ITEM 1A. RISK FACTORS 7
ITEM 2. PROPERTIES 17
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. MINE SAFETY DISCLOSURES 17
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 31
ITEM 9A. CONTROLS AND PROCEDURES 31
ITEM 9B. OTHER INFORMATION 32
PART III 33
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 33
ITEM 11. EXECUTIVE COMPENSATION 38
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 56
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 56
CAUTIONARY
NOTE REGARDING Forward-Looking Statements
This
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (this “Annual Report”) contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements are subject to considerable
risks and uncertainties. These forward-looking statements are not historical facts but rather are plans and predictions based on
current expectations, estimates, and projections about our industry, our beliefs, and assumptions.
Forward-looking
statements relate to matters such as our industry, business plans and strategies, material contracts, key relationships, consumer behavior,
revenue, expenses, margins, profitability, capital expenditures, liquidity, capital resources and other operating information, and can
be identified by words such as “may,” “will,”
“could,” “should,” “anticipate,” “expect,” “intend,” “project,”
“plan,” “believe,” “seek,” “assume,” and variations of these words and similar expressions.
All of our forward-looking statements include assumptions underlying or relating to such statements that may cause actual
results to differ materially from those that we are currently expecting, and are subject to considerable risks and
uncertainties, including without limitation:
The
forward-looking statements contained in this Annual Report are based on management’s current plans, estimates and expectations
in light of information currently available to us, and they are subject to uncertainty and changes in circumstances. There can be no
assurance that future developments affecting us will be those we have anticipated. Actual results may differ materially from these expectations
due to changes in global, regional or local political, economic, business, competitive, market, regulatory
and other factors, many of which are beyond our control, as well as the other factors described in the section entitled “Risk
Factors” within this Annual Report and in the other reports we file with the Securities and Exchange Commission (“SEC”).
These risks and uncertainties include those described in the section entitled “Risk Factors.”
You
should not place undue reliance on these forward-looking statements. Our forward-looking statements are based on the information currently
available to us and speak only as of the date on which they were made. Additional factors or events that could cause our actual results
to differ may also emerge from time to time, and it is not possible for us to predict all of them. Over time, our actual results,
performance, or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might
be significant and materially adverse to our security holders. Comparisons of results for current and any prior periods are not intended
to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical
data. Except as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result
of new information, future events, or otherwise. We have identified some of the important factors that could cause future events to differ
from our current expectations and they are described in this Annual Report under the captions “Risk Factors,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in other
documents that we may file with the SEC, all of which you should review carefully. We qualify all of our forward-looking statements by
these disclaimers.
PART
I
ITEM
1. BUSINESS
Overview
We
are a Software-as-a-Service (“SaaS”) applications platform developer. Our platform is comprised of a suite of interactive,
video-based sales enablement business software products marketed on a subscription basis. Our applications, available in both mobile
and desktop versions, are offered as a fully integrated suite, as well as on a standalone basis, and include verbCRM, our white-labelled
Customer Relationship Management (“CRM”) application for large, sales-based enterprises; verbTEAMS, our CRM application for
small- and medium-sized businesses and solopreneurs; verbLEARN, our Learning Management System application, and verbLIVE, our Live Stream
eCommerce 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 on their
devices in real time, when and for how long their prospects have watched a video, how many times such prospects watched
it, and what they clicked on, which allows our users to focus their time and efforts on ‘hot leads’ or interested
prospects rather than on those that have not seen such video or otherwise expressed interest in such content. Users can create
their hot lead lists by using familiar, intuitive ‘swipe left/swipe right’ on-screen navigation. Our clients report
that these capabilities provide for a much more efficient and effective sales process, resulting in increased sales conversion
rates. We developed the proprietary patent-pending interactive video technology, as well as several other patent-issued and patent-pending
technologies that serve as the unique foundation for all our platform applications.
