UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-38834

Verb Technology Company, Inc.

(Exact name of ~~Registrant~~registrant as ~~Specified~~specified in its ~~Charter)~~charter)

Nevada

90-1118043

(State or ~~Other Jurisdiction~~other jurisdiction of

~~Incorporation~~incorporation or ~~Organization)~~organization)

(I.R.S. Employer

Identification ~~Number)~~No.)

782 S. Auto Mall Drive

American Fork, Utah

84003

(Address of principal executive offices)

(Zip Code)

(855) 250-2300

(Registrant’s telephone number, including area ~~code:~~ ~~(855) 250-2300~~code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

Common Stock Purchase Warrants

VERB

VERBW

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act.~~Act

Large accelerated filer	[ ]	Accelerated filer	[ ]

Non-accelerated filer	[X]	Smaller reporting company	[X]

		Emerging growth company	[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

As of ~~November~~May 10, ~~2020,~~2021, there were ~~46,693,790~~62,767,092 shares of common stock, $0.0001 par value per share, outstanding.

VERB TECHNOLOGY COMPANY, INC.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS	3
PART I - FINANCIAL INFORMATION	34
ITEM 1 - FINANCIAL STATEMENTS	34
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4745
ITEM 4 - CONTROLS AND PROCEDURES	4746
PART II - OTHER INFORMATION	4746
ITEM 1 - LEGAL PROCEEDINGS	4746
ITEM 1A - RISK FACTORS	4947
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6058
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	6058
ITEM 4 - MINE SAFETY DISCLOSURES	6058
ITEM 5 - OTHER INFORMATION	6058
ITEM 6 - EXHIBITS	6159
SIGNATURES	6260

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three months ended March 31, 2021 (this “Quarterly Report”), includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those expressions. Forward-looking statements also include the assumptions underlying or relating to such statements.

Our forward-looking statements are based on our management’s current beliefs, assumptions and expectations about future events and trends, which affect or may affect our business, strategy, operations, financial performance or liquidity. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to numerous known and unknown risks and uncertainties and are made in light of information currently available to us. Some of the risks and uncertainties that may impact our forward-looking statements include, but are not limited to, the following factors:

● our incursion of significant net losses and uncertainty whether we will achieve or maintain profitable operations;

● our ability to continue as a “going concern”;

● the novel coronavirus (“COVID-19”) pandemic, which has had a sustained impact on our business, sales, results of operations and financial condition;

● our ability to grow and compete in the future, which is dependent upon whether capital is available to us on favorable terms;

● 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;

● the competitive market in which we operate;

● our ability to increase the number of our strategic relationships or grow the revenues received from our current strategic relationships;

● our ability to develop enhancements and new features to our existing service or acceptable new services that keep pace with technological developments;

● our ability to deliver our services, as we depend on third party Internet providers; and

● our susceptibility to security breaches and other disruptions.

The foregoing list may not include all of the risk factors that impact the forward-looking statements made in this Quarterly Report. Our actual financial condition and results could differ materially from those expressed or implied by our forward-looking statements as a result of various additional factors, including those discussed in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “Annual Report”), as well as in the other reports we file with the Securities and Exchange Commission (the “SEC”). You should read this Quarterly Report, and the other documents we file with the SEC, with the understanding that our actual future results may be materially different from the results expressed or implied by our forward-looking statements.

We operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements.

Forward-looking statements speak only as of the date they were made, and, except to the extent required by law or the rules of the NASDAQ Capital Market, we undertake no obligation to update or review any forward-looking statement because of new information, future events or other factors.

We qualify all of our forward-looking statements by these cautionary statements.

