and likely cost of capital of other potential sources of capital; and market and economic conditions at the time of the offering. The offering price is not intended to bear any relationship to the book value of our assets or our past operations, cash flows, losses, financial condition, net worth or any other established criteria used to value securities. The offering price may not be indicative of the fair value of the common stock.

Future sales of a significant number of our shares of common stock in the public markets, or the perception that such sales could occur, could depress the market price of our shares of our common stock or cause our stock price to decline.

Sales of a substantial number of our shares of common stock in the public markets, or the perception that such sales could occur, including from the exercise of our warrants, the conversion of any of our convertible preferred stock or sales of common stock issuable upon such exercise or conversion, could cause the market price of our shares of common stock to decline and impair our ability to raise capital through the sale of additional equity securities. A substantial number of shares of common stock are being offered by this prospectus. We cannot predict the number of these shares that might be sold nor the effect that future sales of our shares of common stock, including shares issuable upon the exercise of our warrants or the conversion of our convertible preferred stock, would have on the market price of our shares of common stock.

We do not currently intend to pay dividends on our common stock, and any return to investors is expected to come, if at all, only from potential increases in the price of our common stock.

At the present time, we intend to use available funds to finance our operations. Accordingly, while payment of dividends rests within the discretion of our board of directors, we have no intention of paying any such dividends in the foreseeable future. Any return to investors is expected to come, if at all, only from potential increases in the price of our common stock.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

The information containedThis prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus includesregarding our strategy, future events, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, among others, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “would,” “will,” “should,” “could,” “objective,” “target,” “ongoing,” “contemplate,” “potential” or “continue” or the negative of these terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are often identified by words such as “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. Theseinclude, without limitation, statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed for the reasons described in this prospectus. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors. You should not place undue reliance on these forward-looking statements.

You should also consider carefully the statements under “Risk Factors” and other sections of this prospectus, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by Kodiak. We will not receive any proceeds upon the sale of shares by Kodiak in this offering. However, we may receive gross proceeds of up to $2 million under the Purchase Agreement with Kodiak assuming that we sell and issue the full amount of our common stock that we have the right, but not the obligation, to sell and issue to Kodiak under the Purchase Agreement. See “Plan of Distribution” elsewhere in this prospectus for more information.

The principal purposes of this offering are to increase our capitalization and financial flexibility. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from the Purchase Agreement. However, we currently intend to use the net proceeds primarily for general corporate purposes, including working capital, research and development, sales and marketing activities and capital expenditures and, if and as required, the redemption of some or all of our outstanding shares of Series A Preferred Stock for a maximum of $395,000. We may also use a portion of those net proceeds for the acquisition of, or investment in, technologies or businesses that complement our business, although we have no commitments or agreements to enter into any such acquisitions or investments. We will have broad discretion over the uses of those net proceeds. Pending these uses, we intend to invest those net proceeds in short-term, investment-grade money market funds.

Even if we sell and issue $2 million worth of shares of our common stock to Kodiak pursuant to the Purchase Agreement, we will need to obtain additional financing in the future in order to fully fund all of our planned research and development activities. We may seek additional capital in the private and/or public equity markets, pursue business development activities to continue our operations, respond to competitive pressures, develop new products and services, and to support new strategic partnerships. We are evaluating additional equity financing opportunities on an ongoing basis and may execute them, when appropriate. However, there can be no assurances that we can consummate any such a transactions, or consummate any transactions at favorable pricing or acceptable timing.

DIVIDEND POLICY

We have never declared or paid dividends on our common stock. 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.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock has been quoted on the OTCQB market under the symbol “FUSZ” since April 21, 2017. From November 21, 2014 through April 20, 2017 our common stock was quoted on the OTCQB market under the symbol BBTH. The following table sets forth for the periods indicated, the high and low sales prices per share of our common stock as reported by the OTC Markets.

  Price Range 
Period High  Low 
Year Ended December 31, 2015:        
First Quarter $1.99  $1.30 
Second Quarter $1.30  $1.30 
Third Quarter $3.00  $1.30 
Fourth Quarter $2.00  $0.0375 
Year Ended December 31, 2016:        
First Quarter $0.10  $0.025 
Second Quarter $0.18  $0.05 
Third Quarter $0.199  $0.25 
Fourth Quarter $0.1689  $0.05 
Year Ending December 31, 2017:        
First Quarter $0.16  $0.0716 
Second Quarter $0.51  $0.09 
Third Quarter (through September 30, 2017) $0.23  $0.07 

On October 11, 2017, the last reported price of our common stock quoted on the OTCQB market was $0.10 per share. The OTCQB market prices set forth above represent inter-dealer quotations, without adjustment for retail mark-up, mark-down or commission, and may not represent the prices of actual transactions.

Transfer Agent

The transfer agent and registrar for our common stock is Action Stock Transfer Corporation.

Holders of Common Stock

As of September 30, 2017, there were 90 holders of record of our common stock. As of such date, 112,735,353 shares of our common stock were issued and outstanding.

Equity Compensation Plan Information

The following table summarizes certain information regarding our equity compensation plans as of December 31, 2016:

Plan category Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights  
(a)
  Weighted-
average exercise
price of
outstanding
options, warrants
and rights
 (b)
  Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
 (c)
 
Equity compensation plans approved by security holders  Nil   N/A   Nil 
Equity compensation plans not approved by security holders  7,656,250  $0.66   4,343,750 
Total  7,656,250  $0.66   4,343,750 

Effective October 16, 2014, our board of directors adopted and approved our 2014 Stock Option Plan. The purpose of the plan is to (a) enable our Company and any of our affiliates to attract and retain the types of employees, consultants and directors who will contribute to our Company’s long-range success; (b) provide incentives that align the interests of employees, consultants and directors with those of the stockholders of our company; and (c) promote the success of our Company’s business.

The Plan provides for the grant of incentive stock options to purchase shares of our common stock to our directors, officers, employees and consultants. The Plan is administered by our board of directors, except that it may, in its discretion, delegate such responsibility to a committee comprised of at least two directors. A maximum of 12,000,000 shares were reserved and set aside for issuance under the Plan. Each option, upon its exercise, entitles the optionee to acquire one share of our common stock, upon payment of the applicable exercise price, which is determined by our board at the time of grant. Stock options may be granted under the Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by our board, subject to earlier termination in accordance with the terms of the Plan.

Vesting terms are determined by our board of directors at the time of grant, provided that, if no vesting schedule is specified at the time of grant, 25% of the options granted will vest on first anniversary of the date of grant, and 25% of such options will vest each year thereafter, until fully vested. Options that have vested will terminate, to the extent not previously exercised, upon the occurrence of the first of the following events: (i) the expiration of the options; (ii) the date of an optionee’s termination of employment or contractual relationship with our company for cause (as determined in the sole discretion of the plan administrator; (iii) the expiration of three months from the date of an optionee’s termination of employment or contractual relationship with our Company for any reason whatsoever other than cause, death or disability (as defined in the plan); or (iv) the expiration of one year from termination of an optionee’s employment or contractual relationship by reason of death or disability.

DILUTION

Investors who purchase shares of our common stock will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma, as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share is determined by dividing our total tangible assets less total liabilities by the number of outstanding shares of our common stock. As of June 30, 2017, we had a negative net tangible book value of $3,995,900, or approximately $(0.04) per share of common stock.

Dilution in net tangible book value per share represents the difference between the assumed offering price per share of common stock of $0.08 (80% of $0.10, the closing price of our common stock on October 11, 2017). The following table illustrates this per share dilution:

Assumed offering price per share of common stock     $0.08 
Net tangible book value per share as of June 30, 2017 $(0.04)    
Increase in as adjusted net tangible book value per share attributable to the sale and issuance of shares of common stock under the Purchase Agreement  0.02     
Pro Forma net tangible book value per share of common stock after the sale and issuance of shares under the Purchase Agreement      (0.02)
Dilution per share of common stock to existing stockholders     $(0.02)

To the extent that we sell and issue less than $2 million worth of shares under the Purchase Agreement, or to the extent that some or all sales and issuances are made at prices lower than or in excess of the assumed price per share of $0.08, then the dilution reflected in the table above will differ. The above table is based on 105,072,899 shares of our common stock outstanding as of June 30, 2017, adjusted for (1) the assumed sale and issuance of $2 million in shares of our common stock to Kodiak under the Purchase Agreement at the assumed purchase price described above and after deducting estimated offering expenses payable by us, (2) 4,479,435 shares issued for services, (3) 2,368,824 shares for conversion of Series A Preferred Stock into our common shares of stock, (4) 564,195 shares for conversion of debt, and (5) 250,000 shares issued for stock subscription.

To the extent that we sell and issue additional shares of our common stock in the future, there may be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

The number of shares of our common stock reflected in the discussion and calculations for the figures appearing in the table above is based on 112,735,353 shares of our common stock outstanding as of September 30, 2017 and excludes, as of that date:about:

 

 Up to 21,815,456 shares of our common stock issuable upon exercise of outstanding warrants asthe effects and consequences of the date of this prospectus with a weighted average exercise of $0.13 per share;novel coronavirus (COVID-19) public health crisis;
   
 Upour ability to 22,430,953 sharestimely implement our strategic initiatives and raise sufficient capital on suitable terms;
our ability to compete effectively;
our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, and our common stock issuable upon exerciseability to achieve and maintain future profitability;
our expectations regarding outstanding litigation;
our expectations and management of outstanding stock options asfuture growth;
our beliefs regarding our liquidity and sufficiency of the date of this prospectus with a weighted average exercise price of $0.26 per share;cash to fund our operations; and
   
 Up to 15,995,260 sharesthe other matters described in “Risk Factors,” “Management’s Discussion and Analysis of common stock issuable upon exerciseFinancial Condition and Results of conversion rights associated with outstanding promissory notes as of the date of this prospectus with a weighted average conversion price of $0.08 per share;Operations,” and
Excludes any common stock issuable under the redemption rights of the outstanding convertible preferred shares issued to RedDiamond Partners LLC. “Business.”

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward-Looking Statements

This prospectus contains “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, butWe may not limited to, any projections of earnings, revenue or other financial items; any statements ofactually achieve the plans, strategies and objections of management for future operations; any statements concerning proposed new services, productsintentions or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. Theseexpectations disclosed in our forward-looking statements, representand you should not place undue reliance on our estimatesforward-looking statements. Actual results or events could differ materially from the plans, intentions and assumptionsexpectations disclosed in our forward-looking statements. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section beginning on page 8 of this prospectus, which could cause actual results or events to differ materially from such forward-looking statements. Any forward-looking statement speaks only as of the date of this prospectus. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except as required by applicable law,it is made, and we do not undertake noany obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future changes make it clear that any projected results or events expressed or implied therein will not be realized. You are advised, however, to consult any further disclosures we make in future public filings, statements and press releases.except as required by law.

USE OF PROCEEDS

 

Forward-looking statementsWe estimate that the net proceeds from this offering will be approximately $8.9 million, based on an assumed offering price of $1.29 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter exercises its over-allotment option in full, we estimate that our net proceeds will be approximately $10.3 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Our expected use of the net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, include expresswe cannot predict with certainty all of the particular uses for the net proceeds to be received upon completion of this offering, or implied statements concerning our future revenues, expenditures, capital and funding requirements; the adequacyamounts that we will actually spend on the uses set forth above. However, we currently intend to use the net proceeds to us from this offering primarily for broad-based market awareness of our current cashexisting and forthcoming products, including verbLIVE, and for general corporate purposes, including working capital, research and development, and capital expenditures. Pending the uses described above, we intend to fund presentinvest the net proceeds from this offering in short term, interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, or direct or guaranteed obligations of the U.S. government.

The amounts and planned operations and financing needs; our proposed expansion of, and demand for, product offerings; the growthtiming of our business and operations through acquisitions or otherwise; and future economic and other conditions both generally and inactual use of the net proceeds will vary depending on numerous factors, including our specific geographic and product markets. These statements are based on currently available operating, financial and competitive information and are subjectability to various risks, uncertainties and assumptions that could cause actual resultsgain access to differ materially from those anticipated or impliedadditional financing. As a result, our management will have broad discretion in the forward-looking statements dueapplication of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue certain development activities if the net proceeds from this offering and any other sources of cash are less than expected.

MARKET INFORMATION

Our common stock is listed on The Nasdaq Capital Market under the symbol “VERB.” On July 6, 2020, the last reported sale price for our common stock on The Nasdaq Capital Market was $1.29 per share. As of July 6, 2020, we had approximately 172 stockholders of record.

DIVIDEND POLICY

We do not expect to pay any cash dividends to our stockholders in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors and will depend on a number of factors, including but not limited to, those set forth below in the section entitled “Risk Factors” in this prospectus, which you should carefully read. Given those risks, uncertaintiesour results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law, and other factors manyour board of whichdirectors deems relevant.

We cannot, without the affirmative vote of the holders of a majority of the then-outstanding shares of Series A Preferred Stock authorize or create any class of stock ranking as to dividends, redemption, or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Series A Preferred Stock. Moreover, as long as any shares of Series A Preferred Stock are beyondoutstanding, unless the holders of at least 75% in stated value of the then-outstanding shares of Series A Preferred Stock have otherwise given prior written consent, we cannot, directly or indirectly, pay cash dividends or distributions on our control, you should not place undue reliancecommon stock.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2020:

on an actual basis; and

on a pro forma as adjusted basis, giving effect to the sale of shares of common stock, at the assumed public offering price of $1.29 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on these forward-looking statements.the actual public offering price and other terms of this offering determined at pricing. You should be prepared to accept any and all ofread the risks associatedfollowing table in conjunction with purchasing any securities of our company,consolidated financial statements, including the possible lossrelated notes, and “Management’s Discussion and Analysis of allFinancial Condition and Results of your investment.Operations” appearing elsewhere in this prospectus.

 

  As of March 31, 2020 
  (unaudited) 
  Actual  Pro Forma
as Adjusted
 
Cash $1,615,000  $10,515,000 
Debt  1,177,000   1,177,000 
Stockholders’ equity:        
Preferred stock, $0.0001 par value, 15,000,000 shares authorized: Series A Convertible Preferred Stock, 6,000 shares authorized; 3,246 issued and outstanding as of March 31, 2020  -     
Common stock, $0.0001 par value, 200,000,000 shares authorized, 28,962,589 shares issued and outstanding as of March 31, 2020  3,000   4,000 
Additional paid-in capital  68,449,000   77,348,000 
Accumulated deficit  (58,531,000)  (58,531,000)
Total stockholders’ equity  9,921,000   18,821,000 
         
Total capitalization $11,098,000  $19,998,000 

In this prospectus, unless otherwise specified, all references to “common shares” refer to the

The foregoing table and calculations are based on 28,962,589 shares of our common stock outstanding as of March 31, 2020, and excludes:

4,417,108 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2020, with a weighted-average exercise price of $1.72 per share;
1,475,329 shares of common stock issuable under restricted stock awards as of March 31, 2020, with a weighted-average exercise price of $1.36 per share;
13,651,050 shares of common stock issuable upon exercise of warrants to purchase common stock outstanding as of March 31, 2020, with a weighted-average exercise price of $2.72 per share; and
2,094,197 shares of common stock issuable upon conversion of our Series A Preferred Stock.

DILUTION

If you invest in our shares of common stock, your interest in our common stock will be diluted immediately to the extent of the difference between the public offering price and the adjusted net tangible book value per share of our common stock after this offering. Net tangible book value on March 31, 2020, was approximately ($11.5) million, or ($0.40) per share. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share” is net tangible book value divided by the total number of shares outstanding.

After giving effect to the sale by us in this offering of 7,751,900 shares of common stock at an assumed public offering price of $1.29 per share (the closing price of our common stock as quoted on The Nasdaq Capital Market on July 6, 2020), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we will pay, our net tangible book value as of March 31, 2020 would have been approximately ($2.6) million, or ($0.07) per share of common stock. This amount represents an immediate increase in net tangible book value of $0.33 per share to existing stockholders and an immediate dilution of $1.36 per share to purchasers in this offering.

Assumed public offering price per share     $1.29 
Net tangible book value per share as of March 31, 2020 $(0.40)    
Increase in net tangible book value per share attributable to new investors in offering $0.33   
As adjusted net tangible book value per share after giving effect to the offering     $(0.07)
Dilution per share to new investors     $1.36 

The foregoing table and calculations are based on 28,962,589 shares of our common stock outstanding as of March 31, 2020, and excludes:

4,417,108 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2020, with a weighted-average exercise price of $1.72 per share;
1,475,329 shares of common stock issuable under restricted stock awards as of March 31, 2020, with a weighted-average exercise price of $1.36 per share;
13,651,050 shares of common stock issuable upon exercise of warrants to purchase common stock outstanding as of March 31, 2020, with a weighted-average exercise price of $2.72 per share; and
2,094,197 shares of common stock issuable upon conversion of our Series A Preferred Stock.

If the underwriter exercises its option to purchase additional shares in our capital stock.full, the net tangible book value per share after giving effect to the offering would be ($0.03) per share. This represents an increase in net tangible book value of $0.37 per share to existing stockholders and dilution in net tangible book value of $1.32 per share to investors purchasing shares in this offering.

 

The information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of shares that we offer in this offering, and other terms of this offering determined at pricing. In addition, the information discussed above assumes no exercise of the underwriter’s over-allotment option.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations are based onshould be read in conjunction with our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires usand notes to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements included elsewhere in this prospectus. This discussion contains forward-looking statements, reflecting our plans and objectives that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this prospectus.

Overview

We are a Software-as-a-Service, or SaaS, applications platform developer. Our platform is comprised of a suite of sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a fully integrated suite, as well as the reported revenueson a standalone basis, and expenses during the reporting periods. On an ongoing basis, we evaluate estimatesinclude verbCRM, our Customer Relationship Management application; verbLEARN, our Learning Management System application; and judgments, including those described in greater detail below. We baseverbLIVE, our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the resultsLive Broadcast Video Webinar application.

Our Technology

Our suite of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparentapplications can be distinguished from other sources. Actual results may differ fromsales enablement applications because our applications utilize our proprietary interactive video technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics capabilities of our applications inform our users in real time, on their devices, when and for how long their prospects have watched a video, how many times such prospects watched it, and what they clicked-on, which allows our users to focus their time and efforts on ‘hot leads’ or interested prospects rather than on those that have not seen such video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation. Our clients report that these estimates under different assumptions or conditions.capabilities provide for a much more efficient and effective sales process, resulting in increased sales conversion rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all of our platform applications.

 

The following discussion should be read together with the information contained in the unaudited condensed consolidated financial statements and related notes included in this prospectus.Our Products

 

OverviewverbCRM combines the capabilities of customer relationship management, or CRM, lead-generation, content management, and in-video e-commerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons, which when clicked, allow viewers to respond to the user’s call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, which are among many novel features and functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate, and takes little time and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email, text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any mobile or desktop device, including smart TVs. verbCRM is the primary source of subscription based SaaS recurring digital revenue.

verbLEARN is an interactive video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM application, however adapted for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about new products, or elicit feedback about existing products. It also incorporates Verb’s proprietary data collection and analytics capabilities that inform users in real time, when and for how long the viewers watched the video, how many times they watched it, and what they clicked-on. Because verbLEARN launched in the fourth quarter of 2019, it was not a significant source of subscription-based SaaS recurring digital revenue.

 

verbLIVE builds on popular video-based platforms such as Facebook Live, Zoom, WebEx, and Go2Meeting, among others, by adding Verb’s proprietary interactive in-video ecommerce capabilities – including an in-video Shopify shopping cart integrated for Shopify account holders - to our own live stream video broadcasting application. verbLIVE is a next-generation webinar platform that allows webinar hosts to utilize a variety of novel sales-driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the host with real-time viewer engagement data and interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download software, and is secured through end-to-end encryption. verbLIVE is currently in pre-sales, accepting customer deposits, and is expected to launch commercially in summer 2020.

The Verb In-App Eco-System

To more effectively and efficiently monetize our current large user base, we have developed and have begun to deploy in-app purchase capabilities for all verbCRM users. This feature is currently being distributed and deployed as an automatic software update to enterprise client users whose monthly subscription fees and use of the application are paid by their corporate employer, sponsor, or principal. The in-app purchase capability will allow these users to pay for subscriptions directly in the app with their own credit card in order to access upgraded or unlocked verbCRM features and additional functionality within the app.

In addition, these users will have in-app access to our forthcoming “app store” where users can subscribe for third-party apps that are complimentary to verbCRM user demographics, such as specialized expense tracking applications, tax software, among other third-party apps offered directly to our user base on a revenue share basis with the third-party developers. In addition, we are expecting to introduce during 2020 an “Open API” architecture, allowing third-party developers to create specialized apps with features and functionality that integrate seamlessly into our verbCRM application. These will be offered directly to our user base through our verbCRM app store on a revenue-sharing basis.

Verb Partnerships and Integrations

We have developed proprietary interactive video technology which servescompleted the integration of verbCRM into systems offered by 17 of the most popular direct sales back-office system providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, and Party Plan. Direct sales back-office systems provide many of the basissupport functions required for certain productsdirect sales operations, including payroll, customer genealogy management, statistics, rankings, and services that weofferunder the brand name “notifi”. Our notifiCRM, notifiADS, notifiLINKS, and notifiWEB products are cloud-based, SaaS, CRM,earnings, among other direct sales lead generation, advertising and social engagement software, accessible on mobile and desktop platforms, that we license to individual consumers, sales-based organizations, consumer brands, marketing and advertising agencies,financial tracking capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as artistsenhanced data analytics and social influencers. Our notifiCRM platform is an enterprise scalable customer relationship management programreporting capabilities for all users. We believe that incorporates proprietary, interactive audio/video messagingour integration into these back-end platforms accelerates the adoption of verbCRM by large direct sales enterprises that rely on these systems and interactive on-screen “virtual salesperson” communications technology. Our notifiTVas such, we believe this represents a competitive advantage.

We are also in various stages of development, testing and notifiLIVE products are partdeployment for the integration of our proprietarylatest generation interactive video platform allowing viewersand enhanced analytics and reporting technology, and more recently, a core package that includes verbLIVE, into popular CRM providers, including Salesforce, Microsoft, Oracle/NetSuite, and Adobe/Marketo, among others with whom we have executed partnership agreements. Each of these agreements provides for revenue share arrangements resulting from sales of our product to interacttheir respective clients. The integrations for Salesforce and Microsoft represent new build integrations, while those for Oracle/NetSuite and Adobe/Marketo represent replacement integrations. We have intentionally, though temporarily, delayed further action on and deployment of these integrations in order to allocate design, engineering and development resources to those initiatives that we believe will become revenue producing opportunities sooner, especially those that we believe will likely produce greater market demand due to the current and anticipated continued effects of the COVID-19 pandemic. We expect to resume action on and deployment of these integrations in the summer of 2020.

Non-Digital Products and Services

Historically, we have also provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events. We also managed the fulfillment of our clients’ product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects.

However, on May 20, 2020, we executed a contract with pre-recordedRange Printing, a company in the business of providing enterprise class printing, sample assembly, warehousing, packaging, shipping, and fulfillment services. Pursuant to the contract, through an automated process we have established for this purpose, Range will receive orders for samples and merchandise from us as and when we receive them from our clients and users, and print, assemble, store, package and ship such samples and merchandise on our behalf. The Range contract provides for a revenue share arrangement based upon the specific services to be provided by Range that is designed to maintain our relationship with our clients by continuing to service their non-digital needs, while eliminating the labor and overhead costs associated with the provision of such services by us. The transition to Range Printing is in progress.

Our Market

Our client base consists primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products. Our clients also include large professional associations, educational institutions, including school districts, auto sales, auto leasing, insurance, real estate, home security, not-for-profits, as well as live broadcast video content by clicking on links we embed in people, objects, graphics or sponsors’ signage displayed on the screen. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices availableclients in the market today withouthealth care industry, and the needburgeoning CBD industry, among other business sectors. Currently, we provide subscription-based application services to download special software or proprietary video players.approximately 100 enterprise clients for use in over 60 countries, in over 48 languages, which collectively account for a user base generated through more than 1.3 million downloads of our verbCRM application. Among the new business sectors targeted for this year are pharmaceutical sales, government institutions, and political parties and candidates.

29

Revenue Generation

We generate revenue from the following sources:

recurring subscription fees paid by enterprise users and affiliates;
recurring subscription fees paid by non-enterprise, small business, and individual users;
recurring subscription fees paid by users who access in-app purchases of various premium services, features, functionality, and upgrades;
recurring subscription fees paid by users who access in-app purchases of third-party software provider apps in our forthcoming app store;
recurring subscription fees paid by users of Salesforce, Microsoft, Oracle/NetSuite, and Adobe/Marketo, among others with whom we have executed partnership agreements, for access to our applications that we intend to integrate into these platforms, including recurring subscription fees paid by users who subscribe to bundled service offerings from these partners and/or their respective value-added resellers;
recurring subscription fees paid by users for all of the foregoing products and services generated through our recently launched Japan operations;
recurring subscription fees paid by users generated through our forthcoming reseller and affiliate distribution programs; and
fees paid by enterprise clients for non-digital products and services through our Range Printing venture.

Results of Operations

 

Three Months Ended March 31, 2020 as Compared to the Three Months Ended March 31, 2019

The following is a comparison of our results of operations for the three months ended March 31, 2020 and 2019:

  Three Months Ended
March 31, 2020
  Three Months Ended
March 31, 2019
  Change 
   (unaudited)   (unaudited)     
Revenue            
SaaS recurring subscription revenue $1,057,000  $9,000  $1,048,000 
Other digital revenue  400,000   -   400,000 
Welcome kits and fulfillment  728,000   -   728,000 
Shipping  169,000   -   169,000 
Total revenue  2,354,000   9,000   2,345,000 
             
Cost of revenue            
Digital  230,000   30,000   200,000 
Welcome kits and fulfillment  676,000   -   676,000 
Shipping  157,000   -   157,000 
Total cost of revenue  1,063,000   30,000   1,033,000 
             
Gross margin  1,291,000   (21,000)  1,312,000 
             
Operating expenses:            
Research and development  1,274,000   564,000   710,000 
Depreciation and amortization  363,000   564,000   359,000 
General and administrative  3,514,000   4,000   1,329,000 
Total operating expenses  5,151,000   2,753,000   2,398,000 
             
Loss from operations  (3,860,000)  (2,774,000)  (1,086,000)
             
Other income (expense), net            
Other expense  (6,000)  -   (6,000)
Financing costs  -   (84,000)  84,000 
Interest expense - amortization of debt discount  (137,000)  (1,054,000)  917,000 
Change in fair value of derivative liability  2,092,000   944,000   1,148,000 
Interest expense  (35,000)  (40,000)  5,000 
Total other income (expense), net  1,914,000   (234,000)  2,148,000 
             
Net loss $(1,946,000) $(3,008,000)  1,062,000 

Revenue

Total revenue for the quarter ended March 31, 2020 was $2.4 million, compared to $9,000 for the quarter ended March 31, 2019. The increase in revenue is attributed to revenue generated by Verb Direct (formerly Sound Concepts), our wholly-owned subsidiary that we acquired in April 2019 and revenue we generated together following the merger of the two businesses and the marketing of our then newly combined sales enablement platform. As a result of the acquisition, we currently have four revenue streams: (1) digital subscription-based SaaS recurring revenue associated with our verbCRM; (2) digital non-subscription-based revenue consisting of product sample revenue as well as design fees generated through or in connection with our applications; (3) non-digital revenue generated from printing of welcome kits, which consists of “starter kits” that clients use for new sales reps, and fulfillment of various custom products clients use for marketing purposes and at conferences; and (4) non-digital revenue we generate from shipping fees associated with client welcome kits and fulfillment.

Total digital revenue for the quarter ended March 31, 2020 was $1.5 million, compared to $9,000 for the quarter ended March 31, 2019. Total digital revenue for the quarter ended March 31, 2020 consisted of subscription-based SaaS recurring revenue associated with our verbCRM and verbLEARN applications of $1.1 million and non-subscription-based revenue of $400,000.

Total non-digital revenue for the quarter ended March 31, 2020 was $897,000, compared to $0 for the quarter ended March 31, 2019. Total non-digital revenue for 2019 consisted of revenue generated from printing of welcome kits/starter kits that our clients use for new sales reps, fulfillment of various custom products our clients use for marketing purposes and at conferences of $728,000; and shipping fees associated with client welcome kits and fulfillment of $169,000.

The table below sets forth our quarterly revenues from the quarter ended March 31, 2019 through the quarter ended March 31, 2020, which reflects the trend of revenue since our acquisition of Verb Direct in April 2019:

  2019 Quarterly Revenue  2020 
  Q1  Q2  Q3  Q4  Q1 
SaaS recurring subscription revenue $9,000  $858,000  $953,000  $995,000  $1,057,000 
Other digital revenue  -   596,000   485,000   344,000   400,000 
Total digital revenue $-  $1,454,000  $1,438,000  $1,339,000  $1,457,000 
                     
Welcome kits and fulfillment  -   1,784,000   1,164,000   965,000   728,000 
Shipping  -   495,000   271,000   181,000   169,000 
Total non-digital revenue $-  $2,279,000  $1,435,000  $1,146,000  $897,000 
                     
Grand total $9,000  $3,733,000  $2,873,000  $2,485,000  $2,354,000 

Cost of Revenue

Total cost of revenue for the quarter ended March 31, 2020 was $1.1 million, compared to $30,000 for the quarter ended March 31, 2019. The increase in cost of revenue is attributed to costs of Verb Direct. SaaS cost of revenue for the quarter ended March 31, 2020 was $230,000, compared to $30,000 for the quarter ended March 31, 2019. Cost of revenue derived from the welcome kits, fulfillments, and shipping for the quarter ended March 31, 2020 was $0.8 million, compared to $0 for the quarter ended March 31, 2019.

Operating Expenses

Research and development expenses were $1.3 million for the quarter ended March 31, 2020, as compared to $564,000 for the quarter ended March 31, 2019. Research and development expenses primarily consisted of fees paid to employees and vendors contracted to perform research projects and develop technology. The increase in research and development is attributed to research and development expenses of Verb Direct and additional product development and testing to support the integration of Verb Direct, development of verbLIVE, plus enhancements to our core platform to facilitate native integrations with Salesforce, Microsoft, Adobe, and other channel partners.

Depreciation and amortization expenses were $363,000 for the quarter ended quarter ended March 31, 2020, as compared to $4,000 for the quarter ended March 31, 2019. The increase was associated with $325,000 of amortization related to the intangible asset recorded as part of the acquisition of Verb Direct in April 2019, amortization of leasehold improvements related to the Corporate Headquarters, and other depreciation and amortization attributed to Verb Direct.

General and administrative expenses for the quarter ended quarter ended March 31, 2020 were $3.5 million, as compared to $2.2 million for the quarter ended March 31, 2019. The increase in general and administrative expenses is primarily related to general and administration expenses attributed to Verb Direct of $1.0 million, an increase in labor to support growth of $245,000, and an increase in stock compensation expense of $100,000.

Other income (expense), net, for the quarter ended quarter ended March 31, 2020 totaled $1.9 million, which was attributed to a change in the fair value of derivative liability of $2.1 million, offset by interest expense for amortization of debt discount of ($137,000), interest expense of ($35,000), and other expense of ($6,000). Other income (expense), net, for the quarter ended March 31, 2019 totaled ($234,000), which was attributed to interest expense for amortization of debt discount of ($1.1) million, financing costs of ($84,000), interest expense of ($40,000), all offset by a change in the fair value of derivative liability of $944,000.

Modified EBITDA

In addition to our GAAP results, 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 previously operateddefine modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, financing costs, changes in fair value of derivative liability, and other (income) / expense, net.

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 affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. Readers are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating modified EBITDA, readers 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.

  

For the

Three Months Ended

 
  March 31, 2020  March 31, 2019 
       
Net loss $(1,946,000) $(3,008,000)
         
Adjustments:        
Other expense  6,000   - 
Stock compensation expense  943,000   851,000 
Financing costs  -   84,000 
Amortization of debt discount  137,000   1,054,000 
Change in fair value of derivative liability  (2,092,000)  (944,000)
Interest expense  35,000   40,000 
Depreciation and amortization  363,000   4,000 
Total EBITDA adjustments  (608,000)  1,089,000 
Modified EBITDA $(2,554,000) $(1,919,000)

The $635,000 decrease in modified EBITDA for the three months ended March 31, 2020 compared to the same period in 2019, resulted from the increase in research & development and labor-related costs to support growth.

We present modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use modified EBITDA in developing our internal budgets, forecasts, and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and the Modified EBITDA does not reflect any cash requirements for such replacements.

32

Results of Operations

Fiscal Year Ended December 31, 2019 compared to the Fiscal Year Ended December 31, 2018

The following is a comparison of the results of our operations for the year ended December 31, 2019 and 2018.

  

Year Ended December 31,

2019

  

Year Ended December 31,

2018

  Change 
          
Revenue            
SaaS recurring subscription revenue $2,815,000  $32,000   2,774,000 
Other digital revenue  1,425,000   -   1,434,000 
Welcome kits and fulfillment  3,913,000   -   3,913,000 
Shipping  947,000   -   947,000 
Total revenue  9,100,000   32,000   9,068,000 
             
Cost of Revenue            
Digital  660,000   52,000   608,000 
Welcome kits and fulfillment  3,273,000   -   3,273,000 
Shipping  937,000   -   937,000 
Total cost of revenue  4,870,000   52,000   4,818,000 
             
Gross margin  4,230,000   (20,000)  4,250,000 
             
Operating expenses:            
Research and development  4,312,000   980,000   3,332,000 
Depreciation and amortization  1,042,000   20,000   1,022,000 
General and administrative  14,710,000   6,772,000   7,938,000 
Total operating expenses  20,064,000   7,772,000   12,292,000 
             
Loss from operations  (15,834,000)  (7,792,000)  (8,042,000)
             
Other income (expense), net            
Other expense  (11,000)  (5,000)  (6,000)
Financing costs  (1,625,000)  (798,000)  (827,000)
Interest expense - amortization of debt discount  (1,658,000)  (1,468,000)  (190,000)
Change in fair value of derivative liability  1,862,000   (1,167,000)  3,029,000 
Debt extinguishment, net  1,536,000   (534,000)  2,070,000 
Interest expense  (186,000)  (362,000)  176,000 
Total other expense, net  (82,000)  (4,334,000)  4,252,000 
             
Income tax provision  2,000   1,000   1,000 
             
Net loss $(15,918,000) $(12,127,000)  (3,791,000)

33

Revenues

Total revenue for the year ended December 31, 2019 was $9.1 million, compared to $32,000 for the year ended December 31, 2018. The increase in revenue is attributed to Verb Direct (formerly Sound Concepts), our wholly-owned subsidiary that we acquired in April 2019 and the revenue we generated together following the merger of the two businesses and the marketing of our then newly combined sales enablement platform. We currently have four revenue streams: (1) digital subscription-based SaaS recurring revenue associated with our verbCRM application; (2) digital non-subscription-based revenue consisting of product sample revenue as well as design fees generated through or in connection with our applications; (3) non-digital revenue generated from printing of welcome kits, which consists of “starter kits” that clients use for new sales reps, and fulfillment of various custom products clients use for marketing purposes and at conferences; and (4) non-digital revenue we generate from shipping fees associated with client welcome kits and fulfillment.

Total digital revenue for 2019 was $4.2 million, compared to $32,000 for 2018. Total digital revenue for 2019 consisted of subscription-based SaaS recurring revenue associated with our verbCRM application of $2.8 million and non-subscription-based revenue of $1.4 million.

Total non-digital revenue for 2019 was $4.9 million, compared to $0 for 2018. Total non-digital revenue for 2019 consisted of revenue generated from printing of welcome kits/starter kits that our clients use for new sales reps, fulfillment of various custom products our clients use for marketing purposes and at conferences of $3.9 million; and shipping fees associated with client welcome kits and fulfillment of $947,000.

The table below sets forth our quarterly revenues from the quarter ended March 31, 2019 through the quarter ended December 31, 2019, which reflects the trend of revenue since our acquisition of Verb Direct in April 2019:

  2019 Quarterly Revenue 
  Q1  Q2  Q3  Q4  Full-Year 
SaaS recurring subscription revenue $9,000  $858,000  $953,000  $995,000  $2,815,000 
Other digital revenue  -   596,000   485,000   344,000   1,425,000 
Total digital revenue $-  $1,454,000  $1,438,000  $1,339,000  $4,240,000 
Welcome kits and fulfillment  -   1,784,000   1,164,000   965,000   3,913,000 
Shipping  -   495,000   271,000   181,000   947,000 
Total non-digital revenue $-  $2,279,000  $1,435,000  $1,146,000  $4,860,000 
Grand total $9,000  $3,733,000  $2,873,000  $2,485,000  $9,100,000 

Cost of Revenue

Total cost of revenue for 2019 was $4.9 million, compared to $52,000 for 2018. The increase in cost of revenue is attributed to cost of revenue of Verb Direct. SaaS cost of revenue for 2019 was $660,000, compared to $52,000 for 2018. Cost of revenue for the welcome kits, fulfillment, and shipping for 2019 was $4.2 million, compared to $0 for 2018.

Operating Expenses

Research and development expenses were $4.3 million for 2019, as compared to $980,000 for 2018. Research and development expenses primarily consisted of fees paid to employees and vendors contracted to perform research projects and develop technology. The increase in research and development is attributed to research and development expenses of Verb Direct and additional product development and testing to support the integration of Verb Direct, development of verbLIVE, plus enhancements to our core platform to facilitate native integrations with Salesforce, Microsoft, Adobe, and other channel partners.

Depreciation and amortization expenses were $1.0 million for 2019, as compared to $20,000 for 2018. The increase was associated with the $1.0 million of amortization related the intangible asset recorded as part of the acquisition of Verb Direct, and other depreciation and amortization attributed to Verb Direct for 2019.

General and administrative expenses for 2019 were $14.7 million, as compared to $6.8 million for 2018. The increase to general and administrative expenses is related to the inclusion of general and administration expenses of Verb Direct, which totaled $3.1 million, an increase in labor to support growth of $1.6 million, an increase in professional services of $1.9 million related to the up-listing of our common stock and warrants to The Nasdaq Capital Market, the acquisition of Verb Direct, litigation and recruiting, plus an increase in stock compensation expense of $763,000.

Other income (expense), net, for 2019 equaled ($82,000), which was driven by a change in financing costs of ($1.6) million primarily attributed to the valuation of the derivative liability associated with the warrants we issued in connection with our Series A Preferred Stock, offering, interest expense for amortization of debt discount of ($1.7) million, interest expense of ($186,000), and other expense of ($11,000), all offset by the change in fair value of derivative liability of $1.9 million, and debt extinguishment of $1.5 million. Other income, net, for 2018 totaled ($4.3) million, which represented interest expense for amortization of debt discount of ($1.5) million, a change in the fair value of derivative liability of ($1.2) million, financing costs of ($798,000), debt extinguishment of ($534,000), interest expense of ($362,000), and other expense of ($5,000).

Modified EBITDA

In addition to our results under generally accepted accounted principles, or 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 interest expense, depreciation and amortization, stock-based compensation, financing costs and changes in fair value of derivative liability.

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 affect 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.

  For the Year Ended 
  December 31, 2019  December 31, 2018 
       
Net loss $(15,918,000) $(12,127,000)
         
Adjustments:        
Other expense  11,000   5,000 
Stock compensation expense  4,178,000   3,415,000 
Financing costs  1,625,000   798,000 
Amortization of debt discount  1,658,000   1,468,000 
Change in fair value of derivative liability  (1,862,000)  1,167,000 
Debt extinguishment, net  (1,536,000)  534,000 
Interest expense  186,000   362,000 
Depreciation and amortization  1,042,000   20,000 
Income tax provision  2,000   1,000 
Total EBITDA adjustments  5,304,000   7,770,000 
Modified EBITDA $(10,614,000) $(4,357,000)

The $6.3 million decrease in modified EBITDA for the year ended December 31, 2019 compared to the same period in 2018, resulted from the increase in research & development, professional services, labor-related costs, and business-related expenses related to up-listing our common stock and warrants to The Nasdaq Capital Market, and the acquisition of Verb Direct.

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.

36

Liquidity and Capital Resources

Going Concern

We have incurred operating losses and negative cash flows from operations since inception. We incurred a net loss of $2.0 million during the three months ended March 31, 2020. We also utilized cash in operations of $2.3 million during the three months ended March 31, 2020. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.

Our consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next twelve months. Our continuation of as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow. In addition, our independent registered public accounting firm, in its report on our December 31, 2019 consolidated financial statements, has raised substantial doubt about our ability to continue as a going concern.

There is 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. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Overview

As of March 31, 2020, we had cash of $1.6 million. We estimate our operating expenses for the next three months may continue to exceed any revenue we generate, and we may need to raise capital through either debt or equity offerings to continue operations. We are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable risk that we will not be able to raise such financings at all, or on terms that are not dilutive to our existing stockholders. We can offer no assurance that we will be able to raise such funds. 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 and continue our current operations. As a result, our business may suffer, and we may be forced to reduce or discontinue operations.

On February 5, 2020, we initiated our private placement, which is for the sale and issuance of up to five million shares of our common stock at a per-share price of $1.20, which amount represents a 20% discount to the $1.50 closing price of our common stock on that day, and is memorialized by a subscription agreement.

On March 31, 2020 we closed our private placement. In total we issued 4,237,833 shares of common stock with net cash proceeds of $4.4 million after fees and expenses, of which, $3,430,000 was received as of March 31, 2020 and the remaining $1,014,000 was received in April and May 2020.

On April 17, 2020, we received loan proceeds in the amount of approximately $1,218,000 under the name bBooth, Inc.Paycheck Protection Program, or PPP. The PPP, established as part of the Coronavirus Aid, Relief and were engagedEconomic Security Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after the earlier of (i) 24 weeks after the loan disbursement date and (ii) December 31, 2020 as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. We intend to use the proceeds for purposes consistent with the PPP. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause us to be ineligible for forgiveness of the loan, in the manufacture, marketing, and operation ofauditionbooths deployedwhole or in shopping malls and other high-traffic venues in the United States. The audition booths were portable recording studio kiosks, branded and marketed as “bBooths,” in which customers could audition for TV shows such as American Idol in their local geographic areas. The bBooths were Internet connected and integrated into a social media, messaging, gaming, music streaming and video-sharing app called bBoothGO.part.

Cash Flows – Operating

 

For the three months ended March 31, 2020, our cash flows used in operating activities amounted to $2.3 million, compared to cash used for the three months ended March 31, 2019 of $1.1 million. The change is attributed to the growth of the business, product development, inclusion of Verb Direct operating expenses, all offset by a change in accounts payable of $800,000 compared to the three months ended March 31, 2019.

Cash Flows – Investing

For the three months ended March 31, 2020, our cash flows used in investing activities amounted to $121,000. The change is attributed to fixed asset purchases associated with our new corporate headquarters in Newport Beach, California.

Cash Flows – Financing

Our cash provided by financing activities for the three months ended March 31, 2020 amounted to $3.0 million, which represented $3.4 million of net proceeds from the issuance of shares of our common stock, offset by $411,000 of payments against advance on future receipts. Our cash provided by financing activities for the quarter ended March 31, 2019 amounted to $514,000, which represented $432,000 of proceeds from the issuance of convertible debt, $350,000 proceeds from the issuance of unsecured debt, $58,000 of unsecured related party debt, offset by $326,000 of deferred offering costs.

Notes Payable – Related Parties

We have the following outstanding notes payable to related parties as of March 31, 2020:

Note Issuance Date Maturity Date Interest Rate  Original Borrowing  Balance at
March 31,
2020
 
Note 1 (A) December 1, 2015 February 8, 2021  12.0% $1,249,000  $825,000 
Note 2 (B) December 1, 2015 April 1, 2017  12.0%  112,000   112,000 
Note 3 (C) April 4, 2016 June 4, 2021  12.0%  343,000   240,000 
                 
Total notes payable – related parties            1,177,000 
Non-current              (240,000)
Current             $937,000 

(A)On December 1, 2015, we issued a convertible note payable to Rory J. Cutaia, our Chief Executive Officer and then-majority stockholder, to consolidate all loans and advances made by Mr. Cutaia to our company as of that date. The note bears interest at a rate of 12% per annum, is secured by our assets, and will mature on February 8, 2021, as amended.
(B)On December 1, 2015, we issued a note payable to a former member of our board of directors, in the amount of $112,000 representing unpaid consulting fees as of November 30, 2015. The note is unsecured, bears interest rate of 12% per annum, and matured in April 2017. As of March 31, 2020, the outstanding principal balance of the note was $112,000.
(C)On April 4, 2016, we issued a convertible note to Mr. Cutaia, in the amount of $343,000, to consolidate all advances made by Mr. Cutaia to our company during the period December 2015 through March 2016. The note, as amended, bears interest at a rate of 12% per annum, is secured by our assets, and will mature on June 4, 2021.

Deferred Incentive Compensation

Note Issuance Date Maturity Date Balance at
March 31, 2020
 
        
Rory J. Cutaia (A) December 23, 2019 50% on January 10, 2021 and 50% on January 10, 2022 $430,000 
Rory J. Cutaia (B) December 23, 2019 50% on January 10, 2021 and 50% on January 10, 2022  324,000 
Jeff Clayborne (A) December 23, 2019 50% on January 10, 2021 and 50% on January 10, 2022  125,000 
Jeff Clayborne (B) December 23, 2019 50% on January 10, 2021 and 50% on January 10, 2022  163,000 
         
Total deferred compensation payable – related parties, net    1,042,000 
Non-current      (521,000)
Current     $521,000 

(A)On December 23, 2019, we awarded Rory Cutaia, our Chief Executive Officer and Jeff Clayborne, our Chief Financial Officer annual incentive compensation of $430,000 and $125,000, respectively, for services rendered. We have determined that it is in our best interest and in the best interest of our stockholders to defer payments to Messrs. Cutaia and Clayborne. We will pay 50% of the annual incentive compensation on January 10, 2021 and the remaining 50% on January 10, 2022.
(B)On December 23, 2019, we awarded Rory Cutaia, our Chief Executive Officer and Jeff Clayborne, our Chief Financial Officer a bonus for the successful up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct totaling $324,000 and 162,000, respectively. We have determined that it is in our best interest and in the best interest of our stockholders to defer payments to Messrs. Cutaia and Clayborne. We will pay 50% of these awards on January 10, 2021 and the remaining 50% on January 10, 2022.

39

Advance on Future Receipts

Note Issuance Date Maturity Date Interest
Rate
  Original Borrowing  Balance at
March 31, 2020
 
              
Note 1 (A) December 24, 2019 June 30, 2020  10% $506,000  $297,000 
Note 2 (A) December 24, 2019 June 30, 2020  10%  506,000   297,000 
Total         $1,012,000   594,000 
Debt discount              (137,000)
Net             $457,000 

(A)On December 24, 2019, we received two secured advances from an unaffiliated third party totaling $728,000 for the purchase of future receipts/revenues of $1,012,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an aggregate of $6,000 from our operating account each banking day. The term of the agreement extends until the advances are paid in full. We may pay off either note for $446,000 if paid within 30 days of funding; for $465,000 if paid between 31 and 60 days of funding; or for $484,000 if paid within 61 to 90 days of funding.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this Item.

Critical Accounting Policies

 

Our Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates that affect the reported amounts of assets andliabilitiesat the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. On an ongoing basis, we evaluate our estimates, including those related to valuation of the fair value of financial instruments, share based compensation arrangements and long-lived assets. These estimates are based on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP)GAAP requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenuesrevenue and expenses during the reported periods. Significant estimates include the valuevaluation of share based payments.derivative liability, valuation of debt and equity instruments, share-based compensation arrangements, and realization of deferred tax assets. Amounts could materially change in the future.

Long-Lived AssetsDerivative Financial Instruments

 

We evaluate long-lived assetsour 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 impairment whenever events oras liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare 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 reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on marketwhether 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 based on various assumptions. Our derivative liabilities are adjusted to reflect fair value when available,at each period end, with any increase or discounted expected cash flows, of those assets and isdecrease in the fair value being recorded in the period in which the determination is made. During the year ended December 31, 2015, we made this analysis and determined there were no reliable predictorsresults of future cash flows in connection with our intangible assets or our bBooth-related equipment. Accordingly, we concluded that impairmentoperations as adjustments to fair value of those assets was appropriate and recorded an aggregate impairment charge of $1,387,100 for the year ended December 31, 2015. No impairment of long-lived assets was required for the year ended December 31, 2016. No impairment of long-lived assets was required for the six months ended June 30, 2017.derivatives.

 

Stock CompensationShare-Based Payments

 

We periodically issue stock options and warrantsaccount for share-based awards to employees and non-employeesnonemployee directors and consultants in non-capital raising transactions for servicesaccordance with the provisions of ASC 718, Compensation-Stock Compensation, and for financing costs. We account for stock optionunder the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas theapplicable updates adopted, share-based awards are valued at fair value of the award is measured on the date of grant and that fair value is recognized over the requisite service, or vesting, period. We value our equity awards using the Black-Scholes option pricing model, and account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.forfeitures when they occur.

 

Use of the Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term, and a risk-free interest rate. We estimate volatility using a blend of our own historical stock price volatility as well as that of market comparable entities since our common stock has limited trading history and limited observable volatility of its own. The expected term of the options is estimated by using the SEC Staff Bulletin No. 107’s Simplified Method for Estimate Expected Term. The risk-free interest rate is estimated using comparable published federal funds rates.

Goodwill

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, we review the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. Our impairment testing will be done annually at December 31 (our fiscal year end). Recoverability of goodwill is determined by comparing the fair value of our common stock option grants is estimated usingreporting units to the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected lifecarrying value of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model, and based on actual experience. The assumptions usedunderlying net assets in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.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.

 

Going ConcernIntangible Assets with Finite Useful Lives

 

We have incurred operating losses since inception and have negative cash flows from operations. certain finite lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets consist of developed technology. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful life of five years.

We had a stockholders’ deficitreview all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of $3,995,900 as of June 30, 2017 and utilized $794,754 in cashan asset group is not recoverable, we recognize an impairment loss for the six-month period ended June 30, 2017. As a result,excess carrying value over the fair value in our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue ourconsolidated statements of operations.

 

Our condensed consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next fiscal year. The continuation of our company as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until our company begins generating positive cash flow.

There is no assurance that we will ever be profitable or that debt or equity financing will be available to us. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Off-Balance Sheet Arrangements

As of June 30, 2017, we had no off-balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist of cash and accounts receivable. Under Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, for the two-year period of January 1, 2015 through December 31, 2016, cash balances in noninterest-bearing transaction accounts at all FDIC-insured depository institutions are provided temporary unlimited deposit insurance coverage. As of June 30, 2017, there were no cash balances in interest-bearing accounts.

Trends, Events, and Uncertainties

Development of new technologies or product solutions is, by its nature, unpredictable. Although we will undertake development efforts with commercially reasonable diligence, there can be no assurance that we will have adequate capital to develop our technology or products to the extent needed to create future sales to sustain our operations.

No assurance can be provided that our technology or products will be adopted, that we will ever earn revenue sufficient to support our operations, or that we will ever be profitable. Furthermore, since we have no committed source of financing, we can provide no assurance that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.

Other than as discussed above and elsewhere in this prospectus, we are not aware of any trends, events, or uncertainties that are likely to have a material effect on our financial condition.

RecentRecently Issued Accounting PoliciesPronouncements

 

For a summary of our recent accounting policies, refer to Note 2, Summary of Significant Accounting Policies,of our unaudited condensed consolidated financial statements included underthe section, “Index to Item 1 – Financial Statements.”Statements on page F-8 of this prospectus.

BUSINESS

Overview

 

We are a Software-as-a-Service, or SaaS, applications platform developer. Our platform is comprised of a suite of sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management application; verbLEARN, our Learning Management System application; and verbLIVE, our Live Broadcast Video Webinar application.

Our Technology

Our suite of applications can be distinguished from other sales enablement applications because our applications utilize our proprietary interactive video technology as the primary means of communication between sales and marketing professionals and their customers and prospects. Moreover, the proprietary data collection and analytics capabilities of our applications inform our users in real time, on their devices, when and for how long their prospects have watched a video, how many times such prospects watched it, and what they clicked-on, which allows our users to focus their time and efforts on ‘hot leads’ or interested prospects rather than on those that have not seen such video or otherwise expressed interest in such content. Users can create their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation. Our clients report that these capabilities provide for a much more efficient and effective sales process resulting in increased sales conversion rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending technologies that serve as the unique foundation for all of our platform applications.

Our Products

verbCRM combines the capabilities of customer relationship management, or CRM, lead-generation, content management, and in-video e-commerce capabilities in an intuitive, yet powerful tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users to quickly and easily create, distribute, and post videos to which they can add a choice of on-screen clickable icons which, when clicked, allow viewers to respond to the user’s call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology allows a prospect or customer to click on a product they see featured in a video and impulse buy it, or to click on a calendar icon in the video to make an appointment with a salesperson, which are among the many novel features and functionalities designed to eliminate or reduce friction from the sales process for our users. The verbCRM app is designed to be easy to use and navigate, and takes little time and training for a user to begin using the app effectively. It usually takes less than four minutes for a novice user to create an interactive video from our app. Users can add interactive icons to pre-existing videos, as well as to newly created videos shot with practically any mobile device. verbCRM interactive videos can be distributed via email, text messaging, chat app, or posted to popular social media directly and easily from our app. No software download is required to view Verb interactive videos on virtually any mobile or desktop device, including smart TVs.

verbLEARN is an interactive video-based learning management system that incorporates all of the clickable in-video technology featured in our verbCRM application, however adapted for use by educators for video-based education. verbLEARN is used by enterprises seeking to educate a large sales team or a customer base about new products, or elicit feedback about existing products. It also incorporates Verb’s proprietary data collection and analytics capabilities that inform users in real time, when and for how long the viewers watched the video, how many times they watched it, and what they clicked-on.

  1942 
  

Results of Operations -Years Ended December 31, 2016 and 2015

The following is a comparison of the results of our operations for the year ended December 31, 2016 and 2015.

  For the Year Ended    
  December 31, 2016  December 31, 2015  $ Change 
          
Net sales $   $- $- 
             
Research and development expense  257,803   241,637   16,166 
General and administrative expense  2,873,185   5,174,515   (2,301,330)
Impairment charges  -   1,387,100   (1,387,100)
Loss from operations  (3,130,988)  (6,803,252)  3,725,162 
Other income  52,898   -   52,898 
Other expense, net  (1,195,149)  (151,976)  (1,043,173)
Loss before income taxes  (4,273,239)  (6,955,228)  2,681,989 
Income tax provision  866   -   866 
Net loss $(4,274,105) $(6,955,228) $2,681,123 

We did not have any revenue in 2015 or 2016.

Operating Expenses

Research and development expenses are primarily expenses to vendors contracted to perform research projects and develop technology. In 2016 research and development initiatives supported our notifi cloud-based, Software-as-a-Service (SaaS) platform, while 2015 research and development supported our bBooths and mobile app. Overall our research and development expenses remained consistent in 2016 compared to 2015.

General and administrative expenses for 2016 decreased by $2,301,330 as compared to 2015. The decrease in general and administrative expenses is primarily due to the transition of our business model to our notifi cloud-based, Software-as-a-Service (SaaS) platform that resulted in $956,902 labor related savings and lower operating expenses of $522,513. Additional savings are attributed to amortization expense of $331,008 related to the acquisition of the Songstagram assets in January 2015 and lower share-based compensation expense of $322,046.

Due to the change in the nature of our business, we performed an impairment analysis in December 2015 on our long-lived assets, consisting of our intangible assets and property and equipment, and determined there were no reliable predictors of future cash flows in connection with the assets. Accordingly, we concluded that our intangible assets and our bBooth-related equipment were impaired. As a result, we recorded an aggregate impairment charge of $1,387,100 as of December 31, 2015.

Other expense, net, for 2016 amounted to $1,195,149, which represented interest expense of $332,692 on outstanding notes payable during this time-frame and $398,594 as interest expense for amortization of debt discount. We also incurred a loss from debt extinguishment in the amount of $455,975 in 2016. The amount of other expense, net, was lower in 2015 as we did not have loss from debt extinguishment and significant amount of borrowings through notes payable occurred in the end of 2015, which resulted in a partial period of interest expense for 2015.

Other income

We earned $52,898 for fiscal 2016 compared to $0 for fiscal 2015. During 2016, income was derived from the rental of our interactive bBooths.

Liquidity and Capital Resources

The following is a summary of our cash flows from operating, investing and financing activities for the years ended December 31, 2016 and 2015.

  For the Year Ended 
  December 31, 2016  December 31, 2015 
Cash used in operating activities $(1,604,013) $(2,866,411)
Cash used in investing activities  (2,494)  (105,929)
Cash provided by financing activities  1,520,250   1,903,242 
(Decrease) increase in cash $(86,257) $(1,069,098)

For the year ended December 31, 2016, our cash flows used in operating activities amounted to $1,604,013, compared to cash used in 2015 of $2,866,411. Our cash used in operations was lower in 2016 due primarily to a decrease in net loss in 2016 compared to 2015 attributed to a change in business models.

Our cash used in investing activities in 2016 amounted to $2,494, compared to cash used in 2015 of $105,929. Our cash used in investing activities in 2015 consisted of $62,029 paid for the acquisition of property and equipment and $43,900 paid for the acquisition of certain intellectual property from Rocky Wright. Cash used in investing activities in 2016 was primarily due to purchases of fixed assets.

Our cash provided by financing activities in 2016 amounted to $1,520,229, resulting from proceeds from stock subscriptions of $1,524,009, borrowings from notes payable of $80,000, and borrowings from notes payable from related parties of $92,446, off-set by stock repurchases of $166,226 with three former employees and consultants, and principal repayments of notes payable. The cash provided by financing activities in 2015 amounted to $1,903,242, resulting from $600,000 in proceeds from notes payable, $1,403,242 of net proceeds from related party borrowings, offset by repayment of notes payable of $100,000.

As of December 31, 2016, we had cash of $16,762 and a working capital deficit of $3,468,223, as compared to cash of $103,019 and a working capital deficit of $2,342,390 at December 31, 2015. The decrease in cash and working capital at December 31, 2016 compared to December 31, 2015 was primarily the result of continued losses. We estimate our operating expenses for the next 12 months will continue to exceed any revenues we generate, and we will need to raise capital through either debt or equity offerings to continue operations.

We are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable risk that our company will not be able to raise such financings at all, or on terms that are not overly dilutive to our existing stockholders. We can offer no assurance that we will be able to raise such funds.

Results of Operations - Six Months Ended June 30, 2017 as Compared to the Six Months Ended June 30, 2016

The following is a comparison of the results of our operations for the six-months ended June 30, 2017 and 2016.

  For the Six Months Ended    
  June 30, 2017  June 30, 2016  $ Change 
          
Net sales $-  $   $- 
             
Research and development expense  181,840   119,816   62,024 
General and administrative expense  1,970,028   1,556,539   413,489 
Loss from operations  (2,151,868)  (1,676,355)  475,513 
Other income  -   31,593   (31,593)
Debt extinguishment  (552,871)  -   (552,871)
Interest expense (including $58,788 and $69,034 to related parties for six months)  (170,822)  (160,349)  (10,473)
Interest expense - amortization of debt discount  (93,024)  (179,822)  86,798 
Net loss $(2,968,585) $(1,984,933) $(983,652)

Revenues

We did not have any revenue for the six-month period ending June 30, 2017.

Operating Expenses

Research and development expenses were $181,840 for the six months ended June 30, 2017, as compared to $119,816 for the six months ended June 30, 2016. The increase was primarily due to an increase in costs for additional coders engaged for notifi software development, enhancements, and modifications during period ended June 30, 2017.

General and administrative expenses for the six months ended June 30, 2017 and 2016 was $1,970,028 and $1,556,539, respectively. The increase was primarily due to an increase in stock based compensation expense of approximately $492,000.

Other expense, net, for the six months ended June 30, 2017 amounted to $816,717, which represented interest expense of $170,822 on outstanding notes payable, and $93,024 as interest expense for amortization of debt discount. We also incurred a loss from debt extinguishment in the amount of $552,871. The amount of other expense, net, was higher in 2017 as we did not have loss from debt extinguishment offset by lower amortization of debt discount as most of the debt discounts from 2016 were fully amortized in 2016.

Other Income

During 2016, we earned income from the rental of our bBooths of $31,525. There was no similar transaction for the six-month period ended June 30, 2017.

Liquidity and Capital Resources

The following is a summary of our cash flows from operating, investing and financing activities for the six months ended June 30, 2017 and 2016.

  For the Six Months Ended 
  June 30, 2017  June 30, 2016 
Cash used in operating activities $(794,754) $(895,675)
Cash used in investing activities  -   - 
Cash provided by financing activities  805,000   835,200 
Increase / (Decrease) in cash $10,246  $(60,475)

For the six months ended June 30, 2017, our cash flows used in operating activities amounted to $794,754 compared to cash used in 2016 of $895,675. The change is due to an increase in business activity which resulted in additional consulting, salary, and various operating expenses in 2017 compared to 2016.

Our cash provided by financing activities for the six months ended June 30, 2017 amounted to $805,000 which represented $450,000 of proceeds received from issuances of common stock, $255,000 of proceeds received from the issuance of convertible Series A Preferred Stock, and $100,000 of proceeds from the issuance of convertible debt. Our cash provided by financing activities for the six months ended June 30, 2016 amounted to $835,200 which represented $918,980 of proceeds received from common stock subscriptions, $82,446 of additional borrowings from Rory J. Cutaia, our Chief Executive Officer, offset by $166,226 of repurchases of the Company’s common stock.

As of June 30, 2017, we had cash of $27,008. We estimate our operating expenses for the next three months may continue to exceed any revenues we generate, and we may need to raise capital through either debt or equity offerings to continue operations.

We are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable risk that our company will not be able to raise such financings at all, or on terms that are not overly dilutive to our existing stockholders. We can offer no assurance that we will be able to raise such funds.

Notes Payable

We have the following notes payable as of June 30, 2017: 

Note Note Date Maturity Date Interest Rate  Original Borrowing  Balance at
June 30, 2017
 
            (Unaudited) 
Note payable (a) March 21, 2015 March 20, 2018  12% $125,000  $125,000 

(a)On March 21, 2015, we entered into an agreement with DelMorgan Group, LLC (“DelMorgan”), pursuant to which DelMorgan agreed to act as our exclusive financial advisor. In connection with the agreement, we paid DelMorgan $125,000, which was advanced by a third-party lender arranged by DelMorgan in exchange for an unsecured note issued by us bearing interest at the rate of 12% per annum payable monthly beginning on April 20, 2015 (the “Tegeler Note”).
Effective March 20, 2017, we entered into an extension agreement with the third-party lender to extend the maturity date of the Tegeler Note to March 20, 2018. All other terms of the Tegeler Note remain unchanged.

 23
 

 

Notes PayableverbLIVE builds on popular video-based platforms such as Facebook Live, Zoom, WebEx, and Go2Meeting, among others, by adding Verb’s proprietary interactive in-video ecommerce capabilities – including an in-video Shopify shopping cart integrated for Shopify account holders - Related Partiesto our own live stream video broadcasting application. verbLIVE is a next-generation webinar platform that allows webinar hosts to utilize a variety of novel sales-driving features, including placing interactive icons on-screen that appear on the screens of all viewers, providing in-video click-to-purchase capabilities for products or services featured in the live video broadcast, in real-time, driving friction-free selling. verbLIVE also provides the host with real-time viewer engagement data and interaction analytics. verbLIVE is entirely browser-based, allowing it to function easily and effectively on all devices without requiring the host or the viewers to download software, and is secured through end-to-end encryption. verbLIVE is currently in pre-sales, accepting customer deposits, and is expected to launch commercially in summer 2020.

The Verb In-App Eco-System

To more effectively and efficiently monetize our current large user base, we have developed and have begun to deploy in-app purchase capabilities for all verbCRM users. This feature is currently being distributed and deployed as an automatic software update to enterprise client users whose monthly subscription fees and use of the application are paid by their corporate employer, sponsor, or principal. The in-app purchase capability will allow these users to pay for subscriptions directly in the app with their own credit card in order to access upgraded or unlocked verbCRM features and additional functionality within the app.

In addition, these users will have in-app access to our forthcoming “app store” where users can subscribe for third-party apps that are complimentary to verbCRM user demographics, such as specialized expense tracking applications, tax software, among other third-party apps offered directly to our user base on a revenue share basis with the third-party developers. In addition, we are expecting to introduce during 2020 an “Open API” architecture, allowing third-party developers to create specialized apps with features and functionality that integrate seamlessly into our verbCRM application. These will be offered directly to our user base through our verbCRM app store on a revenue-sharing basis.