Our
Products
verbCRM
combines the capabilities of CRM lead-generation, content management, and in-video ecommerce capabilities in an intuitive, yet powerful
tool for both inexperienced as well as highly skilled sales professionals. verbCRM allows users to quickly and easily create, distribute,
and post videos to which they can add a choice of on-screen clickable icons which, when clicked, allow viewers to respond to the user’s
call-to-action in real-time, in the video, while the video is playing, without leaving or stopping the video. For example, our technology
allows a prospect or customer to click on a product they see featured in a video and impulse buy it, or to click on a calendar icon in
the video to make an appointment with a salesperson, among many other 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 and adapts them for use by educators for video-based education. verbLEARN is used by enterprises seeking
to educate a large sales team or a customer base about new products, or elicit feedback about existing products. It also incorporates
Verb’s proprietary data collection and analytics capabilities that inform users in real time when and for how long the viewers
watched the video, how many times they watched it, and what they clicked on, in addition to adding gamification features that
enhance the learning aspects of the application.
verbLIVE
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 live stream platform that allows
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. A mobile app-based version of verbLIVE, with enhanced features, is currently
in development and is expected to be released in early second quarter of 2021.
verbTEAMS
is our interactive, video-based CRM for small-and medium-sized businesses and solopreneurs. verbTEAMS also incorporates verbLIVE
as a bundled application. verbTEAMS incorporates self-sign-up, self-onboarding, self-configuring, content management system capabilities,
user level administrative capabilities, and high-quality analytics capabilities in both mobile and desktop platforms that sync with one
another. It also has a built-in one-click sync capability with Salesforce.
Impact of COVID-19 on Our Business and
Industry
In the three months ended June 30, 2021,
the COVID-19 pandemic resulted in significant uncertainty and volatility in a wide variety of industries and markets, including
in our industry, and prompted many federal, state, local, and foreign governments to implement various lock-down measures in an
attempt to contain the spread and mitigate the impact of the disease. The initial implementation of such lock-down measures, and
their re-introduction in response to a nation-wide resurgence of COVID-19 cases in late-2020, resulted in business closures, work
stoppages, slowdowns and delays, work-from-home policies, travel restrictions and the cancellation or postponement of events.
Despite recent approval and initial distribution
of vaccines, both the pandemic and the containment and mitigation measures have had, and are likely to continue to have, an adverse
impact on the global and U.S. economies, the severity and duration of which are uncertain. It is likely that government stabilization
efforts will only partially mitigate the consequences to the economy. As such, both the pandemic and containment and mitigation
measures may adversely affect our business, operations and financial condition by, among other things, reducing demand for our
applications, impairing the productivity of our workforce, and reducing our access to capital. The extent to which the COVID-19
pandemic will impact our business, financial conditions, and results of operations in the future remains uncertain and will be
affected by a number of factors. These include the duration and extent of the pandemic, the duration and extent of imposed or
recommended containment and mitigation measures, the extent, duration, and effective execution of government stabilization and
recovery efforts, including those from the successful distribution of effective vaccines.
The COVID-19 pandemic may have long-term
effects on the nature of the office environment and remote working. This may present operational and workplace culture challenges
that may adversely affect our business. However, we are committed to our employees returning to the workplace in the long-term.
Throughout the year ended December 31, 2020 and through the filing of this Annual Report, we have encouraged safe practices designed
to stem the infection and spread of COVID-19 within our workforce and beyond and to maintain the mental health and well-being
of our employees. Beginning in March 2020, in an effort to protect our employees and comply with applicable government orders,
we restricted non-essential employee travel and transitioned our employees to a remote work environment. We currently expect the
majority of our employees will continue working remotely at least through the second quarter of 2021. Our workforce has continued
to effectively develop and support our product and service offerings notwithstanding the current environment.
We began the year ended December 31, 2020
with healthy demand for our products and services, many of which are designed to enable our customers to manage their businesses
virtually. In the three months ended June 30, 2020, we experienced some uncertainty regarding whether there would be variability
in demand for the services we provide on our platform after lock-down measures were implemented. We expect demand variability
for our products and services may continue as a result of the COVID-19 pandemic; however, our sales team reported a higher level
of interest in our products and services during the year ended December 31, 2020. Although the impact has not been material to
date, a prolonged downturn in economic conditions could have a material adverse effect on our customers and demand for our services.