PART I — FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Balance Sheets (unaudited)	4

~~Condensed Consolidated Statements of Operations (unaudited)~~	5

Condensed Consolidated Statements of Operations (unaudited)	6

Condensed Consolidated Statements of Stockholders Equity (unaudited)	67

Condensed Consolidated Statements of Cash Flows (unaudited)	89

Notes to Condensed Consolidated Financial Statements (unaudited)	~~9-31~~10-31

~~VERB TECHNOLOGY COMPANY, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

September 30,
2020 December 31,
2019
(unaudited)
ASSETS

Current assets:
Cash $ 10,722,000 $ 983,000
Accounts receivable, net of allowance of $216,000 and $230,000, respectively 1,353,000 1,271,000
Inventory, net of allowance of $30,000 and $2,000, respectively 12,000 103,000
Prepaid expenses 675,000 236,000
Total current assets 12,762,000 2,593,000

Right-of-use assets, net of accumulated amortization of $756,000 and $349,000 respectively 2,868,000 3,275,000
Property and equipment, net of accumulated depreciation of $294,000 and $164,000, respectively 907,000 720,000
Intangible assets, net of accumulated amortization of $1,953,000 and $975,000 respectively 6,270,000 5,365,000
Goodwill (including provisional goodwill of $3,362,000 at September 30, 2020) 19,699,000 16,337,000
Other assets 69,000 69,000

Total assets $ 42,575,000 $ 28,359,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 5,346,000 $ 4,338,000
Accrued officers’ salary 207,000 207,000
Accrued interest (including $87,000 and $82,000 payable to related parties) 95,000 82,000
Advance on future receipts, net of discount of $176,000 and $274,000, respectively 418,000 732,000
Notes Payable 1,885,000 -
Notes payable - related party 1,177,000 112,000
Operating lease liability, current 595,000 391,000
Deferred incentive compensation to officers, current 521,000 -
Contract liabilities and customer deposits 685,000 306,000
Derivative liability 4,545,000 5,048,000

Total current liabilities 15,474,000 11,216,000

Long Term liabilities:
Notes payable, non-current 1,458,000 -
Note payable - related party, non-current - 1,065,000
Deferred incentive compensation to officers, non-current 521,000 1,042,000
Deferred payroll taxes 247,000 -
Operating lease liability, non-current 3,101,000 3,591,000
Total liabilities 20,801,000 16,914,000

Commitments and contingencies

Stockholders’ equity
Class A units, 100 shares authorized, 100 issued and outstanding as of September 30, 2020
- -
Class B units, 2,642,159 shares authorized, 2,642,159 issued and outstanding as of September 30, 2020
3,065,000 -
Preferred stock, $0.0001 par value, 15,000,000 shares authorized: Series A Convertible Preferred Stock, 6,000 shares authorized; 2,406 and 4,396 issued and outstanding as of September 30, 2020 and December 31, 2019 - -
Common stock, $0.0001 par value, 200,000,000 shares authorized, 46,663,790 and 24,496,197 shares issued and outstanding as of September 30, 2020 and December 31, 2019 5,000 2,000
Additional paid-in capital 87,979,000 68,028,000
Accumulated deficit (69,275,000 ) (56,585,000 )

Total stockholders’ equity 21,774,000 11,445,000

Total liabilities and stockholders’ equity $ 42,575,000 $ 28,359,000

~~The accompanying notes to the condensed consolidated financial statements~~

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~BALANCE SHEETS

Statement of Operations

Three Months
Ended
September 30,
2020

Three Months
Ended
September 30,
2019

Nine Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2019

Revenue
SaaS recurring subscription revenue $ 1,478,000 $ 953,000 $ 3,809,000 $ 1,820,000
Other Digital 360,000 485,000 1,166,000 1,081,000
Welcome kits and fulfillment 836,000 1,164,000 2,277,000 2,948,000
Shipping 186,000 271,000 614,000 766,000
Total revenue 2,860,000 2,873,000 7,866,000 6,615,000

Cost of revenue
SaaS and other digital 349,000 221,000 843,000 427,000
Welcome kits and fulfillment 768,000 990,000 2,106,000 2,375,000
Shipping 188,000 280,000 554,000 761,000
Total cost of revenue 1,305,000 1,491,000 3,503,000 3,563,000

Gross margin 1,555,000 1,382,000 4,363,000 3,052,000

Operating Expenses:
Research and development 2,407,000 1,214,000 5,308,000 3,113,000
Depreciation and amortization 388,000 518,000 1,108,000 1,025,000
General and administrative 6,655,000 3,292,000 14,187,000 8,803,000
Total operating expenses 9,450,000 5,024,000 20,603,000 12,941,000