Verb Partnerships and Integrations

 

We have completed the integration of verbCRM into systems offered by 17 of the most popular direct sales back-office system providers, such as Direct Scale, Exigo, By Design, Thatcher, Multisoft, Xennsoft, and Party Plan. Direct sales back-office systems provide many of the support functions required for direct sales operations, including payroll, customer genealogy management, statistics, rankings, and earnings, among other direct sales financial tracking capabilities. The integration into these back-office providers, facilitated through our own API development, allows single sign-on convenience for users, as well as enhanced data analytics and reporting capabilities for all users. We believe that our integration into these back-end platforms accelerates the adoption of verbCRM by large direct sales enterprises that rely on these systems and as such, we believe this represents a competitive advantage.

We are also in various stages of development, testing and deployment for the integration of our latest generation interactive video and enhanced analytics and reporting technology, and more recently, a core package that includes verbLIVE, into popular CRM providers, including Salesforce, Microsoft, Oracle/NetSuite, and Adobe/Marketo, among others with whom we have executed partnership agreements. Each of these agreements provides for revenue share arrangements resulting from sales of our product to their respective clients. The integrations for Salesforce and Microsoft represent new build integrations, while those for Oracle/NetSuite and Adobe/Marketo represent replacement integrations. We have intentionally, though temporarily, delayed further action on and deployment of these integrations in order to allocate design, engineering and development resources to those initiatives that we believe will become revenue producing opportunities sooner, especially those that we believe will likely produce greater market demand due to the current and anticipated continued effects of the COVID-19 pandemic. We expect to resume action on and deployment of these integrations in the summer of 2020.

Non-Digital Products and Services

Historically, we have also provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events. We also managed the fulfillment of our clients’ product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects.

However, on May 20, 2020, we executed a contract with Range Printing, a company in the business of providing enterprise class printing, sample assembly, warehousing, packaging, shipping and fulfillment services. Pursuant to the contract, through an automated process we have established for this purpose, Range will receive orders for samples and merchandise from us as and when we receive them from our clients and users, and print, assemble, store, package and ship such samples and merchandise on our behalf. The Range contract provides for a revenue share arrangement based upon the specific services to be provided by Range that is designed to maintain our relationship with our clients by continuing to service their non-digital needs, while eliminating the labor and overhead costs associated with the provision of such services by us.

Our Market

Our client base consists primarily of multi-national direct sales enterprises to whom we provide white-labeled, client-branded versions of our products. Our clients also include large professional associations, educational institutions, including school districts, auto sales, auto leasing, insurance, real estate, home security, not-for-profits, as well as clients in the health care industry, and the burgeoning CBD industry, among other business sectors. Currently, we provide subscription-based application services to approximately 100 enterprise clients for use in over 60 countries, in over 48 languages, which collectively account for a user base generated through more than 1.3 million downloads of our verbCRM application. Among the new business sectors targeted for this year are pharmaceutical sales, government institutions, and political parties and candidates.

Revenue Generation

We generate revenue from the following related parties notes payable:sources:

Note Issuance Date Maturity Date Interest Rate  Original Borrowing  Balance at
June 30, 2017
 
            (Unaudited) 
Note 1 Year 2015 August 8, 2018  12.0% $1,203,242  $1,198,883 
Note 2 December 1, 2015 August 8, 2018  12.0%  189,000   189,000 
Note 3 December 1, 2015 April 1, 2017  12.0%  111,901   111,901 
Note 4 August 4, 2016 August 4, 2017  12.0%  343,326   343,326 
Note 5 August 4, 2016 August 4, 2017  12.0%  121,875   121,875 
                 
Total notes payable – related parties, net         $1,964,985 

 

 Onrecurring subscription fees paid by enterprise users and affiliates;
recurring subscription fees paid by non-enterprise, small business, and individual users;
recurring subscription fees paid by users who access in-app purchases of various dates during the year ended December 31, 2015, Rory J. Cutaia,premium services, features, functionality, and upgrades;
recurring subscription fees paid by users who access in-app purchases of third-party software provider apps in our majority stockholderforthcoming app store;
recurring subscription fees paid by users of Salesforce, Microsoft, Oracle/NetSuite, and Chief Executive Officer, loaned us total principal amounts of $1,203,242. The loans were unsecured and all due on demand, bearing interest at 12% per annum. On December 1, 2015,Adobe/Marketo, among others with whom we enteredhave executed partnership agreements, for access to our applications that we intend to integrate into a Secured Convertible Note agreement with Mr. Cutaia whereby all outstanding principal and accrued interest owedthese platforms, including recurring subscription fees paid by users who subscribe to Mr. Cutaiabundled service offerings from previous loans amounting to an aggregate total of $1,248,883 due on demand, was consolidated under a note payable agreement, bearing interest at 12% per annum, and converted from due on demand to due in full on April 1, 2017 (“NOTE 1”). In considerationthese partners and/or their respective value-added resellers;
recurring subscription fees paid by users for Mr. Cutaia’s agreement to consolidate the loans and extend the maturity date, we granted Mr. Cutaia a senior security interest in substantially all of the foregoing products and services generated through our currentrecently launched Japan operations;
recurring subscription fees paid by users generated through our forthcoming reseller and future assets. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may convert upaffiliate distribution programs; and
fees paid by enterprise clients for non-digital products and services through our Range Printing venture.

Distribution Methods

Our distribution methods include:

Prospective customers and clients can subscribe to $374,665 of outstanding principal, plus accrued interest thereon, into shares of common stock atour applications on a conversion price of $0.07 per share.monthly or annual contract through a simple, web-based sign-up form accessible on our website (https://www.verb.tech), as well as through interactive sign-up links that we distribute via email, text messaging and through social media.
   
 On May 4, 2017, we entered into an extension agreement with Mr. CutaiaEnterprise users that subscribe to extend the maturity date of NOTE 1 due on April 1, 2017,our verbCRM software service can distribute custom-branded sign-up links to August 1, 2018. In consideration for extending NOTE 1, we issued Mr. Cutaia 1,755,192 warrants at an exercise price of $0.355. Alltheir internal and external staff via email or other terms of NOTE 1 remain unchanged. We determined that the extension of the NOTE 1 maturity date resulted in debt extinguishment for accounting purposes since the fair value of the warrants granted was more than 10% of the recorded value of the original convertible note. As a result, we recorded the fair value of the new note which approximated the original carrying value of $1,198,883 and expensed the entire fair value of the warrants granted of $517,291 as part of the loss on debt extinguishment. As of June 30, 2017, and December 31, 2016, the principal amount of the NOTE 1 was $1,198,883.electronic means.
   
 We have entered into partnership agreements with other CRM providers to incorporate our interactive video technology into such other CRM providers’ software platforms to be offered to their existing and prospective client base for an additional monthly recurring fee, which fee is shared with us. In January 2018, we entered into such an agreement with Oracle America, Inc. to integrate our interactive video technology into their NetSuite platform on a revenue-share basis. In February 2018, we entered into a similar agreement with Adobe Marketo to integrate our interactive video technology into their platform on a revenue-share basis. On December 1, 2015,January 23, 2019, we entered into an unsecured convertible noteagreement with Mr. Cutaia inMicrosoft to integrate our interactive video technology into Microsoft’s Office 365 services product line, beginning with its email platform Outlook and their internal communications platform TEAMS. On February 4, 2019, we entered into a revenue share partnership agreement with Salesforce.com to integrate our interactive video technology into the amount of $189,000, bearing interest at 12% per annum, representing a portion of Mr. Cutaia’s accrued salary for 2015 (“NOTE 2”). NOTE 2 extended the payment terms from on-demand to due in full on April 1, 2017. The outstanding principal and accrued interest of NOTE 2 may be converted at Mr. Cutaia’s discretion into shares of common stock at a conversion rate of $0.07.Salesforce.com CRM platform.
   
 On May 4, 2017,We have entered into license and partnership agreements with digital marketing companies and advertising agencies to resell our Verb interactive video technology to their existing and prospective client bases for monthly fees which fees are shared with us. In March 2018, we entered into such an extension agreement with Mr. CutaiaDR2Marketing, LLC to extend the maturity date of NOTE 2 dueuse and resell our applications to their clients on April 1, 2017 to August 1, 2018. All other terms of NOTE 2 remain unchanged.
On December 1, 2015, we entered into an unsecured note agreement with a consulting firm owned by Michael Psomas, a former member of our board of directors, in the amount of $111,901 representing unpaid fees earned for consulting services previously rendered, but unpaid as of November 30, 2015 (“NOTE 3”). The outstanding amount of NOTE 3 bears interest at 12% per annum, and was due in full on April 1, 2017, and is currently past due.revenue-share basis.
   
 On April 4, 2016, we issued an additional secured convertible noteWe expect to Mr. Cutaiaenter into partnership agreements with large cloud services providers, to bundle our application with such providers’ other applications offered to their existing and prospective global customer base in the amount of $343,325, which represents additional sums of $93,326 that Mr. Cutaia advancedorder to us during the periodgenerate greater utilization fees from December 2015 through March 2016,such customers’ need for more data storage and the consolidation of $250,000 of additional obligations due Mr. Cutaia (“NOTE 4”). NOTE 4 bears interest at the rate of 12% per annum, compounded annually. In considerationbandwidth required by video-based applications. For example, under our agreement with Microsoft, their value-added cloud services resellers may choose to bundle our application for his agreementresale to extend the repayment date to August 4, 2017, we granted Mr. Cutaia the right to convert up to 30% of the amount of NOTE 4 into shares of our common stock at $0.07 per share and issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50% of the amount of NOTE 4.their respective customer bases.
   
 On April 4, 2016, we issued an additional unsecured convertible note payable to Mr. Cutaia in the amount of $121,875, which represents the amount of the accrued but unpaid salary owed to Mr. Cutaia for the period from December 2015 through March 2016 (“NOTE 5”). In consideration for his agreement to extend the payment date to August 4, 2017, we granted to Mr. Cutaia the right to convert the amount of NOTE 5 into shares of our common stock at $0.07 per share, which approximated the trading price of our common stock on the date of the agreement. NOTE 5 bears interest at the rate of 12% per annum.We employ a direct sales team, as well as outside sales consultants.

Our Japan Operations

In April 2020, we commenced local language sales, sales support, customer support, and marketing operations in Japan. In order to ensure compliance with Japan’s laws, rules and regulations, our operations were established pursuant to, and in accordance with, an exclusive reseller agreement with an existing Tokyo-based Japanese corporation operated by a team with over 30-years’ experience in the Japan direct sales industry. They operate and market our applications in Japan under the Verb brand.

 

Convertible Note PayableJapan represents the 3rd largest global economy2 and the 5th largest direct sales market3. There are approximately 4 million direct sales representatives in Japan which accounted for approximately $16B in 2018 direct sales revenue4. More than 50% of our current U.S.-based enterprise clients have a substantial number of sales representatives in Japan that currently do not subscribe to our application, with five of those clients generating the majority of their revenue from their Japan-based sales. We believe the in-country sales, sales support, and customer service we can provide through native language speaking staff in Japan represents a significant opportunity for us to grow our applications subscription business and enhance our clients’ Japan initiatives. Since we began operations, we have executed verbCRM subscription agreements with 6 Japanese enterprise clients.

We are currently exploring a similar expansion opportunity in Korea, which has the 3rd largest direct sales market in the world2.

Our Historical Background

 

We have the following notes payable as of June 30, 2017:

Note Note Date Maturity Date Interest Rate  Original Borrowing  Balance at
June 30, 2017 (Unaudited)
 
              
Note A (i) Various August 4, 2017  12% $600,000  $680,268 
Note B (ii) June 19, 2017 February 19, 2018  5% $110,000   110,000 
Total notes payable              790,268 
Debt discount              (105,061)
                 
Total notes payable, net of debt discount            685,207 

(i)We entered into a series of unsecured loan agreements with Oceanside Strategies, Inc. (“Oceanside”) a third party-lender, in the aggregate principal amount of $600,000 through December 31, 2015. The loans bore interest at rates ranging from 5% to 12% per annum and were due on demand.

On April 3, 2016, we issued an unsecured convertible note payable to Oceanside in the amount of $680,268 (this amount includes $600,000 principal amount and $80,268 accrued and unpaid interest) (“Note A”). Note A superseded and replaced all previous notes and current liabilities due to Oceanside for sums Oceanside loaned to us in 2014 and 2015. Note A bears interest at the rate of 12% per annum, compounded annually. In consideration for Oceanside’s agreement to convert the prior notes from current demand notes and extend the maturity date to December 4, 2016, we granted Oceanside the right to convert up to 30% of the amount of Note A into shares of our common stock at $0.07 per share and issued 2,429,530 share purchase warrants, exercisable at $0.07 per share until April 4, 2019.

Effective December 30, 2016, we entered into an extension agreement with Oceanside to extend the maturity date of Note A to August 4, 2017. All other terms of Note A remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017, we issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019.

(ii)On June 19, 2017, in exchange for proceeds of $100,000, we issued an unsecured convertible note to Lucas Holdings in the amount of $110,000 (“Note B”). As additional consideration for Note B, we issued 50,000 shares of common stock and a three-year warrant to acquire 330,000 shares of our common stock with an exercise price of $0.30 per share. The maturity date of Note B is February 18, 2018. The principal amount of Note B includes a 5% one-time interest charge plus a 5% original issue discount charge.

Upon issuance of Note B, we accounted for an original issue discount of $10,000 which consisted of (a) the 5% original issue discount of $5,000, and (b) the fixed interest of 5% which aggregated $5,000. The original issue discount will be accreted to interest expense over the life of the note, resulting inare a net amount due the holder of $110,000 at maturity. In addition, the (c) the fair value of the 50,000 common shares of $12,500 issued to the holder, (d) the relative fair value of the warrants of $40,180, and (e) the relative fair value of the beneficial conversion feather of $47,320 were considered as additional valuation discount and will be amortized as interest expense over the life of Note B.

The aggregate fair value of the original issue discount and the equity securities issued upon inception of Note B of $110,000 has been recordedNevada corporation originally formed as a valuation discount. As of June 30, 2017, $4,939 of this amount was amortizedlimited liability company in 2012 as interest expense.

Convertible Series A Preferred Stock

Effective February 14, 2017, we entered into a Securities Purchase Agreement, (the “Purchase Agreement”) by and between an otherwise unaffiliated, accredited investor (the “Purchaser”) and us in connection with our issuance and sale to the Purchaser of shares of Series A Preferred Stock under the terms and conditions as set forth in the Purchase Agreement (the “Sale”).

In connection with the Sale, our board of directors authorized and approved a series of preferred stock to be known as “Series A Convertible Preferred Stock”, for which 1,050,000 shares, $0.0001 par value per share, were authorized and a Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, (the “Certificate”), was filed with the Office of the Secretary of State of the State of Nevada (the “State”) to effectuate the authorization. Pursuant to the Purchase Agreement, the purchase of shares of our Series A Preferred Stock may occur in several tranches (each, a “Tranche”; and, collectively, the “Tranches”). The first Tranche of $300,000 ($315,000 in stated value, represented by 315,000 shares of our Series A Preferred Stock) (the “First Tranche”), closed simultaneously with the execution of the Purchase Agreement on February 14, 2017 (the “First Closing”), and each additional Tranche shall close at such times and on such financial terms as may be agreed to by the Purchaser and us. The net proceeds to us after offering costs was $255,000.

The Series A Preferred Stock has the following rights and privileges:

Senior rights in terms preference as to dividends, distributions and payments upon the liquidation, dissolution and winding up of our company;
Accrues dividends at a rate of 5% per annum;
Mandatorily redeemable in five weekly installments starting August 13, 2017 in the amount of $63,000 each plus accrued interest. We have the option to redeem the Series A shares in cash or in shares of common stock based upon the 5-day volume weighted average price (“VWAP”) of our common shares as reported by OTC Markets.

Pursuant to the terms of the Purchase Agreement, the shares of our Series A Preferred Stock issued in the First Closing are to be redeemed by us in five (5) equal weekly payments (each, a “Redemption Payment”), commencing in approximately 180 days from the First Closing. All but one of the Redemption Payments may be made by us in cash or in shares of our common stock, at our option. The Holder shall have the option to demand payment of one Redemption Payment in shares of Common Stock. Redemption Payments made using shares of our common stock will be valued based upon a VWAP formula, tied to the then-current quoted price of shares of our common stock, described with greater particularity in the Purchase Agreement.

As a result of this transaction, we recorded a liability of $315,000 and a debt discount of $60,000, upon issuance. As of June 30, 2017, the remaining unamortized discount was $20,857 resulting in a net amount due of $294,143.

Events Subsequent to the Period Six Months Ended June 30, 2017

Subsequent to June 30, 2017, we issued 510,001 shares of common stock that were subject to vesting schedules and previously accounted for.

Subsequent to June 30, 2017, we issued 94,620 shares of common stock to vendors, with a fair value of $14,750 for services rendered.

Subsequent to June 30, 2017, we granted 300,000 non-qualified stock options with an exercise price of $0.25 to employees for services to be rendered. The options vest monthly based on achieving quantifiable milestones.

Effective August 4, 2017, we entered into an extension agreement with our CEO, Rory J. Cutaia, to extend the maturity date of the $343,326 note referenced above as NOTE 4, due on August 4, 2017 to December 4, 2018. In consideration for extending NOTE 4, we issued Mr. Cutaia 1,329,157 warrants with a per-share exercise price of $0.15. All other terms of NOTE 4 remain unchanged.

Effective August 4, 2017, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the $121,875 note, referenced above as NOTE 5, due on August 4, 2017 to December 4, 2018. All other terms of NOTE 5 remain unchanged.

Effective August 4, 2017, we entered into an extension agreement with Oceanside to extend the maturity date of the $680,268 note, referenced above as Note A, to April 4, 2018. All other terms of the Note A remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to April 4, 2018, we granted Oceanside 1,316,800 warrants at a price of $.15. All other terms of Note A remain unchanged.

On July 7, 2017, we issued 52,500 shares of Series A Preferred Stock for cash proceeds of $50,000. The Series A Preferred Stock in this tranche has the same terms as the First Tranche issued in connection with the First Closing described above, except that two weekly redemption payments shall be due, one on January 8, 2018, and the other on January 15, 2018, each in the amount of $26,250. As a result of this transaction we will record a liability of $52,500 and a debt discount of $2,500 upon issuance.

On July 28, 2017, we issued 262,500 shares of Series A Preferred Stock for cash proceeds of $250,000. $125,000 was paid to us on July 28, 2017 and the remaining $125,000 was paid to us on or about August 28, 2017. The Series A Preferred Stock issued in connection with this transaction has the same terms as the First Tranche issued in connection with the First Closing described above. As a result of this transaction, we recorded a liability of $262,500 and debt discount of $12,500 upon issuance.

Effective August 4, 2017, we issued our CEO, Rory J. Cutaia, 3,750,000 restricted shares of common stock with a fair value of $562,500.

DESCRIPTION OF BUSINESS

Organization

Cutaia Media Group, LLC, (“CMG”) was a limited liability company formed on December 12, 2012 under the laws of the State of Nevada. Onor CMG. In May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG was merged into bBooth, Inc., and in October 2014, bBooth, Inc. changed its name to bBooth (USA), Inc. The operations of CMG and bBooth (USA), Inc. are collectively referred to as “bBoothUSA”.

 

OnIn October 16, 2014, bBoothUSA completed a Share Exchange Agreement withbBooth(USA), Inc. was acquired by Global System Designs, Inc. (“GSD”) which was accounted for as a reverse merger transaction. In connection with the closing of the Share Exchange Agreement, GSD management was replaced by bBoothUSA management, and GSDacquisition, Global Systems Design, Inc. changed its name to bBooth, Inc.

 

EffectiveIn April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. TheInc, and in February 2019 we changed our name change was effected through a parent/subsidiary short-form merger offrom nFüsz, Inc., to Verb Technology Company, Inc.

On February 1, 2019, we implemented a 1-for-15 reverse stock split of our wholly-owned Nevada subsidiary, formed solely for the purposecommon stock, $0.0001 par value per share, or common stock. As a result of the name change,reverse stock split, every fifteen shares of our pre-split common stock were combined and reclassified into one share of our common stock. Our consolidated financial statements have been recast to reflect the 1-for-15 reverse stock split of our common stock.

In April 2019, we acquired Sound Concepts Inc., or Sound Concepts, pursuant to an agreement and plan of merger. As a result of the merger, Sound Concepts merged with and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger with the Secretary of State of the State of Nevada on April 4, 2017 and a Certificate of Correction with the Secretary of State of the State of Nevada on April 17, 2017. The merger became effective on April 21, 2017. Our board of directors approved the merger, which resulted in the name change on that date. In accordance with Section 92A.180 of the Nevada Revised Statutes, stockholder approvalour wholly-owned subsidiary, NF Acquisition Company, LLC. Upon completion of the merger, was not required.NF Acquisition Company, LLC changed its name to Verb Direct, LLC, or Verb Direct.

 

On

2 https://www.investopedia.com/insights/worlds-top-economies

3 World Federation of Direct Selling Associations; Statistical Database 2015-2018 [https://wfdsa.org/global-statistics/]

4World Federation of Direct Selling Associations; Statistical Database 2015-2018 [https://wfdsa.org/global-statistics/]

Our common stock and common stock purchase warrants trade on The Nasdaq Capital Market under the effective date of the merger, our name was changed to “nFüsz, Inc.symbols “VERB” and “VERBW,and our Articles of Incorporation, as amended (the “Articles”), were further amended to reflect our new legal name. With the exception of the name change, there were no other changes to our Articles.respectively. Our Internet website address is https://www.verb.tech.

 

Nature of BusinessMarketing

 

We have developed proprietary interactive video technology which serves as the basis for certain products and services that we offer under the brand name “notifi”. Our notifiCRM, notifiADS, notifiLINKS, and notifiWEB products are cloud-based, software-as-a-service (“SaaS”), customer relationship management (“CRM”), sales lead generation, advertising and social engagement software, accessible on mobile and desktop platforms, that we license to individual consumers, sales-based organizations, consumer brands, marketing and advertising agencies, as well as artists and social influencers. Our notifiCRM platform is an enterprise scalable customer relationship management program that incorporates proprietary, interactive audio/video messaging and interactive on-screen “virtual salesperson” communications technology. Our notifiTV and notifiLIVE products are part ofutilize our own proprietary interactive video platform allowing viewersas the foundation of our ongoing marketing initiatives. Our initiatives include, among other things, daily, broad-based social media engagement by a dedicated team of full-time employees and outside consultants; management of our interactive video-based website; and interactive video-based email campaigns and television commercials. In addition, the 17 direct sales back office systems providers with whom we have integrated verbCRM, market our applications to interact with pre-recordedtheir customers and prospects in exchange for finders’ fees.

Competition

CRM software generated more than $48.2 billion in sales revenue throughout the world in 20185, has grown to become the largest software segment, overtaking data management software, and is expected to reach more than $80 billion in sales revenue by 20256. We compete in the CRM applications industry, as well as live broadcast video content by clicking on links we embed in people, objects, graphics or sponsors’ signage displayed on the screen. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices available in the market todayvideo conferencing/webinar industry. We believe that CRM applications that incorporate our proprietary Verb interactive video technology provide significant competitive advantages over the CRM applications that do not. The long-term leaders in the CRM sector: Salesforce, Microsoft, Oracle, SAP, and Adobe, collectively account for approximately 41% of industry sales7. These companies, as well as many others, have numerous differences in feature sets and functionality, but all share certain basic attributes. Most of them were designed before the advent and proliferation of mobile phones, social media, and the technology behind the current ubiquity of video over the internet and more recently on mobile devices. While many of them have attempted to incorporate video capabilities into their respective CRM platforms, sometimes in ‘‘bolt-on’’ fashion, we do not believe any of them has done so in a manner that is as effective as our interactive in-video ecommerce platform that allows users to place clickable calls-to-action right in the video, including into users’ pre-existing sales and product videos. In addition, Verb’s interactive videos are viewable on both mobile and desktop devices regardless of operating system and without the need to download special softwarea proprietary player or proprietary video players.

Our contact address is 344 S. Hauser Blvd., Suite 414, Los Angeles, CA 90036. Our telephone number is 855 250-2300. Our website iswww.nfusz.com.

Unless otherwise indicated, all references in this Registration Statement to “dollars” or “$” refer to US dollars.

Revenue Generationprogram.

 

We intendalso compete in the video webinar and ecommerce solution provider sectors. The webinar sector is dominated by Zoom, WebEx, and Go2Meeting, among others. The ecommerce solution provider sector is dominated by Shopify, among others. However, we believe our verbLIVE application provides a superior solution for users seeking to generate revenueuse video webinars as a sales tool because our in-video clickable icons provide seamless in-video ecommerce capabilities that are not offered by either Zoom (or other large webinar providers) or Shopify. We believe verbLIVE represents a unique solution that combines the best features of Zoom and Shopify in a single application, offering users a more friction-free and effective selling experience. Notwithstanding the foregoing, the market share, marketing strength, and established positions in the marketplace of our competitors may prevent us from the following sources:obtaining a large share of these markets.

Recurring license fees paid by enterprise users for blanket distribution of the applications to, and access by, enterprise employees or affiliates
Recurring subscription fees paid by individual users
In-app and online purchases by users to access various premium services, features, functionality, and options of the platform (such as the ability to create and send interactive videos, among several other interactive video features and functionality);
User data/lead generation fees from the sale or licensing of demographic data

 

Operations5 Forbes.com [https://www.forbes.com/sites/louiscolumbus/2019/06/22/salesforce-now-has-over-19-of-the-crm-market/#7014e4a333a5]

6 Grand View Research, Inc. [https://www.grandviewresearch.com/industry-analysis/customer-relationship-management-crm-market]

7 Forbes.com [https://www.forbes.com/sites/louiscolumbus/2019/06/22/salesforce-now-has-over-19-of-the-crm-market/#7014e4a333a5]

Intellectual Property

 

Our companypolicy is headquartered in Los Angeles, California, whereto protect our executive, administrative and operational management are based.

Our Market

Our target market is intentionally broad and it includes virtually all sales-based organizations, consumer brands, ad agencies, online marketers, advertisers, sponsors, social media celebrities, entertainment celebrities, performance artists, enterprise users - large and small, religious organizations, health-care providers, network, multi-level, and affiliate marketing companies, media companies, major motion picture studios, social media companies, and virtually any other person or organization, including large and small businesses that seek to attract, engage, and communicate with customers, consumers, fans, followers, patients, friends, and subscribers, among others, online, utilizing automated, interactive video marketing technology.

Distribution Methods

Our mobile applications are available in Apple’s App Store for IOS devices and in Google’s Play Store for Android devices. Desktop/laptop versions of our software for Windows and Mac computers are available on our website, andtechnology through, our licensees.

Marketing

Our marketing strategy is four-fold. First, we leverage the existing relationships we have in the entertainment industry, such as American Idol, among other such industry relationships. Second, we utilize lead-generation companies like Sapper Consulting, whose clients include Fortune 500 companies,things, a combination of patents, trade secrets and copyrights. We primarily rely upon trade secrets and copyrighted proprietary software, code, and know-how to conduct targeted marketing campaigns onprotect our behalf to decision makers at companies that comprise a broad range of industries, including professional and financial services, manufacturing, healthcare, IT, technology, entertainment, advertising, and marketing companies, to arrange for, and schedule demonstrations of our products and services. Third, we create, market and distribute interactive video programming, such as ourWHO GOT BARS?program that act as a marketing showcase for our interactive video products and services; and fourth, we utilize our own notifiCRM platform and our other notifi products and services as marketing and lead generation tools, to power direct email campaigns and social media ad campaigns.

Competition

While we aware of numerous providers of CRM, lead-generation, messaging and communications products and services, we are unaware of any offering products or services in the marketplace that utilize automated interactive video as the primary means of communication between application/program users/subscribers and their corresponding customers, clients, and followers, among other messaging recipients.

 29

Intellectual Property

Our notifi 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 applications, featuresthat are similar to ours or that compete with ours. Trade secret and functionality are based on,copyright laws afford only limited protection for our technology and consistproducts. The laws of many countries do not protect our proprietary software, coderights 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 know-howuse information that we designedregard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology and developed.products less valuable, if the design around is favorably received in the marketplace.

 

We recently filed a provisional patent application with the U.S. Patent and Trademark Office, or PTO, with respect to providing interactive video streams involving interactive buttons which we utilize in our video products. However, our provisional patent application may not result in the issuance of a patent, or may result in narrow claims, which may limit the protection we are attempting to obtain. We also hold a number of granted patents in two families with pending continuations. A first family relates to systems and methods for enhanced networking, conversion tracking, and conversion attribution. This family contains two issued patents (U.S. Pat. No. 9,792,380, issued October 17, 2017; and U.S. Pat. No. 10,467,317, issued Nov. 5, 2019) and a pending continuation. A second family relates to systems and methods for generating a custom campaign. This family contains one issued patent (U.S. Pat. No. 10,643,247, issued May 5, 2020) and a pending continuation. These existing patents and any future patents that may be issued to us, may not protect commercially important aspects of our technology. Furthermore, the validity and enforceability of such patents may be challenged by third parties, which may result in our patents being invalidated or modified by the PTO, various legal actions against us, the need to develop or obtain alternative technology and/or obtain appropriate licenses under third party patents, which may not be available on acceptable terms or at all.

Third parties may independently develop technology that is not covered by our patents, 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.

There is a risk that our means of protecting our intellectual property rights may not be adequate, and weaknesses or failures in this area could adversely affect our business or reputation, financial condition, and/or operating results.

We cannot assure you that our technology platform and products do not infringe patents held by others or that they will not in the future. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.

Research and Development

 

We spent $257,803 onincurred $4,311,000 and $980,000 of research and development expenses during the yearyears ended December 31, 2016,2019 and $241,637 on research and development during the year ended December 31, 2015.2018, respectively. These funds were primarily used for development of our notifi software.

interactive video-based sales enablement platform and associated applications.

Sources and Availability of Products and Names of Principal Suppliers

 

WeWhile most of our design, development, and engineering team is U.S.-based, we currently rely on certain key suppliersutilize a small group of dedicated full-time and vendors inpart-time off-shore experienced professionals for some of the coding and maintenance of our software. We believe we have mitigated the risks associated riskswith managing an external team of these single-source vendor relationshipssoftware development professionals by ensuring that weincorporating experienced internal management and oversight, as well as appropriate systems, protocols, controls, and procedures to ensure the protection and integrity of all our applications. We have also ensured access to additional qualified vendors and suppliersprofessionals to provide like or complementary services.services on an as-needed basis.

 

Dependence on Key Customers

 

Based on our current business plan and anticipated future activities as described herein,in this Annual Report, we do not expect to have any significanta single customer concentration and accordingly, we do not expect to be dependent on any key customers.that represented 13% of our 2019 revenue.

 

Government Regulation

 

Government regulation is not of significant concern for us,our business nor is government regulation expected to become an impediment to ourthe business in the nearnear- or mid-term as we aremanagement is currently unaware of any planned or anticipated government regulation that would have a material impact on our business. We believe weOur management believes it currently possesspossesses all requisite authority to conduct our business.

business as described in this Annual Report.

Employees

 

As of June 29, 2020, we had 89 full-time statutory employees, and 8 part-time employees, and 55 independent contractors. We currently operate with 6 full time employees. We also engage 15 consultantsindependent 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 or consultants are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages and we believe our relationsrelationship with our employees, consultants, and consultants, are excellent.both full-time and part-time, is satisfactory.

 

Seasonality of BusinessLegal Proceedings

 

There is no seasonality with respectOn April 24, 2018, EMA Financial, LLC, or EMA, commenced an action against us, styled as EMA Financial, LLC, a New York limited liability company, Plaintiff, against nFUSZ, Inc., Defendant, United States District Court, Southern District of New York, case number 1:18-cv-03634-NRB. The complaint sets forth four causes of action and seeks money damages, injunctive relief, liquidated damages, and declaratory relief related to our business or major fluctuationsrefusal to agree to EMA’s interpretation of a cashless exercise provision in monthly demand.a common stock warrant we granted to EMA in December 2017. We interposed several counterclaims, including a claim for reformation of the underlying agreements to reflect our interpretation of the cashless exercise provision. Both parties moved for summary judgment. On March 16, 2020, the United States District Court entered a decision agreeing with our position, denying EMA’s motion for declaratory judgement on its interpretation of the cashless exercise formula, and stating, inter alia, that “the Agreements read in their entirety reveal that nFUSZ, Inc.’s position regarding the proper cashless exercise formula is the only sensible one and that the cashless exercise formula must be enforced accordingly.” The court went on to order that in light of this finding, the parties should submit a proposal for future proceedings. Accordingly, we have instructed our counsel to prosecute our claims for reimbursement of all of the costs we incurred in connection with this action, including all attorneys’ fees as well as all damages we incurred as a result of EMA’s conduct.

We are currently in a dispute with a former employee of our predecessor bBooth, Inc. who has interposed a breach of contract claim in which he alleges that he is entitled to approximately $300,000 in unpaid bonus compensation from 2015. We do not believe his claims have any merit as they are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release executed by the former employee when we purchased all of his shares of stock more than 4 years ago in January 2016. We intend to seek dismissal of the former employee’s claims through arbitration.

 

Legal ProceedingsOn July 9, 2019, a purported class action complaint was filed in the United States District Court, Central District of California, styled SCOTT C. HARTMANN, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. VERB TECHNOLOGY COMPANY, INC., and RORY J. CUTAIA, Defendant, Case Number 2:19-CV-05896. The complaint purports to be brought on behalf of a class of persons or entities who purchased or otherwise acquired our common stock between January 3, 2018 and May 2, 2018, and alleges violations of Sections 10(b) and 20(a) of the Exchange Act, arising out of the January 3, 2018, announcement by us of our agreement with Oracle America, Inc. The complaint seeks unspecified costs and damages. We believe the complaint is without merit and we intend to vigorously defend the action.

On May 15, 2020, we executed a binding Memorandum of Understanding with the lead plaintiff in the class action lawsuit to settle that action and release the claims asserted therein.  The terms of the settlement are confidential pending submission to the court, and subject to several contingencies, including but not limited to court approval. We have established an appropriate reserve to account for the settlement.

On September 27, 2019, a derivative action was filed in the United States District Court, Central District of California, styled Richard Moore, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. Verb Technology Company, Inc., and Rory J. Cutaia, James P. Geiskopf, and Jeff Clayborne, Defendants, Case Number 2:19-CV-08393-AB-SS. The derivative action also arises out of the January 3, 2018, announcement by us of our agreement with Oracle America, Inc. The derivative action alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets due to the costs associated with the defense of the above referenced class action complaint. The derivative complaint seeks a declaration that the individual defendants have breached their duties, unspecified damages, and certain purportedly remedial measures. We contend that the class action is without merit and as such, this derivative action, upon which it relies, is likewise without merit and we intend to vigorously defend this suit.

 

We know of no other material pending legal proceedings to which our companywe or any of our subsidiaries is a party or ofto which any of our assets or properties, or the assets or properties of any of our subsidiaries, are subject and, to the best of our knowledge, no adverse legal activity is the subject.anticipated or threatened. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

We know of no material proceedings in which any of our directors, officers, or affiliates, or any registered or beneficial stockholder is a party adverse to our companyus or any of our subsidiaries or has a material interest adverse to our companyus or any of our subsidiaries.

 

We believe we have adequately reserved for all litigation within our financials.

DIRECTORS AND EXECUTIVE OFFICERSMANAGEMENT

 

All directorsDirectors and Executive Officers

Each of our company holddirectors holds office until the next annual meeting of our stockholders or until their successors havehis or her successor has been elected and qualified, or until theirhis or her death, resignation, or removal. TheOur executive officers of our company are appointed by our board of directors and hold office until their death, resignation, or removal from office.

 

Our directors and executive officers, their ages, positions held, and duration of such, are as follows:

 

Name Position Held with Our Company Age Date First Elected or Appointed
Rory J. Cutaia Chairman, President, Chief Executive Officer, Secretary, Treasurer and Director 6164 October 16, 2014
Jeffrey R. Clayborne Chief Financial Officer and Treasurer 4649 July 15, 2016
James P. Geiskopf Lead Director 60 October 16, 2014
James P. GeiskopfPhilip J. Bond Director 5863 October 16, 2014September 10, 2018
Kenneth S. CragunDirector59September 10, 2018
Nancy HeinenDirector63December 20, 2019
Judy HammerschmidtDirector65December 20, 2019

 

Business Experience

 

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, and the name and principal business of the organization by which they were employed:employed, and certain of their other directorships:

 

Rory J. Cutaia, Chairman of the Board, President, CEO,Chief Executive Officer, and Secretary Treasurer and Director

 

Rory J. Cutaia founded nFüsz, Inc. (formerlyhas been our Chairman of the Board, Chief Executive Officer, President, Secretary, and Treasurer since the formation of CMG, in which roles he has continued to serve through our October 2014 acquisition of bBooth USA to the present. Mr. Cutaia founded CMG in 2012 and before that, Cutaia Media Group, LLC)bBooth, Inc. in August 2012.2014. 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 founding nFüsz, Inc.,that, from October 2006 to August 2011, Mr. Cutaiahe was a partner andentrepreneur-in-residenceEntrepreneur-in-Residence at Corinthian Capital Group, Inc. (“Corinthian”), or Corinthian, a private equity fund based in New York involvedCity that invested in investing in middle marketmiddle-market, U.S. based companies. During his tenure at Corinthian, from June 2008 to October 2011, Mr. Cutaiahe 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 CEOthe Chief Executive Officer 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, Mr. Cutaiahe founded and was the Founder, Chairman and CEOChief Executive Officer of The Telx Group, Inc., or Telx, a technology company engaged in the telecom carrier inter-connection, colocationco-location, and data center business, which he sold in 2006. Before founding Telx, Mr. Cutaiahe was a practicing lawyer with Shea & Gould, a prominent New York City law firm. Mr. Cutaia obtained his Juris DoctorDoctorate degree in law 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 knowledge of our current operations, in addition to his education and business experiences described above.

51

Jeffrey R. Clayborne, Chief Financial Officer and Treasurer

 

Jeffrey R. Clayborne ishas been our Chief Financial Officer at nFüsz.since July 15, 2016. Mr. Clayborne has more than 20 yearsis an experienced finance professional with an entrepreneurial spirit and proven record of experience in business strategy, finance, business development, negotiation,driving growth and accounting.profit for both Fortune 50 and start-up companies. Prior to joining our company, Mr. Clayborne earned his MBAserved as Chief Financial Officer and a consultant with Breath Life Healing Center from the UniversityAugust 2015 to July 2016. From September 2014 to August 2015, he served as Vice President of Southern California with high honors in 2005,Business Development of Incroud, Inc and began his career as a CPA at McGladrey & Pullen from 1995May 2012 to 1997, then KPMG Peat Marwick from 1997 to 1998. He then moved on to senior finance positions at The Walt Disney Company, including Senior Finance Manager at Walt Disney International, from1998 to 2006, where he oversaw financial planning and analysis for the organization in 37 countries. Thereafter,September 2014, Mr. Clayborne joinedserved as President of Blast Music, LLC. Prior to this, Mr. Clayborne was employed by Universal Music Group where he wasserved as Vice President, Head of Finance & Business Development for Fontana, from 2006 to 2012, where he managed the financial planning and analysis of the sales and marketing division and led the business development department. He also served in senior finance positions at The Walt Disney Company, including Senior Finance Manager at Walt Disney International, where he oversaw financial planning and analysis for the organization in 37 countries. Mr. Clayborne began his career as a CPA at McGladrey & Pullen LLP (now, RSM US LLP), then at KPMG Peat Marwick (now, KPMG). He brings with him more than 20 years of experience in all aspects of strategy, finance, business development, negotiation, and accounting. In April 2014, Mr. Clayborne was convicted of violating Section 23152(b) of the California Vehicle Code which prohibits a person from driving a vehicle while under the influence of alcohol. Mr. Clayborne earned his Master of Business Administration degree from the University of Southern California, with high honors.

 

James P. Geiskopf, Director

 

James P. Geiskopf became a directorhas been one of our companydirectors since the formation of bBooth USA, in which role he has continued to serve through our October 2014.2014 acquisition of bBooth USA by GSD, our predecessor, to the present. He also serves as our Lead Director. Mr. Geiskopf has 32 years of experience leading companies in the services industry. From 1975 to 1986, Mr. Geiskopf wasserved as the Chief Financial Officer of Budget Rent a Car of Fairfield California and from 1986 to 2007, he was theserved as its President and Chief Executive Officer. In 2007, Mr. Geiskopfhe sold the franchise. Mr. Geiskopf served on the Boardboard of Directorsdirectors of Suisun Valley Bank from 1986 to 1993. Mr. Geiskopf1993 and also served on the Boardboard of Directorsdirectors of Napa Valley Bancorp from 1991 to 1993. The bank holding company1993, which was sold to a larger institution in 1993. Since 2014, Mr. Geiskopf has alsoserved on the board of directors of Currency Works, Inc., a public company that trades on the OTCQB. From June 2013 to March 16, 2017, the date of his resignation, Mr. Geiskopf served as a director of RedStone Literary Agents, Inc./Appcoin Innovations, Inc. from August 2014 to present.Electronic Cigarettes International Group, Ltd., or ECIG, a Nevada corporation, whose common stock was quoted on the over-the-counter market. ECIG filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Code on March 16, 2017.

 

Mr. Geiskopf has significant and lengthy business experience including building, operating, and selling companies, serving on the boardboards 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, which is whyskills. These were the primary reasons that we believeconcluded that Mr. Geiskopf is qualifiedhe should serve as one of our directors.

52

Philip J. Bond, Director

Philip J. Bond was appointed as one of our directors effective September 10, 2018. On the same date, he was appointed as Chairman of the Governance and Nominating Committee and to serve on ourthe Audit, Compensation, and Governance and Nominating Committees. In 2018, Mr. Bond co-founded Potomac International Partners, Inc., a multidisciplinary consulting firm and currently serves as its President of Government Affairs. In 2009, TechAmerica, a U.S.-based technology trade association, was formed from the merger of AeA, the Cyber Security Industry Alliance, the Government Electronics & Information Technology Association, and the Information Technology Association of America. Mr. Bond was appointed as the President of TechAmerica at the date of the merger, and later, in 2010, was appointed as its Chief Executive Officer. Prior to the merger, Mr. Bond served as the President and Chief Executive Officer of Information Technology Association of America from 2006 to 2008. From 2001 to 2005, Mr. Bond served as Undersecretary of Technology in the U.S. Department of Commerce for Technology. From 2002 to 2003, Mr. Bond served concurrently as Chief of Staff to Commerce Secretary Donald Evans. In his dual role, he worked closely with Secretary Evans to increase market access for U.S. goods and services and further advance America’s technological leadership at home and abroad. Mr. Bond oversaw the operations of the National Institute of Standards and Technology (NIST), the Office of Technology Policy, and the National Technical Information Service. During his tenure, the Technology Administration was the pre-eminent portal between the federal government and U.S. technology. Earlier in his career, Mr. Bond served as Senior Vice President of Government Relations for Monster Worldwide, the world’s largest online career site, and General Manager of Monster Government Solutions. Mr. Bond also served as Director of Federal Public Policy for the Hewlett-Packard Company; Senior Vice President for Government Affairs and Treasurer of the Information Technology Industry Council; as Chief of Staff to the late Congresswoman Jennifer Dunn (R-WA); Principal Deputy Assistant Secretary of Defense for Legislative Affairs; Chief of Staff and Rules Committee Associate for Congressman Bob McEwen (R-OH); and as Special Assistant to the Secretary of Defense for Legislative Affairs. Mr. Bond is a graduate of Linfield College in Oregon and now serves on the school’s board of trustees.

Mr. Bond has extensive experience in Washington D.C., where he is recognized for his leadership roles in the Executive branch of the government of the United States, at major high technology companies, and most recently as the Chief Executive Officer of TechAmerica, the largest technology advocacy association in the United States. Mr. Bond’s unique leadership experience and expertise in government relations, were the primary reasons that we concluded that he should serve as one of our directors.

 

Kenneth S. Cragun, Director

Kenneth S. Cragun was appointed as one of our directors effective September 10, 2018. On the same date, he was appointed as Chairman of the Audit Committee, and to serve on the Compensation and Governance and Nominating Committees. Since October 2018, Mr. Geiskopf wasCragun has served as the Chief Accounting Officer of DPW Holdings, Inc., a directordiversified holding company, and since January 2019, as the Chief Financial Officer and Treasurer for Alzamend Neuro, Inc., a biopharma company. Mr. Cragun also serves as a partner of Electronic Cigarettes International Group, Ltd. (“ECIG”) fromHardesty, LLC, a national executive services firm. He has been a partner of its Southern California Practice since October 2016. From January 2018 to September 2018, Mr. Cragun served as the Chief Financial Officer of CorVel Corporation, or CorVel. CorVel is an Irvine, California-based national provider of workers’ compensation solutions for employers, third-party administrators, insurance companies, and government agencies. Mr. Cragun is a two-time finalist for the Orange County Business Journal’s “CFO of the Year – Public Companies” and has more than 30 years of experience, primarily in the technology industry. He served as Chief Financial Officer of two Nasdaq-listed companies: Local Corporation (April 2009 to September 2016), formerly based in Irvine, California, which operated a U.S. top 100 website “Local.com” and, in June 2013 to March 16, 2017, the date of his resignation. ECIG2015, filed a voluntary petition in the United States Bankruptcy Court for the Central District of California seeking relief under the provisions of Chapter 711 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq.or Bankruptcy Code, and Modtech Holdings, Inc. (June 2006 to March 2009), formerly based in Perris, California and, in October 2008, filed a voluntary petition in the United States Bankruptcy Court for the Central District of Nevada, on March 16, 2017 (case number 17-11242).California seeking relief under the provisions of Chapter 11 of the Bankruptcy Code. Mr. Cragun received his B.S. in Accounting from Colorado State University-Pueblo.

Mr. Cragun’s industry experience is vast with extensive experience in fast-growth environments and building teams in more than 20 countries. Mr. Cragun has led multiple financing transactions, including IPOs, PIPEs, convertible debt, term loans, and lines of credit. For these reasons, we believe that he will provide additional breadth and depth to our board of directors.

 

Nancy Heinen

Nancy Heinen was appointed as one of our directors effective December 23, 2019. Ms. Heinen is currently a board member, investor, strategy consultant, and startup advisor with more than 25 years of experience in senior executive roles in Silicon Valley. In 1997, she was recruited by Steve Jobs to join the executive team of Apple Inc., or Apple, and assisted in its turnaround. During Ms. Heinen’s tenure at Apple, her responsibilities included all legal matters, including intellectual property litigation, acquisitions, corporate governance, and securities compliance, as well as global government affairs and corporate security. Previously, she served as General Counsel of NeXT Software, Inc., and Associate General Counsel at Tandem Computers, Inc. Ms. Heinen currently acts as Board Chair of Teen Success, Inc. and First Place for Youth, is a board member and past board chair of SV2 – Silicon Valley Social Venture Fund, and serves on the advisory boards of Illuminate Ventures, University of California, Berkeley Center for Law and Business, and the Northern California Innocence Project. Ms. Heinen received her B.A. and J.D. from the University of California at Berkeley. We believe that Ms. Heinen’s legal experience, coupled with her senior executive experience, will provide a benefit to us, our stockholders, and our board of directors.

Judy Hammerschmidt

Judy Hammerschmidt was appointed as one of our directors effective December 23, 2019. Ms. Hammerschmidt has spent the last 37 years as an international attorney. She began her career as a Special Assistant to two Attorneys General of the United States, focusing on international matters of interest to the U.S. government, including negotiating treaties and agreements with foreign governments. She then joined Dickstein, Shapiro & Morin, LLP, a Washington, D.C. firm, where she represented companies around the world as they expanded internationally in highly regulated environments. Her clients included Guess? Inc., Pfizer Inc., Merck & Co., Inc., the Receiver for Bank of Credit and Commerce International of the United Arab Emirates, Recycled Paper Products, Inc., and Herbalife Nutrition Ltd., or Herbalife. She provided structuring, growth, and regulatory advice for these and other companies. She joined Herbalife as Vice President and General Counsel of Europe in 1994, becoming Executive Vice President and International Chief Counsel in 1996. In 2002, she was part of the management group that sold Herbalife. Since that time, she has served as outside counsel to a series of entrepreneurial companies looking to expand internationally, primarily in the food and drug/nutritional supplements space. In addition, Ms. Hammerschmidt was a Principal in JBT, LLC, a privately held company that owned “mindful dining” restaurants in the Washington, D.C. area. Those properties were sold in 2010. She expects to continue to act as outside counsel for small companies while serving on our board of directors. We believe that Ms. Hammerschmidt’s legal experience, generally, and her experience with certain of her previous or client relationships, specifically, will provide a benefit to us, our stockholders, and our board of directors.

Family Relationships

 

There are no family relationships betweenamong any director or executive officer of our Company.

Significant Employees

We do not currently have many significant employees other than ourdirectors or executive officers.

 

Involvement in Certain Legal Proceedings

None of our directors and executive officers has been involved in any of the following events during the past ten years:

 (a)54any petition under the federal bankruptcy laws or any state insolvency laws, filed by or against, or an appointment of a receiver, fiscal agent or similar officer by a court for the business or property of such person, or any partnership in which such person was a general partner at or within two years before the time of such filing, or any corporation or business association of which such person was an executive officer at or within two years before the time of such filing;
   
(b)any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
(c)being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
(d)being the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;
(e)being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a federal or state securities or commodities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been reversed, suspended, or vacated;
(f)being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(g)being the 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: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(h)being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors and persons who own more than 10% of the outstanding Shares to file reports of ownership and changes in ownership concerning their Shares with the SEC and to furnish us with copies of all Section 16(a) forms they file. We are required to disclose delinquent filings of reports by such persons.

Based solely on the copies of such reports and amendments thereto received by us, or written representations that no filings were required, we believe that all Section 16(a) filing requirements applicable to our executive officers and directors and 10% stockholders were met for the year ended December 31, 2016.

Code of Ethics

We have adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that establishes, among other things, procedures for handling actual or apparent conflicts of interest.

Committees of Board of Directors

We currently have an audit committee and a compensation committee consisting of James Geiskopf, our independent director. We do not presently have a separately constituted nominating committee, or any other committees of our board of directors. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.

We do not have any defined policy or procedure requirements for our stockholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or stockholders, and makes recommendations for election or appointment.

A stockholder who wishes to communicate with our board of directors may do so by directing a written request to the address of our executive offices.

Under Canadian National Instrument 52-110 – Audit Committees (“NI 52-110”) reporting issuers are required to provide disclosure with respect to its audit committee, which consists of James Geiskopf.

Audit Committee Charter

We adopted our audit committee charter on November 12, 2014. The text of our audit committee charter was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014 and filed with the SEC on March 31, 2015.

 

Corporate Governance

 

GeneralCode of Ethics

 

OurIn 2014, our board of directors believesapproved and adopted a code of ethics and business conduct for directors, senior officers, and employees, or code of ethics, that good corporate governance improves corporate performanceapplies to all of our directors, officers, and benefits all stockholders. Canadian National Policy 58-201Corporate Governance Guidelines provides non-prescriptive guidelines on corporate governance practices for reporting issuersemployees, including our principal executive officer and principal financial officer. The code of ethics addresses such as our company. In addition, Canadian National Instrument 58-101Disclosureindividuals’ conduct with respect to, among other things, conflicts of Corporate Governance Practicesprescribes certaininterests; 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 companyassets; and reporting suspected illegal or unethical behavior. The code of its corporate governance practices. This disclosureethics is presented below.available on our website at https://www.verb.tech/investor-relations/governance/code-of-ethics.

 

Board of DirectorsAudit Committee and Audit Committee Financial Expert

 

We currently act with twoOn August 14, 2018, our board of directors consisting of Rory J. Cutaiaamended and James P. Geiskopf. Our common stock is quotedrestated the Audit Committee charter to govern the Audit Committee. Currently, Messrs. Geiskopf, Bond, and Cragun (Chairman) serve on the OTCQB operated byAudit Committee and each meets the OTC Markets, which does not impose any director independence requirements. Under NASDAQ Marketplace Rule 5605(a)(2), a directorrequirements of The Nasdaq Capital Market and the SEC. Mr. Cragun qualifies as an “audit committee financial expert.”

The Audit Committee charter requires that each member of the Audit Committee meet the independence requirements of The Nasdaq Capital Market and the SEC and requires the Audit Committee to have at least one member that qualifies as an “audit committee financial expert.” In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee charter, the primary function of the Audit Committee is not considered to be independent if he is also an executive officer or is, or at any time duringassist the past three years was, employeeboard of directors in its general oversight of our Company. Under this rule, Rory J. Cutaiaaccounting and financial reporting processes, audits of our financial statements, and internal control and audit functions. The Audit Committee charter can be found online at https://www.verb.tech/investor-relations/governance/audit.

Compensation Committee

On August 14, 2018, our board of directors approved and adopted a charter to govern the Compensation Committee. Currently, Messrs. Geiskopf (Chairman), Bond, Cragun, Heinen, and Hammerschmidt serve as members of the Compensation Committee and each meets the independence requirements of The Nasdaq Capital Market 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 not independent because heto 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 of directors on the adoption of policies that govern our compensation programs. The Compensation Committee charter may be found online at https://www.verb.tech/investor-relations/governance/compensation-committee.

55

Governance and Nominating Committee

On August 14, 2018, our board of directors approved and adopted a charter to govern the Governance and Nominating Committee. Currently, Messrs. Geiskopf, Bond (Chairman), Cragun, Heinen, and Hammerschmidt serve as members of the Governance and Nominating Committee and each meets the independence requirements of The Nasdaq Capital Market and the SEC. The Governance and Nominating Committee charter requires that each member of the Governance and Nominating Committee meet the independence requirements of The Nasdaq Capital Market 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 of directors, to identify and recommend candidates to fill vacancies occurring between annual stockholder meetings, to review our chairman, president, chief executive officer,policies and secretary. Under this rule, James P. Geiskopf is independent.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 https://www.verb.tech/investor-relations/governance/governance-and-nominating-committee.

Compensation Committee Interlocks and Insider Participation

No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.

Orientation and Continuing Education

 

We have an informal process to orient and educate new recruitsdirectors to ourthe board regarding their role on ourthe 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.

 

OurThe board does not provide continuing education for ourits directors. Each director is responsible to maintain the skills and knowledge necessary to meet his obligations as director.

Ethical Business Conduct

We have adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that establishes, among other things, procedures for handling actual or apparent conflicts of interest.

We have found that the fiduciary duties placed on individual directors by our governing corporate legislation and the common law and the restrictions placed by applicable corporate legislation on an individual director’s participation in decisions of our board of directors in which the director has an interest have been sufficient to ensure that our board of directors operates in the best interests of our company.director.

 

Nomination of Directors

 

As of March 30, 2017,June 29, 2020, we had not effected any material changes to the procedures by which our stockholders may recommend nominees to our board of directors. Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our stockholders. Our board of directors has determined that it is in the best position to evaluate our company’s requirements as well as the qualifications of each candidate when ourthe board considers a nominee for a position on our board of directors. If stockholders wish to recommend candidates directly to our board, they may do so by sending communications to the president of our Company at the address of our executive offices.

Compensation

Our board of directors is responsible for determining compensation for the directors of our company to ensure it reflects the responsibilities and risks of being a director of a public company.

Other Board Committees

Other than our audit committee,Accordingly, 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. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or stockholders, and makes recommendations for election or appointment.

A stockholder who wishes If stockholders wish to communicate withrecommend candidates directly to our board, of directorsthey may do so by directing a written requestsending communications to our president at the address on the cover page of this Annual Report. If stockholders wish to recommend candidates directly to our board, they may do so by sending communications to the addresspresident of our executive offices.company at the address on the cover of this Annual Report.

Other Board Committees

Other than our Audit Committee, Compensation Committee, and Governance and Nominating 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.

 

  3556 
  

 

Assessments

 

OurThe 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 company’s major needs. However, due to our stage of development and our need to deal with other urgent priorities, ourthe board has not yet implemented such a process of assessment.

 

Director IndependenceIndemnification of Directors and Officers

We are a Nevada corporation governed by the NRS.

Section 78.138 of the NRS provides that, unless the corporation’s articles of incorporation provide otherwise, a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud, or a knowing violation of the law.

Section 78.7502 of the NRS permits a company to indemnify its directors and officers against expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with a threatened, pending, or completed action, suit, or proceeding, if the officer or director (i) is not liable pursuant to Section 78.138 of the NRS, or (ii) acted in good faith and in a manner the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful. Section 78.7502 of the NRS also precludes indemnification by the corporation if the officer or director has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court determines that in view of all the circumstances, the person is fairly and reasonably entitled to indemnity for such expenses and requires a corporation to indemnify its officers and directors if they have been successful on the merits or otherwise in defense of any claim, issue, or matter resulting from their service as a director or officer.

Section 78.751 of the NRS permits a Nevada corporation to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit, or proceeding as they are incurred and in advance of a final disposition thereof, upon determination by the stockholders, the disinterested board members, or by independent legal counsel. Section 78.751 of the NRS provides that the articles of incorporation, the bylaws, or an agreement may require a corporation to advance expenses as incurred upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the corporation if so provided in the corporation’s articles of incorporation, bylaws, or other agreement. Section 78.751 of the NRS further permits the corporation to grant its directors and officers additional rights of indemnification under its articles of incorporation, bylaws, or other agreement.

Section 78.752 of the NRS provides that a Nevada corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. We have obtained insurance policies insuring our directors and officers against certain liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.

The foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference to the above discussed sections of the NRS.

 

Our common stock isarticles of incorporation provide that, except in some specified instances, our directors and officers shall not currently listedbe personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors and officers, except liability for the following:

acts or omissions which involve intentional misconduct, fraud or knowing violation of law; or
the payment of distributions in violation of NRS 78.300, as amended.

In addition, our articles of incorporation and bylaws provide that we must indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by the NRS. Our bylaws also authorize us to purchase and maintain insurance on the The Nasdaq Stock Market. In evaluating the independencebehalf of any of our membersdirectors or officers against any liability asserted against that person in that capacity, whether or not we would have the power to indemnify that person against such liability and the composition of the committees ofexpenses. We have entered and expect to continue to enter into agreements to indemnify our directors and executive officers as determined by our board of directors,directors. In general, the indemnification agreements provide that we utilize the definition of “independence” as that term is defined by applicable listing standards of The Nasdaq Stock Market and Securities and Exchange Commission rules, including the rules relatingwill, to the independence standardsfullest extent permitted by Nevada law and subject to certain limitations, indemnify the indemnitee against certain expenses (including attorneys’ fees), judgments, fines, penalties, and settlement amounts that may be incurred in connection with the defense or settlement of any claim, criminal, civil, or administrative action or proceeding to which the indemnitee becomes subject in connection with his or her services as an audit committeeexecutive officer, director, or both. We believe that these bylaw provisions and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.indemnification agreements are necessary to attract and retain qualified persons as directors and executive officers.

 

We believe James Geiskopf isThe limitation of liability and indemnification provisions in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an independent director because he is not an officer of our companyaction, if successful, might benefit us and notother stockholders. Furthermore, a beneficial owner of a material number of shares of our common stock. We have determined that Rory J. Cutaia is not independent duestockholder’s investment may be adversely affected to the factextent that he iswe pay the executive officercosts of our company.settlement and damage awards against directors and officers as required by these indemnification provisions.

 

Our board of directors expects to continue to evaluate its independence standards and whether and to what extent the composition of our board of directors and its committees meets those standards. We ultimately intend to appoint such persons to our board and committees of our boardInsofar as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange. Therefore, we intend that a majority of our directors will be independent directors of which at least one director will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgatedindemnification for liabilities arising under the Securities Act.

Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our director, officer, or controlling person in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The particulars oftable and discussion below present compensation paidinformation for our following executive officers, which we refer to the following persons:as our “named executive officers”:

 

 (a)all individuals serving as our principal executive officer during the year ended December 31, 2016;
(b)each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended December 31, 2016; and
(c)up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at December 31, 2016,

who we will collectively refer to as the named executive officers, for all services rendered in all capacities to our company and subsidiaries for the years ended December 31, 2016 and December 31, 2015 are set out in the following summary compensation table:

Summary Compensation Table
Name and Principal PositionYearSalary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Compen-
sation ($)
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compen-
sation
($)
Total
($)
Rory J. Cutaia,(1)
our Chairman, President, Chief Executive Officer, and SecretarySecretary;
 2016(5)2015(6)Jeffrey R. Clayborne, our Chief Financial Officer; and
 357,500
325,000
Nil
Nil
Nil
Nil
108,603
119,753
Nil
Nil
Nil
Nil
127,083
389,830
466,103
834,583

Aaron Meyerson(2)

President bTV business unit2016(5)2015(6)Nil
60,938
Nil
Nil
Nil
Nil
Nil
1560
Nil
Nil
Nil
Nil
Nil
Nil

Nil

62,498

Leigh Collier(3)

Executive Vice-President,Chad J. Thomas, our Senior Managing Director of Technology Development2016(5)2015(6)Nil
58,885
Nil
Nil
Nil
Nil
Nil
1,560
Nil
Nil
Nil
Nil
Nil
Nil

Nil

60,445

Kim Watson(4)

Executive Vice-President, Strategic Relations2016(5)2015(6)Nil
40,625
Nil
Nil
Nil
Nil

Nil

27,881

Nil
Nil
Nil
Nil
Nil
Nil

Nil

68,506

Jeff Clayborne(5)

2016(5)2015(6)34,000
Nil
Nil
Nil
Nil
Nil

164,464

Nil

Nil
Nil
Nil
Nil
Nil
Nil

198,464

Nil

Chief Financial Officer and Engineering.

 

Name and Principal Position Year Salary
($)
  Bonus
($)
  Stock Awards(1)
($)
  Option Awards(2)
($)
  All Other Compensation
($)
  Total
($)
 
Rory J. Cutaia(3) 2019  476,000   754,000(4)  752,000(5)  959,000   -   2,941,000(6)
  2018  436,000   -   -   -   1,186,000(7)  1,622,000(8)
                           
Jeffrey R. Clayborne(9) 2019  173,000   287,000(10)  496,000(11)  338,000   -   1,294,000 
  2018  110,000   -   -   17,000   -   127,000 
                           
Chad J. Thomas(12) 2019  160,000   -   120,000(13)  -   -   280,000 
  2018  28,000   -   -   965,000   -   993,000 

 

(1)Mr. Cutaia was appointed as President, Chief Executive Officer, Secretary, Treasurer and director on October 16, 2014 in connection withFor valuation purposes, the closing of the Exchange Agreement. Thedollar amount set out in the table above for Mr. Cutaia reflects management fees paid by bBooth USA, which became our wholly-owned subsidiaryshown is calculated based on the closingmarket price of our common stock on the Exchange Agreement.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)Mr. Meyerson was appointedFor valuation assumptions on stock option awards refer to Note 2 to the audited consolidated financial statements for the year ended December 31, 2019 included as Presidentpart of bTV business unit on October 16, 2014 in connection withthis Annual Report. The disclosed amounts reflect the closingfair value of the Exchange Agreement. The amount set outstock option awards that were granted during fiscal years ended December 31, 2019 and 2018 in the table above for Mr. Meyerson reflects management fees paid by bBooth USA, which became our wholly-owned subsidiary on the closing of the Exchange Agreement. He resigned effective July 21, 2015.accordance with FASB ASC Topic 718.
(3)Ms. CollierMr. Cutaia was appointed as Chairman of the Board, President, Chief Executive Vice-President, Development,Officer, Secretary, and Treasurer on October 16, 2014 in connection with the closing of the Exchange Agreement. The amount set out in the table above for Ms. Collier reflects management fees paid by bBooth USA, which became our wholly-owned subsidiary on the closing of the Exchange Agreement. She resigned effective July 21, 2015.2014.
  
(4)Mr. Watson was appointed as Executive Vice-President, Strategic Relations, on October 16, 2014 in connection withRepresents an annual incentive bonus of $430,000 and $324,000 for up-listing to The Nasdaq Capital Market and the closingacquisition of Verb Direct, respectively. The bonus incentive compensation has not been paid and management has agreed to defer payment of the Exchange Agreement. The amount set outbonuses to a future date or dates (see further discussion in the table above for Mr. Watson reflects management fees paid by bBooth USA, which became our wholly-owned subsidiary on the closing of the Exchange Agreement. He resigned effective July 21, 2015.accompanying financial statements included in this prospectus).
  