We continue to actively communicate with
and listen to our customers to ensure we are responding to their needs in the current environment with innovative solutions that
will not only be beneficial now but also over the long-term. We monitor developments related to COVID-19 and remain flexible in
our response to the challenges presented by the pandemic. To mitigate the adverse impact COVID-19 may have on our business and
operations, we implemented a number of measures in the year ended December 31, 2020 to protect the health and safety of our employees,
as well as to strengthen our financial position. These efforts include eliminating, reducing, or deferring non-essential expenditures,
as well as complying with local and state government recommendations to protect our workforce.
The impact of the COVID-19 pandemic may
also exacerbate other risks discussed in this Annual Report. For a complete description of the material risks we currently face,
refer to the section entitled “Risk Factors” in this Annual Report.
Verb
Partnerships and Integrations
We
have completed and deployed the integration of verbLIVE into Salesforce and passed their security review process. In recent weeks
we launched a joint marketing campaign with Salesforce to introduce the verbLIVE plug-in functionality to current Salesforce users.
A verbCRM sync application for Salesforce users is currently being utilized by at least one of our large enterprise clients and
the verbLIVE plug-in is now being offered to all Salesforce users on a monthly subscription fee basis.
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 currently working to introduce an integration of our interactive video technology into Microsoft Outlook followed by a broad-scale
launch in early 2021, pursuant to and in accordance with our existing Microsoft partnership agreement. We expect to follow the
Microsoft Outlook integration with the integration into other Microsoft Office 365 products.
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 (“Range”), 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 now complete.
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 and 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. As of March 26, 2021, we provide subscription-based application services to approximately
140 enterprise clients for use in over 60 countries, in over 48 languages, which collectively account for a user base generated
through more than 1.9 million downloads of our verbCRM application. Among the new business sectors targeted for this year
are pharmaceutical sales, government institutions, small businesses and individual entrepreneurs.
Revenue
Generation
We
generate revenue from the following sources:
● recurring subscription fees paid by enterprise users and affiliates;
Distribution
Methods
We distribute our services through the following
methods:
● 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.
Japan represents the 3rd largest
global economy and the 5th largest direct sales market. There are approximately four million direct
sales representatives in Japan which accounted for approximately $16B in 2018 direct sales revenue. 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. As of December
31, 2020, Japan isn’t a significant source of revenue.
We are exploring a similar expansion opportunity
in Korea, which has the 3rd largest direct sales market in the world.
Our
Historical Background
We
are a Nevada corporation originally formed as a limited liability company in 2012 as Cutaia Media Group, LLC, or CMG. In May 2014,
CMG merged into bBooth, Inc., and in October 2014, bBooth, Inc. changed its name to bBooth (USA), Inc.
In
October 2014, bBooth (USA), Inc. was acquired by Global System Designs, Inc. In connection with the acquisition, Global
Systems Design, Inc. changed its name to bBooth, Inc.
In
April 2017, we changed our name from bBooth, Inc. to nFüsz, Inc, and in February 2019 we changed our name from nFüsz,
Inc. to Verb Technology Company, Inc.
On
February 1, 2019, we implemented a 1-for-15 reverse stock split of our common stock, $0.0001 par value per share, or common stock.
As a result of the 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. (“Sound Concepts”) pursuant to an agreement and plan of merger. As a result of the merger, Sound Concepts
merged with and into our wholly owned subsidiary, NF Acquisition Company, LLC. Upon completion of the merger, NF Acquisition Company,
LLC changed its name to Verb Direct, LLC (“Verb Direct”).