Loss from operations (7,895,000 ) (3,642,000 ) (16,240,000 ) (9,889,000 )

Other income (expense), net
Other income (expense), net (2,000 ) (9,000 ) 1,000 (10,000 )
Financing costs (248,000 ) (1,486,000 ) (248,000 ) (1,625,000 )
Interest expense - amortization of debt discount (110,000 ) (21,000 ) (384,000 ) (1,647,000 )
Change in fair value of derivative liability 975,000 2,802,000 4,295,000 3,320,000
Debt extinguishment, net - (691,000 ) - 1,536,000
Interest expense (40,000 ) (68,000 ) (114,000 ) (151,000 )
Total other income, net 575,000 527,000 3,550,000 1,423,000

Net loss (7,320,000 ) (3,115,000 ) (12,690,000 ) (8,466,000 )

Deemed dividends to Series A stockholders - - (3,951,000 ) -

Net loss to common stockholders $ (7,320,000 ) $ (3,115,000 ) $ (16,641,000 ) $ (8,466,000 )

Net loss per share to common stockholders - basic and diluted $ (0.18 ) $ (0.13 ) $ (0.51 ) $ (0.44 )
Weighted average number of common shares outstanding - basic and diluted 41,216,642 23,155,801 32,375,054 19,038,802

	*March 31, 2021*			December 31, 2020
	*(unaudited)*

ASSETS

Current assets:
Cash	$	12,946,000		$	1,815,000
Accounts receivable, net of allowance of $484,000 and $361,000, respectively		1,199,000			919,000
Inventory, net of allowance of $51,000 and $51,000, respectively		38,000			34,000
Prepaid expenses and other current assets		1,098,000			900,000
Total current assets		15,281,000			3,668,000

Right-of-use assets		2,590,000			2,730,000
Property and equipment, net of accumulated depreciation of $372,000 and $339,000, respectively		813,000			862,000
Intangible assets, net of amortization of $2,680,000 and $2,310,000, respectively (including provisional intangible assets of $982,000 and $1,042,000, respectively)		4,783,000			5,153,000
Goodwill (including provisional goodwill of $3,723,000, respectively)		20,060,000			20,060,000
Other assets		67,000			69,000

Total assets	$	43,594,000		$	32,542,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	5,148,000		$	5,097,000
Accrued officers’ salary		937,000			822,000
Accrued interest (including $100,000 and $102,000 payable to related parties)		105,000			114,000
Advance on future receipts, net of discount of $725,000 and $67,000, respectively		3,170,000			110,000
Notes payable - related party		352,000			1,077,000
Deferred incentive compensation, current		664,000			521,000
Operating lease liability, current		591,000			596,000
Deferred revenue and customer deposits		298,000			272,000
Derivative liability		5,480,000			8,266,000

Total current liabilities		16,745,000			16,875,000

Long Term liabilities:
Notes payable		240,000			1,458,000
Note payable - related party, non-current		725,000			-
Deferred incentive compensation to officers		-			521,000
Operating lease liability, non-current		2,786,000			2,943,000
Total liabilities		20,496,000			21,797,000

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; 1,706 and 2,006 issued and outstanding as of March 31, 2021 and December 31, 2020		-			-
Class A units, 100 issued and authorized as of March 31, 2021 and December 31, 2020		-			-
Class B units, 2,642,159 shares authorized, 0 and 2,642,159 issued and outstanding as of March 31, 2021 and December 31, 2020		-			3,065,000
Common stock, $0.0001 par value, 200,000,000 shares authorized, 62,633,282 and 47,795,009 shares issued and outstanding as of March 31, 2021 and December 31, 2020		6,000			5,000
Additional paid-in capital		112,978,000			89,216,000
Accumulated deficit		(89,886,000	)		(81,541,000	)

Total stockholders’ equity		23,098,000			10,745,000

Total liabilities and stockholders’ equity	$	43,594,000		$	32,542,000

The accompanying notes to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended
March 31, 2021

Three Months Ended
March 31, 2020

Revenue
SaaS recurring subscription revenue $ 1,461,000 $ 1,057,000
Other Digital 340,000 400,000
Design, printing, and fulfillment 615,000 728,000
Shipping 110,000 169,000
2,526,000 2,354,000

