Annual report pursuant to Section 13 and 15(d)

Acquisition of Verb Direct

Acquisition of Verb Direct
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisition of Verb Direct



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.


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 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 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 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,

    Year Ended
December 31,






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,


Revenue   $ 9,041,000  
Cost of revenue     4,766,000  
Operating expenses     6,308,000  
Other income expense     (11,000 )
Net income loss   $ (2,044,000 )


These amounts were included in the accompany Consolidated Statement of Operations.