On
September 4, 2020, Verb Acquisition Co., LLC (“Verb Acquisition”), a subsidiary of the Company, entered into a Membership
Interest Purchase Agreement (the “Purchase Agreement”) with Ascend Certification, LLC, dba SoloFire (“SoloFire”).
Our
common stock and common stock purchase warrants trade on The NASDAQ Capital Market under the symbols “VERB” and “VERBW,”
respectively. Our Internet website address is https://www.verb.tech.
Marketing
We
utilize our own proprietary interactive video platform as 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
their customers and prospects in exchange for finders’ fees.
Competition
CRM software generated more than $48.2 billion
in sales revenue throughout the world in 2018, 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 2025. We compete in the CRM applications industry,
as well as in the video conferencing/webinar industry. We believe that CRM applications that incorporate our proprietary Verb
interactive video technology provide significant competitive advantages over the CRM applications that do not. Salesforce,
Microsoft, Oracle, SAP, and Adobe, the long-term leaders in the CRM sector, collectively account for approximately 41%
of industry sales. These companies, as well as many others, have numerous differences in feature sets and functionality,
but all share certain basic attributes. Most of them were designed before the advent and proliferation of mobile phones, social
media, and the technology behind the current ubiquity of video over the internet and more recently on mobile devices. While many
of them have attempted to incorporate video capabilities into their respective CRM platforms, sometimes in ‘‘bolt-on’’
fashion, we do not believe any of them has done so in a manner that is as effective as our interactive in-video ecommerce platform
that allows users to place clickable calls-to-action right in the video, including into users’ pre-existing sales and product
videos. In addition, Verb’s interactive videos are viewable on both mobile and desktop devices regardless of operating system
and without the need to download a proprietary player or program.
We
also compete in the video webinar and ecommerce solution provider sectors. The webinar sector is dominated by Zoom, WebEx, and
Go2Meeting, among others. The ecommerce solution provider sector is dominated by Shopify, among others. However, we believe our
verbLIVE application provides a superior solution for users seeking to use video webinars as a sales tool because our in-video
clickable icons provide seamless in-video ecommerce capabilities that are not offered by either Zoom (or other large webinar providers)
or Shopify. We believe verbLIVE represents a unique solution that combines the best features of Zoom and Shopify in a single application,
offering users a more friction-free and effective selling experience. Notwithstanding the foregoing, the market share, marketing
strength, and established positions in the marketplace of our competitors may prevent us from obtaining a large share of these
markets.
Intellectual
Property
Our
policy is to protect our technology through, among other things, a combination of patents, trade secrets and copyrights. We primarily
rely upon trade secrets and copyrighted proprietary software, code, and know-how to protect our interactive video technology platform
and associated applications. We have taken security measures to protect our trade secrets and proprietary know-how, to the extent
possible. Our means of protecting our proprietary rights may not prove to be adequate and our competitors may independently develop
technology or products that are similar to ours or that compete with ours. Trade secret and copyright laws afford only limited
protection for our technology and products. The laws of many countries do not protect our proprietary rights to as great an extent
as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to
obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights, which may
render our protected technology and products less valuable, if the design around is favorably received in the marketplace.
We recently filed a provisional patent application
with the U.S. Patent and Trademark Office (“PTO”) with respect to providing interactive video streams involving
interactive buttons which we utilize in our video products. However, our provisional patent application may not result in the
issuance of a patent, or may result in narrow claims, which may limit the protection we are attempting to obtain. We also hold
a number of granted patents in two families with pending continuations. A first family relates to systems and methods for enhanced
networking, conversion tracking, and conversion attribution. This family contains two issued patents (U.S. Pat. No. 9,792,380,
issued October 17, 2017; and U.S. Pat. No. 10,467,317, issued Nov. 5, 2019) and a pending continuation. A second family relates
to systems and methods for generating a custom campaign. This family contains one issued patent (U.S. Pat. No. 10,643,247, issued
May 5, 2020) and a pending continuation. These existing patents and any future patents that may be issued to us, may not protect
commercially important aspects of our technology. Furthermore, the validity and enforceability of such patents may be challenged
by third parties, which may result in our patents being invalidated or modified by the PTO, various legal actions against us,
the need to develop or obtain alternative technology 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 control access to our proprietary technology
by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements
with third parties. Despite our precautions, we cannot assure you that our technology platform and products do not infringe
patents held by others or that they will not in the future. Litigation may be necessary to enforce our intellectual property rights,
to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of
infringement, invalidity, misappropriation, or other claims.