Cost of revenue
Digital 540,000 230,000
Design, printing, and fulfillment 585,000 676,000
Shipping 90,000 157,000
1,215,000 1,063,000

Gross margin 1,311,000 1,291,000

Operating expenses
Research and development 2,884,000 1,274,000
Depreciation and amortization 414,000 363,000
General and administrative 7,343,000 3,514,000
Total operating expenses 10,641,000 5,151,000

Loss from operations (9,330,000 ) (3,860,000 )

Other income (expense), net
Other income (expense), net 54,000 (6,000 )
Interest expense - amortization of debt discount (475,000 ) (137,000 )
Change in fair value of derivative liability 500,000 2,092,000
Gain on extinguishment of PPP note payable 1,226,000 -
Debt extinguishment, net (287,000 ) -
Interest expense (including $32,000 and $35,000 to related parties) (33,000 ) (35,000 )
Total other expense, net 985,000 1,914,000

Net Loss (8,345,000 ) (1,946,000 )

Deemed dividend to Series A preferred shareholders - (3,951,000 )

Net loss to common stockholders $ (8,345,000 ) $ (5,897,000 )

Loss per share - basic and diluted $ (0.16 ) $ (0.23 )
Weighted average number of common shares outstanding - basic and diluted 52,045,428 25,992,426
The accompanying notes to the condensed consolidated financial statements
6
VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE

THREE MONTHS ENDED MARCH 31, 2021 AND ~~NINE MONTHS ENDED SEPTEMBER 30,~~ 2020 ~~AND 2019~~

(Unaudited)

Class A Units Class B Units Preferred Stock Common Stock Additional
Paid-in Accumulated
Shares Amount Shares Amount 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 - - - - - - 4,237,833 1,000 4,443,000 - 4,444,000
Sale of common stock from public offering - - - - - - 12,545,453 2,000 12,335,000 - 12,337,000
Issuance of common stock from warrant exercise - - - - - - 1,965,594 - 2,165,000 - 2,165,000
Fair value of warrants issued to Series A Preferred stockholders - - - - - - - - (3,951,000 ) - (3,951,000 )
Conversion of Series A Preferred to common stock - - - - (1,990 ) - 1,405,274 - - - -
Fair value of common shares issued for services - - - - - - 962,583 - 1,126,000 - 1,126,000
Fair value of vested restricted stock awards - - - - - - 1,050,856 - 2,211,000 - 2,211,000
Fair value of vested stock options and warrants - - - - - - - - 1,463,000 - 1,463,000
Extinguishment
of derivative liability - - - - - - - - 159,000 - 159,000
Class A units issued upon incorporation of Verb Acquisition Co. 100 - - - - - - - - - -
Fair value of Class B units issued for the acquisition of Ascend Certification - - 2,642,159 3,065,000 - - - - - - 3,065,000
Net loss - - - - - - - - - (12,690,000 ) (12,690,000 )
Balance at September 30, 2020 100 $ - 2,642,159 $ 3,065,000 2,406 $ - 46,663,790 $ 5,000 $ 87,979,000 $ (69,275,000 ) $ 21,774,000

	Class A Units				Class B Units				Preferred Stock					Common Stock				Additional Paid-in		Accumulated						Preferred Stock					Class A Units				Class B Units						Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Shares		Amount		Shares			Amount		Shares		Amount		Capital		Deficit			Total			Shares			Amount		Shares		Amount		Shares			Amount			Shares		Amount		Capital		Deficit			Total

Balance at June 30, 2020		-	$	-		-	$	-		3,246		$	-		30,267,063	$	3,000	$	71,399,000	$	(61,955,000	)	$	9,447,000
Balance at December 31, 2020																											2006		$	-		-	$	-		2,642,159		$	3,065,000			47,795,009	$	5,000	$	89,216,000	$	(81,541,000	)	$	10,745,000
Sale of common stock from public offering		-		-		-		-		-			-		12,545,453		2,000		12,335,000		-			12,337,000			-			-		-		-		-			-			9,375,000		1,000		14,128,000		-			14,129,000
Issuance of common stock from warrant exercise		-		-		-		-		-			-		1,965,594		-		2,165,000		-			2,165,000			-			-		-		-		-			-			1,036,600		-		1,103,000		-			1,103,000
Issuance of common stock from option exercise																											-			-		-		-		-			-			332,730		-		377,000		-			377,000
Conversion of Series A Preferred to common stock		-		-		-		-		(840	)		-		663,341		-		-		-			-			(300	)		-		-		-		-			-			272,728		-		-		-			-
Fair value of common shares issued for services		-		-		-		-		-			-		193,533		-		230,000		-			230,000			-			-		-		-		-			-			809,511		-		1,414,000		-			1,414,000