(5)Represents an annual incentive bonus of 352,827 restricted stock awards and 200,000 restricted stock awards for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct, respectively.
(6)As of December 31, 2018, Mr. Cutaia had accrued but unpaid compensation equal to $207,000.
(7)Represents warrants to purchase up to 186,675 shares of common stock at an average exercise price of $6.23 per share exercisable on grant date for extending debt to 2021.
(8)As of December 31, 2018, Mr. Cutaia had accrued but unpaid compensation equal to $188,000.

(9)

Mr. Clayborne was appointed as Chief Financial Officer on July 15, 2016.

(10)Represents an annual incentive bonus of $125,000 and $162,000 for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct, respectively. The bonus incentive compensation has not been paid and management has agreed to defer payment of the bonuses to a future date or dates (see further discussion in the accompanying financial statements included in this prospectus).
  
(6)(11)Year ended December 31, 2016.Represents an annual incentive bonus of 264,620 restricted stock awards and 100,000 restricted stock awards for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct, respectively.
  
(7)(12)Year ended December 31, 2015.Mr. Thomas was appointed Chief Technology Officer on October 12, 2018. Mr. Thomas’ title changed to Senior Managing Director of Technology Development and Engineering in April 2019, at which time he was no longer considered to be an executive officer.
(13)Represents an annual incentive bonus of 88,207 restricted stock awards.

Narrative Disclosure to Summary Compensation Table

The following is a discussion of the material information that we believe is necessary to understand the information disclosed in the foregoing Summary Compensation Table.

Rory J. Cutaia

On December 20, 2019, we entered into an executive employment agreement with Mr. Cutaia. The employment agreement is for a four-year term, and can be extended for additional one-year periods. In addition to certain payments due to Mr. Cutaia upon termination of employment, the employment agreement contains customary non-competition, non-solicitation, and confidentiality provisions. Mr. Cutaia is entitled to an annual base salary of $430,000, 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 $476,000 and $436,000 for the fiscal years ending December 31, 2019 and 2018, respectively.

Mr. Cutaia earned an annual incentive bonus totaling $430,000 and $324,000 for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct, respectively. We have determined that it is in our best interest and in the best interest of our stockholders to defer payments to Mr. Cutaia. We will pay 50% on January 10, 2021 and the remaining 50% on January 9, 2022.

On December 23, 2019, we granted Mr. Cutaia a restricted stock award totaling $400,000 payable in 352,827 shares of our common stock. The restricted stock award is subject to a four-year vesting period, with 25% of the award vesting on the first, second, third, and fourth anniversaries from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.36 and was used to calculate fair market value.

On December 23, 2019, we granted Mr. Cutaia a restricted stock award totaling $272,000 payable in 200,000 shares of our common stock for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct. The restricted stock award vests 25% on the grant date and 25% on the first, second, and third anniversaries from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.36 and was used to calculate fair market value.

On January 9, 2019, we granted Mr. Cutaia a stock option to purchase up to 16,667 shares of our common stock at an exercise price of $4.35 per share. Half the option vested on the grant date, and the remaining half vested on January 9, 2020. The option will expire on January 8, 2024.

On December 23, 2019, we granted Mr. Cutaia a stock option to purchase up to 332,730 shares of our common stock at an exercise price of $1.13 per share. The option is not currently vested, but will vest in full on January 10, 2021, and will expire on January 10, 2021. On December 23, 2019, we granted Mr. Cutaia a stock option to purchase up to 332,730 shares of our Common Stock at an exercise price of $1.13 per share. The option is not currently vested, but will vest in full on January 10, 2022, and will expire on January 10, 2022.

As of December 31, 2019, Mr. Cutaia had accrued but unpaid compensation equal to $207,000.

Mr. Cutaia also received $1,186,000 in fiscal year 2018, as “other compensation,” which represented warrants with 3-year terms to purchase up to 186,675 and 205,623 shares of our common stock, respectively. The warrants were granted as part of extending notes due to the Mr. Cutaia to 2021.

Jeffrey R. Clayborne

Mr. Clayborne earned total cash compensation for his services to us in the amount of $173,000 and $110,000 for the fiscal years ending December 31, 2019 and 2018, respectively.

Mr. Clayborne earned an annual incentive bonus totaling $125,000 and $162,000 for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct, respectively. We have determined that it is in our best interest and in the best interest of our stockholders to defer payments to Mr. Clayborne. We will pay 50% on January 10, 2021 and the remaining 50% on January 10, 2022.

On December 23, 2019, we granted Mr. Clayborne a restricted stock award totaling $300,000 payable in 264,620 shares of our common stock. The restricted stock award is subject to a four-year vesting period, with 25% of the award vesting on the first, second, third, and fourth anniversaries from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.36 and was used to calculate fair market value.

On December 23, 2019, we granted Mr. Clayborne a restricted stock award totaling $136,000 payable in 100,000 shares of our common stock for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct. The restricted stock award vests 25% on the grant date and 25% on the first, second, and third anniversaries from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market. The price per share as reported by The Nasdaq Capital Market on the day of issuance was $1.36 and was used to calculate fair market value.

On December 23, 2019, we granted Mr. Clayborne a stock option to purchase up to 126,672 shares of our common stock at an exercise price of $1.13 per share. The option is not currently vested, but will vest in full on January 10, 2021, and will expire on January 10, 2021. On December 23, 2019, we granted Mr. Clayborne a stock option to purchase up to 126,672 shares of our common stock at an exercise price of $1.13 per share. The option is not currently vested, but will vest in full on January 10, 2022, and will expire on January 10, 2022.

On January 22, 2018, we granted Mr. Clayborne a stock option to purchase 12,876 shares of our common stock at an exercise price of $1.35. The shares vested on the grant date.

Chad J. Thomas

Mr. Thomas earned total cash compensation for his services to us in the amount of $28,000 for the fiscal year ending December 31, 2018.

On October 12, 2018 we granted Mr. Thomas a stock option to purchase 133,333 shares of our common stock at an exercise price of $7.50. The shares will vest annually in three equal installments. As of February 1, 2019, no shares were vested.

2019 Omnibus Incentive Plan

On November 11, 2019 our board of directors approved our 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.

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.

Term

The Incentive Plan became effective upon approval by our stockholders and will continue in effect from that date until it is terminated in accordance with its terms.

Administration

The Incentive Plan may be administered by our board of directors, a committee designated by it, and/or their respective delegates. Currently, our Compensation Committee administers the Incentive Plan. The administrator has the power to determine the directors, employees, and consultants who may participate in the Incentive Plan and the amounts and other terms and conditions of awards to be granted under the Incentive Plan. All questions of interpretation and administration with respect to the Incentive Plan will be determined by the administrator. The administrator also will have the complete authority to adopt, amend, rescind, and enforce rules and regulations pertaining to the administration of the Incentive Plan; to correct administrative errors; to make all other determinations deemed necessary or advisable for administering the Incentive Plan and any award granted under the Incentive Plan; and to authorize any person to execute, on behalf of us, all agreements and documents previously approved by the administrator, among other items.

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Eligibility

Any of our directors, employees, or consultants, or any directors, employees, or consultants of any of our affiliates (except that with respect to incentive stock options, only employees of us or any of our subsidiaries are eligible), are eligible to participate in the Incentive Plan.

Available Shares

Subject to the adjustment provisions included in the Incentive Plan, a total of 8,000,000 shares of our common stock would be authorized for awards granted under the Incentive Plan. Shares subject to awards that have been canceled, expired, settled in cash, or not issued or forfeited for any reason (in whole or in part), will not reduce the aggregate number of shares that may be subject to or delivered under awards granted under the Incentive Plan and will be available for future awards granted under the Incentive Plan.

Types of Awards

We may grant the following types of awards under the Incentive Plan: stock awards; options; stock appreciation rights; stock units; or other stock-based awards.

Stock Awards. The Incentive Plan authorizes the grant of stock awards to eligible participants. The administrator determines (i) the number of shares subject to the stock award or a formula for determining such number, (ii) the purchase price of the shares, if any, (iii) the means of payment for the shares, (iv) the performance criteria, if any, and the level of achievement versus these criteria, (v) the grant, issuance, vesting, and/or forfeiture of the shares, (vi) restrictions on transferability, and such other terms and conditions determined by the administrator.

Options. The Incentive Plan authorizes the grant of non-qualified and/or incentive options to eligible participants, which options give the participant the right, after satisfaction of any vesting conditions and prior to the expiration or termination of the option, to purchase shares of our common stock at a fixed price. The administrator determines the exercise price for each share subject to an option granted under the Incentive Plan, which exercise price cannot be less than the fair market value (as defined in the Incentive Plan) of our common stock on the grant date. The administrator also determines the number of shares subject to each option, the time or times when each option becomes exercisable, and the term of each option (which cannot exceed ten (10) years from the grant date).

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.

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Stock Unit Awards and Other Stock-Based Awards. In addition to the award types described above, the administrator may grant any other type of award payable by delivery of our common stock in such amounts and subject to such terms and conditions as the administrator determines in its sole discretion, subject to the terms of the Incentive Plan. Such awards may be made in addition to or in conjunction with other awards under the Incentive Plan. Such awards may include unrestricted shares of our common stock, which may be awarded, without limitation (except as provided in the Incentive Plan), as a bonus, in payment of director fees, in lieu of cash compensation, in exchange for cancellation of a compensation right, or upon the attainment of performance goals or otherwise, or rights to acquire shares of our common stock from us.

Award Limits

Subject to the terms of the Incentive Plan, the aggregate number of shares that may be subject to all incentive stock options granted under the Incentive Plan cannot exceed the total aggregate number of shares that may be subject to or delivered under awards under the Incentive Plan. Notwithstanding any other provisions of the Incentive Plan to the contrary, the aggregate grant date fair value (computed as specified in the Incentive Plan) of all awards granted to any non-employee director during any single calendar year shall not exceed 300,000 shares during 2019 and, thereafter, 200,000 shares.

New Plan Benefits

The amount of future grants under the Incentive Plan is not determinable, as awards under the Incentive Plan will be granted at the sole discretion of the administrator. We cannot determinate at this time either the persons who will receive awards under the Incentive Plan or the amount or types of such 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.
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.
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.

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U.S. Federal Income Tax Treatment

The following discussion is intended only as a brief summary of the federal income tax rules that are generally relevant to awards as of the date of this prospectus. The laws governing the tax aspects of awards are highly technical and such laws are subject to change.

Non-Qualified Options. With respect to non-qualified options granted to participants under the Incentive Plan, (i) no income is realized by the participant at the time the non-qualified option is granted, (ii) at exercise, (a) ordinary income is realized by the participant in an amount equal to the difference between the option exercise price and the fair market value of our common stock on the date of exercise, (b) such amount is treated as compensation and is subject to both income and wage tax withholding, and (c) we may claim a tax deduction for the same amount, and (iii) on disposition of the option shares, any appreciation or depreciation after the date of exercise of the non-qualified option, compared to the disposition price of the option shares will be treated as either short-term or long-term capital gain or loss depending on the holding period.

Incentive Stock Options. With respect to incentive stock options, there is no tax to the participant at the time of the grant. Additionally, if applicable holding period requirements (a minimum of both two years from the grant date and one year from the exercise date) are met, the participant will not recognize taxable income at the time of the exercise. However, the excess of the fair market value of the shares acquired at the time of exercise over the aggregate exercise price is an item of tax preference income, potentially subject to the alternative minimum tax. If shares acquired upon exercise of an incentive stock option are held for the holding period described above, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the option exercise price), upon their disposition, the holding period of the option shares will be treated as a long-term capital gain or loss, and, unlike the treatment for shares issued pursuant to the exercise of a non-qualified option, we will not be entitled to any tax deduction. If the shares acquired on option exercise are disposed of in a “non-qualifying disposition” (i.e., before the holding period requirements had been met), the participant will generally realize ordinary income at the time of the disposition of the option shares in an amount equal to the lesser of (i) the excess of the fair market value of the option shares on the date of exercise of the incentive stock option over the exercise price thereof or (ii) the excess, if any, of the amount realized upon disposition of the option shares over the exercise price of the incentive stock option, and, just as the treatment for shares issued pursuant to the exercise of a non-qualified option, we will be entitled to a corresponding tax deduction. Any amount realized in excess of the value of the shares on the date of exercise will be capital gain. If the amount realized is less than the exercise price, the participant will not recognize ordinary income, and the participant will generally recognize a capital loss equal to the excess of the exercise price of the incentive stock option over the amount realized upon the disposition of the option shares.

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Other Awards. The current federal income tax consequences of other awards authorized under the Incentive Plan generally follow certain basic patterns. An award of restricted shares of common stock results in income recognition by a participant in an amount equal to the fair market value of the shares received at the time the restrictions lapse and the shares then vest, unless the participant elects under Internal Revenue Code Section 83(b) to accelerate income recognition and the taxability of the award to the grant date. Stock unit awards generally result in income recognition by a participant at the time payment of such an award is made in an amount equal to the amount paid in cash or the then-current fair market value of the shares received, as applicable. Stock appreciation right awards result in income recognition by a participant at the time such an award is exercised in an amount equal to the amount paid in cash or the then-current fair market value of the shares received by the participant, as applicable. In each of the foregoing cases, we will generally have a corresponding deduction at the time the participant recognizes ordinary income, subject to Internal Revenue Code Section 162(m) with respect to covered employees.

Section 162(m) of the Internal Revenue Code. Internal Revenue Code Section 162(m) denies a deduction to any publicly-held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to a covered employee exceeds $1,000,000. “Covered employees” generally includes the Chief Executive Officer, the Chief Financial Officer, and the three other most highly compensated executive officers.

Section 409A of the Internal Revenue Code. Awards granted under the Incentive Plan will generally be designed and administered in such a manner that they are either exempt from the application of, or comply with the requirements of, Section 409A of the Internal Revenue Code. Section 409A of the Internal Revenue Code imposes restrictions on nonqualified deferred compensation. Failure to satisfy these rules results in accelerated taxation, an additional tax to the holder in an amount equal to 20% of the deferred amount, and a possible interest charge. Options granted with an exercise price that is not less than the fair market value of the underlying shares on the date of grant will not give rise to “deferred compensation” for this purpose unless they involve additional deferral features.

Other Tax Considerations. This summary is not intended to be a complete explanation of all of the federal income tax consequences of participating in the Incentive Plan. A participant should consult his or her personal tax advisor to determine the particular tax consequences of the Incentive Plan, including the application and effect of foreign state and local taxes and any changes in the tax laws after the date of this prospectus.

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.

 

Outstanding Equity Awards at Fiscal Year-End

 

We did not have anyThe following table sets forth, for each named executive officer, certain information concerning outstanding restricted stock awards outstanding as atof December 31, 2016. 2019:

Name Number of securities underlying unvested restricted stock awards
(#)
  

Fair Value

($)

  Vest date
Rory J. Cutaia  352,827   1.36  December 23, 2023(1)
   150,000   1.36  December 23, 2022(2)
           
Jeffrey R. Clayborne  264,620   1.36  December 23, 2023(1)
   75,000   1.36  December 23, 2022(2)

(1)25% of the shares vest on the first, second, third, and fourth anniversaries from the grant date
(2)

25% of the shares vested on the grant date and 25% of the shares vest on the first, second, and third anniversaries from the grant date

The following table sets forth, for each named executive officer, certain information concerning outstanding option awards as of December 31, 2016:2019:

 

 Option Awards    
Name Number of securities underlying unexercised options (exercisable)
(#)
 Number of securities underlying unexercised options (unexercisable)
(#)
 Equity incentive plan awards: Number of securities underlying unexercised unearned options
(#)
 Option exercise price
($)
 Option expiration date  

Number of

securities

underlying

unexercised

options (exercisable) (#)

 

Number of

securities

underlying

unexercised

options (unexercisable) (#)

 

Option

Exercise

price ($)

 

Option expiration

date

 
Rory J. Cutaia  250,000   Nil   Nil   0.11   October 31,2021   -   189,645   1.13  January 10, 2021(1)
                      -   189,645   1.13  January 10, 2022(2)
Jeff Clayborne  316,073   1,183,927   Nil   0.11   July 14, 2021 
                      -   143,085   1.13  January 10, 2021(3)
Rory J. Cutaia  Nil   1,250,000   Nil   0.10   May 11, 2021 
                      -   143,085   1.13  January 10, 2022(4)
Rory J. Cutaia  800,000   Nil   Nil   0.08   November 1, 2019 
                      8,333   8,333   4.35  January 8, 2024(5)
Rory J. Cutaia  250,000   Nil   Nil   0.50   May 12, 2019 
  16,667   -   1.16  December 18, 2022(6)
  -   133,333   1.20  January 9, 2022(7)
  16,667   -   1.65  October 31, 2020(6)
  83,333   -   1.50  May 11, 2021(6)
  16,667   -   1.20  November 1, 2020(6)
               
Jeffrey R. Clayborne  -   55,129   1.13  January 10, 2021(7)
  -   55,129   1.13  January 10, 2022(8)
  -   71,542   1.13  January 10, 2021(9)
  -   71,543   1.13  January 10, 2022(10)
  22,222   11,111   5.33  May 3, 2022(11)
  -   133,333   1.20  January 9, 2022(7)
  100,000   -   1.65  July 14, 2021(6)
  12,876   -   1.35  January 21, 2023(6)

 

Retirement or Similar Benefit Plans

(1)189,645 shares will vest on January 10, 2021.
(2)189,645 shares will vest on January 10, 2022.
(3)143,085 shares will vest on January 10, 2021.
(4)143,085 shares will vest on January 10, 2022.
(5)8,333 shares vested on the grant date, and the remaining 8,333 shares vested on January 9, 2020.
(6)All shares have fully vested.
(7)133,333 shares vested on January 10, 2020.
(7)55,129 shares will vest on January 10, 2021.
(8)55,129 shares will vest on January 10, 2022.
(9)71,542 shares will vest on January 10, 2021.
(10)71,542 shares will vest on January 10, 2022.
(11)Shares will vest annually in three equal installments.

 

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There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.

Resignation, Retirement, Other Termination, or Change in Control Arrangements

 

With the exception of the employment contract for our CEO, Rory J. Cutaia, describedOther 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 in control of our company or a change in our directors’ or executive officers’ responsibilities following a change in control.

 

On November 21, 2014, we entered into an executiveRory J. Cutaia

Pursuant to Mr. Cutaia’s employment agreement effective November 1, 2014 with Rory J.dated December 20, 2019, Mr. Cutaia our president, chief executive officer, secretary and treasurer. Pursuantis entitled to the terms of the employment agreement, we have agreed to pay Mr. Cutaia an annual salary of $325,000, which will be increased each year by 10%, subject to the annual review and approval of our board of directors. Notwithstanding the foregoing, a mandatory increase of not less than $100,000 per annum will be implemented on our company achieving EBITDA break-even. In addition to the base salary, Mr. Cutaia will be eligible to receive an annual bonus in an amount up to $325,000, based upon the attainment of performance targets to be established by our board of directors, in its discretion.

The initial term of the employment agreement is five years and, upon expiration of the initial five-year term, it may be extended for additional one year periods on ninety days prior notice.

During the initial term or any extension thereof, and until the expiration thereof,following severance package in the event that:he is “terminated without cause,” “terminated for good reason,” or “terminated upon permanent disability”: (i) Mr. Cutaia’s employmentmonthly payments of $35,833 or such sum equal to his monthly base compensation at the time of the termination, whichever is terminated without cause, (ii) Mr. Cutaia is unable to perform his duties due to a physical or mental conditionhigher, for a period of 120 consecutive days or an aggregate36 months from the date of 180 days in any 12-month period; or (iii)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 voluntarily terminatesand his family during the employment agreement upon the occurrence of a material reduction in his salary or bonus, a reduction in his job title or position, or the required relocationimmediately subsequent 18-month period. In addition, all of Mr. Cutaia to an office outside of a 30 mile radius of Los Angeles, California, Mr. Cutaia will:

(a)receive monthly payments of $27,083, or such sum as is equal to Mr. Cutaia’s monthly base compensation at the time of such termination, whichever is higher, and
(b)be reimbursed for COBRA health insurance costs, in each case for 36 months from the date of such termination or to the end of the term of the agreement, whichever is longer.

In addition, Mr. CutaiaCutaia’s then-unvested restricted stock awards or other awards will have any and all of his unvested stock options immediately vest, with full registration rights;without restriction, and any unearned and unpaid bonus compensation, expense reimbursement, and all accrued vacation, personal, and sick days, etc.,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 of directors; 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.

 

As a condition to receiving the foregoing, Mr. Cutaia will be required to execute a release of claims, and a non-competition and non-solicitation agreement having a term that is the same as the term of the monthly severance payments described above.

71

 

Director Compensation of DirectorsTable

 

The table below showssummarizes the compensation ofpaid to our non-employee directors who were not our named executive officers for the fiscal year ended December 31, 2016:2019:

Name Fees earned or paid in cash
($)
 Stock awards
($)
  Option awards
($)
  Non-equity incentive plan compensation ($) Nonqualified deferred compensation earnings
($)
 All other compensation
($)
 Total
($)
 
James P. Geiskopf(1) Nil  137,500   50,177  Nil Nil Nil  187,677 

Name(1) 

Fees earned or paid in cash

($)

  

Stock awards

($)

  

Total

($)

 
James P. Geiskopf  69,000   563,000(2,3)  441,000 
             
Philip J. Bond  48,000   96,000(4)  144,000 
             
Kenneth S. Cragun  48,000   96,000(4)  144,000 
             
Nancy Heinen  -   216,000(4,5)  216,000 
             
Judith Hammerschmidt  -   216,000(4,5)  216,000 

 

(1)Rory J. Cutaia, our Chairman of the board, Chief Executive Officer, President, and Secretary during the fiscal year ending December 31, 2019, 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. Geiskopf was appointedCutaia as an employee is disclosed in the section entitled “Executive Compensation – Summary Compensation Table” appearing elsewhere in this Annual Report.
(2)Represents a directorrestricted stock award totaling 141,130 shares of our company in October 2014.common stock valued at $1.36 per share, which was the closing price reported on The Nasdaq Capital Market. The restricted stock award vested on the grant date.
(3)Represents a restricted stock award totaling 273,440 shares of our common stock valued at $1.36 per share, which was the closing price reported on The Nasdaq Capital Market. The restricted stock award vests on the first anniversary from the grant date.
(4)Represents a restricted stock award totaling 70,565 shares of our common stock valued at $1.36 per share, which was the closing price reported on The Nasdaq Capital Market. The restricted stock award vests on the first anniversary from the grant date.
(5)Represents a restricted stock award totaling 88,207 shares of our common stock valued at $1.36 per share, which was the closing price reported on The Nasdaq Capital Market. The restricted stock award vests on the first, second, and third anniversary from the grant date.

 

Golden ParachuteNarrative Disclosure to Director Compensation

For a description of the terms of any agreement or understanding, whether written or unwritten, between our company and any officer or director concerning any type of compensation, whether present, deferred or contingent, that will be based on or otherwise will relate to an acquisition, merger, consolidation, sale or other type of disposition of all or substantially all assets of our company, see above under the heading “Compensation Discussion and Analysis”.

Outstanding Equity Awards at Fiscal Year-End Table

 

The following table sets forth,annual board fee payable in cash and our common stock for eachour lead director whoand directors is not an executive officer, certain information concerning outstanding option awards as of December 31, 2015:

  Option Awards   
Name Number of securities underlying unexercised options (exercisable)
(#)
  Number of securities underlying unexercised options (unexercisable)
(#)
  Equity incentive plan awards: Number of securities underlying unexercised unearned options
(#)
 Option
exercise price
($)
  Option
expiration
date
James P. Geiskopf  Nil   750,000  Nil  0.095  May 11, 2021
                 
James P. Geiskopf  500,000   100,000  Nil  0.50  November 12, 2019

The following is150,000 and 75,000, respectively. In addition, we intend to provide a description of other equity awards granted to directors during the year ended December 31, 2016.

Mr. Geiskopf was granted 500,000 shares of restricted stock award based on April 4, 2016 asrecommendations from our compensation for board services which fully vested on grant date. Mr. Geiskopf was also issued 750,000 shares of common stock on September 14, 2016 as compensation for board service which fully vested on grant date.

We have no formal plan for compensating our directors for their services in their capacity as directors.consultants. Our directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on ourtheir 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 $69,000 and $0 for fiscal years 2019 and 2018, respectively.

On December 23, 2019, we granted Mr. Geiskopf a restricted stock award totaling $160,000 payable in 141,130 shares of our common stock. The restricted stock award vests on the first anniversary from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

On December 23, 2019, we granted Mr. Geiskopf a bonus totaling $150,000 payable in 132,310 shares of our common stock and an additional restricted stock award equal to $160,000 payable in 141,130 shares of our common stock for up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct, respectively. The bonus shares and restricted stock award vested on the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

We did not pay any compensation to Mr. Geiskopf for his services as a director during the fiscal year ending December 31, 2018.

Philip J. Bond

Mr. Bond earned total cash compensation for his services to us in the amount of $48,000 and $0 for the fiscal years ending December 31, 2019 and 2018, respectively.

On December 23, 2019, we granted Mr. Bond a restricted stock award totaling $80,000 payable in 70,565 shares of our common stock. The restricted stock award vests on the first anniversary from grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

Kenneth S. Cragun

Mr. Cragun earned total cash compensation for his services to us in the amount of $48,000 and $0 for the fiscal years ending December 31, 2019 and 2018, respectively.

On December 23, 2019, we granted Mr. Cragun a restricted stock award totaling $80,000 payable in 70,565 shares of our common stock. The restricted stock award vests on the first anniversary from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

Nancy Heinen

We did not pay any compensation to Ms. Heinen for her services as a director during the fiscal year ending December 31, 2019.

On December 23, 2019, we granted Ms. Heinen an initial board of directors restricted stock award totaling $100,000 payable in 88,207 shares of our common stock. The restricted stock vests on the first, second and third anniversaries from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

On December 23, 2019, we granted Ms. Heinen a restricted stock award totaling $80,000 payable in 70,565 shares of our common stock. The restricted stock award vests on the first anniversary from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

73

Judith Hammerschmidt

We did not pay any compensation to Ms. Hammerschmidt for her services as a director during the fiscal year ending December 31, 2019.

On December 23, 2019, we granted Ms. Hammerschmidt an initial board of directors restricted stock award totaling $100,000 payable in 88,207 shares of our common stock. The restricted stock award vests on the first, second and third anniversaries from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

On December 23, 2019, we granted Ms. Hammerschmidt a restricted stock award totaling $80,000 payable in 70,565 shares of our common stock. The restricted stock award vests on the first anniversary from the grant date. The price per share was $1.13, which was the 30-day volume weighted average price as reported by The Nasdaq Capital Market.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth, for each non-employee director, certain information concerning outstanding restricted stock awards as of December 31, 2019:

Name 

Number of

securities

underlying

unvested restricted

stock awards

(#)

  

Fair Value

($)

  Vest date
James P. Geiskopf  143,130   1.36  December 23, 2020(1)
           
Philip J. Bond  70,565   1.36  December 23, 2020(1)
           
Kenneth S. Cragun  70,565   1.36  December 23, 2020(1)
           
Nancy Heinen  88,207   1.36  December 23, 2022(2)
   70,565   1.36  December 23, 2020(1)
           
Judith Hammerschmidt  88,207   1.36  December 23, 2022(2)
   70,565   1.36  December 23, 2020(1)

(1)Fully vests on the first anniversary from the grant date.
(2)25% vesting on the first, second and third anniversaries from the grant date.

The following table sets forth, for each non-employee director, certain information concerning outstanding option awards as of December 31, 2019:

Name 

Number of

securities

underlying

unexercised

options

(exercisable)

(#)

  

Number of

securities

underlying

unexercised

options

(unexercisable)

(#)

  

Option

exercise

price

($)

  

Option expiration

date

 
James P. Geiskopf  133,333   -   1.2  January 9, 2022(1)
                
James P. Geiskopf  50,000   -   1.5  May 11, 2021(1)
                
Philip J. Bond  26,667   40,000   7.50  August 27, 2023(2)
                
Kenneth S. Cragun  26,667   40,000   7.50  August 27, 2023(2)

(1)All shares have fully vested.
(2)25% vest on the grant date and 25% vest on the first, second, and third anniversaries from the grant date.

74

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSCertain Relationships and Related Transactions

Policies and Procedures for Approval of Related Party Transactions

Our board of directors has the responsibility to review and discuss with management and approve, and has adopted, written policies and procedures relating to approval or ratification of, interested transactions with related parties. During this process, the material facts as to the related party’s interest in a transaction are disclosed to all members of our board of directors or the members of an appropriate independent committee of our board of directors. Under our written policies and procedures, the board of directors, or an appropriate independent committee of our board of directors, is to review each interested transaction with a related party that requires approval and either approve or disapprove of the entry into the interested transaction. An interested transaction is any transaction in which we are a participant and in which any related party has or will have a direct or indirect interest. Transactions that are in the ordinary course of business and would not require either disclosure required by Item 404(a) of Regulation S-K under the Securities Act or approval of the board of directors or an independent committee of the board of directors as required by applicable Nasdaq rules would not be deemed interested transactions. No director may participate in any approval of an interested transaction with respect to which he or she is a related party. Our board of directors intends to approve only those related party transactions that are in the best interests of Verb and our stockholders.

 

Other than as discloseddescribed below there has been no transaction,or elsewhere in this prospectus, since January 1, 2016,2017, there has not been a transaction or currently proposed transaction, inseries of related transactions to which our CompanyVerb was or is to be a participant and theparty involving an amount involved exceeds $5,000, being the lesserin excess of $120,000 or one percent of our total assets at December 31, 2016, and in which any director, executive officer, holder of more than 5% of any class of our voting securities, or any member of the followingimmediate family of any of the foregoing persons, had or will have a direct or indirect material interest:interest. All of the below transactions were separately ratified and/or approved by our board of directors or an appropriate independent committee of our board of directors.

 

We follow ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. When and if we contemplate entering into a transaction in which any executive officer, director, nominee, or any family member of the foregoing would have a direct or indirect interest, regardless of the amount involved, the terms of such transaction are to be presented to our full board of directors (other than any interested director) for approval, and documented in the board of directors minutes.

The information under the captions “Summary Compensation Table,” “Narrative Disclosure to Summary Compensation Table,” “Outstanding Equity Awards at Fiscal Year End,” “Director Compensation Table” and “Narrative Disclosure to Director Compensation Table” appearing in this registration statement on Form S-1 is hereby incorporated by reference.

 (a)75any director or executive officer of our company;
   
(b)any person who beneficially owns, directly or indirectly, more than 5% of any class of our voting securities;
(c)any person who acquired control of our company when it was a shell company or any person that is part of a group, consisting of two or more persons that agreed to act together for the purpose of acquiring, holding, voting or disposing of our common stock, that acquired control of our company when it was a shell company; and
(d)any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons.

Notes Payable to Related Parties

 

We have the following outstanding notes payable to related parties’ notes payable:parties on December 31, 2019:

 

Note Issuance Date Maturity Date Interest Rate  Original Borrowing  Balance at
June 30, 2017
 
            (Unaudited) 
Note 1 Year 2015 August 8, 2018  12.0% $1,203,242  $1,198,883 
Note 2 December 1, 2015 August 8, 2018  12.0%  189,000   189,000 
Note 3 December 1, 2015 April 1, 2017  12.0%  111,901   111,901 
Note 4 August 4, 2016 August 4, 2017  12.0%  343,326   343,326 
Note 5 August 4, 2016 August 4, 2017  12.0%  121,875   121,875 
                 
Total notes payable – related parties, net           $1,964,985 
Note Issuance Date Maturity Date Interest Rate  Original Borrowing  Amount Outstanding as of December 31, 2019  Interest Paid During the year ended December 31, 2019 
Note 1(1) December 1, 2015 February 8, 2021  12.0% $1,249,000  $825,000  $80,000 
Note 2(2) December 1, 2015 February 8, 2021  12.0%  189,000   -   - 
Note 3(3) December 1, 2015 April 1, 2017  12.0%  112,000   112,000   - 
Note 4(4) April 4, 2016 June 4, 2021  12.0%  343,000   240,000   22,000 
Note 5(5) April 4, 2016 December 4, 2018  12.0%  122,000   -   - 
Total notes payable related parties             $1,177,000  $102,000 

 

(1)

On various dates during the year ended December 31,1, 2015, Rory J.we issued a convertible note payable to Mr. Cutaia, our majority stockholder and Chief Executive Officer, loanedto consolidate all loans and advances made by Mr. Cutaia to us total principal amountsas of $1,203,242.that date. The loans were unsecured and all due on demand, bearingnote bears interest at 12% per annum. On December 1, 2015, we entered into a Secured Convertible Note in favorrate of Mr. Cutaia whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans amounting to an aggregate total of $1,248,883 was consolidated under a note payable agreement, bearing interest at 12% per annum, with a maturity date of Aprilsecured by our assets and originally matured on August 1, 2017 (“NOTE 1”). In consideration for Mr. Cutaia’s agreement to consolidate the loans and extend the maturity date, we granted Mr. Cutaia a senior security interest in substantially all of our current and future assets. Pursuant to2018. Per the terms of the note agreement, at Mr. Cutaia’s discretion, he may convert up to $374,66530%, or $375,000, of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07$1.05 per share. +

As of December 31, 2018, the total outstanding balance of the note amounted to $825,000.

On May 4, 2017, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of NOTE 1 due onthe note from April 1, 2017 to August 1, 2018. In consideration, for extending NOTE 1, we grantedissued Mr. Cutaia a three-year warrant to purchase 1,755,192 warrantsshares of common stock at a price of $0.355 per share exercise pricewith a fair value of $0.355.$517,000. All other terms of NOTE 1the note remain unchanged. We determined that the extension of the NOTE 1note’s maturity date resulted in a debt extinguishment for accounting purposes since the fair value of the warrants granted was more than 10% of the recordedoriginal value of the original convertible note. As a result, we recorded the fair value of the new note which approximatedapproximates the original carrying value of $1,198,883$1,199,000 and expensed the entire fair value of the warrants granted of $517,291$517,000 as partdebt extinguishment costs. As of December 31, 2018, total outstanding balance of the loss on debt extinguishment. As of June 30, 2017, and December 31, 2016, the principal amount of the NOTE 1 was $1,198,883.

On December 1, 2015, we entered into an unsecured convertible note in favor of Mr. Cutaia in the amount of $189,000, bearing interest at 12% per annum, with a maturity date of April 1, 2017, the principal balance of which represented a portion of Mr. Cutaia’s accrued salary for 2015 (“NOTE 2”). NOTE 2 extended the payment terms from on-demandamounted to due in full on April 1, 2017. The outstanding principal and accrued interest of NOTE 2 may be converted at Mr. Cutaia’s discretion into shares of common stock at a conversion rate of $0.07 per share.$825,000.

 

On May 4, 2017,August 8, 2018, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of NOTE 2the note to August 1, 2018.February 8, 2021. All other terms of NOTE 2the note remain unchanged. In connection with the extension, we granted to Mr. Cutaia a three-year warrant to purchase up to 163,113 shares of common stock at a price of $7.35 per share with a fair value of $1,075,000.

As of December 31, 2019, the outstanding balance of the note amounted to $825,000.

  
(2)

On December 1, 2015, we enteredissued a convertible note to Mr. Cutaia in the amount of $189,000, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note was unsecured, bore interest at a rate of 12% per annum, and was convertible into an unsecuredshares of common stock at a conversion price of $1.05 per share. The original maturity date of August 1, 2018 was subsequently extended to February 8, 2021. As of December 31, 2018, the outstanding balance of the note in favoramounted to $0.

On September 30, 2018, Mr. Cutaia converted the entire unpaid balance of $189,000 into 180,000 restricted shares of our common stock at $1.05 per share.

(3)

On December 1, 2015, we issued a consulting firm owned by Michael Psomas,note payable to a former member of our board of directors, in the amount of $111,901, the principal balance of which represented$112,000, representing unpaid fees earned for consulting services previously rendered, but unpaidfees as of November 30, 2015 (“NOTE 3”).2015. The outstanding amount of NOTE 3note is unsecured, bears interest at a rate of 12% per annum, and was duematured in full on April 1, 2017,2017.

As of December 31, 2019, and the date of this Annual Report, the note is currently past due. We are currently in negotiations with the note holder to settle the note payable.

  
(4)

On April 4, 2016, we issued an additional secureda convertible note to Mr. Cutaia, in the amount of $343,325, which represents additional sums of $93,326 that$343,000, to consolidate all advances made by Mr. Cutaia advanced to us during the period from December 2015 through March 2016,2016. The note bears interest at a rate of 12% per annum, is secured by our assets, and originally matured on December 4, 2018. Pursuant to the consolidationterms of $250,000the note, a total of additional obligations due30% of the note principal, or $103,000, can be converted into shares of common stock at a conversion price of $1.05 per share. As of December 31, 2018, the outstanding balance of the note was $240,000.

On September 30, 2018, pursuant to the terms of the note, Mr. Cutaia (“NOTE 4”). NOTEconverted 30% of the principal balance, or $103,000, into 98,093 restricted shares of our common stock at $1.05 per share.

On December 4, bears2018, we entered into an extension agreement with Mr. Cutaia to extend the maturity date of the note to June 4, 2021. All other terms of the note remain unchanged. In connection with the extension, we granted to Mr. Cutaia a three-year warrant to purchase up to 353,000 shares of common stock at a price of $5.10 per share with a fair value of $111,000.

As of December 31, 2019, the outstanding balance of the note amounted to $240,000.

(5)

On April 4, 2016, we issued a convertible note payable to Mr. Cutaia in the amount of $122,000, representing his unpaid salary from December 2015 through March 2016. The note was unsecured, bore interest at the rate of 12% per annum, compounded annually. In consideration for his agreement to extend the repayment date to Augustoriginally matured on December 4, 2017, we granted Mr. Cutaia the right to convert up to 30% of the amount of NOTE 42018, and converted into shares of our common stock at $0.07a conversion price of $1.05 per shareshare. As of December 31, 2018, the outstanding balance of the note amounted to $0.

On September 30, 2018, Mr. Cutaia converted the entire outstanding principal amount of $122,000 into 116,071 shares of restricted shares of common stock. Thus, as of that date, the note was satisfied in full.

Deferred Compensation to Related Parties

Note Issuance Date Maturity Date Original Borrowing  Amount Outstanding as of December 31, 2019 
Notes 1 & 2(1) December 23, 2019 January 10, 2021 $278,000  $278,000 
Notes 1 & 2(1) December 23, 2019 January 10, 2021  278,000   278,000 
Notes 3 & 4(2) December 23, 2019 January 10, 2022  243,000   243,000 
Notes 3 & 4(5) December 23, 2019 January 10, 2022  243,000   243,000 
Total deferred compensation related parties         $1,042,000 

(1)On December 23, 2019, we awarded Mr. Cutaia, Chief Executive Officer, and granted 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants representMr. Clayborne, Chief Financial Officer, annual incentive compensation of $430,000 and 125,000, respectively. We have determined that it is in our best interest and in the best interest of our stockholders to defer payments to these employees. We will pay 50% of the amount of NOTE 4.annual incentive compensation on January 10, 2021 and the remaining 50% on January 10, 2022.
  
(2)On April 4, 2016,December 23, 2019, we issued an additional unsecured convertible note in favor ofawarded Mr. Cutaia, Chief Executive Officer, and Mr. Clayborne, Chief Financial Officer, a bonus for the successful up-listing to The Nasdaq Capital Market and the acquisition of Verb Direct totaling $324,000 and 162,000, respectively. We have determined that it is in our best interest and in the amount of $121,875, which represents the amount of the accrued but unpaid salary owed to Mr. Cutaia for the period from December 2015 through March 2016 (“NOTE 5”). In consideration for his agreement to extend the payment date to August 4, 2017, we granted to Mr. Cutaia the right to convert the amount of NOTE 5 into sharesbest interest of our common stock at $0.07 per share, which approximatedstockholders to defer payments to these employees. We will pay 50% of The Nasdaq Capital Market up-listing award on January 10, 2021 and the trading price of our common stockremaining 50% on the date of the agreement. NOTE 5 bears interest at the rate of 12% per annum.January 10, 2022.

 

Miscellaneous

We are or have been a party to employment and compensation arrangements with related parties, as more particularly described above in “Executive Compensation — Executive Employment Agreements.”

Director Independence

Our board of directors is currently composed of six members. We have determined that the following five directors qualify as independent: James P. Geiskopf, Philip J. Bond, Kenneth S. Cragun, Nancy Heinen, and Judith Hammerschmidt. We determined that Mr. Cutaia, our Chairman, President, Chief Executive Officer, and Secretary, is not independent. We evaluated independence in accordance with the rules of The Nasdaq Capital Market and the SEC. Mr. Geiskopf, Mr. Bond, and Mr. Cragun also serve on our Audit, Compensation, and Governance and Nominating Committees. Mses. Heinen and Hammerschmidt serve on our Compensation and Governance and Nominating Committees.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of September 30, 2017,June 29, 2020, certain information with respect to the beneficial ownership of our common stock by (i) each of our current directors, (ii) each of our named executive officers, (iii) our directors and named executive officers as a group, and (iv) each stockholder known by us to be the beneficial owner of more than 5% of any classour outstanding our common stock.

Unless otherwise indicated, the address of our voting securities and by each of our current directors, our named executive officers and by our current executive officers and directors as a group.beneficial owner listed in the table below is c/o Verb Technology Company, Inc., 2210 Newport Boulevard, Suite 200, Newport Beach, California 92663.

Name of Beneficial Owner Title of Class Amount and
Nature of Beneficial Ownership(1)
  Percentage of Class(2) 
Rory J. Cutaia
c/o 344 S. Hauser Drive, Suite 414
Los Angeles, California 90036
 Common Stock  52,322,737(3)  37.7%
           
Chakradhar Reddy          
110 3rd Ave. #11B          
New York, New York 10003 Common Stock  7,500,000(4)  6.7%
           
Global Capital LLC
11978 Artery Dr.
Fairfax, Virginia 22030
 Common Stock  5,727,000(5)  5.1%
           
James P. Geiskopf
c/o 344 S. Hauser Drive, Unit 414
Los Angeles, California 90036
 Common Stock  3,264,000(6)  2.9%
           
Jeff Clayborne          
c/o 344 S. Hauser Drive, Suite 414          
Los Angeles, California 90036 Common Stock  1,066,666(7)  0.9%
           
All executive officers and directors as a group (3 persons) Common Stock  56,428,403   40.3%

Name and Address of Beneficial Owner(1) Title of Class 

Amount and Nature

of

Beneficial Ownership(2)

  

Percent

of

Class(3)

 
Rory J. Cutaia Common  3,960,036(4)  12.8%
James P. Geiskopf Common  738,873(5)  2.4%
Jeffrey R. Clayborne Common  442,375(6)  1.4%
Philip J. Bond Common  31,167(7)  * 
Kenneth S. Cragun Common  31,167(7)  * 
Nancy Heinen Common  (8)   
Judith Hammerschmidt Common  (8)   
Chad J. Thomas Common  132,651(9)  * 
All directors and executive officers as a group (8 persons) Common  5,336,269   17.0%

 

*Less than 1%.

(1)Messrs. Cutaia, Geiskopf, Bond and Cragun and Mses. Heinen and Hammerschmidt are the directors of our company. Messrs. Cutaia, Thomas and Clayborne are the named executive officers of our company.
(2)Except as otherwise indicated, we believe that the beneficial owners of the shares of our common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws, where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. CommonShares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days of the date of this prospectus, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
  
(2)(3)Percentage of common stock is based on 112,735,35330,271,230 shares of our common stock issued and outstanding as of September 30, 2017.June 29, 2020.
  
(3)(4)Consists of 21,678,6063,054,269 shares of our common stock held directly, 3,603,600240,240 shares of our common stock held by Cutaia Media Group Holdings, LLC (an entity over which Mr. Cutaia has dispositive and 810,092voting authority), 54,006 shares of our common stock held by Mr. Cutaia’s spouse (as to which shares, he disclaims beneficial ownership), and 4,500 shares of our common stock held jointly by Mr. Cutaia and his spouse. Also includes 1,300,000283,333 shares of our common stock underlying stock options held directly and 537,50020,000 shares of our common stock underlying stock options held by Mr. Cutaia’s spouse that are exercisable within 60 days of the date of this prospectus but excludes 3,250,000the record date (as to which underlying shares, he disclaims beneficial ownership). The total also includes 303,688 shares of our common stock options held byunderlying warrants granted to Mr. Cutaia, and 62,500 stock options held by Mr. Cutaia’s spouse, thatwhich warrants are not exercisable within 60 days of the date of this prospectus. The total also includes 13,128,110 warrants granted to Mr. Cutaia as consideration for extending the payment terms of his outstanding notes payable, and 11,264,829 shares of commonrecord date. Excludes 665,460 restricted stock into which Mr. Cutaia has the right, butawards that will not the obligation, to convert his outstanding notes payable.
(4)Consists of 7,500,000 shares of common stock held directly.
(5)Consists of 5,272,000 shares of common stock held directly.
(6)Includes 2,584,000 shares of common stock held directly, 80,000 shares held by Mr. Geiskopf’s children. Also includes 600,000 stock options exercisablevest within 60 days of the daterecord date. The total also excludes 665,460 shares of this prospectus. Excludes 2,750,000our common stock underlying stock options not exercisable within 60 days of the date of this prospectus.record date.
  
(7)(5)Includes 500,000550,206 shares of our common stock held directly and 566,6665,333 shares of our common stock held by Mr. Geiskopf’s children. Also includes 183,333 shares of our common stock underlying stock options exercisable within 60 days of the daterecord date. Excludes 141,130 restricted stock awards that will not vest within 60 days of this prospectus.the record date.
(6)Includes 162,833 shares of our common stock held directly. Also, includes 279,542 shares of our common stock underlying stock options that are exercisable within 60 days of the record date. Excludes 2,992,000339,620 restricted stock awards that will not vest within 60 days of the record date. The total also excludes 253,343 shares of our common stock underlying stock options not exercisable within 60 days of the date of this prospectus.

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.

SELLING STOCKHOLDER

This prospectus relates to the possible resale by Kodiak, including 25,000,000 shares of common stock that may be issued to Kodiak pursuant to the Purchase Agreement. We are filing the registration statement, of which this prospectus forms a part, pursuant to the provisions of the agreements executed in connection with Kodiak’s agreement to purchase the shares.

Pursuant to the Registration Rights Agreement, which we entered into with Kodiak dated September 15, 2017 concurrently with our execution of the Purchase Agreement, we agreed to provide certain registration rights with respect to sales by Kodiak of the shares of our common stock that may be issued to Kodiak under the Purchase Agreement.

Kodiak, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold or may sell to them. Kodiak may sell some, all or none of their shares. We do not know how long Kodiak will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with Kodiak regarding the sale of any of the shares.

The following table presents information regarding Kodiak and the shares that it may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by Kodiak, and reflects its holdings as of October 11, 2017. Except as described herein, neither Kodiak nor any of its respective affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. References to Kodiak in this prospectus includes Kodiak and any of its donees, pledgees, transferees or other successors in interest selling shares received after the date of this prospectus from Kodiak as a gift, pledge or other non-sale related transfer. Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act. The percentage of shares beneficially owned prior to the offering is based on 112,735,353 shares of our common stock actually outstanding as of September 30, 2017.

Selling stockholder Shares Beneficially Owned
Before this Offering
  Percentage
of
Outstanding Shares Beneficially Owned
Before this Offering (1)
  Shares to be Sold in this Offering  Number of Shares Beneficially Owned After this Offering  Percentage of Outstanding Shares Beneficially Owned After this Offering 

 

Kodiak Capital Group, LLC (2)

  0   0   25,000,000(3)  25,000,000   18%
(1)Based on 112,735,353 outstanding shares of our common stock as of September 30, 2017. Although we may at our discretion elect to sell and issue to Kodiak up to an aggregate amount of $2 million of our common stock under the Purchase Agreement, such shares are not included in determining the percentage of shares beneficially owned before this offering.record date.
  

(2)

(7)
Ryan Hodson exercises voting and dispositive power with respect to theIncludes 4,500 shares of our common stock being offered under this prospectus by Kodiak.held directly. Also includes 26,667 shares of our common stock underlying stock options exercisable within 60 days of the record date. Excludes 70,565 restricted stock awards that will not vest within 60 days of the record date. The total also excludes 40,000 shares of our common stock underlying stock options not exercisable within 60 days of the record date.
  
(3)(8)Assumes issuanceExcludes 70,565 restricted stock awards that will not vest within 60 days of the maximum 25,000,000record date.
(9)Includes 88,207 shares being registered hereby.of our common stock held directly. Also includes 44,444 shares of our common stock underlying stock options exercisable within 60 days of the record date. Excludes 88,889 shares of our common stock underlying stock options not exercisable within 60 days of the record date.

 

PLAN OF DISTRIBUTION

Kodiak is an “underwriter” within the meaning of the Securities Act. Kodiak and any of its respective pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. Kodiak may use any one or more of the following methods when disposing of shares:

 78ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
   
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resales by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
broker-dealers may agree with Kodiak to sell a specified number of such shares at a stipulated price per share;
a combination of any of these methods of sale; and
any other method permitted pursuant to applicable law.

 

Kodiak has the sole and absolute discretion not to accept any purchase offer or make any sale of shares if Kodiak deems the purchase price to be unsatisfactory at any particular time.DESCRIPTION OF securities

Kodiak may pledge its respective shares to its brokers under the margin provisions of customer agreements. If Kodiak defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.

After the effective date of the registration statement, Kodiak may engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. Notwithstanding the foregoing, pursuant to the terms of the Purchase Agreement, Kodiak has agreed not to engage in any direct or indirect short selling of our common stock.

Broker-dealers engaged by Kodiak may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from Kodiak (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.

If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

Kodiak is an “underwriter,” and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters,” within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters andThe following description summarizes the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.

Kodiakterms and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act and the rules and regulations under that Act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by Kodiak or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.

If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether Kodiak will sell all or any portion of the shares offered under this prospectus.

We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser are responsible for paying any discounts, commissions and similar selling expenses they incur.

Kodiak and we have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act. Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. Kodiak is advised to ensure that any brokers, dealers or agents effecting transactions on behalf of Kodiak are registered to sell securities in all fifty states. In addition, in certain states the shares of common stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

We will pay all the expenses incident to the registration, offering and sale of the shares of common stock to the public hereunder other than commissions, fees and discounts of brokers, dealers and agents. We estimate that the expenses of the offering to be borne by us will be approximately $28,463.60. The estimated offering expenses consist of: an SEC registration fee of $463.60, accounting fees of $17,000, legal fees of $10,000 and miscellaneous expenses of $1,000. We will not receive any proceeds from the sale of any of the shares of common stock by Kodiak.

Kodiak should be aware that the anti-manipulation provisions of Regulation M under the Exchange Act will apply to purchases and sales of shares of common stock by Kodiak, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Regulation M, Kodiak or its agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock, while Kodiak is distributing shares covered by this prospectus. Kodiak is advised that if a particular offerpreferred stock and warrants. The following description of commonour capital stock isdoes not purport to be made oncomplete and is subject to, and qualified in its entirety by, our articles of incorporation, warrants, and bylaws. The terms constituting a material change from the information set forth above with respect to this Plan of Distribution, then, to the extent required, a post-effective amendment to the accompanying registration statement must be filed with the SEC.

Blue Sky Restrictions on Resale

If Kodiak wants to sell shares of our common stock, under this registration statement in the United States, Kodiak willpreferred stock and warrants may also need to comply with state securities laws, also known as “Blue Sky laws,” with regard to secondary sales. All states offer a variety of exemption from registration for secondary sales. Many states, for example, have an exemption for secondary trading of securities registered under Section 12(g) of the Exchange Act or for securities of issuers that publish continuous disclosure of financial and non-financial information in a recognized securities manual, such as Standard & Poor’s. The broker for Kodiak will be able to advise Kodiak which states our common stock is exempt from registration with that state for secondary sales.

Any person who purchases shares of our common stock from Kodiak under this registration statement who then wants to sell such shares will also have to comply with Blue Sky laws regarding secondary sales.

When the registration statement becomes effective, and Kodiak indicates in which state(s) they desire to sell their shares, we will be able to identify whether it will need to register or will rely on an exemption therefrom.affected by Nevada law.

 

DESCRIPTION OF CAPITAL STOCKAuthorized Capital Stock

 

Our authorized capital stock consists of 215,000,000200,000,000 shares of capital stock, of which 200,000,000 shares are common stock, $0.0001 par value $0.0001 per share, and 15,000,000 areshares of preferred stock, $0.0001 par value $0.0001 per share.share, of which 6,000 shares have been designated Series A Preferred Stock. As of September 30, 2017, there were issued and outstanding 112,735,353June 29, 2020, we had 30,271,230 shares of common stock 346,500outstanding and 3,246 shares of preferred stock, warrants to purchase 21,815,456 shares of common stock, options to purchase 22,430,953 shares of common stock, and convertible promissory notes with potential issuances of 15,995,260 shares of common stock.Series A Preferred Stock outstanding.

 

Common Stock

 

Voting. Each holder of common stock shall have one vote in respect of each share of stock held of record on the books of our corporation for the election of directors and on all matters submitted to a vote of our stockholders.

Dividends. The holders ofAll outstanding shares of common stock shall be entitled to receive, when and if declared by our board of directors, out of our assets which are by law available for dividends, dividends payable in cash, property or shares of capital stock.

Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of our affairs, holders of common stock shall be entitled, unless otherwise provided by law or our articles of incorporation, including any certificate of designations for a series of preferred stock, to receive all of our remaining assets of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of common stock held by them respectively.

Other Rights and Restrictions. Holders of our common stock do not have preemptive rights,are fully paid and they have no right to convert their common stock into any other securities. Our common stock is not subject to redemption by us.nonassessable. The rights, preferences and privileges of common stockholders are subject tofollowing summarizes the rights of the stockholders of any series of preferred stock that are issued and outstanding or that we may issue in the future.

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Preferred Stock

Our certificate of incorporation authorizes the issuance of 15,000,000 shares of preferred stock, par value $0.0001 per share. The preferred stock may be issued in one or more series and our board of directors, without further approval from our stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series. Issuances of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock.

Series A Preferred Stock. Series A Preferred Stock is the Company’s only designated preferred stock. Senior A Preferred Stock has the followings rights and privileges:stock:

 

 Senior rights in terms preference asa holder of common stock is entitled to dividends, distributionsone vote per share on all matters to be voted upon generally by the stockholders and payments uponare not entitled to cumulative voting for the liquidation, dissolution and winding upelection of the Company;directors;
   
 Accruessubject to preferences that may apply to shares of preferred stock outstanding, the holders of common stock are entitled to receive lawful dividends at a rateas may be declared by our board of 5% per annum;directors;
   
 Mandatorily redeemable in five weekly installments starting August 13, 2017 inupon our liquidation, dissolution or winding up, the amountholders of $63,000 each plus accrued interest. We have the option to redeem the Series A shares in cash or in shares of common stock based uponare entitled to receive a pro rata portion of all our assets remaining for distribution after satisfaction of all our liabilities and the 5-day volume weighted average price (“VWAP”)payment of our common shares as reported by OTC Markets Group, Inc. Mandatory redeemable installments for this tranche ended on October 2, 2017.any liquidation preference of any outstanding preferred stock;
   
 Mandatorily redeemable in two weekly installments starting January 8, 2018 in the amount of $26,250 each plus accrued interest. We have the optionthere are no redemption or sinking fund provisions applicable to redeem the Series A shares from this tranche in cash or in shares of common stock based upon the 5-day VWAP of our common shares as reported by OTC Markets Group, Inc.stock; and
   
 Mandatorily redeemable in five weekly installments starting January 29, 2018 in the amount of $52,500 each plus accrued interest. We have the optionthere are no preemptive, subscription or conversion rights applicable to redeem the Series A shares from this tranche in cash or in shares of common stock based upon the 5-day VWAP of our common shares as reported by OTC Markets Group, Inc.stock.

 

Nevada Anti-Takeover Law And Certain Charter And Bylaw ProvisionsPreferred Stock

All of the preferred stock authorized in our articles of incorporation is undesignated. Our board of directors is authorized, without further approval from our stockholders, to create one or more series of preferred stock, and to designate the rights, privileges, preferences, restrictions, and limitations of any given series of preferred stock. Accordingly, our board of directors may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting, or other rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock could have the effect of restricting dividends payable to holders of our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our common stock, or delaying or preventing a change in control of us, all without further action by our stockholders. The following is a summary of the terms and conditions of the Series A Preferred Stock.

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Series A Preferred Stock

The rights and preferences of the Series A Preferred Stock are outlined below.

Rank and Liquidation Preference

Shares of Series A Preferred Stock rank prior to our common stock as to distribution of assets upon liquidation events, which include a liquidation, dissolution or winding up of our company, whether voluntary or involuntary. The liquidation preference of each share of Series A Preferred Stock is equal to $1,000.00, or the Stated Value, plus any accrued but unpaid dividends on the Series A Preferred Stock and any other fees or liquidated damages then due and owing under the Certificate of Designation of Rights, Preferences, and Restrictions of Series A Convertible Preferred Stock, or the Certificate of Designations. If the assets are insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of our Series A Preferred Stock shall be distributed pro rata among the holders of our Series A Preferred Stock in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

Dividend Rights

The holders of Series A Preferred Stock are entitled to receive lawful dividends as may be declared by our board of directors.

Optional Conversion Rights

Each share of Series A Preferred Stock is convertible at the option of the holder into shares of our common stock at any time. Each share of Series A Preferred Stock is convertible into the number of shares of common stock as calculated by dividing the Stated Value of such share of Series A Preferred Stock by the conversion price. The conversion price was initially $1.55 per share of Series A Preferred Stock, subject to adjustment; therefore, each share of Series A Preferred Stock was initially convertible into approximately 645 shares of common stock, which number is equal to the quotient of the Stated Value of the Series A Preferred Stock of $1,000.00 divided by the initial conversion price of $1.55 per share of Series A Preferred Stock. No fractional shares or scrip representing fractional shares are to be issued upon conversion of the Series A Preferred Stock. As to any fraction of share that the holder of Series A Preferred Stock would otherwise be entitled to purchase upon conversion, we shall, at our election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the conversion price, or round up to the next whole share.

The holders of Series A Preferred Stock cannot convert the Series A Preferred Stock if, after giving effect to the conversion, the number of shares of our common stock beneficially held by the holder (together with such holder’s affiliates) would be in excess of 4.99% (or, upon election by a holder prior to the issuance of any shares, 9.99% of the number of shares of our common stock issued and outstanding immediately after giving effect to the issuance of any shares of common stock issuance upon conversion of the Series A Preferred Stock held by the holder).

 

We are also prevented from issuing shares of our common stock upon conversion of the Series A Preferred Stock or exercise of the August Warrants (as defined below), which, when aggregated with any shares of our common stock issued on or after the issuance date and prior to such conversion date or exercise date, as applicable (i) in connection with any conversion of the Series A Preferred Stock issued pursuant to that certain securities purchase agreement entered into on August 14, 2019 by and among us and the investors thereto, or SPA, (ii) in connection with the exercise of any August Warrants issued pursuant to the SPA, and (iii) in connection with the exercise of any warrants issued to any registered broker-dealer as a fee in connection with the issuance of the securities pursuant to the SPA, would exceed 4,459,725 shares of common stock, or 19.99% Cap. This prohibition will terminate upon the approval by our stockholders of a release from such 19.99% Cap.

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Mandatory Conversion Rights

In the event the closing price on The Nasdaq Capital Market is 100% greater than the then-base conversion price on each trading day for any twenty trading days during a consecutive thirty trading day period, we may, within one trading day after the later of stockholder approval to issue a number of shares of common stock in excess of the 19.99% Cap and the date that the conversion shares registration statement filed by us with the SEC declared effective, notify each holder of Series A Preferred Stock that all or part of such holder’s Series A Preferred Stock, plus all liquidated damages and other amounts due, were converted into shares of common stock. Any mandatory conversion will be made into the number of shares of common stock determined on the same basis as the optional conversion rights above.

Conversion Price Adjustments

The conversion price of the Series A Preferred Stock is subject to certain customary adjustments, including upon certain subsequent equity sales and rights offerings. The conversion price is also subject to downward adjustments if we issue shares of our common stock or securities convertible into or exercisable for shares of common stock, other than specified excluded securities, at per share prices less than the then-base conversion price. In this event, the conversion price shall be reduced to then-base conversion price.

The conversion price is also subject to adjustment if we issue rights, options, or warrants to holders of common stock entitling them to subscribe for or purchase shares of common stock at a price per share that is lower than the volume weighted average price on the date for determination of stockholders entitled to receive such rights, option, or warrants. In this event, the conversion price shall be multiplied by a fraction of which the denominator is the number of shares of common stock outstanding on the date of issuance of such rights, options, or warrants plus the number of additional shares of common stock offered for subscription or purchase, and the numerator shall be the number of shares of common stock outstanding on the date of issuance of such rights, options, or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such volume weighted average price.

If we distribute to holders of common stock evidences of our indebtedness or assets, including cash and cash dividends, or rights or warrants to subscribe for or purchase any security, subject to certain limitations, then the conversion price shall be adjusted by multiplying the conversion price then in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the volume weighted average price determined as of the record date, and of which the numerator shall be the volume weighted average price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of our common stock as determined by our board of directors in good faith.

In the event of a Fundamental Transaction (as defined below) while the Series A Preferred Stock is outstanding, holders of Series A Preferred Stock shall have the right to receive, for each share of common stock issuable upon conversion of the shares of our Series A Preferred Stock that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of common stock of the successor or acquiring corporation or of us, if we are the surviving corporation, and any additional consideration receivable as a result of the Fundamental Transaction by a holder of the number of shares of common stock for which the Series A Preferred Stock is convertible immediately prior to such Fundamental Transaction. A “Fundamental Transaction” is defined as any time while the Series A Preferred Stock is outstanding (a) we, directly or indirectly, in one or more related transactions shall effect any merger or consolidation of us with or into another person, (b) we, directly or indirectly, effect any sale, lease, license, assignment, transfer, conveyance, or other disposition of all or substantially all of our assets in one or a series of related transactions, (c) any, direct or indirect, purchase offer, tender offer, or exchange offer (whether by us or another person) is completed pursuant to which holders of our common stock are permitted to sell, tender, or exchange their shares for other securities, cash, or property and has been accepted by the holders of a majority of the outstanding common stock, (d) we, directly or indirectly, in one or more related transactions effect any reclassification, reorganization or recapitalization of our common stock or any compulsory share exchange, pursuant to which the common stock is effectively converted into or exchanged for other securities, cash or property, or (e) we, directly or indirectly, in one or more related transactions consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, or scheme of arrangement) with another person, whereby such other person acquires more than 50% of the outstanding shares of common stock (not including any shares of common stock held by the other person or other persons making or party to, or associated or affiliated with the other persons making or party to, such stock or share purchase agreement or other business combination).

Voting Rights and Protective Provisions

The holders of Series A Preferred Stock have no voting rights. However, we cannot, without the affirmative vote of the holders of a majority of the then-outstanding shares of Series A Preferred Stock:

authorize or create any class of stock ranking as to dividends, redemption, or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Series A Preferred Stock;
amend our articles of incorporation, or other charter documents in any manner that materially and adversely affects any rights of the holders;
increase the number of authorized shares of Series A Preferred Stock; or
enter into any agreement with respect to any of the foregoing.

As long as any shares of Series A Preferred Stock are outstanding, unless the holders of at least 75% in Stated Value of the then-outstanding shares of Series A Preferred Stock have otherwise given prior written consent, we cannot, directly or indirectly:

other than permitted indebtedness, as long as 25% of the then-outstanding shares of Series A Preferred Stock issued pursuant to the SPA are then outstanding, enter into, create, incur, assume, guarantee, or suffer to exist any indebtedness for borrowed money of any kind that is or may be senior to the Series A Preferred Stock in dividend rights or liquidation preference, including, but not limited to, a guarantee, on or with respect to any of our property or assets now owned or hereafter acquired or any interest therein of any income or profits therefrom;
other than permitted liens, enter into, create, incur, assume, or suffer to exist any liens of any kind, on or with respect to any of our property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

amend our charter documents, including, without limitation, our articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of the holder;
repay, repurchase, or offer to repay, repurchase, or otherwise acquire more than a de minimis number of shares of our common stock, common stock equivalents or junior securities, other than as to (a) the conversion shares or warrant shares as permitted under the transaction documents and (b) repurchases of common stock or common stock equivalents of departing officers and directors, provided that such repurchases shall not exceed an aggregate of $100,000.00 for all officers and directors for so long as the Series A Preferred Stock is outstanding;
pay cash dividends or distributions on junior securities;
enter into any transaction with any affiliate of us that would be required to be disclosed in any public filing with the SEC, unless such transaction is made on an arm’s length basis and expressly approved by a majority of the disinterested directors of us (even if less than a quorum otherwise required for board approval); or
enter into any agreement with respect to the foregoing.