Research and Development
We incurred $7,933,000 and $4,312,000 of research
and development expenses during the years ended December 31, 2020 and 2019, respectively. These expenses were incurred for the development
of our interactive video-based sales enablement platform and associated applications.
Suppliers
While most of our design, development, and engineering
team is U.S.-based, we currently utilize a small group of dedicated full-time and part-time off-shore experienced professionals for some
of the coding and maintenance of our software. We believe we have mitigated the risks associated with managing an external team of software
development professionals by incorporating experienced internal management and oversight, as well as appropriate systems, protocols, controls,
and procedures to ensure the protection and integrity of all our applications. We have also ensured access to additional qualified professionals
to provide like or complementary services on an as-needed basis.
Dependence on Key Customers
Based on our current business and anticipated future
activities as described in this Annual Report, we do not have any customers that represent more than 10% of our 2020 revenue.
Government Regulation
Our software and services are subject to certain
legal, regulatory and other requirements. These laws are complex and evolving. Various U.S. federal and state laws govern many of our
business activities, including, without limitation, the processing of payments and handling of consumer information. Despite our significant
efforts to comply with all applicable requirements, there can be no guarantee that our efforts will be sufficient or that existing laws,
rules or other requirements will not be interpreted, revised, augmented or rewritten in a way that adversely affects our regulated business
activities, which comprise a significant majority of our overall business. For additional information related to these risk-related issues,
refer to the section entitled “Risk Factors” within this Annual Report.
Employees
As of March 26, 2020, we had 104 full-time statutory
employees, four part-time employees, and 59 independent contractors. We engage independent contractors on an as-needed-basis to provide
specific expertise in areas of software design, development and coding, content creation, audio and video editing, video production services,
and other business functions, including marketing and accounting. None of our employees are covered by a collective bargaining agreement.
We have had no labor-related work stoppages and believe our relationship with our employees, consultants, and consultants, both full-time
and part-time, is satisfactory.
We believe our people are at the heart of our
success and our customers’ success. We endeavor to not only attract and retain talented employees, but also to provide a challenging
and rewarding environment to motivate and develop our valuable human capital. We look to our talented employees to lead and foster various
initiatives that support our company culture including those related to diversity, equity and inclusion. In addition, we rely heavily
on our talented team to execute our growth plans and achieve our long-term strategic objectives.
We provide competitive compensation and benefits
for our employees. Our compensation packages may include base salary, commission or annual performance-based bonuses, and stock-based
compensation. We also offer general employee medical, dental, and vision insurance, health savings and flexible spending accounts, mental
health resources, paid time off, paid family leave, life and disability insurance, and 401(k) plan matching contributions. These programs
and our overall compensation packages seek to attract and retain talented employees.
We take the health and welfare of our employees
very seriously, and have encouraged safe practices designed to stem the infection and spread of COVID-19 within our workforce and beyond
and to maintain the mental health and well-being of our employees. Beginning in March 2020, in an effort to protect our employees and
comply with applicable government orders, we restricted non-essential employee travel and transitioned our employees to a remote work
environment. We currently expect the majority of our employees will continue working remotely at least through the second quarter of
2021. We are committed to our employees returning to the workplace in the long-term.
ITEM
1A. RISK FACTORS
Our short and long-term success is subject
to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control. As a result,
investing in the Company’s common stock involves substantial risk. The Company’s stockholders should carefully consider the
risks and uncertainties described below, in addition to the other information contained in or incorporated by reference into this Annual
Report, as well as the other information we file with the SEC from time to time. The risks described below are not the only
ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also impair our business operations
and financial results. If any of the following risks actually occurs, our business, financial condition or results of operations could
be adversely affected. In such case, the trading price of our common stock could decline and you could lose all or part of your investment.