Reservation of Shares

We initially were required to reserve 3,245,162 shares of common stock for issuance upon conversion of shares of Series A Preferred Stock and are required to maintain a sufficient number of reserved shares of common stock to allow for the conversion of all shares of Series A Preferred Stock.

Undesignated Preferred Stock

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of us.

Anti-Takeover Effects of Nevada Law and Our Articles of Incorporation and Bylaws

Some provisions of Nevada law, our articles of incorporation, and our bylaws contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that provide for payment of a premium over the market price for our shares.

These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock. The ability of our board of directors, without action by the stockholders, to issue up to 14,994,000 shares of preferred stock, which was previously authorized but remain undesignated, other than the Series A Preferred Stock, with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of us.

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Stockholder Meetings. Our bylaws provide that a special meeting of stockholders may be called only by our president, by all of the directors provided that there are no more than three directors, or if more than three, by any three directors, or by the holder of a majority of our capital stock.

Stockholder Action by Written Consent. Our bylaws allow for any action that may be taken at any annual or special meeting of the stockholders to be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Stockholders Not Entitled to Cumulative Voting. Our bylaws do not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.

Nevada private corporation law, which are anti-takeover provisions. In general, theBusiness Combination Statutes. The “business combination” provisions of Sections 78.411-44478.411 to 78.444, inclusive, of the NRS, generally prohibit a publicly held Nevada corporation with at least 200 stockholders from engaging in a “business combination”various “combination” transactions with an “interested stockholder”any interested stockholder for a period of threetwo years followingafter the date the person became an interested stockholder, unless (with certain exceptions) the “business combination” orof the transaction in which the person became an interested stockholder, unless the transaction is approved inby the board of directors prior to the date the interested stockholder obtained such status or the combination is approved by the board of directors and thereafter is approved at a prescribed manner. Generally, a “business combination” includes a merger, assetmeeting of the stockholders by the affirmative vote of stockholders representing at least 60% of the outstanding voting power held by disinterested stockholders, and extends beyond the expiration of the two-year period, unless:

the combination was approved by the board of directors prior to the person becoming an interested stockholder or the transaction by which the person first became an interested stockholder was approved by the board of directors before the person became an interested stockholder or the combination is later approved by a majority of the voting power held by disinterested stockholders; or
if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the two years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

A “combination” is generally defined to include mergers or stockconsolidations or any sale, lease exchange, mortgage, pledge, transfer, or other disposition, in one transaction resulting inor a financial benefitseries of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of the earning power or net income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate or associate of an interested stockholder. Generally,

In general, an “interested stockholder” is a person who, together with affiliates and associates, owns or(or within threetwo years, prior to the determination of interested stockholder status, did own,own) 10% or more of a corporation’s voting stock. The existencestatute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

Nevada Control Share Acquisition Statutes. The “control share” provisions of this provision may haveSections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations” that are Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and that conduct business directly or indirectly in Nevada. The control share statute prohibits an anti-takeover effect with respectacquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to transactionsvote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not approvedvote in advance by our boardfavor of directors, including discouraging attempts that might result in a premium overauthorizing voting rights to the market pricecontrol shares are entitled to demand payment for the fair value of their shares of common stock held by stockholders.in accordance with statutory procedures established for dissenters’ rights.

 

TheseA corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes, and will be subject to these statutes if we are intended to enhancean “issuing corporation” as defined in such statutes.

The effect of the likelihood of continuityNevada control share statutes is that the acquiring person, and stabilitythose acting in association with the acquiring person, will obtain only such voting rights in the compositioncontrol shares as are conferred by a resolution of our board and in the policies formulatedstockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of us.

Amendment of Charter Provisions. The amendment of any of the above provisions would require approval by our board and to discourage some typesholders of transactions that may involve an actual or threatened changeat least a majority of control of our company. These provisions are designed to reduce our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisitiontotal voting power of all of our outstanding shares or an unsolicited proposal forvoting stock.

The provisions of Nevada law, our articles of incorporation, and our bylaws could have the potential restructuring or saleeffect of all ordiscouraging others from attempting hostile takeovers and, as a partconsequence, they may also inhibit temporary fluctuations in the market price of our company. However, thesecommon stock that often result from actual or rumored hostile takeover attempts. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control of our company. They may also have the effect of preventing changes in the composition of our board of directors and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Our articles of incorporation and bylaws do not exclude us from these restrictions.

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Outstanding Warrants

Common Stock Purchase Warrants

 

Registration RightsExercisability. The warrants are exercisable immediately upon issuance and at any time for the five-year period from the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below).

Cashless Exercise. In the event that a registration statement covering shares of our common stock underlying the warrants is not available for the resale of such shares of our common stock underlying the warrants, the holder may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such exercise the net number of shares of our common stock determined according to the formula set forth in the warrant. In no event will we be required to make any cash payments or net cash settlement to the registered holder in lieu of issuing shares of our common stock underlying the warrants.

 

In connectionExercise Price. The initial exercise price per-whole share of our common stock purchasable upon exercise of the warrants is $3.443, or 110% of the effective offering price. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits stock combinations, reclassifications, or similar events affecting our common stock and also upon any distribution of assets, including cash, stock, or other property to our stockholders.

Transferability. Subject to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants together with the Purchase Agreementappropriate instruments of transfer.

Exchange Listing. The warrants are listed on The Nasdaq Capital Market under the symbol “VERBW.” Trading commenced at the open of the market on April 5, 2019. We cannot provide assurances that a trading market for the warrants will develop or be maintained.

Fundamental Transaction. If, at any time while the warrants are outstanding, (a) we consolidate or merge with Kodiak,or into another corporation and we are requirednot the surviving corporation, (b) we sell, lease, license, assign, transfer, convey, or otherwise dispose of all or substantially all of our assets, (c) any purchase offer, tender offer, or exchange offer (whether by us or another individual or entity) is completed pursuant to file withwhich holders of shares of our common stock are permitted to sell, tender, or exchange their shares of our common stock for our other securities, cash, or property and has been accepted by the SEC this registration statement on Form S-1 registeringholders of 50% or more of the outstanding shares of our common stock, (d) we effect any reclassification or recapitalization of shares of our common stock or any compulsory share exchange pursuant to which the shares of our common stock issuable to Kodiak. We have agreed to use reasonable best efforts to maintain the effectivenessare converted into or exchanged for other securities, cash, or property, or (e) we consummate a stock or share purchase agreement or other business combination with another person or entity whereby such other person or entity acquires more than 50% of the registration statement, of which this prospectus is part, until the earlier of (i) the date as of which Kodiak may sell alloutstanding shares of our common stock, that it owns pursuant to theeach, a “Common Stock Purchase Agreement without restriction pursuant to Rule 144Warrant Fundamental Transaction,” then upon any subsequent exercise of the 1933 Act;warrants, the holders thereof will have the right to receive the same amount and (ii)kind of securities, cash, or property as it would have been entitled to receive upon the date on which Kodiak shall have soldoccurrence of such Common Stock Purchase Warrant Fundamental Transaction if it had been immediately prior to such Common Stock Purchase Warrant Fundamental Transaction, the maximum amountholder of the number of warrant shares then issuable upon exercise of the warrant, and any additional consideration payable as part of the Common Stock Purchase Warrant Fundamental Transaction.

Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, issuablethe holder of the warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.

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August 2019 Warrants

On August 14, 2019, we entered into the SPA with certain purchasers named therein, or the Preferred Purchasers, pursuant to Kodiak underwhich we agreed to issue and sell to the Purchase Agreement.Preferred Purchasers, in addition to shares of our Series A Preferred Stock, warrants, which we refer to as the August Warrants, to purchase up to approximately 3.87 million shares of our common stock. We cannot assure you that weclosed the offering on August 14, 2019 and issued 5,030 shares of Series A Preferred Stock and granted the August Warrants exercisable for up to 3,245,162 shares of common stock in connection therewith. We received gross proceeds equal to $5,030,000.

Exercisability. The warrants are exercisable from and after six months after the date of issuance and at any time for the five-year period from the date of issuance. The warrants will be ableexercisable, at the option of each holder, in whole or in part, by delivering to keep this registration statement continuously effectiveus a duly executed exercise notice accompanied by payment in full for the required period.number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below).

 

Market InformationCashless Exercise. In the event that a registration statement covering shares of our common stock underlying the warrants is not available for the resale of such shares of our common stock underlying the warrants, the holder may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such exercise the net number of shares of our common stock determined according to the formula set forth in the warrant. In no event will we be required to make any cash payments or net cash settlement to the registered holder in lieu of issuing shares of our common stock underlying the warrants.

Exercise Price. The initial exercise price per-whole share of our common stock purchasable upon exercise of the warrants was $1.88. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications, or similar events affecting our common stock and also upon any distribution of assets, including cash, stock, or other property to our stockholders. If we or any subsidiary, at any time while the August Warrants are outstanding, sell or grant any option to purchase, or sell or grant any right to reprice or otherwise dispose of or issue any common stock or common stock equivalents at an effective price less than the exercise price then in effect, then the exercise price shall be reduced to the lower exercise price then in effect, subject to adjustment for reverse and forward stock splits, recapitalizations, and similar transactions and subject to certain exceptions. If we, at any time while the August Warrants are outstanding, issue rights, options, or warrants to all holders of common stock entitling them to subscribe for or purchase shares of common stock at a price per share less than the volume weighted average price on the record date mentioned below, then the exercise price shall be multiplied by a fraction, of which the denominator shall be the number of shares of common stock outstanding on the date of issuance of such rights, options, or warrants plus the number of additional shares of common stock offered for subscription or purchase, and of which the numerator shall be the number of shares of common stock outstanding on the date of issuance of such rights, options, or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered (assuming receipt by us in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such volume weighted average price. Such adjustment shall be made whenever such rights, options, or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options, or warrants.

Transferability. Subject to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants together with the appropriate instruments of transfer.

Exchange Listing. Our August Warrants are not listed on any securities exchange or other trading system and we do not intend to apply for listing on any securities exchange or other trading system.

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Fundamental Transaction. If, at any time while the warrants are outstanding, (a) we consolidate or merge with or into another corporation and we are not the surviving corporation, (b) we sell, lease, license, assign, transfer, convey, or otherwise dispose of all or substantially all of our assets, (c) any purchase offer, tender offer, or exchange offer (whether by us or another individual or entity) is completed pursuant to which holders of shares of our common stock are permitted to sell, tender, or exchange their shares of our common stock for our other securities, cash, or property and has been accepted by the holders of 50% or more of the outstanding shares of our common stock, (d) we effect any reclassification or recapitalization of shares of our common stock or any compulsory share exchange pursuant to which the shares of our common stock are converted into or exchanged for other securities, cash, or property, or (e) we consummate a stock or share purchase agreement or other business combination with another person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of our common stock, each, an “August Warrant Fundamental Transaction,” then upon any subsequent exercise of the warrants, the holders thereof will have the right to receive the same amount and kind of securities, cash, or property as it would have been entitled to receive upon the occurrence of such August Warrant Fundamental Transaction if it had been immediately prior to such August Warrant Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise of the warrant, and any additional consideration payable as part of the August Warrant Fundamental Transaction. In the event of an August Warrant Fundamental Transaction, we or any successor entity shall, at the holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the August Warrant Fundamental Transaction (or, if later, the date of the public announcement of the applicable August Warrant Fundamental Transaction), purchase the warrant from the holder by paying to the holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of the warrant on the date of the consummation of such August Warrant Fundamental Transaction. For purposes of the August Warrants, “Black Scholes Value” means the value of the warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P., or Bloomberg, determined as of the day of consummation of the applicable August Warrant Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable August Warrant Fundamental Transaction and the termination date, (B) an expected volatility equal to the 100-day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365-day annualization factor) as of the trading day immediately following the public announcement of the applicable August Warrant Fundamental Transaction (but in no event shall such expected volatility be greater than one hundred percent (100%)), (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such August Warrant Fundamental Transaction and (ii) the greater of (x) the last volume weighted average price immediately prior to the public announcement of such August Warrant Fundamental Transaction and (y) the last volume weighted average price immediately prior to the consummation of such August Warrant Fundamental Transaction, and (D) a remaining option time equal to the time between the date of the public announcement of the applicable August Warrant Fundamental Transaction and the termination date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five business days of the holder’s election (or, if later, on the effective date of the August Warrant Fundamental Transaction).

Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of the warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.

February 2020 Warrants

In connection with our private placement of common stock in February 2020, the Preferred Purchasers who, as of February 7, 2020, continued to own shares of our Series A Preferred Stock (a) waived their respective rights, or the February 2020 Waiver, to participate in our private placement, and (b) declined to accept the price protection rights to which they otherwise were entitled as holders of shares of our Series A Preferred Stock. In connection with the February 2020 Waiver, we granted to each of our Preferred Purchasers who continued to own shares of our Series A Preferred Stock as of February 7, 2020 a five-year common stock purchase warrant, or February 2020 Warrants, the terms of which are substantially similar to the terms of our August Warrants, with the sole material differences being the grant date and the $1.55 per-share exercise price. The initial per-share exercise price of our August Warrants was $1.88 and, by virtue of our private placement, the per-share exercise price was modified to $1.20. Our February 2020 Warrants are not listed on any securities exchange or other trading system and we do not intend to apply for listing on any securities exchange or other trading system.

As of June 29, 2020, we had 13,534,038 shares of our common stock underlying outstanding warrants, having a weighted-average exercise price of approximately $2.59 per share.

Outstanding Options and Awards

As of June 29, 2020, we had 4,510,358 shares of our common stock underlying outstanding stock options, having a weighted-average exercise price of approximately $1.71 per share, and 2,064,428 restricted stock awards having a weighted-average grant date fair value of $1.39 issued under our Incentive Plan, respectively.

Choice of Forum

 

Our common stock price is quoted onbylaws provide that, unless we consent in writing to the OTCQB market underselection of an alternative forum, the symbol “FUSZ.”

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our amendedstate and restated articlesfederal courts in the State of incorporation provide thereNevada shall be no personal liabilitythe 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 director or an officer to the Company or our stockholders for damagesclaim for breach of fiduciary duty as a directorto us or an officer, subject to specified exceptions.

Section 78.7502 of the Nevada Revised Statutes permits a corporation to indemnify a presentour stockholders by any current or former officer, director, officer, employee, or agent of the corporation,us, or of another entity(c) any action against us or enterprise for which such person isany current or was serving in such capacity at the request of the corporation, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, except an action by or in the right of the corporation, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection therewith, arising by reason of such person’s service in such capacity if such person (1) is not liable pursuant to Section 78.138 of the Nevada Revised Statutes, which sets forth standards for the conduct of directors and officers, or (2) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to a criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of actions brought by or in the right of the corporation, however, no indemnification may be made for any claim, issue or matter as to which such person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

Section 78.751 of the Nevada Revised Statutes permits any discretionary indemnification under Section 78.7502 of the Nevada Revised Statutes, unless ordered by a court or advanced to aformer officer, director, or officer by the corporation in accordance with the Nevada Revised Statutes, to be made by a corporation only as authorized in each specific case upon a determination that indemnification of the director, officer, employee, or agent is proper inof us arising pursuant to any provision of the circumstances. Such determination must be made (1) byNRS, the stockholders, (2) by our boardarticles of directors by majority voteincorporation, or the bylaws. For the avoidance of a quorum consisting of directors who weredoubt, the exclusive forum provision described above does not partiesapply to the action, suit or proceeding, (3) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion, or (4) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.

Our amended and restated bylaws require us to indemnify our directors and officers in a manner that is consistent with the provisions of Nevada law described in the preceding two paragraphs.

Insofar as indemnification for liabilitiesany 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. See “Risk Factors— Risks Related to an Investment in Our Securities—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.”

Transfer Agent and Registrar

Our transfer agent and registrar for our common stock is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, New York 11598. Its telephone number is 855-9VSTOCK.

Quotation on The Nasdaq Capital Market

Shares of our common stock are being traded on The Nasdaq Capital Market under the symbol “VERB.” Our common stock purchase warrants are being traded on The Nasdaq Capital Market under the symbol “VERBW.”

UNDERWRITING

We have entered into an underwriting agreement with Ladenburg, acting as underwriter with respect to the shares subject to this offering. Subject to certain conditions, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase, the number of shares provided below opposite its name. The underwriter is committed to purchase and pay for all of the shares if any are purchased, other than those shares of common stock and/or warrants covered by the over-allotment option described below.

UnderwriterNumber of Shares
Ladenburg Thalmann & Co. Inc.

The underwriter has advised us that it proposes to offer the shares to the public at a price of $      per share. The underwriter proposes to offer the shares to certain dealers at the same price less a concession of not more than $       per share. After the offering, these figures may be permittedchanged by the underwriter.

The shares sold in this offering are expected to be ready for delivery against payment in immediately available funds on or about              , 2020, subject to customary closing conditions. The underwriter may reject all or part of any order.

We have granted to the underwriter an option to purchase up to a number of additional shares of common stock and/or warrants equal to 15% if the number of shares of common stock sold in the primary offering at the public offering price per share of common stock set forth on the cover page hereto less the underwriting discount and commissions. The underwriter may exercise its option, in whole or in part, any time during the 45-day period after the date of this prospectus, but only to cover over-allotments, if any.

Commissions and Discounts

The table below summarizes the underwriting discount and commission that we will pay to the underwriter. These amounts are shown assuming both no exercise and full exercise of the over-allotment option. In addition to the underwriting discount, we have agreed to pay up to $      of the fees and expenses of the underwriter, which may include the fees and expenses of counsel to the underwriter. The fees and expenses of the underwriter that we have agreed to reimburse are not included in the underwriting discounts set forth in the table below. The underwriter has not received and will not receive from us any other item of compensation or expense in connection with this offering considered by the Financial Industry Regulatory Authority, Inc., or FINRA, to be underwriting compensation under its rules. The underwriting discount and other items of compensation the underwriter will receive were determined through arms’ length negotiations between us and the underwriter.

Per Share

Total with no Over-AllotmentTotal with Full Exercise of Over-Allotment
Public offering price
Underwriting Discount

We estimate that the total expenses of this offering, excluding the underwriting discount, will be $      . This includes $       of fees and expenses of the underwriter. These expenses are payable by us.

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Indemnification

We also have agreed to indemnify the underwriter against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the underwriter may be required to make in respect of those liabilities.

No Sales of Similar Securities

We and each of our directors and officers have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any shares of common stock or any securities convertible into or exchangeable for shares of common stock without the prior written consent of the underwriter for a period of 90 days after the date of this prospectus. These lock-up agreements provide certain exceptions and their restrictions may be waived at any time by the underwriter.

Price Stabilization, Short Positions and Penalty Bids

To facilitate this offering, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock during and after the offering. Specifically, the underwriter may create a short position in our common stock for their own accounts by selling more shares of common stock than we have sold to the underwriter. The underwriter may close out any short position by purchasing shares in the open market.

In addition, the underwriter may stabilize or maintain the price of our common stock by bidding for or purchasing shares in the open market and may impose penalty bids. If penalty bids are imposed, selling concessions allowed to broker-dealers participating in this offering are reclaimed if shares previously distributed in this offering are repurchased, whether in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price of our common stock at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of our common stock to the extent that it discourages resales of our common stock. The magnitude or effect of any stabilization or other transactions is uncertain. These transactions may be effected on The Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time.

In connection with this offering, the underwriter may also engage in passive market making transactions in our common stock on The Nasdaq Capital Market. Passive market making consists of displaying bids on The Nasdaq Capital Market limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of our common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.

Neither we nor the underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that any transaction, if commenced, will not be discontinued without notice.

Electronic Offer, Sale and Distribution of Shares

The underwriter may facilitate the marketing of this offering online directly or through one of their affiliates. In those cases, prospective investors may view offering terms and a prospectus online and place orders online or through their financial advisors. Such websites and the information contained on such websites, or connected to such sites, are not incorporated into and are not a part of this prospectus.

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Other Relationships

The underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriter has in the past, and may in the future, engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. The underwriter has in the past, and may in the future, receive customary fees and commissions for these transactions.

In the ordinary course of their various business activities, the underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriter and its affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that it acquires, long and/or short positions in such securities and instruments.

Selling Restrictions

Canada. The offering of the shares in Canada is being made on a private placement basis in reliance on exemptions from the prospectus requirements under the securities laws of each applicable Canadian province and territory where the shares may be offered and sold, and therein may only be made with investors that are purchasing as principal and that qualify as both an “accredited investor” as such term is defined in National Instrument 45-106 - Prospectus Exemptions, and as a “permitted client” as such term is defined in National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any offer and sale of the shares in any province or territory of Canada may only be made through a dealer that is properly registered under the securities legislation of the applicable province or territory wherein the shares are offered and/or sold or, alternatively, by a dealer that qualifies under and is relying upon an exemption from the registration requirements therein.

Any resale of the common stock and/or warrants by an investor resident in Canada must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and registration requirements, statutory exemptions from the prospectus and registration requirements or under a discretionary exemption from the prospectus and registration requirements granted by the applicable Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the common stock and/or warrants outside of Canada.

European Economic Area. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive each, a Relevant Member State, no offer to the public of any of our shares will be made, other than under the following exemptions:

to any legal entity that is a qualified investor as defined in the Prospectus Directive;
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the issuer for any such offer; or
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock will result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive or any supplementary prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any of our shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer so as to enable an investor to decide to purchase or subscribe for any shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

United Kingdom. This document is not an approved prospectus for the purposes of section 85 of the UK Financial Services and Markets Act 2000, as amended, or FSMA, and a copy of it has not been, and will not be, delivered to or approved by the UK Listing Authority or approved by any other authority which could be a competent authority for the purposes of the Prospectus Directive.

This prospectus is only being distributed to, and is only directed at, persons controllingin the United Kingdom that are “qualified investors” within the meaning of section 86(7) of FSMA that are also (i) investment professionals falling within Article 19(5) of the UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) high net worth companies, unincorporated associations or partnerships and the trustees of high value trusts falling within Article 49(2)(a) to (d) of the Order and other persons to whom it may lawfully be communicated (each such person being referred to as a “relevant person”).

Any person in the United Kingdom that is not a relevant person should not act or rely on these documents or any of their contents. Any investment, investment activity or controlled activity to which this companydocument relates is available in the United Kingdom only to relevant persons and will be engaged in only with such persons. Accordingly, this document has not been approved by an authorized person, as would otherwise be required by Section 21 of FSMA. Any purchaser of shares of common stock resident in the United Kingdom will be deemed to have represented to us and the underwriter, and acknowledge that each of us and the underwriter are relying on such representation, that it, or the ultimate purchaser for which it is acting as agent, is a relevant person.

Australia. No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and do not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the foregoing provisions, we have been informedCorporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the opinionperiod of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the SECCorporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such indemnificationAustralian on-sale restrictions.

This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. This prospectus do not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is against public policyappropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Hong Kong. The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as expresseddefined in the Securities Act and is, therefore, unenforceable. InFutures Ordinance (Cap. 571 of the eventLaws of Hong Kong), or the SFO, of Hong Kong and any rules made thereunder; or (b) in other circumstances which do not result in the document being a claim for indemnification against such liabilities (other than payment by us for expenses incurred“prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong), or paid by a director, officerthe CO, or controlling personwhich do not constitute an offer to the public within the meaning of our companythe CO. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in successful defensethe possession of any action, suit,person for the purposes of issue, whether in Hong Kong or proceeding)elsewhere, which is asserteddirected at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made thereunder.

92

Singapore. Singapore SFA Product Classification—In connection with Section 309B of the SFA and the CMP Regulations 2018, unless otherwise specified before an offer of shares, the we have determined, and hereby notify all relevant persons (as defined in Section 309A(1) of the SFA), that the shares are ‘‘prescribed capital markets products’’ (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

The underwriter has acknowledged that this prospectus has not been registered as a director, officerprospectus with the Monetary Authority of Singapore. Accordingly, the underwriter has represented and agreed that it has not offered or controlling personsold any shares or caused the shares to be made the subject of an invitation for subscription or purchase and will not offer or sell any shares or cause the shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, whether directly or indirectly, to any person in Singapore other than:

(a) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA;

(b) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA and in accordance with the conditions specified in Section 275 of the SFA; or

(c) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

(i) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 276(4)(i)(B) of the SFA;

(i) where no consideration is or will be given for the transfer;

(ii) where the transfer is by operation of law;

(iii) as specified in Section 276(7) of the SFA; or

as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.

United Arab Emirates. The shares have not been, and are not being, registered, we will, unlesspublicly offered, sold, promoted or advertised in the opinionUnited Arab Emirates (including the Dubai International Financial Centre) other than in compliance with the laws of its counsel the matter has been settled by controlling precedent, submit toUnited Arab Emirates (and the Dubai International Financial Centre) governing the issue, offering and sale of securities. Further, this prospectus does not constitute a courtpublic offer of appropriate jurisdiction, the question of whether such indemnification by it is against public policysecurities in the United Arab Emirates (including the Dubai International Financial Centre) and is not intended to be a public offer. This prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Securities Act and will be governed byCommodities Authority or the final adjudication of such issue.Dubai Financial Services Authority.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is VStock Transfer, LLC. Its telephone number is 855-9VSTOCK.

93

 

LEGAL MATTERS

 

The validity of the shares of common stock being offered hereby has beenunder this prospectus will be passed upon for us by Troutman Pepper Hamilton Sanders LLP, Irvine, California. Certain legal matters in connection with this offering will be passed upon for the law firmunderwriter by Crowell & Moring, Washington, District of TroyGould PC, Los Angeles, California.Columbia.

 

EXPERTS

 

The consolidated balance sheetfinancial statements of nFüsz,Verb Technology Company, Inc. (formerly bBooth, Inc.) as of and for the years ended December 31, 20162019 and the related consolidated statements2018 appearing in this prospectus and registration statement of operations, stockholders’ deficit, and cash flows for the year then endedwhich this prospectus is a part have been audited by Weinberg & Company, P.A., an independent registered public accounting firm, as stated in theirits report which isthereon, included herein. Such financial statements have beentherein, and are included herein in reliance onupon such report and upon the reportauthority of such firm given upon their authority as experts in accounting and auditing.

The consolidated balance sheet of nFüsz, Inc. (formerly bBooth, Inc.) as of December 31, 2015 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended have been audited by Anton & Chia, LLP, an independent registered public accounting firm, as stated in their report which is included herein. Such financial statements have been included herein in reliance on the report of such firm given upon their authority as experts in accounting and auditing.

 

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The SEC allows us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The documents incorporated by reference into this prospectus contain important information that you should read about us.

We incorporate by reference any future filings (other than current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed on such form that are related to such items unless such Form 8-K expressly provides to the contrary) made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including those made after the date of the initial filing of the registration statement of which this prospectus forms a part and prior to effectiveness of such registration statement, until we file a post-effective amendment that indicates the termination of the offering of the shares made by this prospectus and such future filings will become a part of this prospectus from the respective dates that such documents are filed with the SEC. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof or of the related prospectus supplement to the extent that a statement contained herein or in any other subsequently filed document which is also incorporated or deemed to be incorporated herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

The documents incorporated by reference into this prospectus are also available on our corporate website at https://www.verb.tech/ under the heading “Investor Relations.” Information contained on, or that can be accessed through, our website is not part of this prospectus, and you should not consider information on our website to be part of this report unless specifically incorporated herein by reference. You may obtain copies of the documents incorporated by reference in this prospectus from us free of charge by requesting them in writing or by telephone at the following address:

Verb Technology Company, Inc.

2210 Newport Boulevard, Suite 200

Newport Beach, California 92663

Attn: Investor Relations

Telephone: (855) 250-2300

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, under the Securities Act of 1933,SEC a registration statement on Form S-1 relatingunder the Securities Act, and the rules and regulations promulgated under the Securities Act, with respect to the sharescommon stock offered hereby.under this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forthcontained in the registration statement and the exhibits and schedules thereto. to the registration statement. Many of the contracts and documents described in this prospectus are filed as exhibits to the registration statements and you may review the full text of these contracts and documents by referring to these exhibits.

For further information with respect to our companyus and the sharescommon stock offered byunder this prospectus, you should referreference is made to the registration statement including theand its exhibits and schedules thereto. You may inspect a copy ofschedules. We file reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the registration statement without charge at the Public Reference Section of the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. SEC.

The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission. The Securities and Exchange Commission alsoSEC maintains an Internet web site that contains reports, proxyprospectus and information statements and other information regarding registrantsissuers, including Verb Technology Company, Inc., that file electronically with the SecuritiesSEC. The SEC’s Internet website address is https://www.sec.gov. Our Internet website address is https://www.verb.tech/.

We do not anticipate that we will send an annual report to our stockholders until and Exchange Commission. The Securities and Exchange Commission’s World Wide Web address ishttp://www.sec.gov.unless we are required to do so by the rules of the SEC.

Statements contained

All trademarks or trade names referred to in this prospectus as toare the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statementproperty of their terms and conditions.

The representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were made as of an earlier date. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.

We file periodic reports, proxy statements and other information with the Securities and Exchange Commission in accordance with requirements of the Exchange Act. These periodic reports, proxy statements and other information are available for inspection and copying at the regional offices, public reference facilities and Internet site of the Securities and Exchange Commission referred to above. You can also request copies of such documents, free of charge, by contacting the company at (855) 250-2300.

Information contained on our website is not a prospectus and does not constitute a part of this prospectus.respective owners.

INDEX TO FINANCIAL STATEMENTS

nFÜSZ, INC.

(formerly bBOOTH, INC.)

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

 

 Page
Financial Statements for the Six Months Ended June 30, 2017 and June 30, 2016 (unaudited) 
Condensed Consolidated Balance Sheets as of June 30, 2017March 31, 2020 (unaudited) and December 31, 20162019F-1F-2
Condensed Consolidated Statements of Operations (unaudited) for the Six and Three Months Ended June 30, 2017March 31, 2020 and 2019 (unaudited)F-2F-3
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 (unaudited)F-4
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2019 (unaudited)F-5
Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended June 30, 2017March 31, 2020 and 20162019 (unaudited)

F-3

F-6
Condensed Consolidated Statements of Stockholders’ Deficit for the Six Months Ended June 30, 2017 (unaudited)F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)for the Three Months Ended March 31, 2020 and 2019 (unaudited)F-5F-7
  
Financial Statements for the Year Ended December 31, 2016Report of Independent Registered Public Accounting FirmF-27
 
Consolidated Balance Sheets as of December 31, 20162019 and 20152018F-18F-28
Consolidated Statements of Operations for the Years Ended December 31, 20162019 and 20152018

F-19

F-29
Consolidated Statements of Changes in Stockholders’ DeficitEquity (Deficit) for the Years Ended December 31, 20162019 and 20152018F-20F-30
Consolidated Statements of Cash Flows for the Years Ended December 31, 20162019 and 20152018F-21F-31
Notes to Consolidated Financial Statements for the Years Ended December 31, 20162019 and 20152018F-22
Reports of Independent Registered Public Accounting FirmsF-38F-32

nFÜSZ, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

  June 30, 2017  December 31, 2016 
  (Unaudited)    
ASSETS        
         
Current assets:        
Cash $27,008  $16,762 
Accounts receivable  -   8,468 
Prepaid expenses  33,101   10,871 
Total current assets  60,109   36,101 
Property and equipment, net  41,398   52,066 
Other assets  9,073   16,036 
         
Total assets $110,580  $104,203 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
Current liabilities:        
Accounts payable and accrued expenses $435,309  $431,650 
Accrued interest (including $109,946 and $118,451 payable to related parties)  215,557   118,137 
Accrued officers’ salary  386,279   200,028 
Notes payable, net of discount of $0 and $48,942, respectively  125,000   177,358 
Notes payable - related party  1,964,985   1,964,985 
Convertible note payable, net of discount of $105,061 and $0, respectively  685,207   680,268 
Total current liabilities  3,812,337   3,572,426 
         
Notes Payable Series A Preferred, net of discount of $20,857  294,143   - 
         
Commitments and contingencies        
         
Stockholders’ deficit        
Preferred stock, $0.0001 par value, 15,000,000 shares authorized, none issued or outstanding  -   - 
Common stock, $0.0001 par value, 200,000,000 shares authorized, 105,072,899 and 94,661,566 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively  10,507   9,465 
Additional paid in capital  20,235,598   17,815,732 
Stock subscription  (20)  (20,020)
Accumulated deficit  (24,241,985)  (21,273,400)
         
Total stockholders’ deficit  (3,995,900)  (3,468,223)
         
Total liabilities and stockholders’ deficit $110,580  $104,203 

The accompanying notes are an integral part of these condensed consolidated financial statements.


 F-1 
   


nFÜSZ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSVERB TECHNOLOGY COMPANY, INC.

(Unaudited)CONDENSED CONSOLIDATED BALANCE SHEETS

 

  For the Three Months Ended  For the Six Months Ended 
  June 30, 2017  June 30, 2016  June 30, 2017  June 30, 2016 
             
Net Sales $-  $-  $-  $- 
                 
Research and development  92,240   83,366   181,840   119,816 
General and administrative  1,352,028   1,047,580   1,970,028   1,556,539 
Loss from operations  (1,444,268)  (1,130,946)  (2,151,868)  (1,676,355)
                 
Other Income  -   31,525   -   31,593 
Debt Extinguishment  (526,871)  -   (552,871)  - 
Interest expense (including $58,788 and $69,034 to related parties for six months and $116,930 and $122,978 to related parties for three months)  (86,816)  (87,779)  (170,822)  (160,349)
Interest expense - amortization of debt discount  (53,346)  (100,452)  (93,024)  (179,822)
Net loss $(2,111,301) $(1,287,652) $(2,968,585) $(1,984,933)
                 
Earnings per share - basic and diluted $(0.02) $(0.02) $(0.03) $(0.03)
                 
Weighted average number of common shares outstanding - basic and diluted  102,734,185   73,186,149   99,184,826   65,067,157 
  March 31, 2020  December 31, 2019 
  (unaudited)    
ASSETS        
         
Current assets:        
Cash $1,615,000  $983,000 
Accounts receivable, net of allowance of $280,000 and $230,000, respectively  1,212,000   1,271,000 
Inventory, net of allowance of $0 and $2,000, respectively  74,000   103,000 
Prepaid expenses  249,000   236,000 
Total current assets  3,150,000   2,593,000 
         
Right-of-use assets, net of accumulated amortization of $484,000 and $349,000 respectively  3,140,000   3,275,000 
Property and equipment, net of accumulated depreciation of $202,000 and $164,000, respectively  803,000   720,000 
Intangible assets, net of accumulated amortization of $1,300,000 and $975,000 respectively  5,040,000   5,365,000 
Goodwill  16,337,000   16,337,000 
Other assets  115,000   69,000 
         
Total assets $28,585,000  $28,359,000 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Accounts payable and accrued expenses $4,569,000  $4,338,000 
Accrued officers’ salary  207,000   207,000 
Accrued interest – related parties  107,000   82,000 
Advance on future receipts, net of discount of $137,000 and $274,000, respectively  457,000   732,000 
Notes payable - related party  937,000   112,000 
Operating lease liability, current  505,000   391,000 
Deferred incentive compensation, current  521,000   - 
Deferred revenue and customer deposits  261,000   306,000 
Derivative liability  6,907,000   5,048,000 
         
Total current liabilities  14,471,000   11,216,000 
         
Long Term liabilities:        
Note payable - related party, non-current  240,000   1,065,000 
Deferred incentive compensation to officers, non-current  521,000   1,042,000 
Operating lease liability, non-current  3,432,000   3,591,000 
Total liabilities  18,664,000   16,914,000 
         
Commitments and contingencies        
         
Stockholders’ equity        
Preferred stock, $0.0001 par value, 15,000,000 shares authorized: Series A Convertible Preferred Stock, 6,000 shares authorized; 3,246 and 4,396 issued and outstanding as of March 31, 2020 and December 31, 2019  -   - 
Common stock, $0.0001 par value, 200,000,000 shares authorized, 28,962,589 and 24,496,197 shares issued and outstanding as of March 31, 2020 and December 31, 2019  3,000   2,000 
Additional paid-in capital  68,449,000   68,028,000 
Accumulated deficit  (58,531,000)  (56,585,000)
         
Total stockholders’ equity  9,921,000   11,445,000
         
Total liabilities and stockholders’ equity $28,585,000  $28,359,000 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

nFÜSZ, INC.statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS

(Unaudited)

 

  For the Six Months Ended 
  June 30, 2017  June 30, 2016 
Operating Activities:        
Net loss $(2,968,585) $(1,984,933)
Adjustments to reconcile net loss to net cash used in operating activities:        
Share-based compensation  1,206,737   714,274 
Debt extinguishment  552,871   - 
Amortization of debt discount and debt issuance costs  93,024   179,822 
Depreciation and amortization  10,668   11,652 
Effect of changes in operating assets and liabilities:        
Accounts payable and accrued expenses  317,330   259,856 
Accounts receivable  8,468   (34,362)
Other assets  6,963   - 
Prepaid expenses and other current assets  (22,230)  (41,984)
Net cash used in operating activities  (794,754)  (895,675)
         
Financing Activities:        
Proceeds from sale of common stock  450,000   918,980 
Proceeds from series A preferred stock  255,000   - 
Proceeds from note payable  100,000   - 
Proceeds from notes payable - related parties  -   82,446 
Repurchases of common stock  -   (166,226)
Net cash provided by financing activities  805,000   835,200 
         
Net change in cash  10,246   (60,475)
         
Cash - beginning of period  16,762   103,019 
         
Cash - end of period $27,008  $42,544 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $67,364  $6,250 
Cash paid for income taxes $-  $- 
         
Supplemental disclosure of non-cash investing and financing activities:        
Conversion of note payable to common stock $110,880  $- 
Fair value of common shares, warrants and beneficial conversion feature of issued convertible note $100,000  $- 
Common stock issued to settle accounts payable $56,000  $- 
Conversion of notes payable to convertible notes payable $-  $600,000 
Conversion of notes payable to related parties to convertible notes payable $-  $332,446 
Conversion of accrued payroll to related party note $-  $121,875 
Conversion of accrued interest on notes payable to convertible notes payable $-  $66,463 
Conversion of accrued interest on notes payable to related parties to convertible notes payable $-  $10,421 

  

Three Months Ended

March 31, 2020

  

Three Months Ended

March 31, 2019

 
       
Revenue        
Digital $1,457,000  $9,000 
Welcome kits and fulfillment  728,000   - 
Shipping  169,000   - 
   2,354,000   9,000 
         
Cost of revenue        
Digital  230,000   30,000 
Welcome kits and fulfillment  676,000   - 
Shipping  157,000   - 
   1,063,000   30,000 
         
Gross margin  1,291,000   (21,000)
         
Operating expenses:        
Research and development  1,274,000   564,000 
Depreciation and amortization  363,000   4,000 
General and administrative  3,514,000   2,185,000 
Total operating expenses  5,151,000   2,753,000 
         
Loss from operations  (3,860,000)  (2,774,000)
         
Other income (expense), net        
Other expense, net  (6,000)  - 
Financing costs  -   (84,000)
Interest expense - amortization of debt discount  (137,000)  (1,054,000)
Change in fair value of derivative liability  2,092,000   944,000 
Interest expense  (35,000)  (40,000)
Total other income (expense), net  1,914,000  (234,000)
         
Net loss (1,946,000) (3,008,000)
         

Deemed dividends to Series A stockholders

  

(3,951,000

)  - 
         

Net loss attributed to common stockholders

 $

(5,897,000

) $

(3,008,000

)
         
Loss per share to common stockholders - basic and diluted $(0.23) $(0.25)
Weighted average number of common shares outstanding - basic and diluted  25,992,426   12,239,044 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


F-3


nFÜSZ, INC.statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICITSTOCKHOLDERS’ EQUITY FOR THE
THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

 

  Common Stock  Additional
Paid-in
  Stock  Accumulated    
  Shares  Amount  Capital  Subscription  Deficit  Total 
Balance at December 31, 2016  94,661,566  $9,465  $17,815,732  $(20,020) $(21,273,400) $(3,468,223)
                         
Fair value vested options  -   -   242,630   -   -   242,630 
Proceeds from sale of common stock  6,275,000   628   429,372   20,000   -   450,000 
Shares of common stock issued upon conversion of debt  462,000   46   110,834           110,880 
Fair value of warrants issued to extinguish debt and accounts payable  -   -   517,291           517,291 
Shares of common stock issued to settle accounts payable  400,000   40   55,960   -   -   56,000 
Fair value of common shares, warrants and beneficial conversion feature of issued convertible note  50,000   5   99,995           100,000 
Share based compensation - shares issued for services  3,224,333   323   963,784   -   -   964,107 
Net loss  -   -   -   -   (2,968,585)  (2,968,585)
                         
Balance at June 30, 2017  105,072,899  $10,507  $20,235,598  $(20)  (24,241,985) $(3,995,900)

              Additional       
  Preferred Stock  Common Stock  Paid-in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
                      
Balance at December 31, 2019  4,396  $     -   24,496,197  $2,000  $68,028,000  $(56,585,000) $11,445,000 
                             
Sale of common stock from private placement  -   -   3,392,833   1,000   3,429,000   -   3,430,000 
Fair value of warrants issued to Series A Preferred stockholders  -   -   -   -   (3,951,000)  -   (3,951,000)
Conversion of Series A Preferred to common stock  (1,150)  -   741,933   -   -   -   - 
Fair value of common shares issued for services  -   -   320,601   -   321,000   -   321,000 
Fair value of vested restricted stock awards  -   -   11,025   -   241,000   -   241,000 
Fair value of vested stock options  -   -   -   -   381,000   -   381,000 
Net loss  -   -   -   -   -   (1,946,000)  (1,946,000)
Balance at March 31, 2020  3,246  $-     28,962,589  $3,000  $  68,449,000  $  (58,531,000) $9,921,000 

The accompanying notes are an integral part of these condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE
THREE MONTHS ENDED MARCH 31, 2019

(Unaudited)

        Additional       
  Preferred Stock  Common Stock  

Paid-in

  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
                      
Balance at December 31, 2018  -  $-   12,055,491  $1,000  $35,611,000  $(40,667,000) $(5,055,000)
                             
Common shares issued upon exercise of warrants  -   -   148,714   -   -   -   - 
Fair value of common stock upon issuance of convertible debt  -   -   16,667   -   128,000   -   128,000 
Fair value of common shares issued for services  -   -   39,998   -   388,000   -   388,000 
Beneficial holder round up  -   -   83,581   -   -   -   - 
Fair value of vested stock options  -   -   -   -   463,000   -   463,000 
Net loss  -   -   -   -   -   (3,008,000)  (3,008,000)
Balance at March 31, 2019        -  $        -     12,344,451  $1,000  $  36,590,000  $  (43,675,000) $  (7,084,000)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.statements

nFÜSZ, INC.

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  For the Three Months Ended 
  March 31, 2020  March 31, 2019 
       
Operating Activities:        
Net loss $(1,946,000) $(3,008,000)
Adjustments to reconcile net loss to net cash used in operating activities:        
Fair value of common shares issued for services and vested stock options and warrants  943,000   851,000 
Financing costs  -   84,000 
Amortization of debt discount  137,000   1,054,000 
Change in fair value of derivative liability  (2,092,000)  (944,000)
Depreciation and amortization  363,000   4,000 
Amortization of right-of-use assets  135,000   - 
Allowance for inventory  (2,000)  - 
Allowance for doubtful account  50,000   - 
Effect of changes in assets and liabilities:        
Accounts receivable  9,000   (6,000)
Prepaid expenses  (12,000)  (129,000)
Inventory  30,000   - 
Other assets  (45,000)  (44,000)
Accounts payable, accrued expenses, and accrued interest  255,000   1,047,000 
Operating lease liability  (47,000)  - 
Deferred revenue and customer deposits  (44,000)  2,000 
Net cash used in operating activities  (2,266,000)  (1,089,000)
         
Investing Activities:        
Purchase of property and equipment  (121,000)  - 
Net cash used by investing activities  (121,000)  - 
         
Financing Activities:        
Proceeds from sale of common stock  3,430,000   - 
Proceeds from notes payable  -   350,000 
Proceeds from convertible note payable  -   432,000 
Payment of related party notes payable  -   58,000 
Payment of advances of future receipts  (411,000)  - 
Deferred offering costs  -   (326,000)
Net cash provided by financing activities  3,019,000   514,000 
         
Net change in cash  632,000   (575,000)
         
Cash - beginning of period  983,000   634,000 
         
Cash - end of period $1,615,000  $59,000 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $10,000  $32,000 
         
Supplemental disclosure of non-cash investing and financing activities:        
Fair value of derivative liability from issuance of convertible debt, inducement shares and warrant features $-  $388,000 

Fair value of derivative liability from issuance of warrants to Series A stockholders considered as a deemed dividend

 $3,951,000   - 
Fair value of common shares, warrants and beneficial conversion feature of issued convertible note $-  $128,000 

The accompanying notes are an integral part of these condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

Notes to Condensed Consolidated Financial Statements
The SixFor the Three Months Ended June 30, 2017March 31, 2020 and 20162019
(Unaudited)

 

1.DESCRIPTION OF BUSINESS

 

Organization

References in this document to the “Company,” “Verb,” “we,” “us,” or “our” are intended to mean Verb Technology Company, Inc., individually, or as the context requires, collectively with its subsidiary on a consolidated basis.

 

Cutaia Media Group, LLC (“CMG”) was organized as a limited liability company formed on December 12, 2012 under the laws of the State of Nevada.Nevada on December 12, 2012. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG was merged into bBooth, Inc. and bBooth, Inc., thereafter, changed its name to bBooth (USA), Inc., effective as of October 16, 2014. The operations of CMG and bBooth (USA), Inc., became known as, and are collectively referred to in this Annual Report as, “bBoothUSA”.“bBoothUSA.”

 

On October 16, 2014, bBoothUSA completed a Share Exchange Agreement withwas acquired by Global System Designs, Inc. (“GSD”) which, pursuant to a Share Exchange Agreement entered into with GSD (the “Share Exchange Agreement”). GSD was incorporated in the State of Nevada on November 27, 2012. The acquisition was accounted for as a reverse merger transaction. In connection with the closing of the transactions contemplated by the Share Exchange Agreement, GSDGSD’s management was replaced by bBoothUSAbBoothUSA’s management, and GSD changed its name to bBooth, Inc.

 

Effective April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with and into us. We were the surviving entity. To effectuate the merger,

Effective February 1, 2019, we filed Articles of Merger with the Secretary of State of the State of Nevada on April 4, 2017 and a Certificate of Correction with the Secretary of State of the State of Nevada on April 17, 2017.changed our corporate name from nFüsz, Inc. to Verb Technology Company, Inc. The merger became effective on April 21, 2017. Our board of directors approved the merger, which resulted in the name change on that date. In accordance with Section 92A.180was effected through a parent/subsidiary short-form merger of Verb Technology Company, Inc., our wholly-owned Nevada subsidiary, formed solely for the Nevada Revised Statutes, stockholder approval of the merger was not required.

On the effective date of the merger, our name was changed to “nFüsz, Inc.” and our Articles of Incorporation, as amended (the “Articles”), were further amended to reflect our new legal name. With the exceptionpurpose of the name change, therewith and into us.

On February 1, 2019, we implemented a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our common stock, $0.0001 par value per share (the “Common Stock”). The Reverse Stock Split became effective upon commencement of trading of our Common Stock on February 4, 2019. As a result of the Reverse Stock Split, every fifteen (15) shares of our pre-Reverse Stock Split Common Stock were nocombined and reclassified into one share of our Common Stock. The number of shares of Common Stock subject to outstanding options, warrants, and convertible securities were also reduced by a factor of fifteen as of February 1, 2019. All historical share and per-share amounts reflected throughout our consolidated financial statements and other changesfinancial information in this Annual Report have been adjusted to reflect the Reverse Stock Split. The par value per share of our Articles.Common Stock was not affected by the Reverse Stock Split.

 

Nature of Business

 

We have developed proprietary interactive video technology which serves as the basis for certainare a Software-as-a-Service (“SaaS”) applications platform developer. Our platform is comprised of a suite of sales enablement business software products and services that we offer under the brand name “notifi”.marketed on a subscription basis. Our notifiCRM, notifiADS, notifiLINKS, and notifiWEB products are cloud-based, software-as-a-service (“SaaS”), customer relationship management (“CRM”), sales lead generation, advertising and social engagement software, accessible onapplications, available in both mobile and desktop platforms, that we license to individual consumers, sales-based organizations, consumer brands, marketing and advertising agencies,versions, are offered as a fully integrated suite, as well as artistson a standalone basis, and social influencers. Our notifiCRM platform is an enterprise scalable customer relationship management program that incorporates proprietary, interactive audio/video messaginginclude verbCRM, our Customer Relationship Management application, verbLEARN, our Learning Management System application, and interactive on-screen “virtual salesperson” communications technology. Our notifiTV and notifiLIVE products are partverbLIVE, our Live Broadcast Video Webinar application.

We also provided certain non-digital services to some of our proprietary interactive video platform allowing viewersenterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events, and product sample packs that verbCRM users order through the app for automated delivery and tracking to interact with pre-recorded as well as live broadcast video content by clicking on links we embed in people, objects, graphics or sponsors’ signage displayed on the screen. Viewers can experience our notifiTVtheir customers and notifiLIVE interactive content and capabilities on most devices available in the market today without the need to download special software or proprietary video players.prospects.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 filed with the SEC.SEC on May 14, 2020. The condensed consolidated balance sheet as of December 31, 20162019 included herein was derived from the audited consolidated financial statements as of that date.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of nFüsz,Verb Technology Company, Inc. and Verb Direct, LLC, its wholly owned subsidiary Songstagram, Inc. (“Songstagram”). All intercompanysubsidiary. Intercompany transactions have been eliminated in the consolidation.

 

Going Concern

 

WeThe accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the three months ended March 31, 2020, the Company incurred operating losses since inceptiona net loss of $1,946,000 and have negativeused cash flows from operations. We had a stockholders’ deficitin operations of $3,995,900 as of June 30, 2017 and utilized $794,754 of cash for the period then ended.$2,266,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern.concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 20162019 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

As of March 31, 2020, we had cash on hand of $1,615,000 and subsequently received $1,014,000 from a private placement offering that closed in March 2020 and $1,218,000 from the Paycheck Protection Program. We believe we have sufficient cash to sustain operations through September 2020. Our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations. There is no assurance that we will ever be profitable or that debt or equity financing will be available to us. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Significant estimates include assumptions made in analysis of reserves for allowance of doubtful accounts, inventory, purchase price allocations, impairment of long-term assets, realization of deferred tax assets, determining fair value of derivative liabilities, and valuation of equity instruments issued for services. Amounts could materially change in the future.

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000.

The Company extends limited credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts and sales credits. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and the high level of credit worthiness of its customers.

The Company’s concentration of credit risk includes its concentrations from key customers and vendors. As of March 31, 2020, we have one major customer that accounted for 11% of our accounts receivable individually and in aggregate.

Revenue Recognition

The Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and sales support services, from the sale of customized print products and training materials, branded apparel, and digital tools, as demanded by its customers. The subscription revenue from the application services are recognized over the life of the estimated subscription period. The Company also charges certain customers setup or installation fees for the creation and development of websites and phone application. These fees are accounted as part of deferred revenue and amortized over the estimated life of the agreement. Amounts related to shipping and handling that are billed to customers are reflected as part of revenue, and the related costs are reflected in cost of revenue in the accompanying Statements of Operations.

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Pursuant to ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.

The products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Other than promotional activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time.

The control of products we sell transfers to our customers upon shipment from our facilities, and our performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and, therefore, represent a fulfillment activity rather than promised goods to the customer. Payment for sales are generally made by check, credit card, or wire transfer. Historically, we have not experienced any significant payment delays from customers.

We allow returns within 30 days of purchase from end-users. Our customers may return purchased products to us under certain circumstances.

Customers setup or installation fees for the creation and development of websites and phone application are recognized as revenue over the estimated subscription period. Design assets of the websites and phone application are recognized when the work is completed. Licensing revenue is recognized over the estimated subscription period. In addition, certain revenue is recorded based upon stand-alone selling prices and is primarily recognized when the customer uses these services, based on the quantity of services rendered, such as number of customer usage.

A description of our principal revenue generating activities is as follows:

Digital Sales – We offer cloud-based business software on a subscription basis. Subscriptions are paid in advance of the services or billed 30 days in arrears of the subscription period. The revenue is recognized over the subscription period.

Welcome kits – We offer design and printing services to create corporate starter kits that our clients use for their marketing needs. The revenue is recognized upon completion and shipment of the welcome kits.

Fulfillment – We offer print on demand and fulfilment services of various custom products our clients use for marketing purposes. The revenue is recognized upon completion and shipment of the products.

Shipping – We charge our customers the costs related to the shipping of their welcome kits and fulfillment products. The revenue is recognized when the welcome kits or fulfillment products are shipped.

Cost of Revenue

Cost of revenue primarily consists of the salaries of certain employees, purchase price of consumer products, digital content costs, packaging supplies, and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers.

F-10

Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. Based on Management’s assessment, there were no indicators of impairment at March 31, 2020 or December 31, 2019.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjusted to fair value of derivatives.

Share Based Payments

The Company issues stock options and warrants, shares of Common Stock, and equity interests as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with the Financial Accounting Standards Board’s (“FASB”) ASC 718, Compensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.

Net Loss Per Share

Basic net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed giving effect to all dilutive potential shares of Common Stock that were outstanding during the period. Dilutive potential shares of Common Stock consist of incremental shares of Common Stock issuable upon exercise of stock options. No dilutive potential shares of Common Stock were included in the computation of diluted net loss per share because their impact was anti-dilutive. As of March 31, 2020, and 2019, the Company had total outstanding options of 4,417,108 and 2,457,974, respectively, and warrants of 13,651,050 and 778,446, respectively, and outstanding restricted stock awards of 1,475,329 and 0, which were excluded from the computation of net loss per share because they are anti-dilutive.

Goodwill and other Intangibles

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, the Company reviews the recoverability of the carrying value of goodwill and other Intangible assets at least annually or whenever events or circumstances indicate a potential impairment. The Company’s impairment testing will be done annually. Recoverability of goodwill is determined by comparing the fair value of Company’s reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities.

The acquisition of Verb Direct, formerly Sound Concepts, occurred on April 12, 2019. The Company will perform its first impairment test in December 2020.

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC 825 for disclosures about fair value of its financial instruments and ASC 820 to measure the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three (3) levels of fair value hierarchy defined by ASC 820 are described below:

Level 1:Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2:Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3:Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalents, prepaid expenses, and accounts payable and accrued expenses approximate their fair value due to their short-term nature. The carrying values financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities.

Segments

The Company has various revenue channels. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to (i) their similar customer base and (ii) the Company having a single sales team, marketing department, customer service department, operations department, finance department, and accounting department to support all revenue channels. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying condensed consolidated financial statements.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As small business filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022. Management is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

3.ACQUISITION OF VERB DIRECT

On April 12, 2019, Verb completed its acquisition of Verb Direct on the terms set forth in the Merger Agreement, at the effective time of the merger, each share of Sound Concepts Capital Stock issued and outstanding immediately prior to the effective time, was cancelled in exchange for cash payment by Verb of an aggregate of $15,000,000, and the issuance of an aggregate of 3,327,791 restricted shares of Verb’s Common Stock with a fair value of $7,820,000 at the closing date of the transaction.

The acquisition was intended to augment and diversify Verb’s internet and SaaS business. Key factors that contributed to the recorded goodwill and intangible assets in the aggregate of $22,677,000 were the opportunity to consolidate and complement existing operations of Verb, certain software and customer list, and the opportunity to generate future synergies within the internet and SaaS business. The following table summarizes the assets acquired, liabilities assumed and purchase price allocation:

Assets Acquired:        
Other current assets $2,004,000     
Property and equipment  58,000     
Other assets  1,302,000  $3,364,000 
Liabilities Assumed:        
Current liabilities  (2,153,000)    
Long-term liabilities  (1,068,000)  (3,221,000)
Intangible assets      6,340,000 
Goodwill      16,337,000 
Purchase Price     $22,820,000 

The goodwill recognized in connection with the acquisition is primarily attributable to anticipated synergies from future growth and is not expected to be deductible for tax purposes. Goodwill is not amortized but will be tested for impairment on an annual basis.

The intangible assets, which consist of developed technology of $4,700,000 are being amortized over 5-years, customer relationships of $1,200,000 are being amortized on an accelerated basis over its estimated useful life of 5 years and domain names of $440,000 are determined to have infinite lives but will be tested for impairment on an annual basis.

During the period ended March 31, 2020, the Company recorded amortization expense of $325,000. As of March 31, 2020, the remaining unamortized balance of the intangible assets was $5,040,000.

The following comparative unaudited statements of operations present the Company’s results of operations after giving effect to the purchase of Verb Direct based on the historical financial statements of the Company and Verb Direct. The unaudited pro forma statements of operations for the periods ended March 31, 2020 and 2019 give effect to the transaction to the merger as if it had occurred on January 1, 2019.

  

Three Months Ended

March 31, 2020

  

Three Months Ended

March 31, 2019

 
  (unaudited)  (Proforma,
unaudited)
 
Digital $1,457,000  $1,059,000 
Welcome kits and fulfilment  728,000   2,265,000 
Shipping  169,000   677,000 
Total Revenue  2,354,000   4,001,000 
         
Cost of revenue  1,063,000   2,248,000 
         
Gross margin  1,291,000   1,753,000 
         
Operating expenses  5,151,000   4,782,000 
         
Other income (expense), net  1,914,000   (251,000)
         
Net loss  (1,946,000)  (3,280,000)
         
Deemed dividends to Series A stockholders  (3,951,000)  - 
         
Net loss attributed to common stockholders $(5,897,000) $(3,280,000)
         
Loss per share $(0.23) $(0.21)
Weighted average number of common shares outstanding - basic and diluted  25,992,426   15,566,835 

4.PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of March 31, 2020 and December 31, 2019.

  March 31, 2020  December 31, 2019 
       
Computers $29,000  $29,000 
Furniture and fixture  75,000   75,000 
Machinery and equipment  39,000   39,000 
Leasehold improvement  862,000   741,000 
Total property and equipment  1,005,000   884,000 
Accumulated depreciation  (202,000)  (164,000)
Total property and equipment, net $803,000  $720,000 

Depreciation expense amounted to $38,000 and $4,000 for three months ended March 31, 2020 and 2019, respectively.

5.RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

The Company has entered into several leases that are accounted for as operating leases in accordance with ASC 842. The Company currently has four office and warehouse leases in American Fork, Utah related to the operation of Verb Direct with an aggregate lease payment of $31,000 per month. Each lease expires in December 2023. The lessor of the office and warehouse area is JMCC Properties, which is an entity owned and controlled by the former shareholders and certain current officers of the Company’s subsidiary, Verb Direct.

In addition, the Company leases its corporate headquarters located at 2210 Newport Boulevard, Suite 200, Newport Beach, California 92663 under a lease with a term of 94 months. The average monthly base rent for the first 12 months of the Lease is approximately $7,000 after rent abatement. For the next 82 months of the Lease, the average monthly base rent will be approximately $39,000. As part of the agreement, the landlord provided leasehold incentive of $572,000 for the construction of the leasehold improvements. Pursuant to ASC 842, the lease incentive of $572,000 was recorded as a part of leasehold improvements and a reduction to the right of use assets. The Lease commenced in August 2019.

As March 31, 2020 and December 31, 2019, the Company had recorded right of use assets of $3,140,000 and $3,275,000, respectively, net of amortization.  As March 31, 2020 and December 31, 2019, the Company had recorded lease liabilities of $3,937,000 and $3,982,000, respectively, related to these leases.

  

Period Ended

March 31, 2020

 
Lease cost    
Operating lease cost (included in general and administration in the Company’s statement of operations) $175,000 
     
Other information    
Cash paid for amounts included in the measurement of lease liabilities $ 
Weighted average remaining lease term – operating leases (in years)  5.11 
Average discount rate – operating leases  4.0%

  March 31, 2020 
Operating leases    
Right-of-use assets, net of amortization of $484,000 $3,140,000 
     
Short-term operating lease liabilities $505,000 
Long-term operating lease liabilities  3,432,000 
Total operating lease liabilities $3,937,000 

6.ADVANCE OF FUTURE RECEIPTS

The Company has the following advances on future receipts as of March 31, 2020:

Note Issuance Date Maturity Date Interest
Rate
 Original Borrowing Balance at
March 31, 2020
 Balance at
December 31, 2019
             
Note 1 December 24, 2019 June 30, 2020  10% $506,000  $297,000  $503,000 
Note 2 December 24, 2019 June 30, 2020  10%  506,000   297,000   503,000 
Total         $1,012,000   594,000   1,006,000 
Debt discount              (137,000)  (274,000)
Net             $457,000  $732,000 

On December 24, 2019, the Company received two secured advances from an unaffiliated third party totaling $728,000 for the purchase of future receipts/revenues of $1,012,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an aggregate of $6,000 from the Company’s operating account each banking day. The term of the agreement extends until the advances are paid in full. The Company may pay off either note for $446,000 if paid within 30 days of funding; for $465,000 if paid between 31 and 60 days of funding; or for $484,000 if paid within 61 to 90 days of funding. These advances are secured by the Company’s tangible and intangible assets.

As of December 31, 2019, the balance outstanding was $1,006,000 and the unamortized balance of the debt discount was $274,000.

During the period ended March 31, 2020, the Company repaid $411,000 and amortized the debt discount of $137,000. As of March 31, 2020, the outstanding balance of advances amounted to $594,000 and unamortized debt discount of $137,000.

7.NOTES PAYABLE – RELATED PARTIES

The Company has the following related parties notes payable as of March 31, 2020 and December 31, 2019:

Note Issuance Date Maturity Date Interest Rate Original Borrowing Balance at
March 31, 2020
 Balance at
December 31, 2019
Note 1 (A) December 1, 2015 February 8, 2021  12.0% $1,249,000  $825,000  $825,000 
Note 2 (B) December 1, 2015 April 1, 2017  12.0%  112,000   112,000   112,000 
Note 3 (C) April 4, 2016 June 4, 2021  12.0%  343,000   240,000   240,000 
Total notes payable – related parties          1,177,000   1,177,000 
Non-current              (240,000)  (1,065,000)
Current             $937,000  $112,000 

(A)On December 1, 2015, the Company issued a convertible note payable to Mr. Rory J. Cutaia, the Company’s majority stockholder and Chief Executive Officer, to consolidate all loans and advances made by Mr. Cutaia to the Company as of that date. The note bears interest at a rate of 12% per annum, secured by the Company’s assets, and will mature on February 8, 2021, as amended.

As of March 31, 2020, and December 31, 2019, the outstanding balance of the note amounted to $825,000, respectively.

(B)On December 1, 2015, the Company issued a note payable to a former member of the Company’s board of directors, in the amount of $112,000, representing unpaid consulting fees as of November 30, 2015. The note is unsecured, bears interest rate of 12% per annum, and matured in April 2017. As of March 31, 2020, and December 31, 2019, the outstanding principal balance of the note was equal to $112,000, respectively. As of March 31, 2020, the note was past due, and remains past due. The Company is currently in negotiations with the noteholder to settle the past due note.
(C)

On April 4, 2016, the Company issued a convertible note to Mr. Cutaia, in the amount of $343,000, to consolidate all advances made by Mr. Cutaia to the Company during the period December 2015 through March 2016. The note bears interest at a rate of 12% per annum, is secured by the Company’s assets, and will mature on June 4, 2021, as amended.

As of March 31, 2020, and December 31, 2019, the outstanding balance of the note amounted to $240,000, respectively.

Total interest expense for notes payable to related parties was $35,000 for three months ended March 31, 2020 and 2019, respectively. The Company paid $10,000 and $32,000 in interest for the three months ended March 31, 2020 and 2019, respectively.