Our filings with the SEC also contain forward-looking statements that involve risks or uncertainties. Our actual results could differ
materially from those anticipated or contemplated by these forward-looking statements as a result of a number of factors, including the
risks we face described below, as well as other variables that could affect our operating results. Past financial performance should
not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results
or trends in future periods.
Risks
Related to Our Business
We
have incurred significant net losses and cannot assure you that we will achieve or maintain profitable operations.
We have incurred recurring losses since inception.
Our net loss was $24,956,000 for the year ended December 31, 2020 and $15,918,000 for the year ended December 31, 2019. We may continue
to incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications, and delays,
and 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. These expenditures may make it more difficult to achieve and maintain profitability.
In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient
revenue to offset increased operating expenses. If we are forced to reduce our expenses, our growth strategy could be compromised.
To 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 not be able to maintain or increase our level of profitability.
Accordingly,
we cannot assure you that we will achieve sustainable operating profits as we continue to 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, 2020 and 2019 have raised
substantial doubt as to our ability to continue as a “going concern.”
Our
independent registered public accounting firm indicated in its report on our audited consolidated financial statements as of and
for the years ended December 31, 2020 and 2019 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.
Our ability to grow and compete in the future
will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.
We have limited capital resources. We have
financed our operations entirely through equity investments by founders and other investors and the incurrence of debt, and we expect
to continue to finance our operations in the same manner in the foreseeable future. Our ability to continue our normal and planned operations,
to grow our business, and to compete in our industry will depend on the availability of adequate capital. We cannot assure you that we
will be able to obtain additional funding from those or other sources when or in the amounts needed, on acceptable terms, or at all.
If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our then-existing
stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional
capital through the incurrence of additional indebtedness, we would likely become subject to further covenants restricting our business
activities, and holders of debt instruments may have rights and privileges senior to those of our then-existing stockholders. In addition,
servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available
to support development of new programs and marketing to current and potential new clients. If we are unable to raise capital when needed
or on attractive terms, we could be forced to delay, reduce, or eliminate development of new programs or future marketing efforts, or
reduce or discontinue our operations. Any of these events could significantly harm our business, financial condition, and prospects.
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 sales, 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. If we are
not able to increase the number of our strategic relationships or grow the revenues received from our current strategic relationships,
our operating results could be harmed.
We may not be able to develop enhancements and
new features to our existing service or acceptable new services that keep pace with technological developments.
If we are unable to develop enhancements to, and new
features for, our sales enablement applications that keep pace with rapid technological developments, such as verbLIVE, our business will
be harmed. The success of enhancements, new features, and services depends on several factors, including the timely completion, introduction,
and market acceptance of the feature or edition. Failure in this regard may significantly impair our revenue growth or harm our reputation.
We may not be successful in either developing these modifications and enhancements or in timely bringing them to market at a competitive
price or at all. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to
existing platforms or technologies, could increase our research and development expenses. Any failure of our service to operate effectively
with future network platforms and technologies could reduce the demand for our service, result in customer dissatisfaction, and harm our
business.
Our
ability to deliver our services is dependent on third party Internet providers.
The Internet’s infrastructure is comprised
of many different networks and services that, by design, are highly fragmented and distributed. This infrastructure is run by a series
of independent, third-party organizations that work together to provide the infrastructure and supporting services of the Internet under
the governance of the Internet Corporation for Assigned Numbers and Names (“ICANN”) and the Internet Assigned Numbers Authority
(“IANA”), which is now related to ICANN.
The
Internet has experienced, and will continue to experience, a variety of outages and other delays due to damages to portions of
its infrastructure, denial-of-service attacks, or related cyber incidents. These scenarios are not under our control and could
reduce the availability of the Internet to us or our customers for delivery of our services. Any resulting interruptions in our
services or the ability of our customers to access our services could result in a loss of potential or existing customers and
harm our business.