8. DEFERRED INCENTIVE COMPENSATION TO OFFICERS

Note Date Payment Date Balance at
March 31, 2020
 Balance at
December 31, 2019
         
Rory Cutaia (A) 

December 23, 2019

 50% on January 10, 2021 and 50% on January 10, 2022 $430,000  $430,000 
Rory Cutaia (B) 

December 23, 2019

 50% on January 10, 2021 and 50% on January 10, 2022  324,000   324,000 
Jeff Clayborne (A) 

December 23, 2019

 50% on January 10, 2021 and 50% on January 10, 2022  125,000   125,000 
Jeff Clayborne (B) 

December 23, 2019

 50% on January 10, 2021 and 50% on January 10, 2022  163,000   163,000 
             
Total      1,042,000   1,042,000 
Non-current      (521,000)  (1,042,000)
Current     $521,000  $- 

(A)On December 23, 2019, the Company awarded Rory Cutaia, Chief Executive Officer and Jeff Clayborne, Chief Financial Officer Annual Incentive Compensation of $430,000 and 125,000, respectively for services rendered. The Company has determined that it is in its best interest and in the best interest of its stockholders to defer payments to the Employees. The Company will pay 50% of the Annual Incentive Compensation on January 10, 2021 and the remaining 50% on January 10, 2022.

(B)On December 23, 2019, the Company awarded Rory Cutaia, Chief Executive Officer and Jeff Clayborne, Chief Financial Officer received a bonus for the successful Up-Listing to Nasdaq and Acquisition of Verb Direct during fiscal 2019, totaling $324,000 and $162,000, respectively. The Company has determined that it is in its best interest and in the best interest of its stockholders to defer payments to the Employees. The Company will pay 50% of the Nasdaq Up-Listing Award on January 10, 2021 and the remaining 50% on January 10, 2022.

9.CONVERTIBLE SERIES A PREFERRED STOCK and WARRANT OFFERING

On August 14, 2019, we entered into the SPA with the Preferred Purchasers, pursuant to which we agreed to issue and sell to the Preferred Purchasers up to an aggregate of 6,000 shares of Series A Preferred Stock (which, at the initial conversion price, are convertible into an aggregate of up to approximately 3.87 million shares of Common Stock) and the August Warrants to purchase up to an equivalent number of shares of Common Stock. We closed the offering on August 14, 2019, and issued 5,030 shares of Series A Preferred Stock and granted the August Warrants to purchase up to 3,245,162 shares of Common Stock in connection therewith. We received proceeds of $4,688,000, net of direct costs of $342,000.

The SPA grants the Preferred Purchasers a right to participate, up to a certain amount, in subsequent financings for a period of 24 months. The SPA also prohibits us from entering into any agreement to issue, or announcing the issuance or proposed issuance, of any shares of Common Stock or Common Stock equivalents for a period of 90 days after the date that the registration statement, registering the shares issuable upon conversion of the Series A Preferred Stock and exercise of the August Warrants, is declared effective. We are also prohibited, until the date that the Preferred Purchasers no longer collectively hold at least 20% of the then-outstanding shares of Series A Preferred Stock issued pursuant to the SPA, from entering into an agreement to effect any issuance by us of Common Stock or Common Stock equivalents involving certain variable rate transactions. We also cannot enter into agreements related to “at-the-market” transactions for a period of 12 months. At the later of (i) the date that the August Warrants are fully exercised, and (ii) 12 months from the date of the SPA, we cannot draw down on any existing or future agreement with respect to “at-the-market” transactions if the sale of the shares in such transactions has a per share purchase price that is less than $3.76 (two times the exercise price of the Warrants

Each share of Series A Preferred Stock is convertible, at any time and from time to time from and after the issuance date, at the holder’s option in to that number of shares of Common Stock equal to the stated value per share (or $1,000) divided by the conversion price (initially, $1.55); thus, initially, each share of Series A Preferred Stock is convertible into approximately 645 shares of Common Stock. In certain circumstances, the Series A Preferred Stock is mandatorily convertible into shares of Common Stock after the Company obtains stockholder approval to issue a number of shares of Common Stock in excess of 19.99% and the closing price of the Common Stock is 100% greater than the then-base conversion price on each trading day for any 20 trading days during a consecutive 30-trading-day period.

During the period ended March 31, 2020, 1,150 shares of Preferred Stock were converted into 741,933 shares of Common Stock. As of March 31, 2020, 3,246 shares Series A Preferred stock are outstanding.

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. The Company granted certain warrants that included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder.

As a result, the warrants are classified as liabilities and are bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using a Binomial pricing model with the following average assumptions:

  March 31, 2020  Upon Issuance  December 31, 2019 
Stock Price $1.26  $1.70  $1.55 
Exercise Price $1.66  $1.55  $1.88 
Expected Life  3.27   5.0   3.53 
Volatility  211%  212%  216%
Dividend Yield  0%  0%  0%
Risk-Free Interest Rate  2.22%  2.47%  1.64%
             
Fair Value $6,907,000  $3,951,000  $5,048,000 

The expected life of the warrants was based on the remaining contractual term. The Company uses the historical volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank. As of December 31, 2019, the Company had recorded a derivative liability of $5,048,000.

During the period ended March 31, 2020, the Company recorded derivative liability of $3,951,000 as a result of the issuance of warrants to Series A Preferred stockholders (see Note 11). The Company also recorded a change in fair value of ($2,092,000) to account for the changes in the fair value of these derivative liabilities during the period ended March 31, 2020. At March 31, 2020, the fair value of the derivative liability amounted to $6,907,000. The details of derivative liability transactions as of and for the periods ended March 31, 2020 and 2019 are as follows:

  March 31, 2020  March 31, 2019 
Beginning Balance $5,048,000  $2,576,000 
Fair value upon issuance of notes payable and warrants  3,951,000   388,000 
Change in fair value  (2,092,000)  (944,000)
Ending Balance $6,907,000  $2,020,000 
11.EQUITY TRANSACTIONS

The Company’s Common Stock activity for the three months ended March 31, 2020 is as follows:

Common Stock

Shares Issued as Part of the Company’s Private Placement

On February 5, 2020, the Company initiated a private placement, which is for the sale and issuance of up to five million shares of its Common Stock at a per-share price of $1.20, which amount represents a 20% discount to the $1.50 closing price of the Company’s Common Stock on that day, and is memorialized by a subscription agreement.

As a result of this private placement, from February 25 through March 31, 2020, a total of 4,237,833 shares of Common Stock were subscribed. Total subscribed shares of 3,392,833 shares of Common Stock were issued with net cash proceeds of $3,430,000 after direct costs received as of March 31, 2020. The remaining subscribed shares of 845,000 shares of Common Stock were issued in April and May 2020 upon receipt of cash proceeds of $1,014,000.

The Company’s private placement is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and Regulation S thereunder, each as promulgated by the SEC. The Company’s private placement was managed by the Company; however, in connection with the closings, the Company paid a non-U.S. based consultant (i) as a cash fee, an aggregate amount of $499,000 (or 10% of the gross proceeds of the closings), (ii) as a non-accountable expense allowance, an aggregate of $100,000 (or 2% of the gross proceeds of the closings), (iii) five-year warrants, exercisable for an aggregate of up to 416,199 shares of the Company’s Common stock at a cash-only exercise price of $1.92 per share, and (iv) 100,000 shares of the Company’s Common Stock. The Company made the above-referenced payments only in respect of that portion of the gross proceeds from the closings for investors introduced to the Company by the consultant. In addition, the Company also incurred various expenses totaling $42,000 that are directly related to this private placement.

In preparation for this private placement offering, the Company separately negotiated with certain Series A stockholders to waive their rights in order not to ratchet down the conversion price of their Series A preferred shares (see Note 9). In return for the waiver, the Company granted these Series A stockholders warrants to purchase 2,303,861 shares of Common Stock. The warrants are exercisable in August 2020, expire in 5 years and are exercisable at $1.20 per share, as adjusted. The exercise price is subject to certain customary adjustments, including subsequent equity sales and rights offerings. In addition, the warrants also included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result of this fundamental transaction provision, the warrants were accounted as derivative liability with a fair value upon issuance of $3,951,000 upon issuance. The Company accounted the fair value of $3,951,000 as a deemed dividend since if the down round provision of the Series A preferred shares had occurred, it would have been accounted as a deemed dividend due to it providing additional value to the Series A stockholders.

Shares Issued for Services

During the period ended March 31, 2020, the Company issued 220,601 shares of Common Stock to vendors for services rendered with a fair value of $321,000. These shares of Common Stock were valued based on the market value of the Company’s Common Stock price at the issuance date or the date the Company entered into the agreement related to the issuance. As previously discussed, the Company also issued 100,000 shares of common stock to a consultant for services rendered as a result of a private placement offering in February and March 2020.

12.RESTRICTED STOCK AWARDS

On December 20, 2019, we held the 2019 Annual Meeting of Stockholders (the “Meeting”), at which our stockholders approved and adopted the Verb Technology Company, Inc. 2019 Omnibus Incentive Plan (the “Plan”).

A summary of restricted stock award activity for the three months ended March 31, 2020 is presented below.

     Weighted- 
     Weighted- 
     Average 
     Grant Date 
  Shares  Fair Value 
       
Non-vested at December 31, 2019  1,486,354  $     1.36 
Granted  -   - 
Vested  (11,025)  1.36 
Forfeited  -   - 
Non-vested at March 31, 2020  1,475,329  $1.36 

The total fair value of restricted stock award that vest during the three months ended March 31, 2020 was $241,000 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of March 31, 2020, the amount of unvested compensation related to issuances of restricted stock award was $1,758,000 which will be recognized as an expense in future periods as the shares vest.

13.STOCK OPTIONS

Effective October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of the board of directors to retain the services of valued key employees and consultants of the Company.

At its discretion, the Company grants share option awards to certain employees and non-employees under the Plan and accounts for it in accordance with ASC 718, Compensation – Stock Compensation.

A summary of option activity for the three months ended March 31, 2020 is presented below.

        Weighted-    
     Weighted-  Average    
     Average  Remaining  Aggregate 
     Exercise  Contractual  Intrinsic 
  Options  Price  Life (Years)  Value 
             
Outstanding at December 31, 2019  4,233,722  $1.75   2.54  $995,000 
Granted  185,887   1.39   -   - 
Forfeited  (2,501)  1.36   -   - 
Exercised  -   -   -   - 
Outstanding at March 31, 2020  4,417,108  $1.72   2.54  $143,000 
                 
Vested March 31, 2020  1,820,725  $1.75      $28,000 
                 
Exercisable at March 31, 2020  1,337,946  $2.19      $26,000 

During the three months ended March 31, 2020 the Company granted stock options to employees to purchase a total of 185,887 shares of Common Stock for services to be rendered. The options have an average exercise price of $1.39 per share, expire in five years, and vests in 4 equal installments during the four years from the grant date. The total fair value of these options at the grant date was approximately $246,000 using the Black-Scholes Option pricing model.

The total stock compensation expense recognized relating to vesting of stock options for the three months ended March 31, 2020 amounted to $381,000. As of March 31, 2020, total unrecognized stock-based compensation expense was $4.0 million, which is expected to be recognized as part of operating expense through March 2024.

The fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:

  Three Months Ended March 31, 
  2020  2019 
Risk-free interest rate  0.39%  2.75%
Average expected term  5 years   5 years 
Expected volatility  270.1%  201.3%
Expected dividend yield  -   - 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s Common Stock; and the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future.

14.WARRANTS

The Company has the following warrants outstanding as of March 31, 2020, all of which are exercisable:

  Warrants  

Weighted-
Average
Exercise

Price

  

Weighted-
Average

Remaining

Contractual

Life (Years)

  

Aggregate

Intrinsic

Value

 
             
Outstanding at December 31, 2019  10,930,990  $3.07   4.25  $- 
Granted  2,720,060   1.31   -   - 
Forfeited  -   -   -   - 
Exercised  -   -   -   - 
Outstanding at March 31, 2020, all vested  13,651,050  $2.72   4.12  $- 

At March 31, 2020, the intrinsic value of these stock options was $0 as the exercise price of these stock warrants were greater than the market price.

During the period ended March 31, 2020, the Company granted 416,199 warrants to a consultant as part of a private placement offering and 2,303,861 warrants to Series A stockholders (see Note 11).

15.COMMITMENTS AND CONTINGENCIES

Litigation

a.EMA Financial, LLC

On April 24, 2018, EMA Financial, LLC (“EMA”), commenced an action against the Company, styled as EMA Financial, LLC, a New York limited liability company, Plaintiff, against nFUSZ, Inc., Defendant, United States District Court, Southern District of New York, case number 1:18-cv-03634-NRB. The complaint sets forth four causes of action and seeks money damages, injunctive relief, liquidated damages, and declaratory relief related to the Company’s refusal to agree to EMA’s interpretation of a cashless exercise provision in a common stock warrant we granted to EMA in December 2017. The Company interposed several counterclaims, including a claim for reformation of the underlying agreements to reflect the Company’s interpretation of the cashless exercise provision. Both parties moved for summary judgment. On March 16, 2020, the United States District Court entered a decision agreeing with the Company’s position, denying EMA’s motion for declaratory judgement on its interpretation of the cashless exercise formula, and stating, inter alia, that “the Agreements read in their entirety reveal that nFUSZ, Inc.’s position regarding the proper cashless exercise formula is the only sensible one and that the cashless exercise formula must be enforced accordingly.” The court went on to order that in light of this finding, the parties should submit a proposal for future proceedings. Accordingly, the Company has instructed its counsel to prosecute the Company’s claims for reimbursement of all of the costs it incurred in connection with this action, including all attorneys’ fees as well as all damages it incurred as a result of EMA’s conduct.

b.Former Employee

The Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract claim in which he alleges that he is entitled to approximately $300,000 in unpaid bonus compensation from 2015. The Company does not believe his claims have any merit as they are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release executed by the former employee when the Company purchased all of his shares of stock more than 4 years ago in January 2016. The Company intends to seek dismissal of the former employee’s claims through arbitration.

c.Class Action

On July 9, 2019, a purported class action complaint was filed in the United States District Court, Central District of California, styled SCOTT C. HARTMANN, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. VERB TECHNOLOGY COMPANY, INC., and RORY J. CUTAIA, Defendant, Case Number 2:19-CV-05896. The complaint purports to be brought on behalf of a class of persons or entities who purchased or otherwise acquired the Company’s Common Stock between January 3, 2018 and May 2, 2018, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, arising out of the January 3, 2018, announcement by the Company of its agreement with Oracle America, Inc. The complaint seeks unspecified costs and damages. The Company believes the complaint is without merit and the Company intends to vigorously defend the action.

On May 15, 2020, we executed a binding Memorandum of Understanding with the lead plaintiff in the Class Action lawsuit to settle that action and release the claims asserted therein.  The terms of the settlement are confidential pending submission to the court, and subject to several contingencies, including but not limited to court approval.  The Company has established an appropriate reserve to account for the settlement.

d.Derivative Action

On September 27, 2019, a derivative action was filed in the United States District Court, Central District of California, styled Richard Moore, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. Verb Technology Company, Inc., and Rory J. Cutaia, James P. Geiskopf, and Jeff Clayborne, Defendants, Case Number 2:19-CV-08393-AB-SS. The derivative action also arises out of the January 3, 2018, announcement by the Company of its agreement with Oracle America, Inc. The derivative action alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets due to the costs associated with the defense of the above referenced class action complaint. The derivative complaint seeks a declaration that the individual defendants have breached their duties, unspecified damages, and certain purportedly remedial measures. The Company contends that the class action is without merit and as such, this derivative action, upon which it relies, is likewise without merit and the Company intends to vigorously defend this suit.

The Company knows of no other material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its assets or properties, or the assets or properties of any of its subsidiaries, are subject and, to the best of its knowledge, no adverse legal activity is anticipated or threatened. In addition, the Company does not know of any such proceedings contemplated by any governmental authorities.

The Company knows of no material proceedings in which any of its directors, officers, or affiliates, or any registered or beneficial stockholder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

The Company believes it has adequately reserved for all litigation within its financials.

Board of Directors

The Company has committed an aggregate of $450,000 in board fees to its five board members over the term of their appointment for services to be rendered. Board fees are accrued and paid monthly. The members will serve on the board until the annual meeting for the year in which their term expires or until their successors has been elected and qualified.

Total board fees expensed during the period ended March 31, 2020 was $105,000. As of March 31, 2020, total board fees to be recognized in future period amounted to $322,000 and will be recognized once the service has been rendered.

The recent outbreak of COVID-19 may have a significant negative impact on our business, sales, results of operations and financial condition.

The global outbreak of COVID-19 has led to severe disruptions in general economic activities, as businesses and federal, state, and local governments take increasingly broad actions to mitigate this public health crisis. We have experienced disruption to our business, both in terms of disruption of our operations and the adverse effect on overall economic conditions. These conditions will significantly negatively impact all aspects of our business. Our business is dependent on the continued health and productivity of our employees, including our software engineers, sales staff and corporate management team. Individually and collectively, the consequences of the COVID-19 outbreak could have a material adverse effect on our business, sales, results of operations and financial condition.

Additionally, our liquidity could be negatively impacted if these conditions continue for a significant period of time and we may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial obligations. Currently, capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the continued impact of the crisis, further actions may be required to improve our cash position and capital structure.

The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.

16.SUBSEQUENT EVENTS

Issuance of Restricted Stock Awards

On April 10, 2020, the board of directors of Verb Technology Company, Inc., a Nevada corporation (the “Company”), approved management’s COVID-19 Full Employment and Cash Preservation Plan (the “Plan”), pursuant to which all directors and senior level management would reduce their cash compensation by 25%, and all other employees and consultants would reduce their cash compensation by 20% (the “Cash Reduction Amount”) for a period of three months from April 16, 2020 through July 15, 2020 for one category of plan participants, and April 26, 2020 through July 18, 2020 for the other category of participants. The Plan was designed to promote the continued growth of the Company and avoid the lay-offs and staff cut-backs experienced by many companies affected by the COVID-19 economic crisis. The Cash Reduction Amount is to be paid in shares of the Company’s common stock (the “Shares”) through an allocation of shares from the Company’s 2019 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and granted pursuant to stock award agreements entered into effective as of April 10, 2020 (the “Grant Date”) between the Company and each of the Company’s directors, executive officers, employees, and consultants. The stock award agreements provide that the Shares will vest on July 18, 2020 (the “Vesting Date”) as long as the recipient remains in continuous service to the Company during the time from the Grant Date through the Vesting Date. The Shares were valued at $1.198 per share in accordance with the provisions of the Omnibus Incentive Plan, which provides that the value shall be determined based on the volume weighted average price of the Company’s common stock during a period of up to the 30-trading days prior to the Grant Date. Total Common Stock granted as part of the Cash Preservation Plan on April 10, 2020 was 589,099 with a fair value of $866,000. The shares were valued based on the market value of the Company’s stock price on the grant date and will be amortized over the life of the agreements and recorded as stock compensation expense. As of the date of this report the restricted shares have not been issued to the respective employees.

Issuance of Common Stock

Subsequent to March 31, 2020, the Company issued 463,641 shares of Common Stock to vendors for services rendered with a fair value of $585,427. These shares of Common Stock were valued based on the market value of the Company’s stock price at the issuance date or the date the Company entered into the agreement related to the issuance.

Subsequent to March 31, 2020, as part of the Company’ private placement offering, subscribed shares of 845,000 shares of common stock were issued in April and May 2020 upon receipt of cash proceeds of $1,014,000 (see Note 11).

Grant of Stock Options

Subsequent to March 31, 2020, the Company granted stock options to an employee to purchase a total of 160,750 shares of Common Stock for services rendered. The options have an average exercise price of $1.37 per share, expire in five years, and vest over a period of four years from grant date. The total fair value of these options at the grant date was $217,000 using the Black-Scholes option pricing model.

Paycheck Protection Program

On April 17, 2020, the Company received loan proceeds in the amount of $1,218,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after the earlier of (i) 24 weeks after the loan disbursement date and (ii) December 31, 2020 as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

Economic Injury Disaster Loan

On May 15, 2020, the Company executed an unsecured loan with the U.S. Small Business Administration under the Economic Injury Disaster Loan program in the amount of $150,000. The loan is unsecured and payable over 30 years at an interest rate of 3.75%. Installment payments, including principal and interest, will begin on May 15, 2021.

Non-Digital Products and Services

Historically, we have also provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events. We also managed the fulfillment of our clients’ product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects.

On May 20, 2020, we executed a contract with Range Printing, a company in the business of providing enterprise class printing, sample assembly, warehousing, packaging, shipping, and fulfillment services. Pursuant to the contract, through an automated process we have established for this purpose, Range will receive orders for samples and merchandise from us as and when we receive them from our clients and users, and print, assemble, store, package and ship such samples and merchandise on our behalf. The Range contract provides for a revenue share arrangement based upon the specific services that is designed to maintain our relationship with our clients by continuing to service their non-digital needs, while eliminating the labor and overhead costs associated with the provision of such services by us. The transition to Range Printing is in progress.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors

Verb Technology Company, Inc.

Newport Beach, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Verb Technology Company, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, 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. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2017.

/s/ Weinberg & Company, P.A.

Weinberg & Company, P.A

Los Angeles, California

May 14, 2020

F-27

VERB TECHNOLOGY COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

  December 31, 2019  December 31, 2018 
       
ASSETS        
         
Current assets:        
Cash $983,000  $634,000 
Accounts receivable, net of allowance of $230,000 and $0, respectively  1,271,000   1,000 
Inventory, net of allowance of $2,000  103,000   - 
Prepaid expenses  236,000   83,000 
Total current assets  2,593,000   718,000 
         
Right-of-use assets, net of accumulated amortization of $349,000  3,275,000   - 
Deferred offering costs  -   162,000 
Property and equipment, net of accumulated depreciation of $164,000 and $97,000, respectively  720,000   11,000 
Intangible assets, net of accumulated amortization of $975,000  5,365,000   - 
Goodwill  16,337,000   - 
Other assets  69,000   7,000 
         
Total assets $28,359,000  $898,000 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
         
Current liabilities:        
Accounts payable and accrued expenses $4,338,000  $1,148,000 
Accrued officers’ salary  207,000   188,000 
Accrued interest (including $82,000 and $41,000 payable to related parties)  82,000   46,000 
Advance on future receipts, net of discount of $274,000  732,000   - 
Notes payable - related party  112,000   112,000 
Convertible notes payable, net of discount of $0 and $1,082,000, respectively  -   818,000 
Operating lease liability, current  391,000   - 
Deferred revenue and customer deposits  306,000   - 
Derivative liability  5,048,000   2,576,000 
         
Total current liabilities  11,216,000   4,888,000 
         
Long Term liabilities:        
Note payable - related party, non-current  1,065,000   1,065,000 
Deferred incentive compensation to officers  1,042,000   - 
Operating lease liability, non-current  3,591,000   - 
Total liabilities  16,914,000   5,953,000 
         
Commitments and contingencies        
         
Stockholders’ equity (deficit)        
Preferred stock, $0.0001 par value, 15,000,000 shares authorized:
Series A Convertible Preferred Stock, 6,000 shares authorized; 4,396 and 0 issued and outstanding as of December 31, 2019 and 2018
  -   - 
Common stock, $0.0001 par value, 200,000,000 shares authorized, 24,496,197 and 12,055,491 shares issued and outstanding as of December 31, 2019 and 2018  2,000   1,000 
Additional paid-in capital  68,028,000   35,611,000 
Accumulated deficit  (56,585,000)  (40,667,000)
         
Total stockholders’ equity (deficit)  11,445,000   (5,055,000)
         
Total liabilities and stockholders’ equity (deficit) $28,359,000  $898,000 

The accompanying notes are an integral part of these consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

  

Year Ended

December 31, 2019

  

Year Ended

December 31, 2018

 
       
Revenue        
Digital $4,240,000  $32,000 
Welcome kits and fulfillment  3,913,000   - 
Shipping  947,000   - 
   9,100,000   32,000 
         
Cost of revenue        
Digital  660,000   52,000 
Welcome kits and fulfillment  3,273,000   - 
Shipping  937,000   - 
   4,870,000   52,000 
         
Gross margin  4,230,000   (20,000)
         
Operating expenses:        
Research and development  4,312,000   980,000 
Depreciation and amortization  1,042,000   20,000 
General and administrative  14,710,000   6,772,000 
Total operating expenses  20,064,000   7,772,000 
         
Loss from operations  (15,834,000)  (7,792,000)
         
Other income (expense), net        
Other expense, net  (11,000)  (5,000)
Financing costs  (1,625,000)  (798,000)
Interest expense - amortization of debt discount  (1,658,000)  (1,468,000)
Change in fair value of derivative liability  1,862,000   (1,167,000)
Debt extinguishment, net  1,536,000   (534,000)
Interest expense  (186,000)  (362,000)
Total other expense, net  (82,000)  (4,334,000)
         
Loss before income tax provision  (15,916,000)  (12,126,000)
         
Income tax provision  2,000   1,000 
         
Net loss $(15,918,000) $(12,127,000)
         
Loss per share - basic and diluted $(0.79) $(1.23)
Weighted average number of common shares outstanding - basic and diluted  20,186,249   9,870,890 

The accompanying notes are an integral part of these consolidated financial statements

F-29

VERB TECHNOLOGY COMPANY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the Years Ended December 31, 2019 and 2018

              Additional       
  Preferred Stock  Common Stock  Paid-in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
                      
Balance at December 31, 2017  -  $-   7,941,235  $1,000  $22,749,000  $(28,540,000) $(5,790,000)
                             
Common stock issued upon exercise of warrants  -       1,074,921   -   22,000   -   22,000 
Common stock issued upon exercise of options  -   -   32,508   -   34,000   -   34,000 
Proceeds from sale of common stock  -   -   1,163,938   -   2,979,000   -   2,979,000 
Fair value of warrants issued for debt extension  -   -   -   -   1,188,000   -   1,188,000 
Fair value of common stock issued for services  -   -   319,346   -   1,546,000   -   1,545,000 
Fair value of common stock issued upon conversion of debt  -   -   1,243,189   -   3,066,000   -   3,066,000 
Fair value of common stock upon issuance of convertible debt  -   -   96,667   -   595,000   -   595,000 
Fair value of common stock issued upon conversion of accrued expenses  -   -   27,148   -   582,000   -   582,000 
Common stock issued upon exercise of put option  -   -   203,207   -   1,000,000   -   1,000,000 
Fair value of vested stock options  -   -   -   -   1,870,000   -   1,870,000 
Stock repurchase  -   -   (46,668)  -   (20,000)      (20,000)
Net loss  -   -               (12,127,000)  (12,127,000)
Balance at December 31, 2018  -  -   12,055,491  1,000  35,611,000  (40,667,000) (5,055,000)
                             
Sale of common stock from public offering  -   -   6,549,596   1,000   18,362,000   -   18,363,000 
Fair value of common stock issued for acquisition  -   -   3,327,791   -   7,820,000   -   7,820,000 
Fair value of common stock issued to settle accounts payable  -   -   4,142   -   10,000   -   10,000 
Fair value of common stock and warrants issued to settle notes payable  -   -   598,286   -   1,410,000   -   1,410,000 
Conversion of convertible debt  -   -   182,333   -   410,000   -   410,000 
Common stock issued upon exercise of warrants  -   -   189,237   -   45,000   -   45,000 
Common stock upon issuance of convertible debt  -   -   25,272   -   182,000   -   182,000 
Fair value of common stock issued for services  -   -   1,015,981   -   1,778,000   -   1,778,000 
Issuance of fractional shares due to reverse split  -   -   139,036   -   -   -   - 
Issuance of Series A convertible preferred stock for cash  5,030   -   -   -   4,688,000   -   4,688,000 
Conversion of series A preferred shares  (634)  -   409,032   -   -   -   - 
Fair value of warrants issued with the Series A convertible preferred stock  -   -   -   -   (4,688,000)  -   (4,688,000)
Fair value of vested stock options and warrants  -   -   -   -   2,400,000   -   2,400,000 
Net loss  -   -   -   -   -   (15,918,000)  (15,918,000)
Balance at December 31, 2019  4,396  $         -     24,496,197  $2,000  $  68,028,000  $  (56,585,000) $  11,445,000 

The accompanying notes are an integral part of these consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  For the Year Ended 
  December 31, 2019  December 31, 2018 
       
Operating Activities:        
Net loss $(15,918,000) $(12,127,000)
Adjustments to reconcile net loss to net cash used in operating activities:        
Fair value of common shares issued for services and vested stock options  4,178,000   3,415,000 
Financing costs  1,625,000   798,000 
Amortization of debt discount  1,658,000   1,468,000 
Change in fair value of derivative liability  (1,862,000)  1,167,000
Debt extinguishment costs, net  (1,536,000)  534,000 
Depreciation and amortization  1,042,000   20,000 
Amortization of right-of-use assets  349,000   - 
Inventory reserve  (14,000)  - 
Allowance for doubtful account  199,000   - 
Effect of changes in assets and liabilities:        
Accounts payable, accrued expenses, and accrued interest  2,123,000   609,000 
Deferred incentive compensation  1,042,000   - 
Inventory  127,000   - 
Operating lease liability  (220,000)  - 
Other assets  (41,000)  2,000 
Deferred revenue  (51,000)  - 
Customer deposits  (428,000)  - 
Accounts receivable  (380,000)  (1,000)
Prepaid expenses  (11,000)  (42,000)
Net cash used in operating activities  (8,118,000)  (4,157,000)
         
Investing Activities:        
 Acquisition of subsidiary  (15,000,000)  - 
 Cash acquired from acquisition of subsidiary  557,000   - 
 Purchases of property and equipment  (146,000)  - 
Net cash used by investing activities  (14,589,000)  - 
         
Financing Activities:        
Proceeds from sale of common stock  18,525,000   2,979,000 
Proceeds from sale of preferred stock  4,688,000   - 
Proceeds from notes payable  1,300,000   - 
Advances on future receipts  728,000   - 
Proceeds from convertible note payable  432,000   1,772,000 
Proceeds from exercise of put option  -   1,000,000 
Proceeds from option exercise  -   34,000 
Proceeds from warrant exercise  45,000   22,000 
Proceeds from related party note payable  58,000   - 
Payment of convertible notes payable  (2,025,000)  (845,000)
Payment of notes payable  (630,000)  - 
Payment of related party notes payable  (58,000)  - 
Payment of advances of future receipts  (7,000)  - 
Deferred offering costs  -   (162,000)
Repurchase common stock  -   (20,000)
Net cash provided by financing activities  23,056,000   4,780,000 
         
Net change in cash  349,000   623,000 
         
Cash - beginning of period  634,000   11,000 
         
Cash - end of period $983,000  $634,000 
         
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $146,000  $402,000 
Cash paid for income taxes $2,000  $1,000 
         
Supplemental disclosure of non-cash investing and financing activities:        
 Fair value of common stock issued upon acquisition of subsidiary $7,820,000  $- 
Conversion of note payable and accrued interest to common stock $1,410,000  $3,066,000 
Common stock issued to settle accrued officer’s salary $-  $582,000 
Fair value of derivative liability from issuance of convertible debt, inducement shares and warrant features $6,561,000  $1,694,000 
Fair value of common shares, warrants and beneficial conversion feature of issued convertible note $592,000  $- 
Offset of deferred offering costs to proceeds received $162,000  $- 
Common stock issued to settle accounts payable $10,000  $- 
Assets acquired from the acquisition of Verb Direct, LLC $3,364,000     
Liabilities assumed from the acquisition of Verb Direct, LLC $3,221,000     

The accompanying notes are an integral part of these consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

(formerly known as nFüsz, Inc.)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

1.DESCRIPTION OF BUSINESS

Organization

Cutaia Media Group, LLC (“CMG”) was organized as a limited liability company under the laws of the State of Nevada on December 12, 2012. On May 19, 2014, CMG merged into bBooth, Inc. and bBooth, Inc., thereafter, changed its name to bBooth (USA), Inc., effective as of October 16, 2014. The operations of CMG and bBooth (USA), Inc., became known as, and are referred to in this Annual Report as, “bBoothUSA.”

On October 16, 2014, bBoothUSA was acquired by Global System Designs, Inc. (“GSD”), pursuant to a Share Exchange Agreement entered into with GSD (the “Share Exchange Agreement”). GSD was incorporated in the State of Nevada on November 27, 2012. The acquisition was accounted for as a reverse merger transaction. In connection with the closing of the transactions contemplated by the Share Exchange Agreement, GSD’s management was replaced by bBoothUSA’s management, and GSD changed its name to bBooth, Inc.

Effective April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with and into us.

Effective February 1, 2019, we changed our corporate name from nFüsz, Inc. to Verb Technology Company, Inc. The name change was effected through a parent/subsidiary short-form merger of Verb Technology Company, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with and into us.

On February 1, 2019, we implemented a 1-for-15 reverse stock split (the “Reverse Stock Split”) of our common stock, $0.0001 par value per share (the “Common Stock”). The Reverse Stock Split became effective upon commencement of trading of our Common Stock on February 4, 2019. As a result of the Reverse Stock Split, every fifteen (15) shares of our pre-Reverse Stock Split Common Stock were combined and reclassified into one share of our Common Stock. The number of shares of Common Stock subject to outstanding options, warrants, and convertible securities were also reduced by a factor of fifteen as of February 1, 2019. All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information in this Annual Report have been adjusted to reflect the Reverse Stock Split. The par value per share of our Common Stock was not affected by the Reverse Stock Split.

On April 12, 2019, we acquired Sound Concepts Inc. (“Sound Concepts”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into on November 8, 2018, by and among Sound Concepts, NF Merger Sub, Inc., a Utah corporation (“Merger Sub 1”), NF Acquisition Company, LLC, a Utah limited liability company (“Merger Sub 2”), the shareholders of Sound Concepts (the “Shareholders”), the Shareholders’ representative, and us. Pursuant to the Merger Agreement, we acquired Sound Concepts through a two-step merger, consisting of merging Merger Sub 1 with and into Sound Concepts, with Sound Concepts surviving the “first step” of the merger as our wholly-owned subsidiary (and the separate corporate existence of Merger Sub 1 ceased) and, immediately thereafter, merging Sound Concepts with and into Merger Sub 2, with Merger Sub 2 surviving the “second step” of the merger, such that, upon the conclusion of the “second step” of the merger, the separate corporate existence of Sound Concepts ceased and Merger Sub 2 continued its limited liability company existence under Utah law as the surviving entity and as our wholly-owned subsidiary under the name “Verb Direct, LLC.” (“Verb Direct”). On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the closing, each share of Sound Concepts’ capital stock issued and outstanding immediately prior to the effective time (the “Sound Concepts Capital Stock”), was cancelled and converted into the right to receive a proportionate share of (i) a cash payment by us of an aggregate of $15,000,000 (the “Acquisition Cash Payment”), and (ii) 3,327,791 restricted shares of our Common Stock. The Acquisition Cash Payment was paid using a portion of the net proceeds we received as a result of our public offering that closed on April 9, 2019. The fair market value of the 3,327,791 restricted shares on April 12, 2019 was $7,820,000.

Nature of Business

We are a Software-as-a-Service (“SaaS”) applications platform developer. Our platform is comprised of a suite of sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile and desktop versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our Customer Relationship Management application; verbLEARN, our Learning Management System application, and verbLIVE, our Live Broadcast Video Webinar application.

We also provided certain non-digital services to some of our enterprise clients such as printing and fulfillment services. We designed and printed welcome kits and starter kits for their marketing needs and provided fulfillment services, which consisted of managing the preparation, handling and shipping of our client’s custom-branded merchandise they use for marketing purposes at conferences and other events, and product sample packs that verbCRM users order through the app for automated delivery and tracking to their customers and prospects.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the year ended December 31, 2019, the Company incurred a net loss of $15,918,000 and used cash in operations of $8,118,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations. There is no assurance that we will ever be profitable or that debt or equity financing will be available to us. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Significant estimates include accruals for potential liabilities, assumptions used in determining the fair value of share based payments, and realization of deferred tax assets. Amounts could materially change in the future.

Share Based Payment

The Company issues stock options, common stock, and equity interests as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with FASB ASC 718 “Compensation – Stock Compensation.” Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.

The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

The Company values stock compensation based on the market price on the measurement date. As described above, for employees this is the date of grant, and for non-employees, this is the date of performance completion. The Company values stock options and warrants using the Black-Scholes option pricing model.

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 common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options. No dilutive potential common shares were included in the computation of diluted net loss per share because their impact was anti-dilutive. As of June 30, 2017, the Company had a total of 23,030,953 options and 20,540,456 warrants outstanding, which were excluded from the computation of net loss per share because they are anti-dilutive. As of June 30, 2016, the Company had total of 11,600,000 options and 16,449,734 warrants which were excluded from the computation of net loss per share because they are anti-dilutive.

Recent Accounting Pronouncements

On May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.

In March 2016, the FASB issued the ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require, among other things, that all income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

3.PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of June 30, 2017 and December 31, 2016.

  June 30, 2017  December 31, 2016 
  (Unaudited)    
Furniture and fixtures $56,890  $56,890 
Office equipment  50,669   50,669 
         
   107,559   107,559 
Less: accumulated depreciation  (66,161)  (55,493)
         
  $41,398  $52,066 

Depreciation expense amounted to $10,668 and $11,652 for six months ended June 30, 2017 and 2016, respectively.

4.NOTES PAYABLE

The Company has the following notes payable as of June 30, 2017 and December 31, 2016:

Note Note Date Maturity Date Interest Rate  Original Borrowing  

Balance at

June 30, 2017

  Balance at
December 31, 2016
 
            (Unaudited)    
Note payable (a) March 21, 2015 March 20, 2018  12% $125,000  $125,000  $125,000 
Note payable (b) December 15, 2016 June 15, 2017  5% $101,300   -   101,300 
Total notes payable              125,000   226,300 
Debt discount              -   (48,942)
                     
Total notes payable, net of debt discount$125,000  $177,358 

(a)On March 21, 2015, the Company entered into an agreement with DelMorgan Group LLC (“DelMorgan”), pursuant to which DelMorgan agreed to act as the Company’s exclusive financial advisor. In connection with the agreement, the Company paid DelMorgan $125,000, which was advanced by a third-party lender in exchange for an unsecured note payable issued by the Company bearing interest at the rate of 12% per annum payable monthly beginning on April 20, 2015.
Effective March 20, 2017, the Company entered into an extension agreement (the “Extension Agreement”) with DelMorgan to extend the maturity date of the Note to March 20, 2018. All other terms of the Note remain unchanged.
(b)On December 15, 2016, the Company entered into an agreement with a buyer, whereby the Company agreed to issue and sell to the Buyer, and the Buyer agreed to purchase from the Company, (i) a non-interest bearing Note in the original principal amount of $250,000, (ii) Warrants, and (iii) shares of the Company’s common stock in an amount equal to 30% of the purchase price of the respective tranche divided by the closing price of the Common Stock on the trading day immediately prior to the date of funding of the respective tranche (collectively, the “Inducement Shares”). The “Maturity Date” shall be six months from the date of each payment of Consideration. A one-time interest charge of five percent (5%) (“Interest Rate”) is to be applied on the Issuance Date to the original principal amount. In addition, there is a 10% Original Issue Discount that is to be prorated based on the consideration paid by the Buyer.

On December 16, 2016, the Buyer purchased for $80,000 the first tranche of the Note and the respective securities to be issued and the Company sold to it including (i) a three-year warrant to acquire 176,000 shares of the Company’s common stock with an exercise price of $0.25 per share, and (ii) 240,000 shares of the Company’s common stock.

Upon issuance of the note, the company accounted for an original issue discount of $21,300, which consisted of (i) the 10% original issue discount of $8,800, and (ii) the fixed interest of 5% which aggregated $12,500 (such rate based on the entire funding due of $250,000). The original issue discount will be accreted to interest expense over the life of the note, resulting in a net amount due the holder of $101,300 at maturity. In addition, the (iii) the fair value of the 240,000 common shares of $21,600 issued to the holder, and (iv) the relative fair value of the warrants of $32,059 was considered as additional valuation discount to be amortized as interest expense over the life of the note.

The aggregate fair value of the original issue discount and the equity securities issued upon inception of the note of $53,659 was recorded as a valuation discount. The balance of the valuation discount at December 31, 2016 was $48,942. During the six months ended June 30, 2017, $48,942 of this amount was amortized as interest expense.

On June 7, 2017, the Company converted the debt and issued the Buyer 462,000 shares of its Common Stock (the “Shares”) with a fair value of $110,880 at the date of the agreement. In the event the Buyer does not realize sufficient proceeds through sales of the Shares, in accordance with the terms set forth herein, to equal $92,400, after deduction of reasonable sale transaction-related expenses, the Company agrees to issue additional shares to make up the deficiency or to pay such deficiency in cash, at the Company’s option. The Parties agree that this “Make Whole” provision shall expire and be of no further force and effect on the date the sum of net proceeds realized from the sale of the initial issuance of 462,000 shares is equal to or great than $92,400; or any deficiency is paid in cash by the Company at its option; or June 7, 2018, whichever occurs first. The buyer agrees not to sell more than 10 percent (10%) of the total weekly volume of FUSZ common shares traded in the United States domestic over-the-counter stock market in any one week. The Buyer agrees, that upon request of the Company, to provide trading records to the Company reflecting all sales of the Shares, within 1 (one) business days following such request. As a result of this conversion, the Company recognized a loss on extinguishment of $9,580 to account the difference between the fair value of the share issued and the note converted.

Total interest expense for notes payable for the six months ended June 30, 2017 and 2016 was $7,500 and $7,500 respectively. Total interest expense for notes payable for the three months ended June 30, 2017 and 2016 was $3,750 and $3,750, respectively.

5.NOTES PAYABLE – RELATED PARTIES

The Company has the following related parties notes payable as of June 30, 2017 and December 31, 2016:

Note Issuance Date Maturity Date Interest Rate  Original Borrowing  Balance at
June 30, 2017
  Balance at
December 31, 2016
 
            (Unaudited)    
Note 1 Year 2015 August 8, 2018  12.0% $1,203,242  $1,198,883  $1,198,883 
Note 2 December 1, 2015 August 8, 2018  12.0%  189,000   189,000   189,000 
Note 3 December 1, 2015 April 1, 2017  12.0%  111,901   111,901   111,901 
Note 4 August 4, 2016 August 4, 2017  12.0%  343,326   343,326   343,326 
Note 5 August 4, 2016 August 4, 2017  12.0%  121,875   121,875   121,875 
                     
Total notes payable – related parties, net$1,964,985  $1,964,985 

On various dates during the year ended December 31, 2015, Rory J. Cutaia, the Company’s majority stockholder and Chief Executive Officer, loaned the Company total principal amounts of $1,203,242. The loans were unsecured and all due on demand, bearing interest at 12% per annum. On December 1, 2015, the Company entered into a Secured Convertible Note agreement with Mr. Cutaia whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans amounting to an aggregate total of $1,248,883 and due on demand, was consolidated under a note payable agreement, bearing interest at 12% per annum, and converted from due on demand to due in full on April 1, 2017. In consideration for Mr. Cutaia’s agreement to consolidate the loans and extend the maturity date, the Company granted Mr. Cutaia a senior security interest in substantially all current and future assets of the Company. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665 of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07 per share.
On May 4, 2017, the Company entered into an extension agreement (the “Extension Agreement”) with Rory J. Cutaia to extend the maturity date of the $1,198,883 Secured Note due on April 1, 2017 to and including August 1, 2018. In consideration for extending the Note the Company issued Mr. Cutaia 1,755,192 warrants at a price of $0.355. All other terms of the Note remain unchanged. The Company determined that the extension of the note’s maturity resulted in a debt extinguishment for accounting purposes since the fair value of the warrants granted was more than 10% of the recorded value of the original convertible note. As a result, Company recorded the fair value of the new note which approximates the original carrying value $1,198,883 and expensed the entire fair value of the warrants granted of $517,291 as part of loss on debt extinguishment. As of June 30, 2017, and December 31, 2016, the principal amount of the notes payable was $1,198,883.
On December 1, 2015, the Company entered into an Unsecured Convertible Note with Mr. Cutaia in the amount of $189,000, bearing interest at 12% per annum, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note extends the payment terms from on-demand to due in full on April 1, 2017. The outstanding principal and accrued interest may be converted at Mr. Cutaia’s discretion into shares of common stock at a conversion rate of $0.07.
On May 4, 2017, the Company entered into an extension agreement (the “Extension Agreement”) with Rory J. Cutaia to extend the maturity date of the $189,000 Unsecured Note due on April 1, 2017 to and including August 1, 2018. All other terms of the Note remain unchanged.
On December 1, 2015, the Company entered into an Unsecured Note agreement with a consulting firm owned by Michael Psomas, a former member of the Company’s Board of Directors, in the amount of $111,901 representing unpaid fees earned for consulting services previously rendered but unpaid as of November 30, 2015. The outstanding amounts bear interest at 12% per annum, and are due in full on April 1, 2017, and is currently past due.
On April 4, 2016, the Company issued a secured convertible note to the Chief Executive Officer (“CEO”) and a director of the Company, in the amount of $343,326, which represents additional sums of $93,326 that the CEO advanced to the Company during the period from December 2015 through March 2016, and the conversion of $250,000 other pre-existing notes. This note bears interest at the rate of 12% per annum, compounded annually and matures on August 4, 2017. The note is also convertible up to 30% of the principal balance into shares of the Company’s common stock at $0.07 per share. In addition, the Company also issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50% of the amount of such note.
On April 4, 2016, the Company issued an unsecured convertible note payable to the CEO in the amount of $121,875, which represents the amount of the accrued but unpaid salary owed to the CEO for the period from December 2015 through March 2016. The note bears interest at the rate of 12% per annum, compounded annually and matures on August 4, 2017. The note is also convertible into shares of the Company’s common stock at $0.07 per share, which approximated the trading price or the Company’s common stock on the date of the agreement.

Total interest expense for notes payable to related parties for the six months ended June 30, 2017 and 2016 was $116,930 and $122,978, respectively. Total interest expense for notes payable to related parties for the three months ended June 30, 2017 and 2016 was $58,788 and $69,034, respectively.

6.CONVERTIBLE NOTE PAYABLE

The Company has the following notes payable as of June 30, 2017 and December 31, 2016:

Note Note Date Maturity Date Interest Rate  Original Borrowing  Balance at
June 30, 2017
  Balance at
December 31, 2016
 
            (Unaudited)    
Note payable (a) Various August 4, 2017  12% $600,000  $680,268  $680,268 
Note payable (b) June 19, 2017 February 19, 2018  5% $110,000   110,000   - 
Total notes payable              790,268   680,268 
Debt discount              (105,061)  - 
                     
Total notes payable, net of debt discount$685,207  $680,268 

(a)The Company entered into a series of unsecured loan agreements with Oceanside Strategies, Inc. (“Oceanside”) a third party-lender, in the aggregate principal amount of $600,000 through December 31, 2015. The loans bear interest at rates ranging from 5% to 12% per annum and were due on demand.
On April 3, 2016, the Company issued an unsecured convertible note payable to Oceanside in the amount of $680,268 (this amount includes $600,000 principal amount and $80,268 accrued and unpaid interest). This note superseded and replaced all previous notes and current liabilities due to Oceanside for sums Oceanside loaned to the Company in 2014 and 2015. This note bears interest at the rate of 12% per annum, compounded annually. In consideration for Oceanside’s agreement to convert the prior notes from current demand notes and extend the maturity date to December 4, 2016, the Company granted Oceanside the right to convert up to 30% of the amount of such note into shares of the Company’s common stock at $0.07 per share and issued 2,429,530 share purchase warrants, exercisable at $0.07 per share until April 4, 2019.
Effective December 30, 2016, the Company entered into an extension agreement (the “Extension Agreement”) with Oceanside to extend the maturity date of the Note to and including August 4, 2017. All other terms of the Note remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017, the Company issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019.
(b)On June 19, 2017, the Company issued an unsecured convertible note to Lucas Holdings in the amount of $100,000 in exchange for 50,000 shares of common stock and a three-year warrant to acquire 330,000 shares of the Company’s common stock with an exercise price of $.30 per share. The “Maturity Date” is February 18, 2018. A one-time interest charge of five percent (5%) (“Interest Rate”) is to be applied on the Issuance Date to the original principal amount. In addition, there is a 5% Original Issue Discount.
Upon issuance of the note, the company accounted for an original issue discount of $10,000 which consisted of (i) the 5% original issue discount of $5,000, and (ii) the fixed interest of 5% which aggregated $5,000. The original issue discount of $10,000 has been added to the note balance and will be accreted to interest expense over the life of the note, resulting in a net amount due the holder of $110,000 at maturity. In addition, the (iii) the fair value of the 50,000 common shares of $12,500 issued to the holder, (iv) the relative fair value of the warrants of $40,180, and (v) a beneficial conversion feature of $47,320 were considered as additional valuation discount and will be amortized as interest expense over the life of the note.
The aggregate fair value of the original issue discount and the equity securities issued upon inception of the note of $110,000 has been recorded as a valuation discount. As of June 30, 2017, $4,939 of this amount was amortized as interest expense, resulting in an unamortized balance of $105,061 at June 30, 2017.
Total interest expense for convertible notes payable for the six months ended June 30, 2017 and 2016 was $40,481 and $40,704, respectively. Total interest expense for convertible notes payable for the three months ended June 30, 2017 and 2016 was $20,352 and $20,352, respectively.

7.CONVERTIBLE SERIES A PREFERRED STOCK

Effective February 14, 2017, the Company entered into a Securities Purchase Agreement, (the “Purchase Agreement”), by and between an otherwise unaffiliated, accredited investor (the “Purchaser”) and the Company in connection with our issuance and sale to the Purchaser of shares of Series A Preferred Stock under the terms and conditions as set forth in the Purchase Agreement (the “Sale”).

In connection with the Sale, our Board of Directors (our “Board”) authorized and approved a series of preferred stock to be known as “Series A Convertible Preferred Stock”, for which 1,050,000 shares, $0.0001 par value per share, were authorized and a Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, (the “Certificate”), was filed with the Office of the Secretary of State of the State of Nevada (the “State”) to effectuate the authorization. Pursuant to the Purchase Agreement, the purchase of shares of our Series A Preferred Stock may occur in several tranches (each, a “Tranche”; and, collectively, the “Tranches”). The First Tranche of $300,000 ($315,000 in stated value, represented by 315,000 shares of our Series A Preferred Stock) closed simultaneously with the execution of the Purchase Agreement on February 14, 2017 (the “First Closing”), and each additional Tranche shall close at such times and on such financial terms as may be agreed to by the Purchaser and us. The net proceeds to us after offering costs was $255,000.

The Series A Preferred Stock has the following rights and privileges:

Senior rights in terms preference as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company;
Accrues dividends at a rate of 5% per annum;
Mandatorily redeemable at an installment basis starting August 13, 2017 in the amount of $63,000 plus accrued interest. The Company has the option to redeem the Series A shares in cash or in shares of common stock based upon the Company’s 5-day Volume Weighted Average Price (“VWAP”).

Pursuant to the terms of the Purchase Agreement, the shares of our Series A Preferred Stock issued in the First Closing are to be redeemed by us in five (5) equal weekly payments (each, a “Redemption Payment”), commencing in approximately 180 days from the First Closing. All but one of the Redemption Payments may be made by us in cash or in shares of our common stock, at our option. The Holder shall have the option to demand payment of one Installment Redemption Payment in shares of Common Stock Redemption Payments made using shares of our common stock will be valued based upon a VWAP formula, tied to the then-current quoted price of shares of our common stock, described with greater particularity in the Purchase Agreement.

The Company considered the guidance of ASC 480-10, Distinguishing Liabilities From Equity to determine the appropriate treatment of the Series A shares. Pursuant to ASC 480-10, the Company determined that the Series A shares is an obligation to be settled, at the option of the Company, in cash or in variable number of shares with a fixed monetary value that should be recorded as a liability under ASC 480-10. As a result, the Company determined the fair value of the Series A to be $300,000 upon issuance with the difference of $15,000 from the face amount, and incurred legal fees of $45,000, to be accounted as a debt discount which will be amortized over the term of the redemption period of the Series A shares.

As a result of this transaction, the Company recorded a liability of $315,000 and a debt discount of $60,000, upon issuance. As of June 30, 2017, the remaining unamortized discount was $20,857 resulting in a net amount due of $294,143.

8.EQUITY TRANSACTIONS

The Company’s common stock activity for the six months ended June 30, 2017 is as follows:

Common Stock

Shares Issued for Services– During the period ended June 30, 2017, the Company issued 3,224,333 common shares to employees and vendors for services rendered with a fair value of $964,107 and are expensed based on fair market value of the stock price at the date of grant.

Shares Issued to Settle Accounts Payable - During the period ended June 30, 2017, the Company amended an agreement with a vendor and issued 400,000 shares of common stock as full and final payment to the vendor on accounts payable owed of $30,000. The fair value of the shares issued was $56,000, a loss on extinguishment of debt totaling $26,000 was recorded as part of the transaction.

Shares Issued from Stock Subscription – The Company issued stock subscription to investors. For the six months ended June 30, 2017, the Company issued 6,275,000 common shares for a net proceed of $430,000.

The Company previously received $20,000 related to the Subscription Receivable that was outstanding as of December 31, 2016.

Shares Issued from Conversion of Note Payable - During the period ended June 30, 2017, the Company converted a $92,400 note payable into 462,000 shares of its Common Stock (the “Shares”) with a fair value of $110,880 (see Note 4).

Shares Issued as Part of Convertible Note Payable - During the period ended June 30, 2017, the Company issued 50,000 shares of common stock with a fair market value of $12,500 (see Note 6).

Stock Options

Effective October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of our board of directors to retain the services of valued key employees and consultants of the Company.

At its discretion, the Company grants share option awards to certain employees and non-employees, as defined by ASC 718, Compensation—Stock Compensation, under the 204 Stock Option Plan (the “Plan”) and accounts for its share-based compensation in accordance with ASC 718.

A summary of option activity for the six months ended June 30, 2017 is presented below.

  Shares  Weighted
Average
Exercise Price
  Weighted
Average
Remaining
Contractual
Life
(in Years)
  Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2016  10,530,953  $0.33   4.03     
Granted  12,500,000   0.17         
Exercised  -   -         
Forfeited or expired  -   -         
Outstanding at June 30, 2017  23,030,953  $0.26   1.97  $1,443,767 
Vested and expected to vest at June 30, 2017  9,614,625  $0.34      $480,923 
Exercisable at June 30, 2017  6,389,286  $0.46      $153,142 

For the six months ended June 30, 2017, the Company approved and granted 5,500,000 non-qualified stock options to employees and 2,000,000 to a Director with an aggregate fair value of $684,787. Each exercisable into one share of our common stock and vest 100% in three years from the grant date.

For the six months ended June 30, 2017, the Company approved and granted 5,000,000 non-qualified stock options to consultants with an aggregate fair value of $1,228,046. Each exercisable into one share of our common stock. The options vest based on consultant achieving quantifiable milestones. As of June 30, 2017, the Company determined that the probability of the consultants achieving these milestones was probable. As a result, the Company record compensation expense of $56,335 to account the estimated 296,527 options that vest.

The Company recognized $242,630 in share-based compensation expense for the six months ended June 30, 2017. As of June 30, 2017, total unrecognized stock-based compensation expense was $1,975,437, which is expected to be recognized as an operating expense through July 2020. The intrinsic value of the stock options outstanding at June 30, 2017 was approximately $1,444,000.

The fair value of each share option award on the date of grant is estimated using the Black-Scholes method based on the following weighted-average assumptions:

  3 Months Ended June 30,  6 Months Ended June 30, 
  2017  2016  2017  2016 
Risk-free interest rate  1.77% - 1.89  1.22 - 1.24   1.22% - 1.93  1.22% - 1.65
Average expected term (years)  5 years   5 years   5 years   5 years 
Expected volatility  157.09%  100.18 – 101.25   153.07 – 160  100.18 – 101.25 
Expected dividend yield  -   -   -   - 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based upon the Company’s current dividend rate and future expectations

Warrants

The Company has the following warrants outstanding as of June 30, 2017 all of which are exercisable:

  Issuance Date Expiration Date Warrant Shares  Exercise Price 
Warrant #1 November 12, 2014 November 12, 2019  600,000  $0.50 
Warrant #2 March 21, 2015 March 20, 2018  48,000  $0.10 
Warrant #3 October 30, 2015 October 30, 2020  600,000  $0.50 
Warrant #4 December 1, 2015 November 30, 2018  9,719,879  $0.07 
Warrant #5 April 4, 2016 April 4, 2019  2,452,325  $0.07 
Warrant #6 April 4, 2016 April 4, 2019  2,429,530  $0.07 
Warrant #7 December 15, 2016 December 14, 2019  176,000  $0.25 
Warrant #8 December 30, 2016 December 29, 2019  2,429,530  $0.08 
Warrant #9 May 4, 2017 May 3, 2020  1,755,192  $0.36 
Warrant #10 June 19, 2017 June 30, 2020  330,000  $0.30 
Outstanding at June 30, 2017      20,540,456     

During the period ended June 30, 2017, the Company granted warrants to purchase 1,755,192 shares of common stock to an officer of the Company pursuant to an extinguishment of a note payable (see Note 5). In addition, the Company also granted warrants to purchase 330,000 shares of common stock pursuant to issuance of a convertible note payable (see Note 6).

The intrinsic value of the warrants outstanding at June 30, 2017 was $2,365,362.

9.COMMITMENTS AND CONTINGENCIES

Litigation

We have one pending litigation, filed on September 19, 2016. The action is captioned as Multicore Technologies, an Indian Corporation, plaintiff, v. Rocky Wright, an individual, bBooth, Inc., a Nevada corporation, and Blabeey, Inc., a Nevada corporation, defendants (the “Multicore Action”). The action is pending in the United States District Court for the Central District of California under Case No.: 2:16-cv-7026 DSF (AJWx). The First Amended Complaint was filed on January 27, 2017, alleging breach of implied-in-fact contract and quantum meruit relating to services Multicore allegedly performed on behalf of bBooth in connection with various web and mobile applications. Multicore is seeking damages of approximately $157,000 plus interest and cost of suit. We filed an Answer denying Multicore’s claims on March 13, 2017. We do not believe plaintiff’s claims of an implied contract or quantum meruit have any basis in fact, nor do we believe they have any other viable claims against us. We intend to vigorously defend the action and have determined not to create a reserve in our financial statements for an unfavorable outcome.

We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or any of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries.

10.SUBSEQUENT EVENTS

On September 15, 2017, the Multicore Action (see Note 9) was dismissed by plaintiff as against us in exchange for our guarantee of two payments to be made by another defendant in the action totaling $5,000, for which we have a right of set-off against any sums we may owe such party for services currently being rendered to us by such party.

The Company issued 94,620 shares of common stock to vendors subsequent to June 30, 2017, with a fair value of $14,750 for services rendered.

Subsequent to June 30, 2017, the Company issued 300,000 non-qualified stock options with an exercise price of $0.25 to employees for services to be rendered with a fair value of $41,928. The options vest monthly based on consultant achieving quantifiable milestones.

Effective August 4, 2017, the Company entered into an extension agreement with Rory J. Cutaia to extend the maturity date of the $343,326 Unsecured Note due on August 4, 2017 to and including December 4, 2018. In consideration for extending the Note the Company issued Mr. Cutaia 1,329,157 warrants at a price of $0.15 per share with a fair value of $172,456. All other terms of the Note remain unchanged. The Company will account this transaction as a debt extinguishment and will record the fair value of the warrants amounting to $172,456 as a loss on debt extinguishment.

Effective August 4, 2017, for no additional consideration the Company entered into an extension agreement with Rory J. Cutaia to extend the maturity date of the $121,875 Unsecured Note due on August 4, 2017 to and including December 4, 2018. All other terms of the Note remain unchanged.

Effective August 4, 2017, the Company entered into an extension agreement with Oceanside to extend the maturity date of the Note to and including April 4, 2018. All other terms of the Note remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to April 4, 2018, the Company issued Oceanside 1,316,800 warrants at a price of $0.15 per share with a fair value of $170,853. All other terms of the Note remain unchanged. The Company will account this transaction as a debt extinguishment and will record the fair value of the warrants amounting to $170,853 as a loss on debt extinguishment.

On July 7, 2017, the Company issued 52,500 shares of Series A Preferred Stock for cash proceeds of $50,000. The Series A Preferred Stock has the same terms as described in Note 7, except that two weekly redemption payments shall be due, one on January 8, 2018, and the other on January 15, 2018, each in the amount of $26,250. As a result of this transaction the Company will record liability of $52,500 and a debt discount of $2,500 upon issuance.

On July 28, 2017, the Company has agreed to issue 262,500 shares of Series A Preferred Stock for cash proceeds of $250,000. $125,000 was paid to the Company on July 28, 2017 and the remaining $125,000 will be paid on or about August 28, 2017, unless the Company is in material, uncured default of the provisions of this Agreement. The Series A Preferred Stock has the same terms as described in Note 7. As a result of this transaction, the Company will record liability of $262,500 and debt discount of $12,500 upon issuance.

Effective August 4, 2018, the Company issued the CEO 3,750,000 restricted shares of common stock for services rendered with a fair value of $562,500.

Effective September 26, 2017, as a commitment fee under the Purchase Agreement for which we received no proceeds, we issued to Kodiak an unsecured Promissory Note (the “Commitment Note”), dated September 15, 2017, for the principal amount of $100,000 with interest at the rate of 5% per annum, payable nine months from the issue date. The Purchase Agreement provides that in the event this Registration Statement is not effective by December 31, 2017, through no fault of ours, the Commitment Note shall be deemed cancelled, null and void, and of no further force and effect. In exchange for proceeds of $100,000, we issued to Kodiak an additional unsecured Promissory Note (the “First Note”), dated September 15, 2017 and effective September 26, 2017, in the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. Upon the filing of this Registration Statement, and in exchange for additional proceeds of $100,000, we issued to Kodiak an additional note (the “Second Note”) for the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. (The Commitment Note, the First Note, and the Second Note hereinafter referred to collectively as the “Notes”) The principal amount and accrued interest under the Notes are not convertible except in the event of default. In the event of default, the conversion price for the Notes shall be the lesser of $0.25 per share or 70% of the lowest trading price during the ten-trading-day period prior to the conversion date. Conversion of the Notes is subject to the Beneficial Ownership Limitation. None of the shares underlying any of the Notes are being registered under this Registration Statement. The Company is currently in the process of determining the appropriate accounting for the issuance of the note payable.

Effective September 26, 2017, and as an additional commitment fee under the Purchase Agreement, we issued to Kodiak two Common Stock Purchase Warrants, both dated September 15, 2017, the first of which entitles Kodiak to purchase up to 1,000,000 shares of our Common Stock at an exercise price of $0.15 per share (the “First Warrant”), and the second of which entitles Kodiak to purchase up to 1,000,000 shares of our Common Stock at an exercise price of $0.20 per share (the “Second Warrant”). The Purchase Agreement also provides for the issuance of a third Common Stock Purchase Warrant as an additional commitment fee, entitling Kodiak to purchase up to 4,000,000 shares of our common stock at an exercise price of $0.25 per share (the “Third Warrant”), to be issued only upon, and subject to, the occurrence of the first Closing Date. (The First, Second, and Third Warrants are hereinafter referred to collectively as the “Warrants”). The exercise price and number of common shares to be issued under each of the Warrants are subject to adjustments provided for in each such Warrant and are also subject to the Beneficial Ownership Limitation. The Company is in the process of determining the accounting effect of the above transactions. None of the shares underlying any of the Warrants is being registered under this Registration Statement. The Company is currently in the process of determining the appropriate accounting for the issuance of the warrant.

Subsequent to June 30, 2017, 283,500 of Series A Preferred Stock plus the redemption premium and interest were redeemed through the issuance of 2,368,824 shares of common stock and a payment of $138,500. The fair value of the 2,368,824 shares was $263,876, the $118,698 in excess was recorded as interest expense as of September 30, 2017.

nFÜSZ, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2016  2015 
       
ASSETS        
         
Current assets:        
Cash $16,762  $103,019 
Accounts receivable  8,468   - 
Prepaid expenses  10,871   65,922 
Total current assets  36,101   168,941 
Property and equipment, net  52,066   70,873 
Other assets  16,036   - 
         
Total assets $104,203  $239,814 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
Current liabilities:        
Accounts payable and accrued expenses $431,650  $355,694 
Accrued interest (including $56,628 and $16,140 payable to related parties)  118,137   67,860 
Accrued officers’ salary  200,028   82,458 
Notes payable, net of discount of $48,942 and $0, respectively  177,358   125,000 
Notes payable - related party  1,964,985   - 
Convertible note payable  680,268   600,000 
         
Total current liabilities  3,572,426   1,231,012 
Notes payable - related party, net of discount $0 and $398,594, respectively  -   1,351,192 
         
Total liabilities  3,572,426   2,582,204 
         
Commitments and contingencies        
         
Stockholders’ deficit        
Preferred stock, $0.0001 par value, 15,000,000 shares authorized, none issued or outstanding  -   - 
Common stock, $0.0001 par value, 200,000,000 shares authorized, 94,661,566 and 63,859,000 shares issued and outstanding as of December 31, 2016 and 2015, respectively  9,465   6,386 
Additional paid in capital  17,815,732   14,650,519 
Stock subscription  (20,020)  - 
Accumulated deficit  (21,273,400)  (16,999,295)
         
Total stockholders’ deficit  (3,468,223)  (2,342,390)
         
Total liabilities and stockholders’ deficit $104,203  $239,814 

The accompanying notes are an integral part of these consolidated financial statements.

nFÜSZ, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2016  2015 
       
Net sales $-  $- 
         
Operating expenses:        
Research and development  257,803   241,637 
General and administrative  2,873,185   5,174,515 
Impairment charges  -   1,387,100 
Total operating expenses  3,130,988   6,803,252 
         
Loss from operations  (3,130,988)  (6,803,252)
         
Other income (expense):        
Other income  52,898   - 
Interest expense (including $232,076 and $16,140 to related parties)  (340,580)  (125,810)
Interest expense - amortization of debt discount  (398,594)  (26,166)
Fair value of warrants and conversion feature granted on debt extensions  (455,975)  - 
Total other expense, net  (1,142,251)  (151,976)
         
Loss before income tax provision  (4,273,239)  (6,955,228)
         
Income tax provision  866   - 
         
Net loss $(4,274,105) $(6,955,228)
         
Earnings per share - basic and diluted $(0.05) $(0.11)
         
Weighted average number of common shares outstanding - basic and diluted  79,602,170   62,707,874 

The accompanying notes are an integral part of these consolidated financial statements.


nFÜSZ, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the Years Ended December 31, 2015 and 2016

        Additional  Common       
  Common Stock  Paid-in  Stock  Accumulated    
  Shares  Amount  Capital  Subscribed  Deficit  Total 
                   
Balance at December 31, 2014  60,600,000  $6,060  $12,052,575  $-  $(10,044,067) $2,014,568 
                         
Share based compensation  -   -   857,311   -   -   857,311 
Warrants issued in connection with DelMorgan service agreement  -   -   20,114   -   -   20,114 
Warrants issued for extension of note payable terms  -   -   424,758   -   -   424,758 
Shares issued as payment for vendor services  124,000   12   34,666   -   -   34,678 
Shares issued in connection with Songstagram settlement agreements  820,000   82   529,918   -   -   530,000 
Shares issued as board compensation  1,100,000   110   123,799   -   -   123,909 
Shares issued as employee compensation  1,215,000   122   607,378   -   -   607,500 
Net loss  -   -   -   -   (6,955,228)  (6,955,228)
                         
Balance at December 31, 2015  63,859,000   6,386   14,650,519   -   (16,999,295)  (2,342,390)
                         
Fair value vested options  -   -   457,881   -   -   457,881 
Fair value of common shares, warrants and beneficial conversion feature on issued convertible notes  240,000   24   33,067   -   -   33,091 
Fair value of warrants and conversion feature of debt extension  -   -   455,975   -   -   455,975 
Stock repurchase  (8,311,324)  (831)  (165,395)  -   -   (166,226)
Proceeds from sale of common stock  31,335,556   3,133   1,540,917   (20,020)  -   1,524,030 
Share based compensation - shares issued for vendor services  6,388,334   638   726,201   -   -   726,839 
Share based compensation - shares issued for BOD services  1,150,000   115   116,567   -   -   116,682 
Net loss  -   -   -   -   (4,274,105)  (4,274,105)
                         
Balance at December 31, 2016  94,661,566  $9,465  $17,815,732  $(20,020) $(21,273,400) $(3,468,223)

The accompanying notes are an integral part of these consolidated financial statements.

nFÜSZ, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2016  2015 
       
Operating Activities:        
Net loss $(4,274,105) $(6,955,228)
Adjustments to reconcile net loss to net cash used in operating activities:        
Loss from debt extinguishment  455,975   362,626 
Amortization of debt discount and debt issuance costs  404,041   1,649,564 
Depreciation and amortization  21,301   - 
Stock compensation  1,301,402   - 
Impairment charges  -   1,387,100 
Effect of changes in operating assets and liabilities:        
Accounts receivable  (8,417)  - 
Prepaid expenses and other current assets  55,052   148,931 
Other assets  (16,036)  - 
Accounts Payable and accrued expenses  456,774   540,596 
Net cash used in operating activities  (1,604,013)  (2,866,411)
         
Investing Activities:        
Purchases of property and equipment  (2,494)  (62,029)
Acquisition of Intellectual Property  -   (43,900)
Net cash used in investing activities  (2,494)  (105,929)
         
Financing Activities:        
Proceeds from notes payable  -   600,000 
Proceeds from notes payable - related parties  92,446   1,403,242 
Payment of notes payable  -   (100,000)
Payment of notes payable - related parties  (10,000)  - 
Proceeds from sale of common stock  1,524,030   - 
Stock repurchases  (166,226)  - 
Borrowings from note payable  80,000   - 
Net cash provided by financing activities  1,520,250   1,903,242 
         
Net change in cash  (86,257)  (1,069,098)
         
Cash - beginning of the year  103,019   1,172,117 
         
Cash - end of the year $16,762  $103,019 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $129,869  $77,068 
Cash paid for income taxes $800  $- 
         
Supplemental disclosure of non-cash investing and financing activities:        
Note payable issued as payment for professional fees $-  $125,000 
Satisfaction of note in connection with the foreclosure of Songstagram security interest $-  $861,435 
Issuance of common stock in connection with settlement agreements $-  $530,000 
Officer salary paid pursuant to note payable - related party $-  $189,000 
Accounts payable paid pursuant to note payable - related party $-  $101,901 
Accrued interest converted to note payable - related party $-  $45,641 
Conversion of accrued interest on notes payable to convertible notes payable $80,268  $- 
Conversion of accrued interest on notes payable to related parties note $10,900  $- 
Conversion of accrued payroll to related party note $121,875  $- 
Conversion of accrued interest to accrued officers’ salary $180,686  $- 

The accompanying notes are an integral part of these consolidated financial statements.

nFÜSZ, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

1.DESCRIPTION OF BUSINESS

Organization

Cutaia Media Group, LLC (“CMG”) was a limited liability company formed on December 12, 2012 under the laws of the State of Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19, 2014, CMG was merged into bBooth, Inc. and bBooth, Inc. changed its name to bBooth (USA), Inc. The operations of CMG and bBooth (USA), Inc. are collectively referred to as “bBoothUSA”.

On October 16, 2014, bBoothUSA completed a Share Exchange Agreement with Global System Designs, Inc. (“GSD”) which was accounted for as a reverse merger transaction. In connection with the closing of the Share Exchange Agreement, GSD management was replaced by bBoothUSA management, and GSD changed its name to bBooth, Inc.

Effective April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through a parent/subsidiary short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of the name change, with and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger with the Secretary of State of the State of Nevada on April 4, 2017 and a Certificate of Correction with the Secretary of State of the State of Nevada on April 17, 2017. The merger became effective on April 21, 2017. Our board of directors approved the merger, which resulted in the name change on that date. In accordance with Section 92A.180 of the Nevada Revised Statutes, stockholder approval of the merger was not required.

On the effective date of the merger, our name was changed to “nFüsz, Inc.” and our Articles of Incorporation, as amended (the “Articles”), were further amended to reflect our new legal name. With the exception of the name change, there were no other changes to our Articles.

Nature of Business

We have developed proprietary interactive video technology which serves as the basis for certain products and services that we offer under the brand name “notifi”. Our notifiCRM, notifiADS, notifiLINKS, and notifiWEB products are cloud-based, software-as-a-service (“SaaS”), customer relationship management (“CRM”), sales lead generation, advertising and social engagement software, accessible on mobile and desktop platforms, that we license to individual consumers, sales-based organizations, consumer brands, marketing and advertising agencies, as well as artists and social influencers. Our notifiCRM platform is an enterprise scalable customer relationship management program that incorporates proprietary, interactive audio/video messaging and interactive on-screen “virtual salesperson” communications technology. Our notifiTV and notifiLIVE products are part of our proprietary interactive video platform allowing viewers to interact with pre-recorded as well as live broadcast video content by clicking on links we embed in people, objects, graphics or sponsors’ signage displayed on the screen. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most devices available in the market today without the need to download special software or proprietary video players.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

F-22

Principles of Consolidation

 

The consolidated financial statements include the accounts of bBooth,Verb Technology Company, Inc. (formerly nFüsz, Inc. and, Songstagram,before that, bBooth, Inc. (“Songstagram”). All significant intercompany transactions and balancesIntercompany accounts have been eliminated in consolidation.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the year ended December 31, 2016, the Company incurred a net loss of $4,274,105, used cash in operations of $1,604,013 and had a stockholders’ deficiency of $3,468,223 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At December 31, 2016, the Company had cash on hand in the amount of $16,762. The Company raised an additional $300,000 in February 2017. Management estimates that the current funds on hand will be sufficient to continue operations through April 2017. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.consolidation.

 

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 and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenuesrevenue and expenses during the reported periods. Significant estimates include theassumptions made in analysis of reserves for allowance of doubtful accounts, inventory, purchase price allocations, impairment of long-term assets, realization of deferred tax assets, determining fair value of share based payments.derivative liabilities, and valuation of equity instruments issued for services. Amounts could materially change in the future.

 

Revenue Recognition

The Company derives its revenue primarily from providing application services through the SaaS application, digital marketing and sales support services, from the sale of customized print products and training materials, branded apparel, and digital tools, as demanded by its customers. The subscription revenue from the application services are recognized over the life of the estimated subscription period. The Company also charges certain customers setup or installation fees for the creation and development of websites and phone application. These fees are accounted as part of deferred revenue and amortized over the estimated life of the agreement. Amounts related to shipping and handling that are billed to customers are reflected as part of revenue, and the related costs are reflected in cost of revenue in the accompanying Statements of Consolidated Operations.

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Pursuant to ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.

The products sold by us are distinctly individual. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Other than promotional activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time.

The control of products we sell transfers to our customers upon shipment from our facilities, and our performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and, therefore, represent a fulfillment activity rather than promised goods to the customer. Payment for sales are generally made by check, credit card, or wire transfer. Historically, we have not experienced any significant payment delays from customers.

We allow returns within 30 days of purchase from end-users. Our customers may return purchased products to us under certain circumstances.

Customers setup or installation fees for the creation and development of websites and phone application are recognized as revenue over the estimated subscription period. Design assets of the websites and phone application are recognized when the work is completed. Licensing revenue is recognized over the estimated subscription period. In addition, certain revenue is recorded based upon stand-alone selling prices and is primarily recognized when the customer uses these services, based on the quantity of services rendered, such as number of customer usage.

A description of our principal revenue generating activities is as follows:

Digital Sales – We offer cloud-based business software on a subscription basis. Subscriptions are paid in advance of the services or billed 30 days in arrears of the subscription period. The revenue is recognized over the subscription period.

Welcome kits – We offer design and printing services to create corporate starter kits that our clients use for their marketing needs. The revenue is recognized upon completion and shipment of the welcome kits.

Fulfillment – We offer print on demand and fulfilment services of various custom products our clients use for marketing purposes. The revenue is recognized upon completion and shipment of the products.

Shipping – We charge our customers the costs related to the shipping of their welcome kits and fulfillment products. The revenue is recognized when the welcome kits or fulfillment products are shipped.

Cost of Revenue

Cost of revenue primarily consists of the salaries of certain employees, purchase price of consumer products, digital content costs, packaging supplies, and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of revenue upon sale of products to our customers.

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000.

The Company extends limited credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts and sales credits. The Company believes that any concentration of credit risk in its accounts receivable is substantially mitigated by the Company’s evaluation process, relatively short collection terms and the high level of credit worthiness of its customers.

The Company’s concentration of credit risk includes its concentrations from key customers and vendors. The details of these significant customers and vendors are presented in the following table for year ended December 31, 2019 and 2018:

Year EndedYear Ended
December 31, 2019December 31, 2018
Verb’s largest customers are presented below as a percentage of Verb’s aggregate:
Revenues1 major customer accounted for 13% of revenuesNone
Accounts receivableNoneNone
Verb’s largest vendors are presented below as a percentage of Verb’s aggregate:
PurchasesNoneNone
Accounts payable1 major supplier accounted for 14% of accounts payable individually and in aggregateNone

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.

Leases

We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of 36 to 94 months. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.

Prior to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (“ASC”) 840, Accounting for Leases. Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. See Note 5, Right-of-Use Assets and Operating Lease Liabilities, for additional information.

 

Long-Lived Assets

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. During the year ended December 31, 2015, the Company made this analysis and determined there were no reliable predictors of future cash flows in connection with the Company’s intangible assets or its booth-related equipment. Accordingly, the Company concluded that impairment of these assets was appropriate and recorded an aggregate impairment charge of $1,387,100 for the year ended December 31, 2015. No impairment of long-lived assets was required for the yearyears ended December 31, 2016.2019 and 2018.

F-23

 

Income Taxes

 

The Company accounts for income taxes under Financial Accounting Standards BoardBoard’s (“FASB”) Accounting Standards Codification (“ASC”)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 bases 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 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, 20162019, and 2015,2018, the Company has not established a liability for uncertain tax positions.

Deferred Offering Costs

Deferred offering costs consist principally of legal, accounting, and underwriters’ fees incurred related to the contemplated underwritten public offering of the Company’s Common Stock. These deferred offering costs were charged against the gross proceeds received in March 2019.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjusted to fair value of derivatives.

 

Share Based Payment

 

The Company issues stock options common stock,and warrants, shares of Common Stock, and equity interests as share-based compensation to employees and non-employees.

The Company accounts for its share-based compensation to employees in accordance FASBwith the Financial Accounting Standards Board’s (“FASB”) ASC 718, “CompensationCompensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.

 

TheFrom prior periods until December 31, 2018, the Company accountsaccounted for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50,Equity - Based Payments to Non-Employees.Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a)(a) the goods or services received;received or (b)(b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of ASU 2018-07 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the twelve months ended December 31, 2019 or the previously reported financial statements.

 

The Company values stock compensation based on the market price on the measurement date. As described above, for employees this is the date of grant, and for non-employees, this is the date of performance completion.

 

The Company values stock options using the Black-Scholes option pricing model. Assumptions used in the Black-Scholes model to value options issued during the years ended December 31, 20162019 and 20152018 are as follows:

  Year Ended  Year Ended 
  

December 31, 2016

  

December 31, 2015

 
       
Expected life in years  2.5 to 5.0   2.5 to 5.0 
Stock price volatility  84.36% - 153. 07%  84.36% - 98.54%
Risk free interest rate  1.22% - 1.24%  1.07% - 1.72%
Expected dividends  NA   NA 
Forfeiture rate  20%  21%

  Year Ended  Year Ended 
  

December 31,

2019

  

December 31,

2018

 
       
Expected life in years  1.0, 2.0 and 5.0   5.0 
Stock price volatility  180%-413.83%  184.45% -190.22%
Risk free interest rate  1.51%-2.75%  2.25% - 3.00%
Expected dividends  0%  0%
Forfeiture rate  22.48%  18%

 

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stockCommon Stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes.Common Stock. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

Research and Development Costs

 

Research and development costs consist of expenditures for the research and development of new products and technology. These costs are primarily expenses to vendors contracted to perform research projects and develop technology for the Company’s notifi cloud-based, Software-as-a-Service (SaaS)Verb interactive video CRM SaaS platform.

 

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 common shares of Common Stock that were outstanding during the period. Dilutive potential common shares of Common Stock consist of incremental common shares of Common Stock issuable upon exercise of stock options. No dilutive potential common shares of Common Stock were included in the computation of diluted net loss per share because their impact was anti-dilutive. As of December 31, 20162019, and 2015,2018, the Company had total outstanding options of 4,233,722 and 2,478,974, respectively, and warrants of 28,986,21710,930,991 and 18,624,129,940,412, respectively, and outstanding restricted stock awards of 1,486,354 and 0, respectively, which were excluded from the computation of net loss per share because they are anti-dilutive.

 

Acquisitions and Business Combinations

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, trade-marks 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.

Goodwill

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, the Company reviews the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. The Company’s impairment testing will be done annually at December 31 (its fiscal year end). Recoverability of goodwill is determined by comparing the fair value of Company’s reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities.

The acquisition of Verb Direct, formerly Sound Concepts, occurred on April 12, 2019. The Company will perform its first impairment test in fiscal 2020.

Intangible Assets with Finite Useful Lives

We have certain finite lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets consist of developed technology. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful life of five years.

We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.

The acquisition of Verb Direct, formerly Sound Concepts, occurred on April 12, 2019. The Company will perform its first impairment test in fiscal 2020.

Fair Value of Financial Instruments

 

The Company follows the guidance of FASB ASC 820 and ASC 825 for disclosure and measurement of the fair value of its financial instruments. FASB ASC 820 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three (3) levels of fair value hierarchy defined by ASC 820 are described below:

Level 1:Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2:Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3:Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amount of the Company’s financial instruments includeassets and liabilities, such as cash notes receivable and notes payable.cash equivalents, prepaid expenses, and accounts payable and accrued expenses approximate their fair value due to their short-term nature. The principal balancecarrying values financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities.

Segments

The Company has various revenue channels. In accordance with the “Segment Reporting” Topic of the notes receivableASC, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) reviews operating results to make decisions about allocating resources and notes payable approximates fair value because ofassessing performance for the current interest ratesentire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and terms offered to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to (i) their similar customer base and (ii) the Company for similar debt are substantiallyhaving a single sales team, marketing department, customer service department, operations department, finance department, and accounting department to support all revenue channels. Since the same.Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying consolidated financial statements.

 

Recent Accounting Pronouncements

 

In May 2014,June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from ContractsInstruments (“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 Customers. ASU 2014-09 is a comprehensive revenue recognition standard thatan “expected loss” model, under which companies will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenueallowances based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costsexpected rather than incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein.losses. Entities will be able to transition toapply the standard either retrospectively orstandard’s provisions as a cumulative-effect adjustment to retained earnings as of the datebeginning of adoption. The Companythe first reporting period in which the guidance is ineffective. As small business filer, the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation – Stock Compensation (Topic 718). The pronouncement was issued to clarify the accounting for share-based payments when the terms of an award provide that a performance target couldstandard will be achieved after the requisite service period. The pronouncement is effective for reporting periods beginning after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheetus for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption2022. Management is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluatingcurrently assessing the impact of ASU 2016-02adopting this standard on the Company’s financial statements and related disclosures. The Company anticipates that this will add significant liabilities to the balance sheet.

 

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.ACQUISITION OF VERB DIRECT

Reclassifications

On April 12, 2019, Verb completed its previously announced acquisition of Verb Direct through a two-step merger, consisting of merging Merger Sub 1 with and into Sound Concepts, with Sound Concepts surviving the “first step” of the merger as a wholly-owned subsidiary of Verb (and the separate corporate existence of Merger Sub 1 then having ceased) and, immediately thereafter, merging Sound Concepts (as of the closing of the first step, then known as Verb Direct, Inc.) with and into Merger Sub 2, with Merger Sub 2 surviving the “second step” of the merger, such that, upon the conclusion of the “second step” of the merger, the separate corporate existence of Verb Direct, Inc. (formerly Sound Concepts) then having ceased and Merger Sub 2 continued its limited liability company existence under Utah law as the surviving entity and as a wholly-owned subsidiary of Verb, then known as Verb Direct. On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the merger, each share of Sound Concepts Capital Stock issued and outstanding immediately prior to the effective time, was cancelled in exchange for cash payment by Verb of an aggregate of $15,000,000, and the issuance of an aggregate of 3,327,791 restricted shares of Verb’s Common Stock. The Acquisition Cash Payment was paid using a portion of the net proceeds Verb received as a result of the public offering of the units. Pursuant to the requirements of current accounting guidance, Verb valued the acquisition shares at $7,820,000, the fair value of the shares at the closing date of the transaction.

 

Prior period financial amounts have been reclassifiedThe acquisition was intended to conformaugment and diversify Verb’s internet and SaaS business. Key factors that contributed to the current period presentation. $600,000recorded goodwill and intangible assets in the aggregate of notes payable previously reflected$22,677,000 were the opportunity to consolidate and complement existing operations of Verb, certain software and customer list, and the opportunity to generate future synergies within the internet and SaaS business.

The allocation of the purchase price was completed on December 31, 2019 through the assistance of a valuation specialist. The following table summarizes the assets acquired, liabilities assumed and purchase price allocation:

Assets Acquired:        
Other current assets $2,004,000     
Property and equipment  58,000     
Other assets  1,302,000  $3,364,000 
Liabilities Assumed:        
Current liabilities  (2,153,000)    
Long-term liabilities  (1,068,000)  (3,221,000)
Intangible assets      6,340,000 
Goodwill      16,337,000 
Purchase Price     $22,820,000 

The goodwill recognized in 2015 underconnection with the caption “Notes Payable”acquisition is primarily attributable to anticipated synergies from future growth and is not expected to be deductible for tax purposes. Goodwill is not amortized but will be tested for impairment on an annual basis.

The intangible assets, which consist mostly of developed technology of $4,700,000 are being amortized over 5-years, customer relationships of $1,200,000 are being amortized on an accelerated basis over its estimated useful life of 5 years and domain names of $440,000 are determined to have infinite lives but will be tested for impairment on an annual basis.

During the year ended December 31, 2019, the Company recorded amortization expense of $975,000. As of December 31, 2019, the remaining unamortized balance of the intangible assets was $5,365,000.

The following table summarizes the amortization expense to be recorded in future periods for intangible assets that are subject to amortization:

Year ending Amortization 
2020 $1,255,000 
2021  1,195,000 
2022  1,135,000 
2023  1,075,000 
2024 and thereafter  265,000 
Total amortization $4,925,000 

The following unaudited pro forma statements of operations present the Company’s pro forma results of operations after giving effect to the purchase of Verb Direct based on the historical financial statements of the Company and Verb Direct. The unaudited pro forma statements of operations for the year ended December 31, 2019 and 2018 give effect to the transaction to the merger as if it had occurred on January 1, 2018.

  

Year Ended

December 31,
2019

  Year Ended
December 31,
2018
 
  

(Proforma,

unaudited)

  

(Proforma,

unaudited)

 
Digital $5,290,000  $3,734,000 
Welcome kits and fulfilment  6,178,000   7,258,000 
Shipping  1,624,000   1,774,000 
Total Revenue  13,092,000   12,766,000 
         
Cost of revenue  7,088,000   7,173,000 
         
Gross margin  6,004,000   5,593,000 
         
Operating expenses  22,048,000   14,295,000 
         
Other expense, net  (99,000)  (4,326,000)
         
Loss before income tax provision  (16,143,000)  (13,028,000)
         
Income tax provision  2,000   1,000 
         
Net loss $(16,145,000) $(13,029,000)
         
Loss per share $(0.76) $(0.99)
Weighted average number of common shares outstanding - basic and diluted  21,116,207   13,198,681 

Results of operation of Verb Direct subsequent to the acquisition are as follows:

  

Period April 1,

2019 through

December 31,

2019

 
    
Revenue $9,041,000 
Cost of revenue  4,766,000 
Operating expenses  6,308,000 
Other income expense  (11,000)
Net loss $(2,044,000)

These amounts were reclassified to “Convertible Notes”.included in the accompany Consolidated Statement of Operations.

 

3.4.PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following as of December 31, 20162019 and 2015.2018.

 

  December 31, 2016  December 31, 2015 
       
Furniture and fixtures $56,890  $56,890 
Office equipment  50,669   48,175 
         
   107,559   105,065 
Less: accumulated depreciation  (55,493)  (34,192)
         
  $52,066  $70,873 
  

December 31,

2019

  

December 31,

2018

 
       
Computers $29,000  $28,000 
Furniture and fixture  75,000   56,000 
Machinery and equipment  39,000   24,000 
Leasehold improvement  741,000   - 
Total property and equipment  884,000   108,000 
Accumulated depreciation  (164,000)  (97,000)
Total property and equipment, net $720,000  $11,000 

 

Depreciation expense amounted to $21,302$67,000 and $31,618$20,000 for the year ended December 31, 20162019 and 2015,2018, respectively.

4.5.RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

Effective January 1, 2019, the Company adopted the guidance of ASC 842, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods.

Upon acquisition of Verb Direct, the Company assumed four office and warehouse leases in American Fork, Utah related to the operation of Verb Direct with an aggregate lease payment of $31,000 per month. Each lease expires in December 2023. In addition, the Company assumed an office equipment lease with a lease payment of $5,000 per month that will expire in September 2021. As a result, the Company recorded operating lease right-of-use assets of and lease liabilities for operating lease of $1,451,000 and $1,457,000, respectively. The lessor of the office and warehouse area is JMCC Properties, which is an entity owned and controlled by the former shareholders and certain current officers of Verb Direct.

In February 2019, the Company entered into a lease agreement with respect to the Company’s corporate headquarters located at 2210 Newport Boulevard, Suite 200, Newport Beach, California 92663 with a term of 94 months. The average monthly base rent for the first 12 months of the Lease is approximately $7,000 after rent abatement. For the next 82 months of the Lease, the average monthly base rent will be approximately $39,000. As part of the agreement, the landlord provided leasehold incentive of $572,000 for the construction of the leasehold improvements. Pursuant to ASC 842, the lease incentive of $572,000 was recorded as a part of leasehold improvements and a reduction to the right of use assets. The Lease commenced in August 2019 and as a result, the Company recorded operating lease right-of-use assets of $2,173,000 and lease liabilities for operating lease of $2,745,000.

The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets of and lease liabilities for operating lease in the aggregate of $3,624,000 and $4,202,000, respectively. There was no cumulative-effect adjustment to retained earnings.

  

Year Ended

December 31, 2019

 
Lease cost    
Operating lease cost (included in general and administration in the Company’s statement of operations) $366,000 
     
Other information    
Cash paid for amounts included in the measurement of lease liabilities $ 
Weighted average remaining lease term – operating leases (in years)  5.25 
Average discount rate – operating leases  4.0%

  December 31, 2019 
Operating leases    
Right-of-use assets, net of amortization of $349,000 $ 3,275,000 
     
Short-term operating lease liabilities $391,000 
Long-term operating lease liabilities  3,591,000 
Total operating lease liabilities $3,982,000 

Year ending Operating Leases 
2020  597,000 
2021  776,000 
2022  751,000 
2023  773,000 
2024 and thereafter  1,661,000 
Total lease payments  4,558,000 
Less: Imputed interest/present value discount  (576,000)
Present value of lease liabilities $3,982,000 

6.ADVANCE ON FUTURE RECEIPTS AND NOTES PAYABLE

a.ADVANCE ON FUTURE RECEIPTS

 

The Company has the following notes payableadvances on future receipts as of December 31, 2016 and December 31, 2015:2019:

 


Note
 Note Date Maturity Date Interest Rate  Original Borrowing  Balance at
December 31, 2016
  Balance at
December 31, 2015
 
                 
Note payable (a) March 21, 2015 March 20, 2017  12.0% $125,000  $125,000  $125,000 
Note payable (b) December 15, 2016 Due upon demand  5% $101,300   101,300   - 
Total notes payable              226,300   125,000 
Debt discount              (48,942)  - 
                     
Total notes payable, net of debt discount         $177,358  $125,000 

(a)March 21, 2015 – The Company entered into an agreement with DelMorgan Group LLC (“DelMorgan”), pursuant to which DelMorgan agreed to act as the Company’s exclusive financial advisor. In connection with the agreement, the Company paid DelMorgan $125,000, which was advanced by a third-party lender in exchange for an unsecured note payable issued by the Company bearing interest at the rate of 12% per annum payable monthly beginning on April 20, 2015. The note payable is due on the earlier of March 20, 2017, or upon completion of a private placement transaction, as defined in the agreement. As a result, the $125,000 note payable has been classified as a current liability as of December 31, 2016 and December 31, 2015 in the accompanying condensed consolidated financial statements. The parties have reached agreement to extend the note payable to March 20, 2018.
(b)On December 15, 2016, the Company entered into an agreement with a buyer whereby the Company agreed to issue and sell to the Buyer, and the Buyer agreed to purchase from the Company, (i) a non interest bearing Note in the original principal amount of $250,000, (ii) Warrants, and (iii) shares of the Company’s common stock in an amount equal to 30% of the purchase price of the respective tranche divided by the closing price of the Common Stock on the trading day immediately prior to the date of funding of the respective tranche (collectively the “Inducement Shares”). The “Maturity Date” shall be six months from the date of each payment of Consideration. A one-time interest charge of five percent (5%) (“Interest Rate”) is to be applied on the Issuance Date to the original principal amount. In addition, there is a 10% Original Issue Discount that is to be prorated based on the consideration paid by the Buyer.
Note Issuance Date Maturity Date Interest
Rate
  Original
Borrowing
  Balance at
December 31,
2019
  Balance at
December 31,
2018
 
                 
Note 1 December 24, 2019 June 30, 2020  10% $506,000  $503,000  $                  - 
Note 2 December 24, 2019 June 30, 2020  10%  506,000   503,000   - 
Total         $1,012,000   1,006,000     
Debt discount              (274,000)  - 
Net             $732,000  $- 

 

On December 30, 2016,24, 2019, the Buyer purchasedCompany received two secured advances from an unaffiliated third party totaling $728,000 for $80,000 the first tranchepurchase of $1,012,000 in future receipts. These advances are secured by the Company’s tangible and intangible assets. Pursuant to the terms of the Noteagreement, the unaffiliated third-party will auto withdraw an aggregate of $6,000 from the Company’s operating account each banking day. The term of the agreement extends until the advances are paid in full. The Company may pay off either note for $446,000 if paid within 30 days of funding; for $465,000 if paid between 31 and 60 days of funding; or for $484,000 if paid within 61 to 90 days of funding.

The Company recorded a debt discount upon issuance totaling $284,000 to account the difference between the aggregate net receipts received and the respective securities to be issued andaggregate face amount of the amounts payable.

During the year ended December 31, 2019 the Company soldpaid $7,000 in principal payments pursuant to it including (i) a three-year warrant to acquire 176,000 sharesthe terms of the Company’s common stock with an exercise price of $0.25 per share,notes and (ii) 240,000 sharesamortized $10,000 of the Company’s common stock.debt discount.

 

b.NOTES PAYABLE

Upon

During the year ended December 31, 2019, the Company issued notes payable in the aggregate principal amount of $1,340,000 to various non-related entities or individuals, in exchange for net proceeds of $1,300,000, representing an original discount of $40,000. The notes were unsecured and bear interest on the principal amount at an average rate of 5.0% per annum. The notes were due on demand at any time starting April 10, 2019. As a result of the issuance of the note,notes, the company accounted for anCompany incurred aggregate costs of $40,000 related to the notes’ original issue discount. The Company recorded these costs as a note discount of $21,300, which consisted of (i) the 10% original issue discount of $8,800, and (ii) the fixed interest of 5% which aggregated $12,500 (such rate based on the entire funding due of $250,000). The original issue discount will be accretedwas being amortized to interest expense over the lifeterm of the note, resultingnotes.

The Company settled these notes payable and accrued interest through a combination of cash payments in the aggregate of $630,000 and the issuance of 598,286 shares of Common Stock with a net amount duefair value of $1,195,000 and warrants to purchase up to 108,196 shares of Common Stock with a fair value of $215,000. As a result, we recorded a loss on debt extinguishment of $691,000 to account for the holderdifference between the face value of $101,300 at maturity. In addition, the (iii)notes payable settled plus accrued interest and the fair value of the 240,000 common shares of $21,600Common Stock and warrants issued with a total value of $1,410,000. These shares of Common Stock were valued based on the market value of the Company’s Common Stock price at the issuance date or the date the Company entered into the agreement related to the holder, and (iv) the relativeissuance. The fair value of the warrants of $32,059 will be considered as additional valuation discount and will be amortized as interest expense over the life of the note.was determined using a Black Scholes Option pricing model.

 

The aggregate fair value of the original issue discount and the equity securities issued upon inception of the note of $53,659 has been recorded as a valuation discount. During the year $4,717 of this amount was amortized as interest expense, and the remaining unamortized discount was $48,942notes were all paid or settled as of December 31, 2016.

Upon the occurrence of an event of default, the Holder shall have the right, but not the obligation, to convert the Outstanding Balance into shares of the Company’s Common Stock, the conversion price” shall equal 70% of the average volume weighted average price for the twenty trading days immediately preceding the applicable conversion date. The Company did not account for the conversion feature of the note as it is a contingent event that is payable only upon default of the note. It is the Company’s current intention to pay the note off before maturity with either from the funds raised subsequent to year end, or through an additional amount advanced by the majority stockholder.

Total interest expense for notes payable for the years ended December 31, 2016 and 2015 was $43,768 and $11,466, respectively.2019.

 

5.7.NOTES PAYABLE – RELATED PARTIES

 

The Company has the following related parties outstanding notes payable:payable as of December 31, 2019 and 2018:

 

Note Issuance Date Maturity Date Interest Rate  Original Borrowing  Balance at
December 30, 2016
  Balance at
December 31, 2015
 
                 
Note 1 Year 2015 April 1,2017  12.0% $1,203,242  $1,198,883  $1,248,883 
Note 2 December 2015 April 1, 2017  12.0%  200,000   -   200,000 
Note 3 December 1, 2015 April 1,2017  12.0%  189,000   189,000   189,000 
Note 4 December 1, 2015 April 1, 2017  12.0%  111,901   111,901   111,901 
Note 5 August 4, 2016 April 4, 2017  12.0%  343,326   343,326   - 
Note 7 August 4, 2016 April 4, 2017  12.0%  121,875   121,875   - 
                     
Total              1,964,985   1,749,784 
                     
Debt discount           -   (398,592)
                     
Total notes payable – related parties, net         $1,964,985  $1,351,192 
Note Issuance Date Maturity Date Interest Rate  Original
Borrowing
  Balance at
December 31,
2019
  Balance at
December 31,
2018
 
Note 1 (A) December 1, 2015 February 8, 2021  12.0% $1,249,000  $825,000  $825,000 
Note 2 (B) December 1, 2015 April 1, 2017  12.0%  112,000   112,000   112,000 
Note 3 (C) April 4, 2016 June 4, 2021  12.0%  343,000   240,000   240,000 
Note 4 (D) March 22, 2019 April 30, 2019  5.0%  58,000   -   - 
Total notes payable – related parties          1,177,000   1,177,000 
Non-current              (1,065,000)  (1,065,000)
Current             $112,000  $112,000 

 

 (A)

On various dates duringDecember 1, 2015, the year ended December 31, 2015,Company issued a convertible note payable to Mr. Rory J. Cutaia, the Company’s majority stockholder and Chief Executive Officer, loanedto consolidate all loans and advances made by Mr. Cutaia to the Company total principal amountsas of $1,203,242.that date. The loans were unsecured and all due on demand, bearingnote bears interest at 12% per annum. On December 1, 2015, the Company entered into a Secured Convertible Note agreement with Mr. Cutaia whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans amounting to an aggregate totalrate of $1,248,883 and due on demand, was consolidated under a note payable agreement, bearing interest at 12% per annum, secured by the Company’s assets, and converted from duewill mature on demand to due in full on April 1, 2017. In consideration for Mr. Cutaia’s agreement to consolidate the loans and extend the maturity date, the Company granted Mr. Cutaia a senior security interest in substantially all current and future assets of the Company. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665 of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07 per share. On April 4, 2016 $50,000 of this note was converted into another note (see below).February 8, 2021, as amended.

   
 OnAs of December 1, 2015,31, 2019 and 2018, the Company entered into an Unsecured Convertible Note with Mr. Cutaia in the amount of $189,000, bearing interest at 12% per annum, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note extends the payment terms from on-demand to due in full on April 1, 2017. The outstanding principal and accrued interest may be converted at Mr. Cutaia’s discretion into shares of common stock at a conversion rate of $0.07.

On December 1, 2015, the Company entered into an Unsecured Note agreement with a consulting firm owned by Michael Psomas, a former memberbalance of the Company’s Board of Directors, in the amount of $111,901 representing unpaid fees earned for consulting services previously rendered but unpaid as of November 30, 2015. The outstanding amounts bear interest at 12% per annum, and are due in full on April 1, 2017.note amounted to $825,000, respectively.
   
 (B)

On April 4, 2016,December 1, 2015, the Company issued a secured convertible note payable to the Chief Executive Officer (“CEO”) and a directorformer member of the Company,Company’s board of directors, in the amount of $343,325, which represents additional sums$112,000, representing unpaid consulting fees as of $93,326 that the CEO advanced to the Company during the period from December 2015 through March 2016, and the conversion of $250,000 other pre-existing notes including the $200,000 DecemberNovember 30, 2015. The note bearing 12% interest. This noteis unsecured, bears interest at the rate of 12% per annum, compounded annually. In consideration for this agreement to extendand matured in April 2017.

As of December 31, 2019 and 2018, the repayment date to August 4, 2017, the Company granted to the CEO the right to convert up to 30%outstanding principal balance of the amountnote amounted to $112,000, respectively. As of December 31, 2019, the such note into shares ofwas past due, and remains past due. The Company is currently in negotiations with the Company’s common stock at $0.07 per share and issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50% ofnoteholder to settle the amount of suchpast due note.
   
 (C)The

On April 4, 2016, the Company calculated the effect of the issuance of the warrants and the conversion that arose as part of issuances of the $343,325issued a convertible amountednote to $132,140. As the changeMr. Cutaia, in the fair valueamount of $343,000, to consolidate all advances made by Mr. Cutaia to the Company during the period December 2015 through March 2016. The note bears interest at a rate of 12% per annum, is secured by the Company’s assets, and will mature on June 4, 2021, as amended.

As of December 31, 2019, and December 31, 2018, the outstanding balance of the note constituted a change in excess of 10% of the present value of the note, the Company considered thisamounted to be a “debt extinguishment” in accordance with ASC 470-50-40 and recorded the fair value of the grant as a debt extinguishment cost.$240,000, respectively.

   
 (D)April 4, 2016

On March 22, 2019, the Company issued an unsecured convertiblea note payable to Mr. Jeffrey Clayborne, the CEOCompany’s Chief Financial Officer, in the amount of $121,875, which represents the amount$58,000. The note was unsecured, bore interest at a rate of the accrued but unpaid salary owed to the CEO for the period from December 2015 through March 2016. In consideration for this agreement to extend the payment date to August 4, 2017,5% per annum, and matured on April 30, 2019.

On April 11, 2019, the Company granted topaid off the CEO the right to convert the amountbalance of the such note into shares$58,000 and there was no outstanding balance as of the Company’s common stock at $0.07 per share, which approximated the trading price or the Company’s common stock on the date of the agreement. This note bears interest at the rate of 12% per annum, compounded annually.

In 2015, the Company granted 8,920,593 warrants to Mr. Cutaia and 799,286 warrants to Mr. Psomas as consideration for their respective notes payable balances to a maturity date of April 1, 2017. The warrants are immediately vested and have an exercise price of $0.07 and expire on November 30, 2018. The warrants have been valued using the Black-Scholes valuation model and have an aggregate value of $424,758. The value has been recorded as a discount to the outstanding notes payable - related parties on the accompanying consolidated balance sheet, and was being amortized into interest expense over the extended maturity periods of April 1, 2017.December 31, 2019.

 

Total interest expense for notes payable to related parties was $141,000 and $211,000 for the yearsyear ended December 31, 20162019 and 2015 was $232,0762018, respectively. The Company paid $101,000 and $61,781,$269,000 in interest related to these notes for the year ended December 31, 2019 and 2018, respectively.

8. DEFERRED INCENTIVE COMPENSATION TO OFFICERS

Note Date  Payment Date Balance at
December 31,
2019
  Balance at
December 31,
2018
 
            
Rory Cutaia (A)  December 23, 2019  50% on January 10, 2021 and 50% on January 10, 2022 $430,000  $                        - 
Rory Cutaia (B)  December 23, 2019  50% on January 10, 2021 and 50% on January 10, 2022  324,000   - 
Jeff Clayborne (A)  December 23, 2019  50% on January 10, 2021 and 50% on January 10, 2022  125,000   - 
Jeff Clayborne (B)  December 23, 2019  50% on January 10, 2021 and 50% on January 10, 2022  163,000   - 
               
Total        1,042,000   - 
Non-current        (1,042,000)  - 
Current       $-  $- 

(A)

On December 23, 2019, the Company awarded Rory Cutaia, Chief Executive Officer and Jeff Clayborne, Chief Financial Officer Annual Incentive Compensation of $430,000 and 125,000, respectively for services rendered. The Company has determined that it is in its best interest and in the best interest of its stockholders to defer payments to the Employees. The Company will pay 50% of the Annual Incentive Compensation on January 10, 2021 and the remaining 50% on January 10, 2022.

(B)On December 23, 2019, the Company awarded Rory Cutaia, Chief Executive Officer and Jeff Clayborne, Chief Financial Officer received a bonus for the successful Up-Listing to Nasdaq and Acquisition of Verb Direct during fiscal 2019, totaling $324,000 and 163,000, respectively. The Company has determined that it is in its best interest and in the best interest of its stockholders to defer payments to the Employees. The Company will pay 50% of the Nasdaq Up-Listing Award on January 10, 2021 and the remaining 50% on January 10, 2022.

 

6.9.CONVERTIBLE NOTENOTES PAYABLE

 

The Company entered into a serieshas the following outstanding convertible notes payable as of unsecured loan agreement with Oceanside Strategies, Inc. (“Oceanside”) a third-party lender, in the aggregate principal amount of $600,000 through December 31, 2015. The loans bear interest at rates ranging from 5% to 12% per annum2019 and were due on demand.2018:

Note Note Date Maturity Date Interest Rate  Original
Borrowing
  Balance at
December
31, 2019
  Balance at
December 31,
2018
 
                 
Note payable (A) October 19, 2018 April 19, 2019  10% $1,500,000  $                  -  $1,500,000 
Note payable (B) October 30, 2018 April 29, 2019  5% $400,000   -   400,000 
Note payable (C) February 1, 2019 August 2, 2019  10% $500,000   -   - 
Total convertible notes payable          -   1,900,000 
Debt discount              -   (1,082,000)
                     
Total notes payable, net of debt discount         $-  $818,000 

(A)On October 19, 2018, the Company issued an unsecured convertible note to Bellridge Capital, LP (“Bellridge”), an unaffiliated third-party, in the aggregate principal amount of $1,500,000 in exchange for net proceeds of $1,242,000, representing an original issue discount of $150,000, and paid legal and financing expenses of $109,000. In addition, the Company issued 96,667 shares of its Common Stock with a fair value of $595,000. The note was unsecured and did not bear interest; however, the implied interest was determined to be 10% since the note was issued at 10% less than its face value. The note matured in April 2019. The note was also convertible into shares of the Company’s Common Stock only on or after the occurrence of an uncured “Event of Default.” Primarily, the Company would be in default if it did not repay the principal amount of the note, as required. The other events of default are standard for the type of transaction represented by the related securities purchase agreement and the note. In the event of a default, the conversion price in effect on any date on which some or all of the principal of the note is to be converted would be a price equal to 70% of the lowest VWAP during the ten trading days immediately preceding the date on which Bellridge provided its notice of conversion. Upon an Event of Default, the Company would owe Bellridge an amount equivalent to 110% of the then-outstanding principal amount of the note in addition to of all other amounts, costs, expenses, and liquidated damages that might also be due in respect thereof. The Company agreed that, on or after the occurrence of an Event of Default, it would reserve and keep available that number of shares of its Common Stock that equaled 200% of the number of such shares that potentially would be issuable pursuant to the terms of the securities purchase agreement and the note (assuming conversion in full of the note and on any date of determination). The Company determined that, because the conversion price is unknown, the Company could not determine if it had enough authorized shares to fulfill the conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion feature of the note created a derivative with a fair value of $1,273,000 at the date of issuance.

As a result of the issuance of the note, the Company incurred aggregate costs of $2,126,000 related to the note’s original issue discount, legal and financing expenses, the fair value of the Common Stock issued and the recognition of the derivative liability. The Company recorded these costs as a note discount up to the face value of the note of $1,500,000 and the remaining $626,000 as financing costs in October 2018. The note discount was being amortized over the six-month term of the note.

In April 2019, the Company paid the balance of $1,500,000. As a result of the payment, the Company amortized the remaining debt discount of $144,000 to interest expense. The Company also remeasured the fair value of the derivative liability as of the payment date and recognized a change in fair market value in the derivative liability totaling $670,000. The revalued derivative liability of $1,396,000 was then extinguished with the payment of the note, resulting in a gain on debt extinguishment of the derivative liability of $1,396,000.

There was no outstanding balance of the note as of December 31, 2019.
(B)On October 30, 2018, the Company issued two unsecured convertible notes to one current investor and one otherwise unaffiliated third-party in the aggregate principal amount of $400,000. The notes bore interest at a rate of 5% per annum and matured on April 29, 2019. Upon the Company’s consummation of its underwritten public offering of the Company’s units, all, and not less than all, of (i) the outstanding principal amount and (ii) the accrued interest thereunder were to be converted into shares of the Company’s Common Stock. The per-share conversion price equaled seventy-five percent (75%) of the effective offering price of the Common Stock in the Company’s underwritten public offering. The Company determined that, because the conversion price was unknown, that the Company could not determine if it had enough authorized shares to fulfill the conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion feature of the notes created a derivative with a fair value of $302,000 at the date of issuance and was accounted as a debt discount and was being amortized over the term of the notes payable. As of December 31, 2018, the balance of the notes outstanding was $400,000 and the balance of unamortized debt discount was $199,000.

 

On April 3, 2016,5, 2019, the Company issued an unsecured convertible note payable to Oceanside inconverted the amount of $680,268 (this amount includes $600,000outstanding principal amount and $80,268 accrued interest of $410,000 into 182,333 shares of Common Stock. As a result of the conversion, the Company amortized the remaining debt discount of $48,000 to interest expense. The Company also remeasured the fair value of the derivative liability as of the conversion date and unpaid interest). Thisrecognized a change in fair market value in the derivative liability totaling $21,000. The revalued derivative liability of $187,000 was then extinguished with the payment of the note, supersededresulting in a gain debt on extinguishment of the derivative liability of $187,000.

There was no outstanding balance of the note as of December 31, 2019.

(C)

On February 1, 2019, the Company issued an unsecured convertible note to Bellridge, an unaffiliated third-party, in the aggregate principal amount of $500,000 in exchange for net proceeds of $432,000, representing an original issue discount of $25,000, and paid legal and financing expenses of $43,000. In addition, the Company issued 16,667 shares of its Common Stock with a fair value of $128,000. The note was unsecured and did not bear interest; however, the implied interest was determined to be 10% since the note was issued at 10% less than its face value. The note matured in August 2019. The note was also convertible into shares of the Company’s Common Stock only on or after the occurrence of an uncured “Event of Default.” Primarily, the Company would have been in default if it did not repay the principal amount of the note, as required. The other events of default were standard for the type of transaction represented by the related securities purchase agreement and the note. The conversion price in effect on any date on which some or all of the principal of the note would have been converted would be a price equal to 70% of the lowest VWAP during the ten trading days immediately preceding the date on which Bellridge provides its notice of conversion. Upon an Event of Default, the Company would have owed Bellridge an amount equivalent to 110% of the then-outstanding principal amount of the note in addition to of all other amounts, costs, expenses, and liquidated damages that would have been due in respect thereof. The Company agreed that, on or after the occurrence of an Event of Default, it would reserve and keep available that number of shares of its Common Stock that is at least equal to 200% of the number of such shares that potentially would be issuable pursuant to the terms of the securities purchase agreement and the note (assuming conversion in full of the note and on any date of determination). The Company determined that, because the conversion price was unknown, the Company could not determine if it had enough authorized shares to fulfill the conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion feature of the note created a derivative with a fair value of $388,000 at the date of issuance.

As a result of the issuance of the note, the Company incurred aggregate costs of $584,000 related to the note’s original issue discount, legal and financing expenses, the fair value of the Common Stock issued and the recognition of the derivative liability. The Company recorded these costs as a note discount up to the face value of the note of $500,000 and the remaining $84,000 as financing costs. The note discount was being amortized over the six-month term of the note.

On April 2, 2019, the Company increased the outstanding principal amount of the note by $25,000 to an aggregate of $525,000 and issued 8,606 shares of Common Stock with a fair value of $55,000. The Company accounted for the increase in principal and the fair value of the shares of Common Stock in the aggregate of $80,000 as part of its financing costs.

In April 2019, the Company paid off the outstanding principal balance of $525,000. As a result of the payment, the Company amortized the remaining debt discount of $366,000 to interest expense. The Company also remeasured the fair value of the derivative liability as of the payment date and recognized a change in fair market value in the derivative liability totaling $260,000. The revalued derivative liability of $644,000 was then extinguished with the payment of the note, resulting in a gain on debt extinguishment of the derivative liability of $644,000.

There was no outstanding balance of the note as of December 31, 2019.

10.CONVERTIBLE SERIES A PREFERRED STOCK and WARRANT OFFERING

On August 14, 2019, we entered into the SPA with the Preferred Purchasers, pursuant to which we agreed to issue and replaced all previous notes and current liabilities due to Oceanside for sums Oceanside loanedsell to the Company in 2014 and 2015. This note bears interestPreferred Purchasers up to an aggregate of 6,000 shares of Series A Preferred Stock (which, at the rateinitial conversion price, are convertible into an aggregate of 12% per annum, compounded annually. In considerationup to approximately 3.87 million shares of Common Stock) and the August Warrants to purchase up to an equivalent number of shares of Common Stock. We closed the offering on August 14, 2019, and issued 5,030 shares of Series A Preferred Stock and granted the August Warrants to purchase up to 3,245,162 shares of Common Stock in connection therewith. We received proceeds of $4,688,000, net of direct costs of $342,000. The offering was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public offering.

The SPA grants the Preferred Purchasers a right to participate, up to a certain amount, in subsequent financings for Oceanside’sa period of 24 months. The SPA also prohibits us from entering into any agreement to convertissue, or announcing the prior notes from current demand notes and extendissuance or proposed issuance, of any shares of Common Stock or Common Stock equivalents for a period of 90 days after the maturity date to December 4, 2016,that the Company granted Oceansideregistration statement, registering the right to convert up to 30%shares issuable upon conversion of the amountSeries A Preferred Stock and exercise of the August Warrants, is declared effective. We are also prohibited, until the date that the Preferred Purchasers no longer collectively hold at least 20% of the then-outstanding shares of Series A Preferred Stock issued pursuant to the SPA, from entering into an agreement to effect any issuance by us of Common Stock or Common Stock equivalents involving certain variable rate transactions. We also cannot enter into agreements related to “at-the-market” transactions for a period of 12 months. At the later of (i) the date that the August Warrants are fully exercised, and (ii) 12 months from the date of the SPA, we cannot draw down on any existing or future agreement with respect to “at-the-market” transactions if the sale of the shares in such notetransactions has a per share purchase price that is less than $3.76 (two times the exercise price of the Warrants).

On September 16, 2019, we filed a registration statement on Form S-3 with the SEC to register the shares of Common Stock underlying the Series A Preferred Stock and the August Warrants. The registration statement was declared effective on September 19, 2019. We have agreed to keep such registration statement continuously effective for a period of 24 months.

Each share of Series A Preferred Stock is convertible, at any time and from time to time from and after the issuance date, at the holder’s option in to that number of shares of Common Stock equal to the stated value per share (or $1,000) divided by the conversion price (initially, $1.55); thus, initially, each share of Series A Preferred Stock is convertible into approximately 645 shares of Common Stock. In certain circumstances, the Series A Preferred Stock is mandatorily convertible into shares of Common Stock after the Company’s commonCompany obtains stockholder approval to issue a number of shares of Common Stock in excess of 19.99% and the closing price of the Common Stock is 100% greater than the then-base conversion price on each trading day for any 20 trading days during a consecutive 30-trading-day period.

The holders of the Series A Preferred Stock have no voting rights. However, we cannot, without the affirmative vote of the holders of a majority of the then-outstanding shares of the Series A Preferred Stock, (a) alter or change adversely the rights, preferences, or restrictions given to the Series A Preferred Stock or alter or amend the Certificate of Designation, (b) authorize or create any class of stock at $0.07ranking as to dividends, redemption, or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Series A Preferred Stock, (c) amend our Articles of Incorporation, or other charter documents in any manner that materially and adversely affects any rights of the holders, (d) increase the number of authorized shares of Series A Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.

The holders of Series A Preferred Stock cannot convert the Series A Preferred Stock if, after giving effect to the conversion, the number of shares of our Common Stock beneficially held by the holder (together with such holder’s affiliates) would be in excess of 4.99% (or, upon election by a holder prior to the issuance of any shares, 9.99% of the number of shares of Common Stock issued and outstanding immediately after giving effect to the issuance of any shares of Common Stock issuance upon conversion of the Series A Preferred Stock held by the holder). The conversion price of the Series A Preferred Stock is subject to certain customary adjustments, including upon certain subsequent equity sales and rights offerings.

We are also prevented from issuing shares of Common Stock upon conversion of the Series A Preferred Stock or exercise of the August Warrants, which, when aggregated with any shares of Common Stock issued on or after the issuance date and prior to such conversion date or exercise date, as applicable (i) in connection with any conversion of the Series A Preferred Stock issued pursuant to the SPA, (ii) in connection with the exercise of any August Warrants issued pursuant to the SPA, and (iii) in connection with the exercise of any warrants issued to any registered broker-dealer as a fee in connection with the issuance of the securities pursuant to the SPA, would exceed 4,459,725 shares of Common Stock (the “19.99% Cap”). This prohibition will terminate upon the approval by our stockholders of a release from such 19.99% Cap.

The August Warrants have an initial exercise price of $1.88 per share, subject to customary adjustments, are exercisable six months after the date of issuance, and will expire five years from the date of issuance. The exercise price is subject to certain customary adjustments, including upon certain subsequent equity sales and rights offerings. In addition, the August Warrants also included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result, the August Warrants are accounted as derivative liability with a fair value upon issuance of $6,173,000, of which, $4,688,000 was recorded as a reduction to additional paid in capital while the remaining fair value of $1,485,000 was accounted for as a financing cost during the year ended December 31, 2019.

During the year ended December 31, 2019, 634 shares of Preferred Stock were converted into 409,032 shares of Common Stock. As of December 31, 2019, 4,396 shares Series A Preferred stock are outstanding.

11.DERIVATIVE LIABILITY

Under authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. The Company has issued 2,429,530 share purchasecertain convertible notes whose conversion prices contains reset provisions based on a discounted future market price. However, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to settle the conversion option. In addition, the Company also granted certain warrants exercisablethat included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder.

As a result, the conversion feature of the notes and warrants are classified as liabilities and are bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at $0.07 per share until April 4, 2019the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using a Binomial pricing model with the following average assumptions:

  December 31, 2019  

Upon

Issuance

  December 31, 2018 
Stock Price $1.55  $4.78  $4.80 
Exercise Price $1.88  $3.76  $2.70 
Expected Life  3.53   2.75   1.78 
Volatility  216%  192%  184%
Dividend Yield  0%  0%  0%
Risk-Free Interest Rate  1.64%  1.99%  2.46%
             
Fair Value $5,048,000  $6,561,000  $2,576,000 

The expected life of the conversion feature of the notes and warrants was based on the remaining contractual term of the notes and warrants. The Company calculateduses the effecthistorical volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank. As of December 31, 2018, the Company had recorded a derivative liability of $2,576,000.

During the year ended December 31, 2019, the Company recorded derivative liability of $388,000 as a result of the issuance of a convertible note and $6,173,000 as a result of the issuance of the warrants and the conversion feature that aroseAugust Warrants issued as part of issuancesthe Company’s Series A Preferred Stock offering, or an aggregate of notes, which amounted$6,561,000. The Company also recorded a change in fair value of ($1,862,000) to $164,344. Asaccount for the changechanges in the fair value of these derivative liabilities for the note constituted a change in excess of 10% of the present value of the note,year ended December 31, 2019. In addition, the Company considered thisalso recorded a gain on debt extinguishment of $2,227,000 to be a “debt extinguishment” in accordanceaccount for the extinguishment of derivative liabilities associated with ASC 470-50-40 and recordedthe settlement of convertible debt during the year ended December 31, 2019. At December 31, 2019, the fair value of the grantderivative liability amounted to $5,048,000. The details of derivative liability transactions for the year ended December 31, 2019 are as a debt extinguishment cost.follows:

 

Effective December 30, 2016, the Company entered into an extension agreement (the “Extension Agreement”) with Oceanside to extend the maturity date of the Note to and including August 4, 2017. All other terms of the Note remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017 the Company issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019, which warrants represent 25% of the amount of the Note. The fair value of the warrants was determined to be $159,491 using a Black-Scholes option pricing model. As the change in the fair value of the note constituted a change in excess of 10% of the present value of the note, the Company considered this to be a “debt extinguishment” in accordance with ASC 470-50-40 and recorded the fair value of the grant as a debt extinguishment cost.

As of December 31, 2016 and December 31, 2015, principal amount of the note payable was $680,268 and $600,000, respectively.

  December 31, 2019  December 31, 2018 
Beginning balance $2,576,000  $1,251,000 
Fair value upon issuance of notes payable and warrants  6,561,000   1,877,000 
Change in fair value  (1,862,000)  1,167,000 
Extinguishment  (2,227,000)  (1,719,000)
Ending balance $5,048,000  $2,576,000 

 

7.12.EQUITY TRANSACTIONSCOMMON STOCK

 

Common Stock

The following were common stockCommon Stock transactions during the year ended December 31, 2016.2019:

Shares and Warrants Issued as Part of the Company’s Underwritten Public Offering

On April 4, 2019, we entered into an Underwriting Agreement (the “Underwriter Agreement”) with A.G.P./Alliance Global Partners, as representative of the several underwriters named therein (the “Underwriter” or “AGP”), relating to a firm commitment public offering (the “Public Offering”) of 6,389,776 units (the “Units”) consisting of an aggregate of (i) 6,389,776 shares (the “Firm Shares”) of Common Stock, and (ii) warrants to purchase up to 6,389,776 shares of Common Stock (the “Firm Warrants”; and the shares of Common Stock issuable from time to time upon exercise of the Firm Warrants, the “Firm Warrant Shares”), at a public offering price of $3.13 per Unit. Pursuant to the Underwriting Agreement, we also granted the Underwriter an option, exercisable for 45 days, to purchase up to 958,466 additional Units, consisting of an aggregate of (x) 958,466 shares of Common Stock (the “Option Shares”; and, together with the Firm Shares, the “Shares”) and (y) warrants to purchase up to 958,466 shares of Common Stock (the “Option Warrants”; and together, with the Firm Warrants, the “Warrants”; and the shares of Common Stock issuable from time to time upon exercise of the Option Warrants, the “Option Warrant Shares”; and, together with the Firm Warrant Shares, the “Warrant Shares”). The Warrants have an initial per share exercise price of $3.443, subject to customary adjustments, are exercisable immediately, and will expire five years from the date of issuance, or April 9, 2024.

On April 9, 2019, we closed the Public Offering and issued 6,389,776 Units, consisting of an aggregate of 6,389,776 Firm Shares and Firm Warrants to purchase up to an aggregate of 6,389,776 Firm Warrant Shares. In connection with the closing, the Underwriter partially exercised its over-allotment option and purchased an additional 159,820 Units, consisting of an aggregate of 159,820 Option Shares and Option Warrants to purchase up to an aggregate of 159,820 Option Warrant Shares. In the aggregate, we issued 6,549,596 shares of common stock and received net proceeds of approximately $18,525,000, net of underwriting commissions and other offering expenses in the aggregate of $2,138,000. Included in the offering expenses were $162,000 in various legal and professional expenses that were incurred and paid in fiscal 2018 and accounted for as a deferred offering costs as of December 31, 2018. This amount was derecognized upon close of the public offering in April 2019 and was recorded as a reduction to paid in capital.

In connection with the Public Offering, we also issued the Underwriter warrants to purchase up to 319,488 shares of our Common Stock (the “Underwriter Warrants”), at an exercise price of $3.913. The Underwriter Warrants are exercisable at any time, and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the Registration Statement.

 

Stock RepurchasesShares Issued for the Acquisition of Verb Direct – – On January 28, 2016, the Company entered into stock repurchase agreements (the “Repurchase Agreements”) with three former employees and consultants to acquire an aggregate total of 9,011,324In April 2019, we issued 3,327,791 shares of the Company’s common stock. Pursuant to the termsCommon Stock with a fair value of the agreements, the Company had the right to purchase the shares at a price$7,820,000 as part of $0.02 per share on or before April 15, 2016. In accordance with the termsour acquisition of the Repurchase Agreements, the Company repurchased 8,311,324 sharesVerb Direct. See Note 3, Acquisition of Verb Direct, for total of $166,226 during the year ended December 31, 2016.additional information.

 

Shares Issued for Services The Company issued common shares to consultants and vendors for services rendered and are expensed based on fair market value of the stock on the date of grant, or as the services were performed. For the year ended December 31, 2016, the Company issued 6,388,334 shares of common stock for services and recorded stock compensation expense of $726,789.

Effective July 12, 2016, our board approved the execution of a term sheet with a consultant in which the consultant will receive 5,000,000 restricted common shares that vest over 3 years in increments of 1,666,667 shares every year. The shares are being valued at the trading price of our common shares as the shares vest. During the year ended December 31, 2016,2019, the Company recognizedissued 579,334 shares of Common Stock to vendors for services rendered with a costfair value of $90,500$1,162,000. These shares of Common Stock were valued based on the market value of the Company’s Common Stock price at the issuance date or the date the Company entered into the agreement related to the cost of approximately 765,000 shares earned during the period, which cost is included in the amount above. As the shares have not yet vested, they are not being reflected as outstanding at December 31, 2016. In addition, the consultant will receive cash compensation equal to 50% of “net revenue” generated through a to-be-formed wholly owned subsidiary “through which mutually approved booth related opportunities will be conducted”.issuance.

Shares Issued to BoardUpon Issuance of DirectorsConvertible NoteThe Company issued common shares to board of directors for services rendered and are expensed based on fair market value of the stock price at the date of grant. ForDuring the year ended December 31, 2016,2019, the Company issued 1,150,000to a note holder 25,272 shares to board of directorsCommon Stock with a fair value of $182,000 as an inducement for the issuance of a note payable. See Note 9, Convertible Notes Payable, for additional information.

Conversion of Notes Payable – During the year ended December 31, 2019, the Company issued 780,619 shares of Common Stock upon conversion of notes payable and recorded stock compensation expenseaccrued interest. See Note 6, Notes Payable, and Note 9, Convertible Notes Payable, for additional information.

Conversion of $116,682.Accounts Payable – On April 30, 2019, the Company converted accounts payable in the amount of $10,000 into 4,142 shares of Common Stock with a fair value of $10,000 at the date of conversion.

The following were Common Stock transactions during the year ended December 31, 2018:

 

Shares Issued from Stock Subscription – The Company issued stock subscription to investors. For the year ended December 3, 2016,31, 2018, the Company issued 32,135,556 common1,163,938 shares of Common Stock for a net proceedproceeds of $1,544,050.$2,979,000. The proceeds were used to pay off debt and for operations.

 

The following were common stock transactions duringShares Issued for Services – During the year ended December 31, 2015.2018, the Company issued 319,345 shares of Common Stock to employees and vendors for services rendered with a fair value of $1,546,000. These shares of Common Stock were valued based on market value of the Company’s stock price at the date of grant or agreement. Included in these issuances were 300,000 shares of Common Stock with a fair value of $1,539,000 granted to officers and a director of the Company for services rendered.

 

Settlement AgreementShares Issued from Conversion of Note Payable – During the year ended December 31, 2015,2018, the Company entered into settlement and release agreements, pursuant to which the Company agreed to issue an aggregate of 820,000issued 1,243,189 shares of common stock valued at $530,000 in full settlementCommon Stock upon conversion of notes payable and release of claims on certain assets acquired from Songstagram.accrued interest.

 

Shares Issued Upon Issuance of Convertible Note – In October 2018, the Company granted a note holder 96,667 shares of Common Stock with a fair value of $595,000 as an inducement for the issuance of a note payable. See Note 9, Convertible Notes Payable, to Employeesthese audited consolidated financial statements.

Shares Issued for Accrued Officer’s Salary – On July 18, 2015,March 28, 2018, the Company issued an aggregate totalconverted $582,000 of 1,215,000the Chief Executive Officer’s accrued salary into 27,148 shares of restricted common stock as compensationCommon Stock with a fair value of $582,000 at the date of conversion.

Shares Issued Upon Exercise of Put Option – In January and February 2018, the Company provided put notices to certain employees, which were fully vested asKodiak and issued 203,207 shares of Common Stock in exchange for cash of $1,000,000. As part of the put option agreement, the Company also granted Kodiak the prorated warrants to purchase up to 133,333 shares of Common Stock at $3.75 per share.