Security
breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and
reputation to suffer.
In the ordinary course of our business, we collect
and store sensitive data, including intellectual property, our proprietary business information, proprietary business information of our
customers, including, credit card and payment information, and personally identifiable information of our customers and employees. The
secure processing, maintenance, and transmission of this information is critical to our operations and business strategy. As 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, 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 protocols and infrastructure, however, our information technology
and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions.
We also could be negatively impacted by software bugs or other technical malfunctions, as well as employee error or malfeasance.
Advanced cyber-attacks can be multi-staged, unfold over time, and utilize a range of attack vectors with military-grade cyber
weapons and proven techniques, such as spear phishing and social engineering, leaving organizations and users at high risk of
being compromised. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability
under laws that protect the privacy of personal information, regulatory penalties, a disruption of our operations, damage to our
reputation, a loss of confidence in our business, early termination of our contracts and other business losses, indemnification
of our customers, liability for stolen assets or information, increased cybersecurity protection and insurance costs, financial
penalties, litigation, regulatory investigations and other significant liabilities, any of which could materially harm our business
any of which could adversely affect our business, revenues, and competitive position.
Our
success depends, in part, on the capacity, reliability, and security of our information technology hardware and software infrastructure,
as well as our ability to adapt and expand our infrastructure.
The
capacity, reliability, and security of our information technology hardware and software infrastructure are important to the operation
of our current business, which would suffer in the event of system failures. Likewise, our ability to expand and update our information
technology infrastructure in response to our growth and changing needs is important to the continued implementation of our new
service offering initiatives. Our inability to expand or upgrade our technology infrastructure could have adverse consequences,
including the delayed provision of services or implementation of new service offerings, and the diversion of development resources.
We rely on third parties for various aspects of our hardware and software infrastructure. Third parties may experience errors
or disruptions that could adversely impact us and over which we may have limited control. Interruption and/or failure of any of
these systems could disrupt our operations and damage our reputation, thus adversely impacting our ability to provide our products
and services, retain our current users, and attract new users. In addition, our information technology hardware and software infrastructure
may be vulnerable to unauthorized access, misuse, computer viruses, or other events that could have a security impact. If one
or more of such events occur, our customer and other information processed and stored in, and transmitted through, our information
technology hardware and software infrastructure, or otherwise, could be compromised, which could result in significant losses
or reputational damage. We may be required to expend significant additional resources to modify our protective measures or to
investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses, any of
which could substantially harm our business and our results of operations.
We
are dependent on third parties to, among other things, maintain our servers, provide the bandwidth necessary to transmit content,
and utilize the content derived therefrom for the potential generation of revenues.
We
depend on third-party service providers, suppliers, and licensors to supply some of the services, hardware, software, and operational
support necessary to provide some of our products and services. Some of these third parties do not have a long operating history
or may not be able to continue to supply the equipment and services we desire in the future. If demand exceeds these vendors’
capacity, or if these vendors experience operating or financial difficulties or are otherwise unable to provide the equipment
or services we need in a timely manner, at our specifications and at reasonable prices, our ability to provide some products and
services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials
or services might delay our ability to serve our users. These events could materially and adversely affect our ability to retain
and attract users, and have a material negative impact on our operations, business, financial results, and financial condition.
We
may not be able to find suitable software developers at an acceptable cost.
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
failure to adequately protect our intellectual property rights could diminish the value of our products, weaken our competitive
position and reduce our revenue, and infringement claims asserted against us or by us, could have a material adverse effect.
We
regard the protection of our intellectual property, which includes patents, trade secrets, copyrights, trademarks and domain names,
as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law
rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees
and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure
and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect
our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development
of similar technologies by others.
We have two patents related to our system for providing
access to, storing and distributing content, and we recently filed a provisional patent application with the U.S. Patent and Trademark