Shares Repurchased. For the year ended December 31, 2015.2018, the Company repurchased 46,668 shares of Common Stock from investors for $20,000.

13.RESTRICTED STOCK AWARDS

On December 20, 2019, we held the 2019 Annual Meeting of Stockholders (the “Meeting”), at which our stockholders approved and adopted the Verb Technology Company, Inc. 2019 Omnibus Incentive Plan (the “Plan”).

A summary of restricted stock award activity for the years ended December 31, 2019 and 2018 are presented below.

     Weighted- 
     Average 
     Grant Date 
  Shares  Fair Value 
       
Non-vested at December 31, 2017  -  $- 
Granted  -   - 
Vested  -   - 
Forfeited  -   - 
Non-vested at December 31, 2018  -   - 
Granted  1,923,001   1.36 
Vested  (436,647)  1.36 
Forfeited  -   - 
Non-vested at December 31, 2019  1,486,354  $1.36 

A summary of option activity for the years ended December 31, 2019 and 2018 are presented below.

On December 23, 2019, the Company granted 1,923,001 restricted stock awards to employees and directors. The Company recorded arestricted stock awards vest starting on grant date through January 10, 2022. These restricted stock awards were valued based on market value of the Company’s stock price at the date of grant and had aggregate fair value of $2,615,000.

The total fair value of $607,500 of share-based compensation expenserestricted stock award vested during the year ended December 31, 2015 for these grants.

Shares Issuance2019 was $616,000 respectively, and is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. As of December 31, 2019, the amount of unvested compensation related to Board of Directors – On July 21, 2015, the Company issued an aggregate total of 600,000 sharesissuances of restricted stock award was $1,999,000 which will be recognized as an expense in future periods as the shares vest. When calculating basic net income (loss) per share, these shares are included in weighted average common stock as compensation to members of our board of directors. The shares vest over an 18-month periodoutstanding from the issuancetime they vest. When calculating diluted net income (loss) per share, these shares are included in weighted average common shares outstanding as of their grant date. On December 1, 2015, the Company granted an additional 500,000 shares of restricted common stock as compensation to a Board member which was immediately vested. The Company recorded a total of $123,909 of share-based compensation expense during the year ended December 31, 2015 for these grants. In October 2015, the Company issued 100,000 shares of common stock to a vendor for services to be provided pursuant to a services contract extending for 6 months through April 9, 2016. The Company also issued a vendor 24,000 shares of common stock as compensation. The Company recorded a total of $34,678 of share-based compensation expense during the year ended December 31, 2015 for this contract.

 

8.14.Acquisition of Assets of Songstagram, Inc.STOCK OPTIONS

 

On December 11, 2014, Songstagram, Inc. (“Songstagram”) and Rocky Wright (“Wright”) issued secured promissory notes (collectively,20, 2019, we held the “Promissory Notes”) in connection with advances that the Company made to Songstagram and Wright. The advances were made by the Company in connection with ongoing negotiations for a possible acquisition2019 Annual Meeting of Songstagram or its assets by the Company. Pursuant to the Promissory Notes, Songstagram promised to pay the Company the principal sum of $475,000, together with interestStockholders (the “Meeting”), at a rate equal to 8% per annum,which our stockholders approved and Wright promised to pay the Company the principal sum of $386,435, together with interest at a rate equal to 8% per annum. All unpaid principal, which totaled an aggregate of $861,435, together with any then-unpaid and accrued interest and other amounts payable under the Promissory Notes, were to be due and payable on the earlier of (i) the Company’s demand for payment; or (ii) when, upon or after the occurrence of an event of default, the Company declared such amounts due and payable or such amounts were made automatically due and payable under the terms of the Promissory Notes. During any period in which an event of default had occurred and was continuing, Songstagram and Wright, as applicable, were to pay interest on the unpaid principal balance at a rate of 13% per annum. The full amounts due under the Promissory Notes were secured by all of Songstagram’s assets and all of Wright’s assets related to Songstagram, as applicable, in accordance with security agreements dated December 11, 2014, as described below.

In connection with the Promissory Notes, the Company entered into security agreements (collectively, the “Security Agreements”) with each of Songstagram and Wright dated December 11, 2014. Pursuant to the Security Agreements, Songstagram and Wright, as applicable, agreed to, among other things; (i) pay all secured obligations when due; (ii) upon or following the occurrence of an event of default, pay all of the Company’s costs and expenses, including reasonable attorneys’ fees, incurred by the Company in the perfection, preservation, realization, enforcement and exercise of the Company’s rights, powers and remedies under the Security Agreements; and (iii) execute and deliver such documents as the Company deems necessary to create, perfect and continue the security interests.

Effective January 20, 2015, the Company entered into an acquisition agreement (the “Acquisition Agreement”) with Songstagram and Wright, pursuant to which the Company acquired from Wright all assets and intellectual property that Wright owned related to, or used in connection with: (i) the business of Songstagram, (ii) the assets owned and/or used by Songstagram, (iii) the Songstagram software application, (iv) the business and assets of Qubeey Inc. (“Qubeey”), and (v) all software applications of Qubeey, in consideration of the forgiveness of all principal and interest owing by Mr. Wright to the Company under the promissory note issued by Wright to the Company on December 11, 2014. In connection with the acquisition of certain IP, the Company also paid an additional $43,900 to Wright in January 2015.

In connection with the Acquisition Agreement and the Company’s prior demand for the repayment of all monies outstanding under the Promissory Note issued by Songstagram to the Company on December 11, 2014, as Songstagram was unable to repay such monies, Songstagram consented to the enforcement of the security granted under the Security Agreement with Songstagram by way of a strict foreclosure. In accordance with the terms of the Acquisition Agreement, and as further provided for in a surrender of collateral, consent to strict foreclosure and release agreement dated January 20, 2015 (the “Surrender of Collateral, Consent to Strict Foreclosure and Release Agreement”) between the Company and Songstagram, Songstagram agreed to turn over all collateral pledged under the Security Agreement and consented to the Company retaining such collateral in satisfaction of the indebtedness due under the Promissory Note issued by Songstagram to the Company.

Effective March 4, 2015, the Company entered into a settlement and release agreement with Songstagram and Jeff Franklin, pursuant to which the Company agreed to pay $10,000 and issue 500,000 shares of common stock to Mr. Franklin in full settlement and release of a claim he had on certain assets the Company acquired from Songstagram and in consideration for the transfer to us of a secured lien he held on assets of Qubeey. The shares of common stock issued to Mr. Franklin were valued at $250,000 and were included as part of the acquisition price of Songstagram.

Effective March 5, 2015, the Company entered into a settlement and release agreement with Songstagram and Art Malone Jr., pursuant to which the Company agreed to issue 320,000 shares of common stock to Mr. Malone in full settlement and release of a claim he had on certain assets the Company acquired from Songstagram. The shares of common stock issued to Mr. Malone were valued at $160,000 and were included as part of the acquisition price of Songstagram. The 320,000 shares of common stock were issued to Mr. Malone on April 29, 2015.

In July 2015, the Company agreed to issue an aggregate of 240,000 shares to two individuals pursuant to the Acquisition Agreement as payment for claims they had on certain assets acquired from Songstagram. The shares of common stock were valued at $120,000 and were included as part of the acquisition price of Songstagram. The shares of common stock have not been issued, although the Company expects them to be in the future.

9.Stock Options

Effective October 16, 2014, the Company adopted the 2014 Stock OptionVerb Technology Company, Inc. 2019 Omnibus Incentive Plan (the “Plan”) under the administration of our board of directors to retain the services of valued key employees and consultants of the Company.

On November 21, 2014, the Company entered into an executive employment agreement with Rory Cutaia, the Company’s Chief Executive Officer, and issued the following stock options in connection with the agreement: (i) 800,000 stock options, each exercisable into one share of our common stock at a price of $0.50 per share, 400,000 of which vested immediately and 400,000 which will vest one year from the execution date, on November 21, 2015 and (ii) 250,000 stock options on each anniversary of the execution date..

 

A summary of option activity for the years ended December 31, 20162019 and 20152018 are presented below.

 

      Weighted-          Weighted-    
    Weighted- Average        Weighted- Average    
    Average Remaining Aggregate     Average Remaining Aggregate 
    Exercise Contractual Intrinsic     Exercise Contractual Intrinsic 
 Options  Price  Life (Years)  Value  Options  Price  Life (Years)  Value 
                  
Outstanding at December 31, 2014  6,470,000  $0.50   -  $- 
Outstanding at December 31, 2017  1,456,064  $3.90   2.09  $- 
Granted  3,350,000   1.12   -   -   1,400,418   6.75   -   - 
Forfeited  (2,163,750)  0.91   -   -   (345,000)  5.85   -   - 
Exercised  -   -   -   -   (32,508)  -   -   - 
Outstanding at December 31, 2015  7,656,250  $0.66   4.87  $- 
Outstanding at December 31, 2018  2,478,974  5.25   2.93  - 
Granted  5,860,000   0.09   -   -   2,531,971   2.07   -   - 
Forfeited  (2,985,297)  0.93   -   -   (777,223)  6.42   -   - 
Exercised  -   -   -   -   -   -   -   - 
Outstanding at December 31, 2016  10,530,953  $0.33   4.03  $- 
Outstanding at December 31, 2019  4,233,722  $1.73   2.54  $995,000 
                                
Vested December 31, 2016  6,801,577  $0.49      $- 
Vested December 31, 2019  1,496,439  $2.13      $263,851 
                                
Exercisable at December 31, 2016  5,748,933  $0.47      $- 
Exercisable at December 31, 2019  888,834  $2.55      $83,252 

 

The following were stock options transactions during the year ended December 31, 2019:

The weighted average grant date

On December 23, 2019, the Company amended the exercise price of stock options of certain employees and consultants granted in prior period to purchase 1,340,333 shares of common stock to $1.36 per share. As a result of this amendment, the Company determined the fair value of these stock options granted duringbefore and after the yearsamendment using the Black-Scholes Option Pricing model. The incremental difference of the fair value before and after the amendment amounted to $32,000, of which, $12,000 was recorded as part of stock based compensation expenses and the remaining $20,000 will be recognized as part of operating expense through July 2023 based upon its vesting.

During the year ended December 31, 20162019, the Company granted stock options to employees and 2015consultants to purchase a total 2,531,971 shares of Common Stock for services rendered. The options have an average exercise price of $2.07 per share, expire between one and five years, vest starting from grant date through four years. The total fair value of these options at grant date was $0.09 and $0.15 per option, respectively.approximately $4,564,000 using the Black-Scholes Option Pricing model. The total stock compensation expense recognized relating to the vesting of stock options for the yearsyear ended December 31, 2016 and 20152019 amounted to $457,881 and $836,592, respectively.$1,961,000. As of December 31, 2016,2019, the total unrecognized stock-based compensation expense was $369,730$4,228,000, which is expected to be recognized as anpart of operating expense through July 2019.December 2023.

The following were stock options transactions during the year ended December 31, 2018:

During the year ended December 31, 2018, the Company granted stock options to employees and consultants to purchase a total 1,400,418 shares of Common Stock for services rendered. The options have an average exercise price of $6.75 per share, expire in five years, and vest on the grant date or over a period of four years from the grant date. The total fair value of these options at grant date was approximately $9,712,000 using the Black-Scholes Option Pricing model. The total stock compensation expense recognized relating to the vesting of stock options for the year ended December 31, 2018 amounted to $1,870,000.

During the year ended December 31, 2018, options were exercised resulting in the issuance of 32,508 shares of Common Stock. The Company received cash of $34,000 upon exercise of the options.

The fair value of the share option awards was estimated using the Black-Scholes method based on the following weighted-average assumptions:

   Years Ended December 31, 
   2019  2018 
Risk-free interest rate  1.51%-2.75% 2.25%-3.00%
Average expected term (years)  5 years  5 years 
Expected volatility  180%-413.83% 184.45%-190.22%
Expected dividend yield  -  - 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s Common Stock; and the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future.

 

10.15.WarrantsSTOCK WARRANTS

 

The Company has the following warrants as of December 31, 2016:2019 and 2018 are presented below:

 

  Issuance Date Expiration Date Warrant Shares  Exercise Price 
Warrant #1 November 12, 2014 November 12, 2019  600,000  $0.50 
Warrant #2 March 21, 2015 March 20, 2018  48,000  $0.10 
Warrant #3 October 30, 2015 October 30, 2020  600,000  $0.50 
Warrant #4 December 1, 2015 April 1, 2017  9,719,879  $0.07 
Warrant #5 April 4, 2016 April 4, 2019  2,452,325  $0.07 
Warrant #6 April 4, 2016 April 4, 2019  2,429,530  $0.07 
Warrant #7 December 15, 2016 December 14, 2019  176,000  $0.25 
Warrant #8 December 30, 2016 December 29, 2019  2,429,530  $0.08 
Outstanding at December 31, 2016      18,455,264     
        Weighted-    
     Weighted-  Average    
     Average  Remaining  Aggregate 
     Exercise  Contractual  Intrinsic 
  Warrants  Price  Life (Years)  Value 
             
Outstanding at December 31, 2017  1,895,767  $1.95   2.62  $- 
Granted  386,678   5.10   -   - 
Forfeited  (56,486)  1.05   -   - 
Exercised  (1,285,544)  1.80   -   - 
Outstanding at December 31, 2018  940,415  3.60   2.32  1,806,000 
Granted  10,386,181   2.97   -   - 
Forfeited  (46,667)  7.29   -   - 
Exercised  (348,938)  1.17   -   - 
Outstanding at December 31, 2019, all vested  10,930,991  $3.07   4.25  $- 

The following were stock warrant transactions during the year ended December 31, 2019:

On November 12, 2014,December 31, 2019, the intrinsic value of these stock options was $0 as the exercise price of these stock warrants were greater than the market price.

On April 9, 2019, the Company granted warrants to purchase a consultanttotal of 6,869,084 shares of Common Stock as part of a public offering. The warrants are exercisable at an average price of $3.46 per share and will expire in April 2024. See Note 12, Common Stock, for additional information.

On April 11, 2019, the Company granted fully vested warrants to purchase 600,000a total of 163,739 shares of common stockCommon Stock for services rendered. The warrants are exercisable at an exerciseaverage price of $0.50$3.76 per share.share and will expire in April 2024. The total fair value of these warrants at the grant date was approximately $439,000 using the Black-Scholes Option pricing model and was expensed upon grant.

On July 8, 2019, the Company granted fully vested warrants to purchase a total of 108,196 shares of Common Stock as partial consideration for the conversion of notes payable. The warrants are exercisable at an average price of $3.44 per share and will expire on November 12, 2019 and were fully vested onin July 2024. The total fair value of these warrants at the grant date.date was approximately $217,000 using the Black-Scholes Option pricing model and was expensed upon grant. See Note 6, Notes Payable, for additional information.

On August 15, 2019, the Company granted warrants to purchase a total of 3,245,162 shares of Common Stock as part of a preferred stock offering. The totalwarrants are exercisable at a price of $1.88 per share based compensation expense recognized relating to these warrants and will expire in August 2024. See Note 12, Common Stock, for additional information.

During the year ended December 31, 2014 amounted to $199,356.

On March 21, 2015, in connection with the DelMorgan agreement, the Company issued 48,0002019, a total of 348,938 warrants each exercisablewere exercised and converted into one share189,237 shares of common stockCommon Stock at ana weighted average exercise price of $0.10 per share.$1.15. The warrants were fully vested on the dateCompany received $45,000 upon exercise of the grant and expire on March 20, 2018. warrants.

The warrants have been valued usingfollowing were stock warrant transactions during the Black-Scholes pricing model as of the contract date. The total value of $20,114 has been recorded as a component of prepaid expenses and other current assets in the accompanying consolidated balance sheet as ofyear ended December 31, 2015 and is being amortized over the life of the agreement.2018:

 

On October 30, 2015,During the year ended December 31, 2018, the Company granted warrants to a consultantnote holders to purchase 600,000a total of 66,668 shares of common stockCommon Stock. The warrants are exercisable at an average price of $2.10 per share and will expire in January 2023. Warrants exercisable for an aggregate of 33,333 shares of Common Stock were accounted for as a derivative liability.

On February 21, 2018, the Company granted warrants exercisable for 133,334 shares of Common Stock as part of the exercise of its put option with Kodiak. The exercise price of $0.50the warrants is $3.75 per share. Theshare and the warrants expire on October 30, 2020 and were fully vested onFebruary 20, 2023.

On August 8, 2018, the grant date. The total share based compensation expense recognized relatingCompany granted warrants exercisable for 163,114 shares of Common Stock in connection with the extension of the maturity date of a secured note payable. See Note 7, Notes Payable-Related Parties, to these audited consolidated financial statements.

On December 4, 2018, the Company granted warrants exercisable for 23,562 shares of Common Stock in connection with the extension of the maturity date of a secured note payable. See Note 7, Notes Payable-Related Parties, to these audited consolidated financial statements.

During the year ended December 31, 2015 amounted to $20,719.

On December 1, 2015,2018, 1,285,544 warrants were exercised resulting in the issuance of 1,074,921 shares of Common Stock. The Company granted 9,719,879 warrants as consideration forreceived cash of $22,000 upon the Company’s Chief Executive Officer and a Board of Director member agreeing to extend the payment terms of their respective note payable balances to a maturity date of April 1, 2017.

On April 4, 2016, the Company issued a secured convertible note to the Chief Executive Officer (“CEO”) and memberexercise of the Board of Directors, in the amount of $343,326, which represents additional sums that the CEO advanced to the Company during the period from December 2015 through March 2016, and is addition to all pre-existing loans made by, and notes held by the CEO (See Note 5). In consideration for this agreement the Company issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019.

On April 4, 2016, the Company issued an unsecured convertible note payable to Oceanside Strategies, Inc. (“Oceanside”) in the amount of $680,268 (See Note 6). In consideration for Oceanside’s agreement to convert the prior notes from current demand notes and extend the maturity date to December 4, 2016, we granted Oceanside d 2,429,530 share purchase warrants, exercisable at $0.07 per share until April 4, 2019.

Effective December 30, 2016, the Company entered into an extension agreement (the “Extension Agreement”) with Oceanside to extend the maturity date of the Note to and including August 4, 2017 (see Note 6). In consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017 the Company issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019.warrants.

 

11.16.INCOME TAXES

 

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

 December 31, 2016  December 31, 2015 
      December 31, 2019  December 31, 2018 
Net operating loss carry-forwards $3,497,359  $2,640,747  $7,591,000  $5,300,000 
Share based compensation  1,579,081   655,484   (635,000)  (524,000)
Amortization of intangible assets  535,158   576,150 
Accrued officer’s compensation  121,017   35,325 
State taxes  (356,157)  (231,259)
Non-cash interest and financing expenses  (472,000)  (694,000)
Other temporary differences  (63,000)  (378,000)
Less: Valuation allowance  (5,376,458)  (3,676,447)  (6,421,000)  (3,704,000)
Deferred tax assets, net $-  $-  $-  $- 

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:

 

 December 31, 2016  December 31, 2015 
      December 31, 2019  December 31, 2018 
Statutory federal income tax rate  34.0%  34.0%  (21.0)%  (21.0)%
State taxes, net of federal benefit  5.9%  6.4%  (6.9)%  (6.0)%
Non-deductible items  -0.1%  -0.1%  (1.0)%  (0.1)%
Change in valuation allowance  -39.8%  -40.3%  28.9%  27.9%
  0.0%  0.0%  0.0%  0.0%

 

ASC 740 requires that the tax benefit of net operating losses carry forwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry forward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a 100% valuation allowance against the asset amounts.

 

Any uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities. The Company has no liabilities related to uncertain tax positions or unrecognized benefits as of the year end December 31, 20162019 or 2015.2018. The Company has not accrued for interest or penalties associated with unrecognized tax liabilities.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), that impact corporate taxation requirements, such as the reduction of the federal tax rate for corporations from 35% to 21% and changes or limitations to certain tax deductions.

The Company is currently assessing the extensive changes under the TCJ Act and its overall impact on the Company; however, based on its preliminary assessment of the reduction in the federal corporate tax rate from 35% to 21% to become effective on January 1, 2018, the Company currently expects that its effective tax rate for 2018 will be between 20% and 23%. Such estimated range is based on management’s current assumptions with respect to, among other things, the Company’s earnings, state income tax levels and tax deductions. The Company’s actual effective tax rate in 2019 may differ from management’s estimate.

As of December 31, 2016,2019, the Company had federal and state net operating loss carry forwards of approximately $8.2$28.7 million, which may be available to offset future taxable income for tax purposes. These net operating losslosses carry forwards begin to expire in 2034. This carry forward may be limited upon the ownership change under IRC 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, 2019 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, 2019, tax years 2015 through 2018 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.

 

12.17.ACCRUED OFFICERS’ SALARY

Accrued officers’ salary consists of unpaid salaries for the Company’s Chief Executive Officer, who is also the owner of approximately 13% of the Company’s outstanding shares of Common Stock.

As of December 31, 2019, and 2018, accrued officers’ salary amounted to $207,000 and $188,000, respectively.

18.COMMITMENTS AND CONTINGENCIES

 

Operating Leases

Until June 2015, the Company leased office space in West Hollywood, California under an operating lease which provided for monthly rent of $6,700 through July 31, 2015. In June 2016, the Company moved its offices to a new location in Los Angeles, California under a new operating lease which provides for monthly rent of $2,950 through June 25, 2017. The Company had total rent expense for the year ended December 31, 2016 and 2015 of $68,328 and $143,428, respectively.

Employment Agreements

 

On November 21, 2014,December 20, 2019, we entered into an executiveExecutive Employment Agreement with Mr. Cutaia (the “Employment Agreement”), which terminates and replaces his original employment agreement effectivedated November 1, 2014, with Rory Cutaia, our president, chief executive officer, secretary and treasurer. Pursuant toas subsequently amended by an amendment dated October 30, 2019. The Employment Agreement sets forth the terms and conditions of the employment agreement, we have agreed to pay Mr. Cutaia an annual salary of $325,000, which willCutaia’s employment. The Employment Agreement is for a four-year term, and can be increased each year by 10%, subject to the annual review and approval of our board of directors. Notwithstanding the foregoing, a mandatory increase of not less than $100,000 per annum will be implemented on our company achieving EBITDA break-even.extended for additional one-year periods. In addition to certain payments due to Mr. Cutaia upon termination of employment, the Employment Agreement contains customary non-competition, non-solicitation, and confidentiality provisions. Mr. Cutaia is entitled to an annual base salary of $430,000, 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, 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 will beis eligible to receive an annual bonus in an amount up to $325,000, basedperformance-based cash and/or stock bonuses upon the attainment of performance targets to be established by our board of directors,Board in its discretion.

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). The initial termCompany shall make annual equity grants to Mr. Cutaia as determined by our Board 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 employment agreement is five years and, upon expiration of the initial five-year term, it may be extended for additional one year periods on ninety days prior notice.

In the event that: (i) Mr. Cutaia’s employment is terminated without cause, (ii)circumstances). Finally, Mr. Cutaia is unableeligible for certain other benefits, such as health, vision, and dental insurance, life insurance, and 401(k) matching.

The Employment Agreement provides that Mr. Cutaia is entitled to performthe 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 duties due to a physical or mental conditionmonthly base compensation at the time of the termination, whichever is higher, for a period of 120 consecutive days or an aggregate36 months from the date of 180 days in any 12 month period; or (iii)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 voluntarily terminatesand his family during the employment agreement upon the occurrence of a material reduction in his salary or bonus, a reduction in his job title or position, or the required relocationimmediately subsequent 18-month period. In addition, all of Mr. Cutaia to an office outside of a 30 mile radius of Los Angeles, California, Mr. Cutaia will:

(a)receive monthly payments of $27,083, or such sum as is equal to Mr. Cutaia’s monthly base compensation at the time of such termination, whichever is higher, and
(b)be reimbursed for COBRA health insurance costs, in each case for 36 months from the date of such termination or to the end of the term of the agreement, whichever is longer.

In addition, Mr. CutaiaCutaia’s then-unvested RSAs or other awards will have any and all of his unvested stock options immediately vest, with full registration rights;without restriction, and any unearned and unpaid bonus compensation, expense reimbursement, and all accrued vacation, personal, and sick days, etc.,and related items shall be deemed earned, vested, and paid immediately.

As a condition to receiving For purposes of the foregoing,Employment Agreement, “terminated without cause” means if Mr. Cutaia willwere 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; or (iii) Mr. Cutaia is required to executerelocate to an office location outside of Orange County, California, or outside of a release30-mile radius of claims, and a non-competition and non-solicitation agreement having a term which is the same as the termNewport Beach, California. For purposes of the monthly severance payments described above.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.

 

Litigation – Update former employee and Class Action

 

a.EMA Financial, LLC

We

On April 24, 2018, EMA Financial, LLC (“EMA”) commenced an action against the Company, styled as EMA Financial, LLC, a New York limited liability company, Plaintiff, against nFUSZ, Inc., Defendant, United States District Court, Southern District of New York, case number 1:18-cv-03634-NRB. The complaint sets forth four causes of action and seeks money damages, injunctive relief, liquidated damages, and declaratory relief related to the Company’s refusal to agree to EMA’s interpretation of a cashless exercise provision in a common stock warrant we granted to EMA in December 2017. The Company interposed several counterclaims, including a claim for reformation of the underlying agreements to reflect the Company’s interpretation of the cashless exercise provision. Both parties moved for summary judgment. On March 16, 2020, the United States District Court entered a decision agreeing with the Company’s position, denying EMA’s motion for declaratory judgement on its interpretation of the cashless exercise formula, and stating, inter alia, that “the Agreements read in their entirety reveal that nFUSZ, Inc.’s position regarding the proper cashless exercise formula is the only sensible one and that the cashless exercise formula must be enforced accordingly.” The court went on to order that in light of this finding, the parties should submit a proposal for future proceedings. Accordingly, the Company has instructed its counsel to prosecute the Company’s claims for reimbursement of all of the costs it incurred in connection with this action, including all attorneys’ fees as well as all damages it incurred as a result of EMA’s conduct.

b.Former Employee

The Company is currently in a dispute with a former employee of its predecessor bBooth, Inc. who has interposed a breach of contract claim in which he alleges that he is entitled to approximately $300,000 in unpaid bonus compensation from 2015. The Company does not believe his claims have one pending litigation, filed on September 19,any merit as they are contradicted by documentary evidence, and barred by the applicable statute of limitations, and barred by a release executed by the former employee when the Company purchased all of his shares of stock more than 4 years ago in January 2016. The Company intends to seek dismissal of the former employee’s claims through arbitration.

c.Class Action

On July 9, 2019, a purported class action is captioned as Multicore Technologies, an Indian Corporation, plaintiff, v. Rocky Wright, an individual, bBooth, Inc., a Nevada corporation, and Blabeey, Inc., a Nevada corporation, defendants. The action is pendingcomplaint was filed in the United States District Court, for the Central District of California, understyled SCOTT C. HARTMANN, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. VERB TECHNOLOGY COMPANY, INC., and RORY J. CUTAIA, Defendant, Case No.:Number 2:16-cv-7026 DSF (AJWx)19-CV-05896. The First Amended Complaint was filed on January 27, 2017, alleging breach of implied-in-fact contract and quantum meruit relatingcomplaint purports to services Multicore allegedly performedbe brought on behalf of bBooth in connectiona class of persons or entities who purchased or otherwise acquired the Company’s Common Stock between January 3, 2018 and May 2, 2018, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, arising out of the January 3, 2018, announcement by the Company of its agreement with various webOracle America, Inc. The complaint seeks unspecified costs and mobile applications. Multicoredamages. The Company believes the complaint is seeking damages of approximately $157,000 plus interestwithout merit and cost of suit. We filed an Answer denying Multicore’s claims on March 13, 2017. We do not believe plaintiff’s claims of an implied contract or quantum meruit have any basis in fact, nor do we believe they have any other viable claims against us. We intendthe Company intends to vigorously defend the action.

d.Derivative Action

On September 27, 2019, a derivative action was filed in the United States District Court, Central District of California, styled Richard Moore, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. Verb Technology Company, Inc., and Rory J. Cutaia, James P. Geiskopf, and Jeff Clayborne, Defendants, Case Number 2:19-CV-08393-AB-SS. The derivative action also arises out of the January 3, 2018, announcement by the Company of its agreement with Oracle America, Inc. The derivative action alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets due to the costs associated with the defense of the above referenced class action complaint. The derivative complaint seeks a declaration that the individual defendants have determined notbreached their duties, unspecified damages, and certain purportedly remedial measures. The Company contends that the class action is without merit and as such, this derivative action, upon which it relies, is likewise without merit and the Company intends to create a reserve in our financial statements for an unfavorable outcome.vigorously defend this suit.

 

WeThe Company knows of no other material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its assets or properties, or the assets or properties of any of its subsidiaries, are subject and, to the best of its knowledge, no adverse legal activity is anticipated or threatened. In addition, the Company does not know of any such proceedings contemplated by any governmental authorities.

The Company knows of no material proceedings in which any of ourits directors, officers, or affiliates, or any registered or beneficial stockholder is a party adverse to our companythe Company or any of ourits subsidiaries or has a material interest adverse to our companythe Company or any of ourits subsidiaries.

The Company believes it has adequately reserved for all litigation within its financials.

Board of Directors

The Company has committed an aggregate of $450,000 in board fees to its five board members over the term of their appointment for services to be rendered. Board fees are accrued and paid monthly. The members will serve on the board until the annual meeting for the year in which their term expires or until their successors has been elected and qualified.

Total board fees expensed in 2019 totaled $175,000. Total board fees paid in 2019 totaled $183,000. As of December 31, 2019, total board fees to be recognized in future period amounted to $450,000 and will be recognized once the service has been rendered.

 

13.19.SUBSEQUENT EVENTS

 

Private Placement

On January 10, 2017,February 5, 2020, the Company initiated a private placement, which is for the sale and issuance of up to five million shares of its Common Stock at a per-share price of $1.20, which amount represents a 20% discount to the $1.50 closing price of the Company’s Common Stock on that day, and is memorialized by a subscription agreement.

As a result of this private placement, from February 25 through March 31, 2020, a total of 4,237,833 shares of Common Stock were subscribed. Total subscribed shares of 3,392,833 shares of Common Stock were issued with net cash proceeds of $3,430,000 after direct costs received as of March 31, 2020. The remaining subscribed shares of 845,000 shares of Common Stock were issued in April and May 2020 upon receipt of cash proceeds of $1,014,000.

The Company’s private placement is exempt from the registration requirements of Section 5 of the Securities Act, in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and Regulation S thereunder, each as promulgated by the SEC. The Company’s private placement was managed by the Company; however, in connection with the closings, the Company paid a non-U.S. based consultant (i) as a cash fee, an aggregate amount of $499,000 (or 10% of the gross proceeds of the closings), (ii) as a non-accountable expense allowance, an aggregate of $100,000 (or 2% of the gross proceeds of the closings), (iii) five-year warrants, exercisable for an aggregate of up to 416,199 shares of the Company’s Common stock at a cash-only exercise price of $1.92 per share, and (iv) 100,000 shares of the Company’s Common Stock. The Company made the above-referenced payments only in respect of that portion of the gross proceeds from the closings for investors introduced to the Company by the consultant. In addition, the Company also incurred various expenses totaling $42,000 that are directly related to this private placement.

In preparation for this private placement offering, the Company separately negotiated with certain Series A stockholders to waive their rights in order not to ratchet down the conversion price of their Series A preferred shares (see Note 10). In return for the waiver, the Company granted these Series A stockholders warrants to purchase 2,303,861 shares of Common Stock. The warrants are exercisable in August 2020, expire in 5 years and are exercisable at $1.20 per share, as adjusted. The exercise price is subject to certain customary adjustments, including subsequent equity sales and rights offerings. In addition, the warrants also included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As a result of this fundamental transaction provision, the warrants will be accounted as derivative liability with a fair value upon issuance of $3,951,000 upon issuance. The Company will account the fair value of $3,951,000 as a deemed dividend since if the down round provision of the Series A preferred shares had occurred, it would have been accounted as a deemed dividend due to it providing additional value to the Series A stockholders.

Issuance of Restricted Stock Awards

On April 10, 2020, the board of directors of Verb Technology Company, Inc., a Nevada corporation (the “Company”), approved management’s COVID-19 Full Employment and Cash Preservation Plan (the “Plan”), pursuant to which all directors and senior level management would reduce their cash compensation by 25%, and all other employees and consultants would reduce their cash compensation by 20% (the “Cash Reduction Amount”) for a period of three months from April 16, 2020 through July 15, 2020 for one category of plan participants, and April 26, 2020 through July 18, 2020 for the other category of participants. The Plan was designed to promote the continued growth of the Company and avoid the lay-offs and staff cut-backs experienced by many companies affected by the COVID-19 economic crisis. The Cash Reduction Amount is to be paid in shares of the Company’s common stock (the “Shares”) through an allocation of shares from the Company’s 2019 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and granted 5,000,000 non-qualifiedpursuant to stock award agreements entered into effective as of April 10, 2020 (the “Grant Date”) between the Company and each of the Company’s directors, executive officers, employees, and consultants. The stock award agreements provide that the Shares will vest on July 18, 2020 (the “Vesting Date”) as long as the recipient remains in continuous service to the Company during the time from the Grant Date through the Vesting Date. The Shares were valued at $1.198 per share in accordance with the provisions of the Omnibus Incentive Plan, which provides that the value shall be determined based on the volume weighted average price of the Company’s common stock during a period of up to the 30-trading days prior to the Grant Date. Total Common Stock granted as part of the Cash Preservation Plan on April 10, 2020 was 589,099 with a fair value of $866,000. The shares were valued based on the market value of the Company’s stock price on the grant date and will be amortized over the life of the agreements and recorded as stock compensation expense. As of the date of this report the restricted shares have not been issued to the respective employees.

Issuances of Common Stock

Subsequent to December 31, 2019, the Company issued 407,633 shares of Common Stock to vendors for services rendered with a fair value of $444,000. These shares of Common Stock were valued based on the market value of the Company’s stock price at the issuance date or the date the Company entered into the agreement related to the issuance.

Subsequent to December 31, 2019, the Company issued 11,025 shares of Common Stock to an employee associated with the vesting of a Restricted Stock Award.

Subsequent to December 31, 2019, the Company issued 741,933 shares of Common Stock upon conversion of 1,150 Series A Preferred shares.

Grant of Stock Options

Subsequent to December 31, 2019, the Company granted stock options to employees and 2,000,000consultants to purchase a Director. Each exercisable into one sharetotal of our common323,887 stock at aoptions for services to be rendered. The options have an average exercise price of $0.08$1.38 per share, expire in five years, and vest 100% in threeover a period of four years from grant date. The total fair value of these options at the grant date.date was $437,000 using the Black-Scholes option pricing model.

 

Effective February 14, 2017, the Company entered into a Securities Purchase Agreement, (the “Purchase Agreement”), by and between an otherwise unaffiliated, accredited investor (the “Purchaser”) and the Company in connection with our issuance and sale to the Purchaser of shares of Series A Preferred Stock under the terms and conditions as set forth in the Purchase Agreement (the “Sale”).

In connection with the Sale, our Board of Directors (our “Board”) authorized and approved a series of preferred stock to be known as “Series A Convertible Preferred Stock”, for which 1,050,000 shares, $0.0001 par value per share, were authorized and a Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, (the “Certificate”), was filed with the Office of the Secretary of State of the State of Nevada (the “State”) to effectuate the authorization. Pursuant to the Purchase Agreement, the purchase of shares of our Series A Preferred Stock may occur in several tranches (each, a “Tranche”; and, collectively, the “Tranches”). The First Tranche of $300,000 ($315,000 in stated value, represented by 315,000 shares of our Series A Preferred Stock) closed simultaneously with the execution of the Purchase Agreement on February 14, 2017 (the “First Closing”), and each additional Tranche shall close at such times and on such financial terms as may be agreed to by the Purchaser and us.

Pursuant to the terms of the Purchase Agreement, the shares of our Series A Preferred Stock issued in the First Closing are to be redeemed by us in five (5) equal weekly payments (each, a “Redemption Payment”), commencing in approximately 180 days from the First Closing. All but one of the Redemption Payments may be made by us in cash or in shares of our common stock, at our option. One of the Redemption Payments must be made in shares of our common stock. Redemption Payments made using shares of our common stock will be valued based upon a VWAP formula, tied to the then-current quoted price of shares of our common stock, described with greater particularity in the Purchase Agreement.Paycheck Protection Program

 

On February 8, 2017,April 17, 2020, the Company extended International Monetary’sreceived loan proceeds in the amount of approximately $1,218,000 under the Paycheck Protection Program (“IM”PPP”) consulting agreement.. The Parties have agreed to modify the termsPPP, established as part of the AgreementCoronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as follows:long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

 

 1.F-64Accrued Management Fees in the amount of $30,000 due and payable to IM by the Company shall be deemed paid in full by the issuance to IM of 400,000 ‘restricted shares’, as that term is defined in the Agreement. There shall be no further accrual of Management Fees as of the date hereof.
   
2.The term of the Agreement, as set forth in item 2 thereof, shall be extended for an additional 6-month period, commencing as of the date hereof.

PRELIMINARY PROSPECTUS

7,751,900 Shares of Common Stock

, 2020

LADENBURG THALMANN

Through and including , 2020 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

   
3.Compensation for the additional 6-month term is 700,000 ‘restricted shares. The Shares shall be issued effective as of the date, hereof but delivered at the rate of 233,333 shares every 60 days during the term.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

bBooth, Inc.

We have audited the accompanying consolidated balance sheet of bBooth, Inc. (the “Company”) as of December 31, 2016, and the related statement of consolidated operations, stockholders’ equity (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). 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. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016, and the results of its consolidated operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has had no revenues and income since inception. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2, which includes the raising of additional equity financing or merger with another entity. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Weinberg & Company, P.A.
  
Los Angeles, CA
March 31, 2017 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPART II

 

To the Board of Directors

bBooth, Inc.

We have audited the accompanying consolidated balance sheet of bBooth, Inc. (the “Company”) as of December 31, 2015, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015, 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.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has had no revenues and income since inception. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2, which includes the raising of additional equity financing or merger with another entity. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Anton & Chia, LLP
Newport Beach, CA
March 30, 2016

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEMItem 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONOther Expenses of Issuance and Distribution.

 

The following table sets forth the estimated costs andall expenses of the Registrantto be paid by us in connection with the offering described in the registration statement.this offering. All of the amounts shown are estimatedestimates except for the SEC registration fee.

 

SEC registration fee $249 
Legal fees and expenses $10,000 
Accounting fees and expenses $17,000 
Miscellaneous $1,000 
     
TOTAL $28,249 

SEC Registration Fee $1,298 
FINRA Fees  2,225 
Accounting Fees and Expenses  66,000 
Legal Fees and Expenses  325,000 
Blue Sky Fees and Expenses  - 
Transfer Agent and Registrar Fee  5,000 
Printing Costs  - 
Miscellaneous Expenses  477 
     
Total $400,000 

 

ITEMItem 14. INDEMNIFICATION OF DIRECTORS AND OFFICERSIndemnification of Directors and Officers.

 

Our amended and restatedWe are a Nevada corporation governed by the NRS.

Section 78.138 of the NRS provides that, unless the corporation’s articles of incorporation provide there shall be no personal liability ofotherwise, a director or an officer towill not be individually liable unless it is proven that (i) the Companydirector’s or our stockholders for damages forofficer’s acts or omissions constituted a breach of his or her fiduciary duty asduties, and (ii) such breach involved intentional misconduct, fraud, or a director or an officer, subject to specified exceptions.knowing violation of the law.

 

Section 78.7502 of the Nevada Revised StatutesNRS permits a corporationcompany to indemnify a present or former director, officer, employee or agent of the corporation, or of another entity or enterprise for which such person is or was serving in such capacity at the request of the corporation, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, except an action by or in the right of the corporation,its directors and officers against expenses, including attorneys’ fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection therewith, arising by reason of such person’s service in such capacitywith a threatened, pending, or completed action, suit, or proceeding, if such person (1)the officer or director (i) is not liable pursuant to Section 78.138 of the Nevada Revised Statutes, which sets forth standards for the conduct of directors and officers,NRS, or (2)(ii) acted in good faith and in a manner which hethe officer or shedirector reasonably believed to be in or not opposed to the best interests of the corporation and, with respect toif a criminal action or proceeding, had no reasonable cause to believe histhe conduct of the officer or her conductdirector was unlawful. In the case of actions brought by or in the rightSection 78.7502 of the NRS also precludes indemnification by the corporation however, no indemnification may be made for any claim, issueif the officer or matter as to which such persondirector has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances, of the case, such person is fairly and reasonably entitled to indemnity for such expenses and requires a corporation to indemnify its officers and directors if they have been successful on the merits or otherwise in defense of any claim, issue, or matter resulting from their service as the court deems proper.a director or officer.

 

Section 78.751 of the NRS permits a Nevada Revised Statutes permits any discretionary indemnification under Section 78.7502 of the Nevada Revised Statutes, unless orderedcorporation to indemnify its officers and directors against expenses incurred by them in defending a courtcivil or advanced to a director or officer by the corporation in accordance with the Nevada Revised Statutes, to be made by a corporation only as authorized in each specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. Such determination must be made (1) by the stockholders, (2) by the board of directors by majority vote of a quorum consisting of directors who were not parties to thecriminal action, suit, or proceeding (3) if a majority voteas they are incurred and in advance of a quorum consisting of directors who were not parties tofinal disposition thereof, upon determination by the action, suitstockholders, the disinterested board members, or proceeding so orders, by independent legal counselcounsel. Section 78.751 of the NRS provides that the articles of incorporation, the bylaws, or an agreement may require a corporation to advance expenses as incurred upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the corporation if so provided in a written opinion,the corporation’s articles of incorporation, bylaws, or (4) if a quorum consistingother agreement. Section 78.751 of the NRS further permits the corporation to grant its directors who were not parties to the action, suitand officers additional rights of indemnification under its articles of incorporation, bylaws, or proceeding cannot be obtained, by independent legal counsel in a written opinion.other agreement.

 

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Section 78.752 of the NRS provides that a Nevada corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. We have obtained insurance policies insuring our directors and officers against certain liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.

The foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference to the above discussed sections of the NRS.

Our amendedarticles of incorporation provide that, except in some specified instances, our directors and restatedofficers shall not be personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors and officers, except liability for the following:

acts or omissions which involve intentional misconduct, fraud or knowing violation of law; or
the payment of distributions in violation of NRS 78.300, as amended.

In addition, our articles of incorporation and bylaws requireprovide that we must indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by the NRS. Our bylaws also authorize us to purchase and maintain insurance on behalf of any of our directors or officers against any liability asserted against that person in that capacity, whether or not we would have the power to indemnify that person against such liability and expenses. We have entered and expect to continue to enter into agreements to indemnify our directors and executive officers as determined by our board of directors. In general, the indemnification agreements provide that we will, to the fullest extent permitted by Nevada law and subject to certain limitations, indemnify the indemnitee against certain expenses (including attorneys’ fees), judgments, fines, penalties, and settlement amounts that may be incurred in a manner that is consistentconnection with the defense or settlement of any claim, criminal, civil, or administrative action or proceeding to which the indemnitee becomes subject in connection with his or her services as an executive officer, director, or both. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and executive officers.

The limitation of Nevada law describedliability and indemnification provisions in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the preceding two paragraphs.likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers orand controlling persons controlling this company pursuant to the foregoing provisions, or otherwise, we have been informedadvised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us forof expenses incurred or paid by aour director, officer, or controlling person of our company in the successful defense of any action, suit, or proceeding) is asserted by asuch director, officer, or controlling person in connection with the securities being registered, we will, unless in the opinion of itsour counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

Reference is made to the following documents filed as exhibits to this registration statement regarding relevant indemnification provisions described above and elsewhere in this registration statement.

Document

Exhibit

Number

Articles of Incorporation3.1
Amended and Restated Bylaws3.2
Form of Indemnity Agreement between Verb Technology Company, Inc. and each of its Executive Officers and Directors10.43

ITEMItem 15. RECENT SALES OF UNREGISTERED SECURITIESRecent Sales of Unregistered Securities.

 

Sales After June 30, 2017Fiscal Year 2020

 

Shares Issued for ServicesPrivate Placement

SubsequentOn February 5, 2020, we initiated a private placement for the sale and issuance of up to June 30, 2017, we issued 119,434five million shares of our common stock at a per-share price of $1.20, which amount represents a 20% discount to the $1.50 closing price of our common stock on that day, and is memorialized by a subscription agreement.

As a result of this private placement, from February 25 through March 31, 2020, a total of 4,237,833 shares of our common stock were subscribed. Total subscribed shares of 3,392,833 shares of common stock to vendorswere issued with net cash proceeds of $3,430,000 after direct costs received as of March 31, 2020. The remaining subscribed shares of 845,000 shares of common stock were issued in April and May 2020 upon receipt of cash proceeds of $1,014,000.

Our private placement is exempt from the registration requirements of Section 5 of the Securities Act in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and Regulation S thereunder, each as promulgated by the SEC. Our private placement was managed by us; however, in connection with the closings, we paid a fair value of $17,700 for services rendered withnon-U.S. based consultant (i) as a cash fee, an aggregate fair valueamount of $229,540.$499,000 (or 10% of the gross proceeds of the closings), (ii) as a non-accountable expense allowance, an aggregate of $100,000 (or 2% of the gross proceeds of the closings), (iii) five-year warrants, exercisable for an aggregate of up to 416,199 shares of our common stock at a cash-only exercise price of $1.92 per share, and (iv) 100,000 shares of our common stock. We made the above-referenced payments only in respect of that portion of the gross proceeds from the closings for investors introduced to us by the consultant. In addition, we also incurred various expenses totaling $42,000 that are directly related to this private placement.

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In preparation for this private placement offering, we separately negotiated with certain Series A Preferred stockholders to waive their rights in order not to ratchet down the conversion price of their Series A preferred shares. In return for the waiver, we granted these Series A Preferred stockholders warrants to purchase 2,303,861 shares of our common stock. The warrants are exercisable in August 2020, expire in 5 years and are exercisable at $1.20 per share, as adjusted. The exercise price is subject to certain customary adjustments, including subsequent equity sales and rights offerings.

Fiscal Year 2019

 

Common Stock Options IssuedIssuances

Subsequent to June 30, 2017On January 8, 2019, we issued 2,000,000 non-qualified13,332 shares of our common stock options with a fair value of $229,540 and an exercise price of $0.25 per share to employeesconsultants as payment for services to be rendered. The shares had an aggregate value of $58,000, which was based on the closing price of our common stock as reported by the OTC Markets Group Inc.’s OTCQB® tier Venture Market, or OTCQB, on the date of issuance, or $4.35 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

 

SubsequentOn February 8, 2019, we issued 13,334 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $130,000, which was based on the closing price of our common stock as reported by the OTCQB, on the date of issuance, or $9.75 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On March 8, 2019, we issued 13,334 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $200,000, which was based on the closing price of our common stock as reported by the OTCQB, on the date of issuance, or $15.00 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On April 8, 2019, we issued 40,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $103,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.58 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On April 12, 2019, we completed our acquisition of Sound Concepts pursuant to an agreement and plan of merger. On the terms and subject to the conditions set forth in the agreement and plan of merger, at the effective time, each share of Sound Concepts capital stock was cancelled in exchange for cash payment by us of an aggregate of $15,000,000 and the issuance of an aggregate of 3,327,791 restricted shares of our common stock. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

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On April 25, 2019, we issued 12,438 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $25,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.01 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On May 8, 2019, we issued 40,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $85,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.13 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On May 19, 2019, we issued 2,475 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $5,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.02 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On June 8, 2019, we issued 40,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $72,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.79 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On June 29, 2019, we issued 3,876 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.58 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On June 30, 2017 1,000,000 non-qualified2019, we issued 19,021 shares of our common stock optionsto consultants as payment for services to be rendered. The shares had an aggregate value of $38,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.00 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were forfeited.issued by us in a transaction not involving any public offering).

On July 8, 2019, we issued 5,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.03 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

II-9

On July 19, 2019, we issued 4,716 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $2.12 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On August 15, 2019, we issued 100,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $128,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.28 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On August 19, 2019, we issued 7,752 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.29 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On September 11, 2019, we issued 20,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $24,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.22 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On September 16, 2019, we issued 10,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $12,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.20 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On September 19, 2019, we issued 9,010 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.11 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On October 11, 2019, we issued 20,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $12,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.08 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On October 16, 2019, we issued 10,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.07 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

II-10

On October 19, 2019, we issued 9,804 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000, which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.04 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On November 8, 2019, we issued 45,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $41,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $0.91 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On November 11, 2019, we issued 30,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $29,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $0.96 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On November 16, 2019, we issued 10,000 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $8,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $0.76 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On November 16, 2019, we issued 10,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $8,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $0.76 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On November 19, 2019, we issued 12,048 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $0.83 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On December 8, 2019, we issued 46,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $40,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $0.86 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

II-11

On December 16, 2019, we issued 10,000 shares of our common stock to a consultant as payment for services to be rendered. The shares had an aggregate value of $14,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.36 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On December 19, 2019, we issued 7,194 shares of our common stock to consultants as payment for services to be rendered. The shares had an aggregate value of $10,000 which was based on the closing price of our common stock as reported by The Nasdaq Capital Market, on the date of issuance, or $1.39 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

 

PreferredGrants of Stock IssuedOptions

On January 9, 2019, we granted stock options to an officer to purchase up to 16,667 shares of our common stock pursuant to the officer’s employment agreement. The options have an exercise price of $4.35 per share, have a five-year term, and vest 50% on grant date and the remaining 50% will vest on the 12-month anniversary of the grant date. The total fair value of these options at the grant date was approximately $71,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On January 28, 2019, we granted stock options to a consultant to purchase up to 1,667 shares of our common stock for services to be rendered. The options have an exercise price of $7.80 per share, have a five-year term, and vest over a period of two months from the grant date. The total fair value of these options at the grant date was approximately $13,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On February 6, 2019, we granted stock options to an employee to purchase up to 66,667 shares of our common for services to be rendered. The options have an exercise price of $7.50 per share, have a five-year term and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $489,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options are and will be exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

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On February 7, 2019, we granted stock options to a consultant to purchase up to 66,667 shares of our common stock for services to be rendered. The options have an exercise price of $8.10 per share, have a five-year term, and 25% vest on the grant date and the remaining over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $528,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options are and will be exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On February 28, 2019, we granted stock options to employees to purchase up to 9,000 shares of common stock for services to be rendered. The options have an exercise price of $14.90 per share, have a five-year term, and vest equally on the anniversary dates over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $71,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options are and will be exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On April 8, 2019, we granted stock options to an employee to purchase up to 667 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $2,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On April 15, 2019, we granted stock options to an employee to purchase up to 1,667 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $4,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On April 20, 2019, we granted stock options to an employee to purchase up to 60,000 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of three years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $119,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On June 3, 2019, we granted stock options to an employee to purchase up to 833 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $2,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

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On June 10, 2019, we granted stock options to employees to purchase up to 360,000 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of three or four years from the grant date on the grant date or vest on performance. The total fair value of these options at the grant date was approximately $678,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On June 17, 2019, we granted stock options to an employee to purchase up to 1,667 shares of our common stock for services to rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $3,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On June 19, 2019, we granted stock options to an employee to purchase up to 5,000 shares of our common stock for services to rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $13,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 1, 2019, we granted stock options to consultants to purchase up to 4,000 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $8,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 1, 2019, we granted stock options to an employee to purchase up to 27,500 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and 25,000 vest on grant date, the remaining vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $57,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 15, 2019, we granted stock options to employees to purchase up to 12,000 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of three years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $24,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

II-14

On August 6, 2019, we granted stock options to an employee to purchase up to 1,667 shares of our common stock for services to be rendered. The options have an exercise price of $3.13 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $2,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On August 15, 2019, we granted stock options to a consultant to purchase up to 100,000 shares of our common stock for services to be rendered. The options have an exercise price of $1.85 per share, have a three year and six month term, and vest on grant date. The total fair value of these options at the grant date was approximately $72,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On October 1, 2019, we granted stock options to an employee to purchase up to 25,000 shares of our common stock for services to be rendered. The options have an exercise price of $1.07 per share, have a five-year term, and vest over a period of four years from the grant date on the grant date. The total fair value of these options at the grant date was approximately $27,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On November 1, 2019, we granted stock options to a consultant to purchase up to 1,000 shares of our common stock for services to be rendered. The options have an exercise price of $1.08 per share, have a five-year term, and vest on the grant date. The total fair value of these options at the grant date was approximately $1,000, which was based upon the closing price of our common stock as reported by The Nasdaq Capital Market on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

II-15

Grant of Warrants

 

On July 7, 2017,April 11, 2019, we issued 52,500granted warrants to purchase up to 163,739 shares of Series A Preferred Stockour common stock for cash proceedsservices rendered. The warrants are exercisable at an average price of $50,000.$3.76 per share and will expire in April 2024. The Series A Preferred Stock hasgrant of the same terms as described in Note 7, except that two weekly redemption payments shall be due, one on January 8, 2018,warrants and the other on January 15, 2018, eachshares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants were sold by us, and the shares of our common stock underlying the warrants will be issued, in the amounttransactions not involving any public offering).

Common Stock Issued Upon Exercise of $26,250. As a result of this transaction, we will record a liability of $52,500 and a debt discount of $2,500 upon issuance.Warrants

 

On July 28, 2017,January 25, 2019, we agreed to issue 262,500issued a total of 148,714 shares of Series A Preferred Stock for cash proceedsour common stock in connection with the cashless exercise of $250,000. $125,000 was paidwarrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

On April 8, 2019, we issued a total of 25,000 shares of our common stock in connection with the exercise of warrants and received $45,000. We issued the shares in reliance on July 28, 2017 and the remaining $125,000 was paidexemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

On December 23, 2019, we issued a total of 15,523 shares of our common stock in connection with the cashless exercise of warrants. We issued the shares in reliance on September 1, 2017. The Series A Preferred Stock has the same terms as describedexemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in Note 7, except that ten weekly redemption payments shall be due, commencing February 28, 2018, each inconnection with the amountexercise of $26,250. As a result of this transaction, we will record a liability of $262,500 and a debt discount of $12,500 upon issuance.warrants did not involve any public offering).

 

Warrants Issued as Part of a Note ExtensionConvertible Notes Issuances

 

Effective August 4, 2017,On February 1, 2019, we enteredissued an unsecured convertible note to Bellridge Capital, LP, or Bellridge, in the aggregate principal amount of $500,000 in exchange for net proceeds of $432,000, after an original issue discount of $250,000 and legal and financing expenses of $43,000. The financing expenses represent fees paid to A.G.P./Alliance Global Partners, or AGP, as placement agent. In addition, we issued 16,667 shares of our common stock in connection with the note issuance. The notes are convertible into an extension agreement with Rory J. Cutaiashares of our common stock at a conversion price equal to extend70% of the maturitylowest volume weighted average price during the ten trading days immediately preceding the date of the $343,326 Unsecured Note due on August 4, 2017 to December 4, 2018. In consideration for extending the Note we issued Mr. Cutaia 1,329,157 purchase warrants exercisable at $0.15 per share until August 3, 2020. All other termsnotice of conversion. As of the Note remain unchanged. The Company recorded $172,456 of debt extinguishment to account forissue dates, the issuance.

Effective August 4, 2017, we enterednotes were convertible into an extension agreement with Oceanside to extendaggregate of 107,979 shares of our common stock. On April 2, 2019, we increased the maturity dateoutstanding principal amount of the Notenote by $25,000 to an aggregate of $525,000 and including April 4, 2018. All other terms of the Note remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to April 4, 2018, we issued Oceanside 1,316,800 purchase warrants exercisable at $0.15 per share until August 3, 2020. All other terms of the Note remain unchanged. The Company recorded $170,853 of debt extinguishment to account for the issuance.

 II-2

Shares Issued to Officers, Directors, or Advisory Board Members

Effective August 4, 2018, we issued the CEO 3,750,000 restricted8,606 shares of common stock with a fair value of $562,500.

Shares Issued for Conversion$55,000. The issuance of Preferred Stockthe notes and the issuance of shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the transactions did not, and will not, involve any public offering).

 

SubsequentConversion of Convertible Notes Payable

On April 9, 2019, we issued 182,333 shares of common stock upon conversion of convertible notes payable and accrued interest of $410,000. We issued the shares in reliance on the exemption from registration pursuant to JuneSection 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

Conversion of Notes Payable

On July 10, 2019, we issued 108,196 shares of common stock and warrants to purchase up to 108,196 shares of common stock, with an exercise price of $3.44, upon the upon the conversion of the principal and accrued interest of $213,000. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

II-16

On July 29, 2019, we issued 490,090 shares of common stock upon conversion of notes payable and accrued interest of $506,000. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

Conversion of Accounts Payable

On April 30, 2017, 283,5002019, we converted accounts payable of $10,000 into 4,142 shares of common stock with a fair value of $10,000 at the date of conversion. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

Preferred Stock Issuances

On August 14, 2019, we entered into the SPA with the Preferred Purchasers pursuant to which we agreed to issue and sell to the Preferred Purchasers up to an aggregate of 6,000 shares of our Series A Preferred Stock and warrants to purchase an aggregate of up to 3.87 million shares of common stock (an amount equivalent to the number of shares of common stock into which the Series A Preferred Stock is initially convertible). Each share of Series A Preferred Stock plus the redemption premiumis convertible, at any time and interest were redeemed throughfrom time to time from and after the issuance date, at the holder’s option into that number of 2,368,824 shares of common stock equal to the stated value per share (or $1,000) divided by the conversion price (initially, $1.55); thus, initially, each share of Series A Preferred Stock is convertible into approximately 645 shares of common stock. The warrants have an initial exercise price of $1.88 per share, subject to customary adjustments, are exercisable from and a paymentafter six months after the date of $138,500. The fair valueissuance and will expire five years from the date of issuance. We closed the offering on August 14, 2019 and issued 5,030 shares of Series A Preferred Stock and granted warrants to issue up to 3,245,162 shares of common stock in connection therewith resulting in aggregate proceeds of $5,030,000. Both the conversion price of the 2,368,824Series A Preferred Stock and the exercise price of the warrants are subject to downward price adjustments in the event of certain future equity sales or rights offerings. We issued the shares was $263,876,in reliance on the $118,698exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our Series A Preferred Stock were issued by us in excess was recorded as interest expense as of September 30, 2017.a transaction not involving any public offering).

Fiscal 2018

 

Shares Issued for Conversion of Note PayableCommon Stock Issuances

SubsequentOn January 22, 2018, we issued 95,2381 shares of our common stock to Junean investor at a price of $1.05 per share for net proceeds of $100,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On January 26, 2018, we issued 4,545 shares of our common stock to a vendor as payment for services rendered. The shares had an aggregate value of $7,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $1.65 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

II-17

On January 26, 2018, we issued 166,667 shares of our common stock to an investor at a price of $0.90 per share for net proceeds of $150,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On January 27, 2018, we issued 3,333 shares of our common stock to a consultant as payment for services rendered. The shares had an aggregate value of $5,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $1.65 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On January 29, 2018, we issued 2,778 shares of our common stock to a former advisory board member as payment for services rendered. The shares had an aggregate value of $6,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $2.10 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On January 30, 2017, 564,1952018, we issued 2,083 shares of our common stock to a vendor as payment for services rendered. The shares had an aggregate value of $8,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $3.60 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On January 30, 2018, we issued 142,857 shares of our common stock to an investor at a price of $1.05 per share for net proceeds of $150,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On January 31, 2018, we issued 66,667 shares of our common stock to an investor at a price of $1.05 per share for net proceeds of $70,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On February 7, 2018, we issued 110,000 shares of our common stock to an investor at a price of $1.50 per share for net proceeds of $165,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On February 12, 2018, we issued 43,467 shares of our common stock to an investor at a price of $1.20 per share for net proceeds of $50,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

II-18

On February 16, 2018, we issued 87,500 shares of our common stock to two investors at a weighted average price of $2.88 per share for net proceeds of $118,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in transactions not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On February 20, 2018, we issued 41,000 shares of our common stock to three investors at a weighted average price of $2.88 per share for net proceeds of $118,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in transactions not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On February 21, 2018, we issued 494 shares of our common stock to a vendor as payment for services rendered. The shares had an aggregate value of $4,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $8.85 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On February 21, 2018, we issued 58,333 shares of our common stock to four investors at a weighted average price of $0.1857 per share for net proceeds of $163,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in transactions not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On February 22, 2018, we issued 18,333 shares of our common stock to an investor at a price of $3.00 per share for net proceeds of $55,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On February 23, 2018, we issued 107,222 shares of our common stock to three investors at a weighted average price of $2.33 per share for net proceeds of $250,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in transactions not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On February 27, 2018, we issued 3,333 shares of our common stock to a consultant as payment for services rendered. The shares had an aggregate value of $24,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $7.05 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On February 27, 2018, we issued 13,333 shares of our common stock to an investor at a price of $3.00 per share for net proceeds of $40,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

II-19

On March 1, 2018, we issued 8,333 shares of our common stock to an investor at a price of $3.00 per share for net proceeds of $25,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 8, 2018, we issued 200,000 restricted shares of our common stock to two officers and 10,000 restricted shares of our common stock to a director with an aggregate fair market value of $1,980,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $6.60 per share. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On March 15, 2018, we issued 22,222 shares of our common stock to an investor at a price of $4.50 per share for net proceeds of $100,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 16, 2018, we issued 66,667 shares of our common stock to an investor at a price of $3.75 per share for net proceeds of $250,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 19, 2018, we issued 1,667 shares of our common stock to an investor at a price of $3.00 per share for net proceeds of $5,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 21, 2018, we issued 3,704 shares of our common stock to an investor at a price of $6.75 per share for net proceeds of $25,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 23, 2018, we issued 10,861 shares of our common stock to two investors at a weighted average price of $4.88 per share for net proceeds of $53,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in transactions not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 26, 2018, we issued 1,667 shares of our common stock to an investor at a price of $9.00 per share for net proceeds of $15,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

II-20

On March 27, 2018, we issued 3,889 shares of our common stock to two investors at a price of $9.00 per share for net proceeds of $35,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in transactions not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 28, 2018, we converted our Chief Executive Officer’s accrued salary of $582,000 into 27,148 restricted shares of our common stock at a price of $21.45 per share, which represents the closing price of our common stock as reported by the OTCQB on March 28, 2018. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of common stock were issued to make-whole the June 7, 2017 loan satisfaction agreement with Lucas Holdings. We recordedby us in a loss of $70,965 to account for the fair market value of the shares.transaction not involving any public offering).

 

Convertible Note Issued

Effective September 26, 2017, as a commitment fee under the Purchase Agreement for which we received no proceeds,On March 28, 2018, we issued 6,667 shares of our common stock to Kodiak an unsecured Promissory Note (the “Commitment Note”), dated September 15, 2017,investor at a price of $9.00 per share for the principal amount of $100,000 with interest at the rate of 5% per annum, payable nine months from the issue date. The Purchase Agreement provides that in the event this Registration Statement is not effective by December 31, 2017, through no fault of ours, the Commitment Note shall be deemed cancelled, null and void, and of no further force and effect. In exchange fornet proceeds of $100,000, we issued to Kodiak an additional unsecured Promissory Note (the “First Note”), dated September 15, 2017$60,000. We offered and effective September 26, 2017, in the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. Upon the filing of this Registration Statement, and in exchange for additional proceeds of $100,000, we issued to Kodiak an additional note (the “Second Note”) for the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. (The Commitment Note, the First Note, and the Second Note hereinafter referred to collectively as the “Notes”) The principal amount and accrued interest under the Notes are not convertible except in the event of default. In the event of default, the conversion price for the Notes shall be the lesser of $0.25 per share or 70% of the lowest trading price during the ten-trading-day period prior to the conversion date. Conversion of the Notes is subject to the Beneficial Ownership Limitation. None ofsold the shares underlying any of the Notes is being registered under this Registration Statement. We issued the Notesour common stock in reliance uponon the exemptionsexemption from registration afforded bypursuant to Section 4(a)(2) and/or Rule 506 promulgated underof the Securities Act of 1933, as amended.

Effective September 26, 2017, and as an additional commitment fee under(in that the Purchase Agreement, we issued to Kodiak two Common Stock Purchase Warrants, each dated September 15, 2017, the first of which entitles Kodiak to purchase up to 1,000,000 shares of our Common Stockcommon stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 28, 2018, we issued a total of 25,000 shares of our common stock in connection with the exercise of warrants at an exercise price of $0.15$1.80 per share (the “First Warrant”), andshare. We received $45,000 in proceeds in connection with the secondexercises of which entitles Kodiakthese warrants. We issued the shares in reliance on the exemption from registration pursuant to purchase up to 1,000,000Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering). We used the proceeds for operations.

On March 29, 2018, we issued 1,111 shares of our common stock to an investor at a price of $9.00 per share for net proceeds of $10,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 30, 2018, we issued 1,000 shares of our common stock to an investor at a price of $9.00 per share for net proceeds of $10,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On March 31, 2018, we issued 17,222 shares of our common stock to an investor at a price of $9.00 per share for net proceeds of $155,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On April 13, 2018, we issued 20,513 shares of our common stock to an investor at price of $9.75 per share for net proceeds of $200,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

II-21

On April 20, 2018, we issued 46,154 shares of our common stock to an investor at a price of $9.75 per share for net proceeds of $450,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds for working capital and general corporate purposes.

On April 29, 2018, we issued 2,778 shares of our common stock to a former advisory board member as payment for services rendered. The shares had an aggregate value of $53,000, which was based on the closing price of our common stock as reported by the OTCQB on the date of issuance, or $19.20 per share. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On May 2, 2018, we issued 3,333 shares of our common stock to an investor at a price of $15.00 per share for net proceeds of $50,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On August 4, 2018, we issued to our Chief Executive Officer 250,000 restricted shares of our common stock with a fair value of $563,000 based on a price per share of $2.25, which was the closing price of our common stock as reported by the OTCQB on the issuance date. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

Common Stock Issued Upon Conversion of Notes Payable

On January 29, 2018, we issued 83,333 shares of our common stock upon the conversion of an outstanding convertible note. The aggregate principal amount of the note that was converted was $125,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

On February 14, 2018, we issued 29,400 shares of our common stock upon the conversion of an outstanding convertible note. The aggregate principal amount of the note that was converted was $110,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

On February 21, 2018, we issued 73,500 shares of our common stock upon the conversion of an outstanding convertible note. The aggregate principal amount of the note that converted was $110,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

On March 27, 2018, we issued 305,967 shares of our common stock upon the conversion of an outstanding convertible note. The aggregate principal amount of the note that converted was $842,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

On September 30, 2018, we issued 356,824 shares of our common stock upon the partial conversion of an outstanding convertible note. The aggregate principal amount of the note that converted was $376,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

On September 30, 2018, we issued 98,093 shares of our common stock upon the partial conversion of an outstanding convertible note. The aggregate principal amount of the note that converted was $103,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

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On September 30, 2018, we issued 180,000 shares of our common stock upon the conversion of an outstanding convertible note. The aggregate principal amount of the note that converted was $189,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

On September 30, 2018, we issued 116,093 shares of our common stock upon the conversion of an outstanding convertible note. The aggregate principal amount of the note that converted was $122,000. We issued the shares in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

Common Stock Issued Upon Exercise of Options

On April 19, 2018, we issued a total of 32,508 shares of our common stock issued in connection with the exercise of options at a weighted average exercise price of $1.05. We received proceeds of $34,000 in connection with the exercises. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act. We used the proceeds for operations.

Common Stock Issued Upon Exercise of Warrants

On February 8, 2018, we issued a total of 18,333 shares of our common stock in connection with the exercise of warrants at an exercise price of $0.20$1.20 per share (the “Second Warrant”)share. We received $22,000 in proceeds in connection with the exercises of these warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering). The Purchase Agreement also providesWe used the proceeds for operations.

On February 19, 2018, we issued a total of 7,001 shares of our common stock in connection with the issuancecashless exercise of warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

On February 19, 2018, we issued a third Common Stock Purchase Warrant as an additional commitment fee, entitling Kodiaktotal of 11,353 shares of our common stock in connection with the cashless exercise of warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

On March 28, 2018, we issued a total of 76,934 shares of our common stock in connection with the cashless exercise of warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

On September 30, 2018, we issued a total of 680,892 shares of our common stock in connection with the cashless exercise of warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

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On October 11, 2018, we issued a total of 254,145 shares of our common stock in connection with the cashless exercise of warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

On October 12, 2018, we issued a total of 26,263 shares of our common stock in connection with the cashless exercise of warrants. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock issued by us in connection with the exercise of warrants did not involve any public offering).

Grants of Warrants

On January 10, 2018, we granted warrants to a certain note holder to purchase up to 4,000,00033,333 shares of our common stock. The warrants are exercisable at an average price of $2.10 per share and will expire in January 2023. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants were sold by us, and the shares of our common stock underlying the warrants will be issued, in transactions not involving any public offering).

On January 11, 2018, we granted warrants to a certain note holder to purchase up to 33,333 shares of our common stock. The warrants are exercisable at an average price of $2.10 per share and will expire in January 2023. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants were sold by us, and the shares of our common stock underlying the warrants will be issued, in transactions not involving any public offering).

On February 21, 2018, we granted warrants to a certain note holder to purchase up to 133,333 shares of our common stock. The warrants are exercisable at an average price of $3.75 per share and will expire in February 2023. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants were sold by us, and the shares of our common stock underlying the warrants will be issued, in transactions not involving any public offering).

On August 8, 2018, Mr. Cutaia and we agreed to extend the maturity date of a convertible note previously issued in favor of Mr. Cutaia. As of May 8, 2018, the aggregate outstanding principal amount of the note was $1,199,000. In consideration for extending the maturity date of the note, we granted to Mr. Cutaia a warrant to purchase up to 163,113 shares of our common stock at an exercise price of $0.25$7.35 per share. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants were sold by us, and the shares of our common stock underlying the warrants will be issued, in transactions not involving any public offering).

Grants of Stock Options

On January 1, 2018, we granted stock options to an employee to purchase up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $3.75 per share, (the “Third Warrant”), to be issued onlyhave a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $94,000, which was based upon and subject to, the occurrenceclosing price of our common stock as reported by the OTCQB on the grant date. The grant of the first Closing Date. (The First, Second,options and Third Warrants are hereinafter referred to collectively as the “Warrants”). The exercise price and number of common shares to be issued under each of the Warrants are subject to adjustments provided for in each such Warrant and are also subject to the Beneficial Ownership Limitation. The Company is in the process of determining the account effect of the above transactions. Noneissuance of the shares of our common stock underlying anythe options is and will be exempt from the registration requirements of the WarrantsSecurities Act pursuant to Section 4(a)(2) of the Securities Act.

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On January 22, 2018, we granted stock options to an employee and a consultant to purchase up to 17,085 shares of our common stock for services rendered. The options have an exercise price of $1.35 per share, have a five-year term, and vest on the grant date. The total fair value of these options at the grant date was approximately $22,215, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is being registeredand will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On February 1, 2018, we granted stock options to a consultant to purchase up to 53,333 shares of our common stock for services rendered. The options have an exercise price of $3.75 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $8,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On February 22, 2018, we granted stock options to consultants to purchase up to 13,333 shares of our common stock for services rendered. The options have an exercise price of $7.50 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $96,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On April 3, 2018, we granted stock options to an employee to purchase up to 3,333 shares of our common stock for services rendered. The options have an exercise price of $15.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $48,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On May 14, 2018, we granted stock options to consultants to purchase up to 3,333 shares of our common stock for services rendered. The options have an exercise price of $14.40 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $47,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 1, 2018, we granted stock options to employees to purchase up to 320,000 shares of our common stock for services rendered. The options have an average exercise price of $5.40 per share and have a five-year term. On the grant date, 100,000 shares immediately vested, with the remaining 220,000 to vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $2,892,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

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On July 12, 2018, we granted stock options to consultants to purchase up to 3,333 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $28,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 16, 2018, we granted stock options to consultants to purchase up to 10,000 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $86,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 20, 2018, we granted stock options to a consultant to purchase up to 1,667 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $14,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 23, 2018, we granted stock options to consultants to purchase up to 1,667 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $13,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 27, 2018, we granted stock options to an employee to purchase up to 16,667 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $128,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On July 30, 2018, we granted stock options to a consultant to purchase up to 1,667 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $13,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

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On August 1, 2018, we granted stock options to a consultant to purchase up to 1,667 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $12,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On August 13, 2018, we granted stock options to a consultant to purchase up to 1,667 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $13,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On August 15, 2018, we granted stock options to an employee to purchase up to 13,333 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $88,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On August 16, 2018, we granted stock options to consultants to purchase up to 3,333 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $21,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On August 31, 2018, we granted stock options to an advisory board member to purchase up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $9.30 per share, have a five-year term, and vest over a period of four years from the grant date. The total fair value of these options at the grant date was approximately $598,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On August 27, 2018, we granted stock options to board members to purchase up to 133,333 shares of our common stock for services rendered. The options have an exercise price of $7.50 per share, have a five-year term, 13,333 vest on the grant date, with the remainder vesting over a period of four years from the grant date. The total fair value of these options at the grant date was approximately $965,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On September 7, 2018, we granted stock options to advisory board members to purchase a up to 133,333 shares of our common stock for services rendered. The options have an exercise price of $7.50 per share, have a five-year term, and vest over a period of four years from the grant date. The total fair value of these options at the grant date was approximately $965,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

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On September 11, 2018, we granted stock options to an advisory board member to purchase a up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $6.75 per share, have a five-year term, and vest over a period of four years from the grant date. The total fair value of these options at the grant date was approximately $434,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On September 13, 2018, we granted stock options to an advisory board member to purchase a up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $6.30 per share, have a five-year term, and vest over a period of four years from the grant date. The total fair value of these options at the grant date was approximately $405,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On September 17, 2018, we granted stock options to an employee and a consultant to purchase a up to 35,000 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $227,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On September 25, 2018, we granted stock options to consultants to purchase up to 5,000 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $28,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On September 25, 2018, we granted stock options to an advisory board member to purchase a up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $5.85 per share, have a five-year term, and vest over a period of four years from the grant date. The total fair value of these options at the grant date was approximately $371,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On September 27, 2018, we granted stock options to an employee to purchase up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $7.50 per share, have a five-year term, and vest over a period of three years from grant date. The total fair value of these options at the grant date was approximately $404,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

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On October 1, 2018, we granted stock options to consultants to purchase up to 3,333 shares of our common stock for services rendered. The options have an exercise price of $9.00 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $29,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On October 12, 2018, we granted stock options to an employee to purchase up to 133,333 shares of our common stock for services rendered. The options have an exercise price of $7.50 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $965,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On October 29, 2018, we granted stock options to an employee to purchase up to 5,000 shares of our common stock for services rendered. The options have an exercise price of $7.50 per share, have a five-year term, and vest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $28,000, which was based on the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

Convertible Notes Issuances

On January 10, 2018 and January 11, 2018, we issued unsecured convertible notes to EMA and Auctus Fund, LLC, or Auctus Fund, in the aggregate principal amount of $150,000, net of an original issue discount of $20,000. The notes bear interest at a rate of 8% per annum and will mature in January 2019. The notes are convertible into shares of our common stock at a conversion price equal to the lower of: (i) the closing sale price of our common stock on the principal market on the trading day immediately preceding the closing date, and (ii) 70% of either the lowest sale price of our common stock on the principal market during the ten (10) consecutive trading days including and immediately preceding the conversion date, or the closing bid price. As of the issue dates, the notes were convertible into an aggregate of 187,970 shares of our common stock. The issuance of the notes and the issuance of shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the transactions did not, and will not, involve any public offering). The loan underlying the transaction was repaid, in full, approximately three months after it was issued, on March 8, 2018, together with all accrued interest, prior to any conversion or attempted conversion of the note. Accordingly, the convertible notes are no longer outstanding.

On October 19, 2018, we issued an unsecured convertible note to Bellridge in the aggregate principal amount of $1,500,000 in exchange for net proceeds of $1,242,000, after an original issue discount of $150,000 and legal and financing expenses of $109,000. The financing expenses represent fees paid to AGP as placement agent. In addition, we issued 1,450,000 shares of our common stock in connection with the note issuance. The notes are convertible into shares of our common stock at a conversion price equal to 70% of the lowest volume weighted average price during the ten trading days immediately preceding the date of the notice of conversion. As of the issue dates, the notes were convertible into an aggregate of 373,580 shares of our common stock. The issuance of the notes and the issuance of shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the transactions did not, and will not, involve any public offering).

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Fiscal Year 2017

Common Stock Issuances

From January to March 2017, we issued 68,944 shares of our common stock to vendors as payment for services rendered. The shares had an aggregate fair market value of $146,000, based upon a weighted average of $2.10 per share. The fair market value was based on the closing price of our common stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

From April to June 2017, we issued 1112,678 shares of our common stock to vendors as payment for services rendered. The shares had an aggregate fair market value of $385,000, based upon a weighted average of $0.35 per share. The fair market value was based on the closing price of our common stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On April 1, 2018, we offered and sold 25,000 shares of our common stock to an investor at a price of $1.20 per share for net proceeds of $30,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On April 24, 2017, we offered and sold 333,333 shares of our common stock to an investor at a price of $0.90 per share for net proceeds of $300,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On April 25, 2017, we offered and sold 333,333 shares of our common stock to an investor at a price of $1.50 per share for net proceeds of $50,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On April 30, 2017, we offered and sold 20,000 shares of our common stock to an investor at a price of $1.50 per share for net proceeds of $30,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On May 4, 2017, we issued to our Chief Financial Officer 33,333 restricted shares of our common stock with a fair value of $178,000 based on a price per share of $5.40, which was the market price of our common stock as reported by the OTCQB on the issuance date. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

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On May 22, 2017, we offered and sold 6,667 shares of our common stock to an investor at a price of $3.00 per share for net proceeds of $20,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

On June 16, 2017, we issued 30,800 shares of our common stock in connection with the conversion of a note with an aggregate principal amount of $101,000 and conversion price of $3.30 per share. We issued the shares of our common stock in reliance on the exemption from registration pursuant to Section 3(a)(9) of the Securities Act.

In June 2017, we issued 3,333 shares of our common stock, with a fair value of $12,500, upon the conversion of a note. The shares of our common stock were issued in reliance on the exemptions from registration pursuant to Section 3(a)(9) of the Securities Act.

From July to August 2017, we issued 48,629 shares of our common stock to vendors as payment for services rendered. The shares had an aggregate fair market value of $99,000, based upon a weighted average of $2.10 per share. The fair market value was based on the closing price of our common stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On August 29, 2017, in connection with the conversion of a note, we issued 26,916 make whole shares of our common stock and on September 25, 2017, we issued an additional 10,697 make whole shares of our common stock. The average conversion price was $1.50 per share. We issued the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.

From September to October 2017, we issued 38,444 shares of our common stock to vendors as payment for services rendered. The shares had an aggregate fair market value of $55,000, based upon a weighted average of $1.35 per share. The fair market value was based on the closing price of our common stock as reported by the OTCQB at each respective issuance date. We offered and sold the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

On September 26, 2017, we entered into a Purchase Agreement with Kodiak Capital Group, LLC, or Kodiak, effective September 15, 2017. Pursuant to the purchase agreement, we may from time to time, in our discretion, sell shares of our common stock to Kodiak for aggregate gross proceeds of up to $2,000,000. Unless terminated earlier, Kodiak’s purchase commitment automatically terminates on the earlier of the date on which Kodiak shall have purchased our shares pursuant to the purchase agreement for an aggregate purchase price of $2,000,000, or September 15, 2019. We have no obligation to sell any shares under this Registration Statement.the purchase agreement. In November 2017, pursuant to the purchase agreement with Kodiak, we issued 43,745 shares of our common stock in exchange for cash in the amount of $50,000. We issued the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). The purchase agreement with Kodiak is no longer effective.

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On November 3, 2017, we offered and sold 327,133 shares of our common stock to three investors at a price of $1.20 per share for net proceeds of $346,000. We offered and sold the shares of our common stock in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were sold by us in a transaction not involving any public offering). We used the proceeds to repay debt and for operations.

Common Stock Issuances – Accounts Payable

We issued 26,667 shares of our common stock in exchange for the cancellation of approximately $30,000 of certain accounts payable owed by us to one of our vendors. The fair value of the shares of our common stock was $56,000 at the date of issuance, and as such, we recorded a loss on debt extinguishment of $26,000. The shares of our common stock were offered and sold in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our common stock were issued by us in a transaction not involving any public offering).

Convertible Notes Issuances

On June 19, 2017, we issued an unsecured convertible note in the original principal amount of $100,000. In addition, we issued 3,333 shares of our common stock and granted a three-year warrant to acquire 22,000 additional shares of our common stock at an exercise price of $3.75 per share. As of June 19, 2017, the issue date, the note was convertible into 29,400 shares of our common stock. The offer and sale of the shares of our common stock, the note, the shares of our common stock underlying the note, the warrant, and the shares of our common stock underlying the warrant is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the convertible note, warrant, and shares of our common stock were sold by us in a transaction not involving any public offering).

From September 2017 through November 2017, we issued three convertible notes in the aggregate principal amount of $320,000 in exchange for net proceeds of $200,000, after an original issue discount of $20,000 and financing expenses of $100,000. The notes are unsecured, have maturity dates between March 2018 and June 2018, and bear interest at a rate of 5% per annum. As of the respective issuance dates, the notes were convertible into an aggregate of 468,699 shares of our common stock at price of $3.75 per share or 70% of 10-day volume weighted average price prior to conversion, whichever is lower. The offer and sale of the notes and the issuance of the shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the convertible notes were sold by us in a transaction not involving any public offering).

 

On August 21, 2017, we issued an unsecured convertible note to Lucas Holdings in the original principal amount of $100,000.$110,000, with a five percent original issue discount. The “Maturity Date” isnote had a maturity date of March 21, 2018. A2018 and was subject to a one-time interest charge of five percent (5%) (“Interest Rate”) isequal to be applied on the Issuance Date to5% of the original principal amount. In addition, thereThe note was convertible into shares of our common stock at a conversion price per share of $1.50. As of August 21, 2017, the note was convertible into 73,500 shares of our common stock. The offer and sale of the notes and the issuance of the shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the convertible note was sold by us in a 5% Original Issue Discount. As a resulttransaction not involving any public offering).

On December 8, 2017, we issued unsecured convertible notes to EMA and Auctus Fund in the aggregate principal amount of this transaction the Company will record a liability$370,000, net of $110,250 and a debtan original issue discount of $64,600 upon issuance.$47,000. The notes bear interest at a rate of 8% per annum and will mature on December 8, 2018. The notes are convertible into shares of our common stock at a conversion price equal to the lower of: (i) the closing sale price of our common stock on the principal market on the trading day immediately preceding the closing date, and (ii) 70% of either the lowest sale price of our common stock on the principal market during the ten consecutive trading days including and immediately preceding the conversion date, or the closing bid price. As of December 8, 2017, the notes were convertible into 496,311 shares of our common stock. The offer and sale of the notes and the issuance of the shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the convertible note was sold by us in a transaction not involving any public offering).

 

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Stock Subscription

On August 24,December 14, 2017, we issued 250,000an unsecured convertible note to PowerUp Lending in the aggregate principal amount of $105,000, net of an original issue discount of $15,000. The note matures on September 20, 2018 and bears interest at a rate of 8% per annum. The note is convertible to shares of our common stock at a conversion price equal to the variable conversion price, which is 70% multiplied by the lowest trading price of our common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. As of December 1, 2017, the note was convertible into 140,845 shares for net proceeds of $20,000.our common stock. The offer and sale of the notes and the issuance of the shares of our common stock underlying the notes is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the convertible note was sold by us in a transaction not involving any public offering).

 

Grants of Warrants Issued for Settlement

On April 1, 2017, we granted warrants to a consultant to purchase up to 25,000 shares of our common stock at an exercise price of $1.80 per share, with a fair value of $27,000. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were sold by us, and will be issued by us, in transactions not involving any public offering).

On May 4, 2017, Mr. Cutaia and we agreed to extend the maturity date of a Claimconvertible note previously issued in favor of Mr. Cutaia. As of May 4, 2017, the aggregate outstanding principal amount of the note was $1,199,000. In consideration for extending the maturity date of the note, we granted to Mr. Cutaia a warrant to purchase up to 117,013 shares of our common stock at an exercise price of $5.33 per share. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were granted by us, and will be issued by us, in transactions not involving any public offering).

On May 22, 2017, we granted warrants to purchase up to 6,667 shares of our common stock at an exercise price of $6.00 per share, to one investor in connection with an offering. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were sold by us, and will be issued by us, in transactions not involving any public offering).

On June 19, 2017, we granted warrants to a note holder to purchase up to 22,000 shares of our common stock. The warrants are exercisable at an average price of $4.50 per share and will expire starting June 2020. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were granted by us, and will be issued by us, in transactions not involving any public offering).

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On August 4, 2017, Mr. Cutaia and we agreed to extend the maturity date of a convertible note previously issued in favor of Mr. Cutaia from August 4, 2017 to December 4, 2018. As of August 4, 2017, the aggregate outstanding principal amount of the note was $343,000. In consideration for extending the maturity date of the note, we granted to Mr. Cutaia a warrant to purchase up to 87,787 shares of our common stock at an exercise price of $2.25 per share. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were granted by us, and will be issued by us, in transactions not involving any public offering).

On August 4, 2017, Oceanside Strategies, Inc., or Oceanside and we agreed to extend the maturity date of a convertible note previously issued in favor of Oceanside. As of August 4, 2017, the aggregate outstanding principal amount of the note was $680,000. In consideration for Oceanside’s agreement to extend the maturity date of the note, we granted to Oceanside a warrant to purchase up to 87,787 shares of our common stock at an exercise price of $2.25 per share. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were granted by us, and will be issued by us, in transactions not involving any public offering).

On September 16, 2017, we issued 275,000 sharegranted a warrant to purchase warrants, exercisableup to 18,333 shares of our common stock at $.08an exercise price of $1.20 per share until March 15, 2018 to Brian Manduca, in full settlement and release of a disputed, unasserted claim.The Company recorded compensation expensevalue of $10,057 to account for the issuance.

Sales Prior to June 30, 2017

Shares Issued for Services.

We issuewarrant was $10,007. The grant of the warrants and the shares of our common stock to vendors for services rendered which are expensed based on fair market valueunderlying the warrants is and will be exempt from the registration requirements of the sharesSecurities Act pursuant to Section 4(a)(2) of common stock at the date of grant. ForSecurities Act (in that the six months ended June 30, 2017, we issued 3,224,333warrants and the shares of our common stock to vendorsunderlying the warrants were sold by us, and recorded stock compensation expense of $963,779. We didwill be issued by us, in transactions not engage ininvolving any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.public offering).

 

On February 19,September 25, 2017, we amendedgranted warrants to a note holder to purchase up to 66,667 shares of our common stock. The warrants are exercisable at an agreement with a vendoraverage price of $2.25 per share and issued 400,000will expire starting in September 2022. The grant of the warrants and the shares of our common stock as full and final payment tounderlying the vendor on accounts payable owed of $30,000. The fair value of the shares was $56,000, and a loss on extinguishment of debt totaling $26,000 was recorded as part of the transaction. In addition, we extended the term for an additional six months and agreed to issue 700,000 shares of common our stock for services to be rendered. The shares of common stock vest in equal installments every two monthswarrants is and will be valued based upon its vesting date. We did not engage in any general solicitation or advertising with regardexempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the issuanceSecurities Act (in that the warrants and sale of these securities and did not offer the securities to the public.

Convertible Note Issued

On June 19, 2017, in exchange for proceeds of $100,000, we issued an unsecured convertible note to Lucas Holdings in the amount of $100,000. In addition, we issued 50,000 shares of our common stock underlying the warrants were sold by us, and will be issued by us, in transactions not involving any public offering).

On October 13, 2017, we granted warrants to a three-year warrantnote holder to acquire 330,000purchase up to 66,667 shares of our common stock. The warrants are exercisable at an average price of $3.00 per share and will expire starting in September 2022. The grant of the warrants and the shares of our common stock at a per share exercise price of $0.30. The Maturity Dateunderlying the warrants is February 18, 2018. A one-time interest charge of five percent (5%) is toand will be applied onexempt from the Issuance Date to the original principal amount. In addition, there is a 5% Original Issue Discount. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

Warrants Issued as Part of a Note Extension

On May 4, 2017, we entered into an extension agreement with Rory J. Cutaia to extend the maturity dateregistration requirements of the $1,198,883 Secured Note due on April 1, 2017Securities Act pursuant to August 1, 2018. In consideration for extending the note we issued Mr. Cutaia 1,755,192 warrants at a per share exercise price of $0.355. All other termsSection 4(a)(2) of the note remain unchanged. The Company determinedSecurities Act (in that the extension ofwarrants and the note’s maturity resulted in a debt extinguishment for accounting purposes since the fair value of the warrants granted was more than 10% of the recorded value of the original convertible note. As a result, we recorded the fair value of the new note which approximates the original carrying value of $1,198,883 and expensed the entire fair value of the warrants granted of $517,291 as part of loss on debt extinguishment. As of June 30, 2017, and December 31, 2016, the principal amount of the note payable was $1,198,883.

Shares Issued for Stock Subscription

For the six months ended June 30, 2017, we issued 6,275,000 shares of our common stock for net proceedsunderlying the warrants were granted by us, and will be issued by us, in transactions not involving any public offering).

On November 28, 2017, we granted warrants to a note holder to purchase up to 6,667 shares of $430,000.our common stock. The warrants are exercisable at an average price of $3.75 per share and will expire starting in September 2022. The grant of the warrants and the shares of our common stock underlying the warrants is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants granted sold by us, and will be issued by us, in transactions not involving any public offering).

 

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Shares Issued for Conversion of Note Payable

Shares Issued from Conversion of Note Payable. On June 7,December 5, 2017, we entered into a Satisfaction Agreement with Lucas Hoppel (the “Buyer”), pursuantgranted warrants to which we converted a $92,400 note payableholders to him into 462,000purchase up to 160,000 shares of our common stock. The warrants are exercisable at an average price of $1.65 per share and will expire starting in December 2022. The grant of the warrants and the shares of our common stock (the “Shares”). Inunderlying the event the Buyer did not realize sufficient proceeds through sales of the Shares equal to or greater than $92,400, after deduction of reasonable sale transaction-related expenses, we agreed to issue additional shares to make up the deficiency or to pay such deficiency in cash, at our option. We agreed that this “Make Whole” provision shall expirewarrants is and will be of no further force and effect on the date the sum of net proceeds realized from the sale of the initial issuance of 462,000 shares is equal to or great than $92,400; or any deficiency is paid in cash by us at our option; or June 7, 2018, whichever occurs first. On September 25, 2017, the Buyer notified us that note was satisfied in full and the Make Whole provision was deemed null and void and of no further force and effect. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

Stock Options Issued

For the six months ended June 30, 2017, the Company approved and granted 5,500,000 non-qualified stock options to employees and 2,000,000 to a Director with an aggregate fair value of $684,787. Each exercisable into one share of our common stock and vest 100% in three years from the grant date.

For the six months ended June 30, 2017, the Company approved and granted 5,000,000 non-qualified stock options to consultants with an aggregate fair value of $1,228,046. Each exercisable into one share of our common stock. The options vest based on consultant achieving quantifiable milestones. As of June 30, 2017, the Company determined that the probability of the consultants achieving these milestones was probable. As a result, the Company record compensation expense of $56,335 to account the estimated 296,527 options that vest.

Shares Issued to Officers, Directors, or Advisory Board Members

Effective May 4, 2017, we entered into a three-year employment agreement with our Chief Financial Officer. As part of the employment agreement we issued 500,000 restricted shares of our common stock with a fair value of $177,500 and 500,000 non-qualified options that vest annually over 3 years with an exercise price per share of $.355.

Preferred Stock Issued

Effective February 14, 2017, we entered into a Securities Purchase Agreement, (the “Purchase Agreement”), by and between an otherwise unaffiliated, accredited investor (the “Purchaser”) and us in connection with our issuance and sale to the Purchaser of shares of Series A Preferred Stock under the terms and conditions as set forth in the Purchase Agreement (the “Sale”).

In connection with the Sale, our Board of Directors (our “Board”) authorized and approved a series of preferred stock to be known as “Series A Convertible Preferred Stock”, for which 1,050,000 shares, $0.0001 par value per share, were authorized and a Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, (the “Certificate”), was filed with the Office of the Secretary of State of the State of Nevada (the “State”) to effectuate the authorization. Pursuant to the Purchase Agreement, the purchase of shares of our Series A Preferred Stock may occur in several tranches (each, a “Tranche”; and, collectively, the “Tranches”). The First Tranche of $300,000 ($315,000 in stated value, represented by 315,000 shares of our Series A Preferred Stock) closed simultaneously with the execution of the Purchase Agreement on February 14, 2017, and each additional Tranche shall close at such times and on such financial terms as may be agreed to by the Purchaser and us. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

 II-5

2016 Sales of Equity

Shares Issued to Officers, Directors, or Advisory Board Members

Effective September 14, 2016, we issued 750,000 shares of our company’s common stock to James P. Geiskopf, a director of our company, as compensation for additional services provided and to be provided to our company by Mr. Geiskopf in the newly expanded role of Lead Director. Mr. Geiskopf is an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing the shares to him, we relied on the exemptionexempt from the registration requirements of the Securities Act providedpursuant to Section 4(a)(2) of the Securities Act (in that the warrants and the shares of our common stock underlying the warrants were granted by Rule 506us, and will be issued by us, in transactions not involving any public offering).

Grants of Regulation D promulgated thereunder and/orStock Options

On January 10, 2017, we granted non-qualified stock options to employees to purchase up to 333,333 shares of our common stock, and granted a stock option to a director to purchase up to 133,333 shares of our common stock for services rendered. The total fair value of these options at the grant date was approximately $521,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The options have an exercise price of $1.20 per share and vest upon the third anniversary of the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On April 28, 2017, we granted stock options to a consultant to purchase up to 66,667 shares of our common stock for services rendered. The options have an exercise price of $3.60 per share, have a five-year term, and vest on performance. The total fair value of these options at the grant date was approximately $221,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

 

On May 2, 2016,4, 2017, we granted 600,000stock options to an employee to purchase up to 33,333 shares of our common stock to both Dan Fleyshmanfor services rendered. The options have an exercise price of $5.40 per share, have a five-year term, and Branden Hamptonvest over a period of three years from the grant date. The total fair value of these options at the grant date was approximately $164,000, which was based upon the closing price of our common stock as compensation for joining our Advisory Board. In issuingreported by the OTCQB on the grant date. The grant of the options and the issuance of the shares to these individuals, we relied onof our common stock underlying the exemptionoptions is and will be exempt from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/orpursuant to Section 4(a)(2) of the Securities Act.

 

Effective April 4, 2016,On June 29, 2017, we issued 500,000granted stock options to a consultant to purchase up to 133,333 shares of our common stock to James P. Geiskopf,for services rendered. The options have an exercise price of $4.80 per share, have a directorfive-year term, and vest based on performance. The total fair value of these options at the grant date was approximately $591,000, which was based upon the closing price of our company,common stock as compensation for services provided and to be provided to our company during 2016. Mr. Geiskopf is an accredited investor (as that term is defined in Regulation Dreported by the OTCQB on the grant date. The grant of the Securities Act),options and in issuingthe issuance of the shares to him, we relied onof our common stock underlying the exemptionoptions is and will be exempt from the registration requirements of the Securities Act providedpursuant to Section 4(a)(2) of the Securities Act.

On August 1, 2017, we granted stock options to an employee and a consultant to purchase up to 46,667 shares of our common stock for services rendered. The options have an exercise price of $3.75 per share, have a five-year term, and vest over a period of three years from grant date. The total fair value of these options at the grant date was approximately $98,000, which was based upon the closing price of our common stock as reported by Rule 506the OTCQB on the grant date. The grant of Regulation D promulgated thereunder and/orthe options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

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On August 15, 2017, we granted stock options to an employee and a consultant to purchase up to 86,667 shares of our common stock for services rendered. The options have an exercise price of $3.75 per share, have a five-year term, and vest over a period of three years from grant date. The total fair value of these options at the grant date was approximately $132,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On October 2, 2017, we granted stock options to an employee to purchase a total of 26,667 shares of our common stock for services rendered. The options have an exercise price of $3.75 per share, have a five-year term, and vest over a period of three years from grant date. The total fair value of these options at the grant date was approximately $30,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On November 22, 2017, we granted stock options to a consultant to purchase a total of 4,000 shares of our common stock for services rendered. The options have an exercise price of $3.75 per share, have a five-year term, and vest over a period of six-months from grant date. The total fair value of these options at the grant date was approximately $6,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

On December 19, 2017, we granted stock options to an employee to purchase a total of 16,667 shares of our common stock for services rendered. The options have an exercise price of $1.20 per share, have a five-year term. At the grant date, 50% of the shares immediately vested, with the remaining 50% of the shares vesting on the anniversary of the grant date. The total fair value of these options at the grant date was approximately $18,000, which was based upon the closing price of our common stock as reported by the OTCQB on the grant date. The grant of the options and the issuance of the shares of our common stock underlying the options is and will be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act.

 

Shares Issued for ServicesPreferred Stock Issuances

On August 15, 2016,February 14, 2017, we issued 800,000 “restricted”entered into a securities purchase agreement with an unaffiliated, accredited investor for the sale and issuance of our Series A Preferred Stock. Pursuant to the terms of the securities purchase agreement, the Series A Preferred Stock purchaser agreed to purchase up to 1,050,000 shares of our common stock, as that term is definedSeries A Preferred Stock valued at $1,050,000. The aggregate amount of consideration to be received by Rule 144 underus in exchange for the Securities Actissuance of 1933, as amended (the “Securities Act”), to International Monetary for investor relations services as well as certain corporate finance advisory services. IM is a U.S. Person (as that term is defined in Regulation S of the Securities Act) and an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing securities to such person, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.

We issue common shares to consultants and vendors for services rendered that are expensed based on fair market value of the stock on the date of grant, or as the services were performed. For the year ended December 31, 2016, we issued 6,388,3341,050,000 shares of our common stock for services and recorded stock compensation expense of $726,789.

Effective July 12, 2016, our board approved the execution of a term sheet with a consultant in which the consultant will receive 5,000,000 restricted common shares that vest over 3 years in increments of 1,666,667 shares every year The shares are being valued at the trading price of our common shares as of the date the shares vest.Series A Preferred Stock was $1,000,000. During the year ended December 31, 2016,2018, we recognized a cost of $90,500 relatedissued 630,000 shares Series A Preferred Stock pursuant to the 765,000 shares earned during the period. Assecurities purchase agreement and received consideration of $555,000, representing a discount of $75,000. We offered and sold the shares have not yet vested, they are not being reflected as outstanding at December 31, 2016. In addition,in reliance on the consultant will receive cash compensation equalexemptions from registration pursuant to 50% of “net revenue” generated through a to-be-formed wholly owned subsidiary “through which mutually approved booth related opportunities will be conducted”.

Shares Issued Pursuant to a Note

Effective December 30, 2016, we entered into an extension agreement with Oceanside to extend the maturity dateSection 4(a)(2) of the note to August 4, 2017. All other termsSecurities Act (in that the shares of the note remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to August 4,Series A Preferred Stock were sold in transactions not involving any public offering). At various times during fiscal year 2017, we issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019.

On December 15, 2016, we entered into an agreement with Lucas Holdings as “buyer”, whereby we agreed to issue and sell to the buyer (i) a non-interest bearing Note in the principal amount of $250,000 for proceeds to be paid in tranches, (ii) Warrants, and (iii) shares of our common stock. The “Maturity Date” shall be six months from the issuance date of proceeds under the Note. A one-time interest charge of five percent 5% is to be applied on the issuance date to the original principal amount. In addition, there is a 10% original issue discount that is to be prorated based on the consideration paid by the buyer. On December 16, 2016, the buyer purchased for $80,000 the first tranche of the Note and (i) a three-year warrant to acquire 176,000190,800 shares of our common stock with an exercise priceupon the conversion of $0.25 per share, and (ii) 240,000these shares of our common stock. Upon the occurrence of an event of default, the buyer shall have the right, but not the obligation, to convert the outstanding balance intoSeries A Preferred Stock. The 2,190,800 shares of our common stock athad a “conversion price” equalfair value of $304,000. The shares of our common stock were offered and sold in reliance on the exemptions from registration pursuant to 70%Section 4(a)(2) of the average volume weighted average price forSecurities Act (in that the twenty trading days immediately preceding the applicable conversion date. We didshares were sold in transactions not account for the conversion feature of the note as it is a contingent event that is payable only upon default of the note. It is our current intention to pay the note off before maturity.involving any public offering).

 

 II-6II-36 
  

Effective April 4, 2016, we issued an unsecured convertible note payable to Oceanside Strategies, Inc. (“Oceanside”) in the amount of $680,268.50 (the “Note”). The Note superseded and replaced all previous notes and liabilities due to Oceanside for sums Oceanside loaned to our company in 2014 and 2015. The Note bears interest at the rate of 12% per annum, compounded annually and had a maturity date of December 4, 2016. In consideration for Oceanside’s agreement to convert all prior notes from current demand notes and extend the maturity date to December 4, 2016, we granted Oceanside the right to convert up to 30% of the amount of the Note into shares of our company’s common stock at $0.07 per share and we issued 2,429,530 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 25% of the amount of the Note. The Note was issued to Oceanside, a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act.

Effective April 4, 2016, we issued a secured convertible note to Rory J. Cutaia, the Chief Executive Officer and a director of our company, in the amount of $343,325.56, which represents additional sums that Mr. Cutaia advanced to our company during the period from December 2015 through March 2016, and is addition to all pre-existing loans made by, and notes held by Mr. Cutaia. This note bears interest at the rate of 12% per annum, compounded annually. In consideration for Mr. Cutaia’s agreement to extend the repayment date to August 4, 2017, we granted Mr. Cutaia the right to convert up to 30% of the amount of the such note into shares of our company’s common stock at $0.07 per share and issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50% of the amount of such note. Mr. Cutaia is an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing the shares to him, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. In connection with the issuance of this note, we entered into a security agreement whereby we granted security over all of our company’s assets as security for repayment of the note.

Effective April 4, 2016, we also issued an unsecured convertible note payable to Mr. Cutaia in the amount of $121,875.00, which represents the amount of the accrued but unpaid salary owed to Mr. Cutaia for the period from December 2015 through March 2016. In consideration for Mr. Cutaia’s agreement to extend the payment date to August 4, 2017, we granted Mr. Cutaia the right to convert the amount of the such note into shares of our company’s common stock at $0.07 per share. This note bears interest at the rate of 12% per annum, compounded annually. Mr. Cutaia is an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing the shares to him, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.

Stock Options Issued

Effective May 12, 2016, we issued 750,000 options to purchase shares of our company’s common stock at an exercise price equal to $0.095 per share, representing the then current closing price of the stock on the date of issuance, to James P. Geiskopf, a director of our company, as compensation for services to be provided to our company through 2017. The options are subject to a vesting schedule, vesting on December 31, 2017. Mr. Geiskopf is an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing the options to him, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.

 II-7

Effective May 12, 2016, we issued 1,250,000 options to purchase shares of our company’s common stock at an exercise price equal to $0.095 per share, representing the then current closing price of the stock on the date of issuance, to Rory J. Cutaia, Chief Executive Officer and a director of our company, as additional compensation for services to be provided to our company through 2017 and in consideration for the deferment of agreed-to cash compensation. The options are subject to a vesting schedule, vesting on December 31, 2017. Mr. Cutaia is an accredited investor (as that term is defined in Regulation D of the Securities Act), and in issuing the options to him, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act.

During 2016 we issued an additional 3,860,000 qualified stock options.

During 2016 the 2,958,297 qualified stock options were forfeited.

Shares Issued for Stock Subscription

On April 4, 2016, we sold pursuant to private placement subscription agreement, an aggregate of 5,722,222 shares of our company’s common stock, at a price of $0.045 per share, for aggregate gross proceeds of $257,500 to four purchasers. One of the purchasers was a U.S. Person (as that term is defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”)) and an accredited investor (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such person, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public. Three of the purchasers were non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the securities were offered in an offshore transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act.

On May 16, 2016, we sold pursuant to private placement subscription agreements, an aggregate of 12,375,555 shares of our company’s common stock, at a price of $0.045 per share, for aggregate gross proceeds of $556,900 to nine purchasers. Six of the purchasers were U.S. Persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”)) and accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public. Three of the purchasers were non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the securities were offered in an offshore transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act.

On September 16, 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 8,763,001 shares of our company’s common stock, at a price of $0.06 per share, for aggregate gross proceeds of $525,780 to five purchasers. All of the purchasers were accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

In May 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 1,224,777 shares of our company’s common stock, at a price of $0.045 per share, for aggregate gross proceeds of $77,600 to five purchasers, two of which were U.S. Persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”)) and accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

 II-8

In June 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 1,100,000 shares of our company’s common stock, at a price of $0.045 per share, for aggregate gross proceeds of $49,500 to three purchasers. All of the purchasers were accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

In July 2016 we sold, pursuant to private placement subscription agreements, an aggregate of 1,650,000 shares of our company’s common stock, at a price of $0.045 per share, for aggregate gross proceeds of $74,250 to two purchasers. All of the purchasers were accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

On September 16, 2016, we sold, pursuant to private placement subscription agreements, an aggregate of 500,000 shares of our Company’s common stock, at a price of $0.05 per share, for aggregate gross proceeds of $25,000 to two purchasers. All of the purchasers were accredited investors (as that term is defined in Regulation D of the Securities Act). In issuing the shares to such persons, we relied on the exemption from the registration requirements of the Securities Act provided by Rule 506 of Regulation D promulgated thereunder and/or Section 4(a)(2) of the Securities Act. We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

Stock Repurchases

On January 28, 2016, we entered into stock repurchase agreements (the “Repurchase Agreements”) with three former employees and consultants to acquire an aggregate total of 9,011,324 shares of our common stock. Pursuant to the terms of the Repurchase Agreements, we had the right to purchase the shares at a price of $0.02 per share on or before April 15, 2016. In accordance with the terms of the Repurchase Agreements, the Company repurchased 8,311,324 shares for total of $166,226 during the year ended December 31, 2016.

2015 Sales of Equity

Shares Issued for Settlement of a Claim

On April 29, 2015, we issued 320,000 shares of common stock to Art Malone Jr., at a deemed price of $0.50 per share, in full settlement and release of a claim he had on certain assets acquired from Songstagram. The shares were issued pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933 as Mr. Malone was an “accredited investor” as such term is defined in Regulation D.We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

On March 10, 2015, we issued 500,000 shares of common stock to Jeff Franklin, at a deemed price of $0.50 per share, in full settlement and release of a claim he had on certain assets acquired from Songstagram. The shares were issued pursuant to Rule 506 of Regulation D promulgated under the Securities Act, as Mr. Franklin was an “accredited investor” as such term is defined in Regulation D.We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

Shares Issued Pursuant to a Note

Effective March 20, 2015, we issued a note in the principal amount of $125,000 and 24,000 common stock purchase warrants to a third-party lender, and 24,000 common stock purchase warrants to DelMorgan Group LLC. The securities were issued pursuant to Rule 506 of Regulation D promulgated under the Securities Act and/or Section 4(a)(2) of the Securities Act, as the lender and DelMorgan Group LLC were both “accredited investors” as such term is defined in Regulation D.We did not engage in any general solicitation or advertising with regard to the issuance and sale of these securities and did not offer the securities to the public.

 II-9

On various dates during our fiscal year ended December 31, 2015, Rory J. Cutaia, our majority stockholder and Chief Executive Officer, loaned to us an aggregate principal amount of $1,203,242. The loans were unsecured, due on demand, and bore interest at 12% per annum. On December 1, 2015, we entered into a Secured Convertible Note in favor of Mr. Cutaia, whereby all outstanding principal and accrued interest owed to Mr. Cutaia from previous loans, which amounted to an aggregate of $1,248,883 were consolidated under a note payable agreement, bearing interest at 12% per annum, and with a new maturity date of April 1, 2017. In consideration for Mr. Cutaia’s agreement to consolidate the loans and extend the maturity date, we granted Mr. Cutaia a senior security interest in substantially all current and future assets of ours. Per the terms of the agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665 of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07 per share. On April 4, 2016 $50,000 of this note was converted into another note (see below).

On December 1, 2015, we entered into an Unsecured Convertible Note in favor of Mr. Cutaia in the amount of $189,000, bearing interest at 12% per annum, representing a portion of Mr. Cutaia’s accrued salary for 2015. The note extends the payment terms to a new maturity date of on April 1, 2017. The outstanding principal and accrued interest may be converted at Mr. Cutaia’s discretion into shares of our common stock at a conversion rate of $0.07.

On December 1, 2015, we entered into an Unsecured Note in favor of a consulting firm owned by Michael Psomas, a former member of our Board of Directors, in the amount of $111,901 representing unpaid fees earned for consulting services previously rendered but unpaid as of November 30, 2015. The outstanding amounts bear interest at 12% per annum, and are due in full on April 1, 2017.

In 2015, we granted 8,920,593 warrants to Mr. Cutaia and 799,286 warrants to Mr. Psomas as consideration for their extension of their respective notes payable balances to a maturity date of April 1, 2017. The warrants are immediately vested and have an exercise price of $0.07 and expire on November 30, 2018. The warrants have been valued using the Black-Scholes valuation model and have an aggregate value of $424,758. The value has been recorded as a discount to the outstanding notes payable – related parties on the accompanying consolidated balance sheet, and was being amortized into interest expense over the extended maturity periods of April 1, 2017.

Warrants Issued to a Consultant

On October 30, 2015, we granted warrants to a consultant to purchase up to 600,000 shares of our common stock at an exercise price of $0.50 per share. The warrants expire on October 30, 2020 and were fully vested on the grant date. The total share based compensation expense recognized relating to these warrants for the year ended December 31, 2015 amounted to $20,719.

Shares Issued to Employees

On July 18, 2015, we issued an aggregate of 1,215,000 shares of restricted common stock as compensation to certain employees, which were fully vested as of December 31, 2015. The Company recorded a total of $607,500 of share-based compensation expense during the year ended December 31, 2015 for these issuances.

Shares Issued to Board of Directors

On July 21, 2015, we issued an aggregate of 600,000 shares of restricted common stock as compensation to members of our Board of Directors. The shares vest over an 18-month period from the issuance date. On December 1, 2015, we granted an additional 500,000 shares of restricted common stock as compensation to a Board member, which was immediately fully vested. We recorded a total of $123,909 of share-based compensation expense during the year ended December 31, 2015 for these grants. In October 2015, we issued 100,000 shares of common stock to a vendor for services to be provided pursuant to a services contract extending for 6 months through April 9, 2016. We also issued a vendor 24,000 shares of common stock as compensation. We recorded a total of $34,678 of share-based compensation expense during the year ended December 31, 2015 for this contract.

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Stock Options IssuesItem 16. Exhibits and Financial Statement Schedules.

During our 2015 fiscal year, we issued an additional 3,350,000 qualified stock options.

 

During our 2015 fiscal year, 2,163,750 qualified stock options were forfeited.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) Exhibits.

 

See the Exhibit Index onimmediately before the page immediately following the signature page for a list of exhibits filed as part of this RegistrationSignature Pages.

(b) Financial Statement on Form S-1.Schedules.

 

All financial statement schedules arehave been omitted because they are either inapplicable or the required information required to be set forth therein is not applicable or is shownhas been given in the financial statements or the notes thereto.

 

ITEMItem 17. UNDERTAKINGSUndertakings.

 

The undersigned Registrantregistrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:statement:

 

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act.Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20%20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee”fee” table in the effective registration statement; and

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;statement.

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of thesuch securities at that time shall be deemed to be the initial bona fide offering thereof;thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;offering.

 

(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser eachin the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.424;

 

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Insofar as indemnification for liabilities arising under(ii) Any free writing prospectus relating to the Securities Act may be permitted to directors, officers and controlling personsoffering prepared by or on behalf of the Registrant pursuantundersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the foregoing provisions,offering containing material information about the undersigned registrant or otherwise,its securities provided by or on behalf of the Registrant has been advisedundersigned registrant; and

(iv) Any other communication that is an offer in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the paymentoffering made by the Registrant of expenses incurred or paid by a director, officer or controlling person ofundersigned registrant to the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.purchaser.

 

The undersigned Registrantregistrant hereby undertakes that, that:

(1) forFor purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrantregistrant pursuant to Rule 424(b)(1) or (4) or 497(h)497 (h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective,effective; and

(2) forFor the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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EXHIBIT INDEX

    Where Located
Exhibit Number Description* Form 

File

Number

 

Exhibit

Number

 Filing Date 

Filed

Herewith

             
1.1 Form of Underwriting Agreement         X
             
3.1 Articles of Incorporation as filed with the Secretary of State of the State of Nevada on November 27, 2012 S-1 333-187782 3.1 04/08/2013  
             
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, 2019 S-1/A 333-226840 3.9 03/14/2019  
             
3.10 Articles of Merger of Sound Concepts, Inc. with and into NF Merger Sub, Inc. as filed with the Utah Division of Corporations and Commercial Code on April 12, 2019 10-Q 001-38834 3.10 05/15/2019  

II-39

3.11 Statement of Merger of Verb Direct, Inc. with and into NF Acquisition Company, LLC as filed with the Utah Division of Corporations and Commercial Code on April 12, 2019 10-Q 001-38834 3.11 05/15/2019  
             
3.12 Certificate of Withdrawal of Certificate of Designation of Series A Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on August 10, 2018 S-1 333-226840 4.28 08/14/2018  
             
3.13 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 10-Q 001-38334 3.12 08/14/2019  
             
4.1 Common Stock Purchase Warrant (First Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC 8-K 001-38834 4.1 10/02/2017  
             
4.2 Common Stock Purchase Warrant (Second Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC 8-K 001-38834 4.2 10/02/2017  
             
4.3 Common Stock Purchase Warrant (Third Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC 8-K 001-38834 4.3 10/02/2017  
             
4.4 Common Stock Purchase Warrant dated December 5, 2017 issued to EMA Financial, LLC 8-K 001-38834 10.3 12/14/2017  
             
4.5 Common Stock Purchase Warrant dated December 5, 2017 issued to Auctus Fund, LLC 8-K 001-38834 10.6 12/14/2017  
             
4.6 Common Stock Purchase Warrant dated January 11, 2018 issued to EMA Financial, LLC 8-K 001-38834 10.3 01/26/2018  

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4.7 Common Stock Purchase Warrant dated January 10, 2018 issued to Auctus Fund, LLC 8-K 001-38834 10.6 01/26/2018  
             
4.8 Convertible Promissory Note dated October 30, 2018 in favor of Ira Gains. 10-K 001-38834 4.31 02/07/2019  
             
4.9 Convertible Promissory Note dated October 30, 2018 in favor of Gina Trippiedi 10-K 001-38834 4.32 02/07/2019  
             
4.10 5% Original Issue Discount Promissory Note due August 1, 2019 issued in favor of Bellridge Capital, LP 10-K 001-38834 4.33 02/07/2019  
             
4.11 Form of Investor Common Stock Purchase Warrant S-1/A 333-226840 4.34 04/02/2019  
             
4.12 Form of Underwriter’s Common Stock Purchase Warrant S-1/A 333-226840 4.35 04/02/2019  
             
4.13 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  
             
4.14 Form of Common Stock Purchase Warrant 10-Q 001-38834 4.37 08/14/2019  
             
4.15 Verb Technology Company, Inc. 2019 Omnibus Incentive Plan# S-8 333-235684 4.13 12/23/2019  
             
4.16 Form of Common Stock Purchase Warrant (granted by the Company in February 2020 and March 2020) 8-K 001-38834 4.38 02/25/2020  
             
4.17 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  
             
5.1 Opinion of Troutman Sanders LLP         X
             
10.1 2014 Stock Option Plan# 8-K 001-38834 10.1 10/22/2014  

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10.2 Executive Employment Agreement dated December 20, 2019 by and between the Company and Rory J. Cutaia# 10-K 001-38834 10.2 05/14/2020  
             
10.3 Settlement and Release Agreement dated February 6, 2015, by and among Songstagram, Inc., Jeff Franklin, and the Company 8-K 001-38834 10.1 03/09/2015  
             
10.4 Form of Option Agreement for Messrs. Geiskopf and Cutaia# 8-K 001-38834 10.2 05/19/2016  
             
10.5 Form of Stock Option Agreement between Jeffrey R. Clayborne and the Company# 8-K 001-38834 10.2 05/19/2016  
             
10.6 Securities Purchase Agreement dated February 13, 2017, by and between the Company and certain purchasers named therein 8-K 001-38834 10.1 02/21/2017  
             
10.7 Equity Purchase Agreement, as corrected, dated September 15, 2017, by and between the Company and Kodiak Capital Group, LLC 8-K/A 001-38834 10.1 10/27/2017  
             
10.8 Registration Rights Agreement dated September 15, 2017, by and between the Company and Kodiak Capital Group, LLC 8-K 001-38834 10.2 10/02/2017  
             
10.9 Securities Purchase Agreement dated December 5, 2017, by and between the Company and EMA Financial, LLC 8-K 001-38834 10.1 12/14/2017  
             
10.10 Securities Purchase Agreement, dated December 5, 2017, by and between the Company and Auctus Fund, LLC 8-K 001-38834 10.4 12/14/2017  
             
10.11 Securities Purchase Agreement dated December 13, 2017, by and between the Company and PowerUp Lending Group, LTD 8-K 001-38834 10.7 12/14/2017  
             
10.12 Securities Purchase Agreement dated January 11, 2018, by and between the Company and EMA Financial, LLC 8-K 001-38834 10.1 01/26/2018  

II-42

10.13 Securities Purchase Agreement, dated January 10, 2018, by and between the Company and Auctus Fund, LLC 8-K 001-38834 10.4 01/26/2018  
             
10.14 SuiteCloud Developer Network Agreement, dated January 2, 2018, by and between the Company and Oracle 8-K 001-38834 10.1 04/23/2018  
             
10.15 Lease Agreement, dated June 22, 2017, by and between La Park La Brea B LLC and the Company S-1 333-226840 10.33 08/14/2018  
             
10.16 Renewal Amendment of Lease Agreement, dated May 1, 2018, by and between La Park La Brea B LLC and the Company S-1 333-226840 10.34 08/14/2018  
             
10.17 Adobe Marketo LaunchPoint Accelerate Program Agreement, dated April 1, 2018, by and between the Company and Adobe Marketo S-1 333-226840 10.35 08/14/2018  
             
10.18 Securities Purchase Agreement dated October 19, 2018 8-K 001-38834 10.36 10/25/2018  
             
10.19 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  
             
10.20 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  
             
10.21 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  

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10.22 Securities Purchase Agreement dated February 1, 2019 by and between the Company and Bellridge 10-K 001-38834 10.40 02/07/2019  
             
10.23 Lock-Up Agreement dated October 30, 2018, by and between the Company and Ira Gaines. 10-K 001-38834 10.41 02/07/2019  
             
10.24 Lock-Up Agreement dated October 30, 2018, by and between the Company and Gina Trippiedi 10-K 001-38834 10.42 02/07/2019  
             
10.25 Partner Application Distribution Agreement dated February 4, 2019, by and between the Company and Salesforce.com, Inc. 10-K 001-38834 10.43 02/07/2019  
             
10.26 Service Agreement dated December 21, 2018, by and between the Company and Major Tom Agency Inc. 10-K 001-38834 10.44 02/07/2019  
             
10.27 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  
             
10.28 Warrant Agent Agreement dated April 4, 2019 by and between the Company and VStock Transfer, LLC 8-K 001-38834 10.1 04/05/2019  
             
10.29 Short-Term Demand Promissory Note of the Company in favor of David Martin dated March 22, 2019 S-1/A 333-226840 10.47 04/02/2019  
             
10.30 Short-Term Demand Promissory Note of the Company in favor of Amin Somani dated April 2, 2019 10-Q 001-38834 10.48 05/15/2019  
             
10.31 Demand Promissory Note of the Company in favor of Adam Wolfson dated April 30, 2019 10-Q 001-38834 10.49 05/15/2019  

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10.32 Short-Term Demand Promissory Note of the company in favor of Amin Somani dated March 29, 2019 10-Q 001-38834 10.50 08/14/2019  
             
10.33 Amendment to Short-Term Promissory Note of the Company in favor of Amin Somani dated July 10, 2019 10-Q 001-38834 10.51 08/14/2019  
             
10.34 Amendment to Short-Term Demand Promissory Note of the Company in favor of Amin Somani dated July 10, 2019 10-Q 001-38834 10.52 08/14/2019  
             
10.35 Amendment to Short-Term Demand Promissory Note of the Company in favor of Adam Wolfson dated July 29, 2019 10-Q 001-38834 10.53 08/14/2019  
             
10.36 First Amendment to Lease dated June 2, 2019 by and between the Company and NPBeach Marina LLC 10-Q 001-38834 10.54 08/14/2019  
             
10.37 Extension Letter from the Company to NPBeach Marina LLC dated March 26, 2019 10-Q 001-38834 10.55 08/14/2019  
             
10.38 Securities Purchase Agreement dated August 14, 2019 between the Company and certain purchasers identified therein 10-Q 001-38834 10.56 08/14/2019  
             
10.39 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  
             
10.40 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  

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10.41 Form of Subscription Agreement (February and March 2020) entered into by the Private Placement investors and the Company 8-K 001-38834 10.59 02/25/2020  
             
10.42 Promissory Note by Verb Technology Company, Inc. in favor of Zions Bancorporation, N.A. dated April 17, 2020 8-K 001-38834 10.1 05/14/2020  
             
10.43 Form of Indemnity Agreement between Verb Technology Company, Inc. and each of its Executive Officers and Directors# 10-K/A 001-38834 10.43 06/04/2020  
             
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         X
             
23.2 Consent of Troutman Sanders LLP (included in Exhibit 5.1 hereto)         X
             
24.1 Power of Attorney (included on the signature page to this Registration Statement) S-1 333-239055 24.1 06/09/2020  
             
101.INS Inline XBRL Instance Document         X
             
101.SCH Inline XBRL Taxonomy Extension Schema         X
             
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase         X
             
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase         X
             
101.LAB Inline XBRL Taxonomy Extension Label Linkbase         X
             
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase         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.

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Los Angeles,the City of Newport Beach, State of California, on October 27 , 2017.this 7th day of July, 2020.

 

 nFÜSZ, INC.
By: /s/Rory J. Cutaia
Rory J. Cutaia
Chief Executive Officer

Verb Technology Company, Inc.,

a Nevada corporation

   
 By:/s/ Jeff ClayborneRORY J. CUTAIA
  Jeff ClayborneRory J. Cutaia
  President, Chief FinancialExecutive Officer, Secretary and Director

NOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Rory J. Cutaia, as his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing pursuant to Rule 462(b) promulgated under the Securities Act and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of the, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature Title Date
/s/ RoryRORY J. CutaiaCUTAIA President,Chief Executive Officer and Director (Principal Executive Officer) October 27July 7,, 20172020
Rory J. Cutaia(principal executive officer), Secretary and Director
*Lead DirectorJuly 7, 2020
James P. Geiskopf    
     
/s/ Jeffrey R. Clayborne* Chief Financial Officer (Principal Financial(principal financial and Accounting Officer) October 27, 2017July 7,2020
Jeffrey R. Clayborneaccounting officer) and Treasurer
*DirectorJuly 7,2020
Philip J. Bond    
     
/s/ James P. Geiskopf * Lead Director October 27, 2017July 7,2020
James P. GeiskopfKenneth S. Cragun
*DirectorJuly 7,2020
Nancy Heinen
*DirectorJuly 7,2020
Judith Hammerschmidt
* /s/ RORY J. CUTAIA

Rory J. Cutaia, Attorney-In-Fact

    

 

 II-13II-47
 

 

EXHIBIT INDEX

Exhibit No.Description
2.1(2)Share Exchange Agreement dated as of August 11, 2014 by and among Global System Designs, Inc., bBooth (USA), Inc. (formerly bBooth, Inc.) and the stockholders of bBooth (USA), Inc. (formerly bBooth, Inc.)
3.1(1)Articles of Incorporation
3.2(1)Bylaws
3.3(2)Certificate of Change
3.4(2)Articles of Merger
4.1(13)Common Stock Purchase Warrant (First Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC
4.2(13)Common Stock Purchase Warrant (Second Warrant dated September 15, 2017, issued to Kodiak Capital Group, LLC
4.3(13)Common Stock Purchase Warrant (Third Warrant) dated September 15, 2017, issued to Kodiak Capital Group, LLC
4.4(13)Promissory Note (Commitment Note), dated September 15, 2017, to Kodiak Capital Group, LLC
4.5(13)Promissory Note (First Note), dated September 15, 2017, to Kodiak Capital Group, LLC
4.6(13)Promissory Note (Second Note), dated September 15, 2017, issued to Kodiak Capital Group, LLC
5.1(14)TroyGould PC legal opinion
10.1(2)2014 Stock Option Plan
10.2(3)Employment Agreement – Rory Cutaia
10.3(4)12% Secured Convertible Note Issued to Rory J. Cutaia
10.4(4)Security Agreement Issued to Rory J. Cutaia in Connection with 12% Secured Convertible Note
10.5(4)12% Unsecured Convertible Note issued to Rory J. Cutaia
10.6(4)12% Unsecured Note issued to Audit Prep Services, LLC
10.7(5)Form of Stock Repurchase Agreements
10.8(6)Form of Private Placement Subscription Agreement
10.9(6)Form of 12% Secured Convertible Note Issued to Rory J. Cutaia
10.10(6)Form of Security Agreement Issued to Rory J. Cutaia in Connection with 12% Secured Convertible Note
10.11(6)Form of Warrant Agreement for Rory J. Cutaia
10.12(6)Form of 12% Unsecured Convertible Note issued to Rory J. Cutaia
10.13(6)Form of 12% Unsecured Convertible Note issued to Oceanside Strategies, Inc.
10.14(6)Form of Warrant Agreement for Oceanside Strategies, Inc.
10.15(7)Private Placement Subscription Agreement
10.16(7)Form of Option Agreement for Messrs. Geiskopf and Cutaia
10.17(7)July 12, 2016 Term Sheet with Nick Cannon

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Exhibit No.Description
10.18(8)Form of Option Agreement for Jeff Clayborne
10.19(9)Form of Engagement Agreement dated August 8, 201 between bBooth, Inc. and International Monetary
10.20(10)Private Placement Subscription Agreement
10.21(11)April 2016 12% Unsecured Convertible Note issued to Oceanside Strategies, Inc.
10.22(11)Extension Agreement and Amendment to 12% Unsecured Convertible Note issued to Oceanside Strategies, Inc.
10.23(11)Warrant Agreement for Oceanside Strategies, Inc.
10.24(12)Securities Purchase Agreement by and between the Company and the Purchaser, dated February 13, 2017
10.25(12)Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, dated February 13, 2017
10.26(12)Letter from Anton & Chia, LLP, dated February 15, 2017 to the Securities and Exchange Commission
10.27(12)Press release dated February 21, 2017
10.28(13)Equity Purchase Agreement dated September 15, 2017 between nFüsz, Inc. and Kodiak Capital Group, LLC
10.29(13)Registration Rights Agreement dated September 15, 2017 between nFüsz, Inc. and Kodiak Capital Group, LLC
10.30(14)Amendment to Registration Rights Agreement, dated October 12, 2017, between nFüsz, Inc. and Kodiak Capital Group, LLC
10.31(15)Corrected Equity Purchase Agreement dated September 15, 2017 between nFüsz, Inc. and Kodiak Capital Group, LLC
23.1(14)Consent of TroyGould PC (contained in the opinion filed as Exhibit 5.1 to our Company's Registration Statement on Form S-1 on October 13, 2017)
23.2(14)Consent of Weinberg & Company, P.A.
23.3(14)Consent of Anton & Chia, LLP

(1)Previously filed as an exhibit to our Company’s Registration Statement on Form S-1, on April 8, 2013, File Number 333-187782 and incorporated herein.
(2)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on October 22, 2014 and incorporated herein.
(3)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on November 24, 2014 and incorporated herein.
(4)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on December 1, 2015 and incorporated herein.
(5)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on January 28, 2016 and incorporated herein.
(6)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on April 4, 2016 and incorporated herein.
(7)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on May 5, 2016 and incorporated herein.
(8)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on July 12, 2016 and incorporated herein.
(9)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on August 8, 2016 and incorporated herein.
(10)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on September 14, 2016 and incorporated herein.
(11)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on January 7, 2017 and incorporated herein.
(12)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on February 14, 2017 and incorporated herein.
(13)Previously filed as an exhibit to our Company’s Current Report on Form 8-K on October 2, 2017 and incorporated herein.
(14)

Previously filed as an exhibit to our Company’s Registration Statement on Form S-1 on October 13, 2017 and incorporated herein.

(15)Previously filed as an exhibit to our Company’s Current Report on Form 8-K/A on October 27, 2017 and incorporated herein.

II-15