Fair value of vested restricted stock awards		-		-		-		-		-			-		1,028,806		-		1,002,000		-			1,002,000			-			-		-		-		-			-			247,703		-		447,000		-			447,000
Fair value of vested stock options and warrants		-		-		-		-		-			-		-		-		689,000		-			689,000			-			-		-		-		-			-			-		-		448,000		-			448,000
Extinguishment of derivative liability		-		-															159,000		-			159,000
Class A units issued upon incorporation of Verb Acquisition Co.		100		-		-		-		-			-		-		-		-		-			-
Fair value of Class B Units issued for the acquisition of Ascend Certification		-		-		2,642,159		3,065,000		-			-		-		-		-		-			3,065,000
Extinguishment of derivative liability upon exercise of warrants																											-			-		-		-		-			-			-		-		2,286,000		-			2,286,000
Fair value of common shares issued to settle accrued expenses																											-			-		-		-		-			-			121,842		-		207,000		-			207,000
Fair value of warrants issued to officer to modify note payable																											-			-		-		-		-			-			-		-		287,000		-			287,000
Conversion of Class B Units to common shares																											-			-		-		-		(2,642,159	)		(3,065,000	)		2,642,159		-		3,065,000		-			-
Net loss		-		-		-		-		-			-		-		-		-		(7,320,000	)		(7,320,000	)		-			-		-		-		-			-			-		-		-		(8,345,000	)		(8,345,000	)
Balance at September 30, 2020		100	$	-		2,642,159	$	3,065,000		2,406		$	-		46,663,790	$	5,000	$	87,979,000	$	(69,275,000	)	$	21,774,000
Balance at March 31, 2021																											1,706		$	-		-	$	-		-		$	-			62,633,282	$	6,000	$	112,978,000	$	(89,886,000	)	$	23,098,000

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

Preferred Stock Common Stock Additional
Paid-in Accumulated
Shares 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 )

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
Fair value of common stock upon conversion of convertible debt - - - 182,333 - 410,000 - 410,000
Common shares issued upon of warrants - - - 173,714 - 45,000 - 45,000
Common stock upon issuance on convertible debt - - - 25,272 - 182,000 - 182,000
Fair value of vested stock options - - - - - 1,950,000 - 1,950,000
Issuance of Series A convertible preferred stock - 5,030 - - - 4,688,000 - 4,688,000
Fair value of warrants issues with Series A convertible preferred stock - - - - - (4,688,000 ) - (4,688,000 )
Fair value of common shares issued for services - - 354,288 - 930,000 - 930,000
Issuance of fractional shares - - - 139,036 - - - -
Net loss - - - - - - (8,466,000 ) (8,466,000 )
Balance at September 30, 2019 - 5,030 $ - 23,409,949 $ 2,000 66,730,000 $ (49,133,000 ) $ 17,599,000

Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Shares Amount Shares Amount Capital Deficit Total

Balance at June 30, 2019 - - $ - 22,655,185 $ 2,000 $ 64,617,000 $ (46,018,000 ) $ 18,601,000

Sale of common stock from public offering - - - - - (90,000 ) - (90,000 )
Fair value of common stock issued to settle accounts payable - - - 598,286 - 1,410,000 - 1,410,000
Fair value of vested stock options and warrants - - - - 591,000 - 591,000
Fair value of common shares issued for services - - - 156,478 - 202,000 - 202,000
Issuance Series A convertible preferred stock - 5,030 - - - 4,688,000 - 4,688,000
Fair value warrants issued with Series A convertible preferred stock - - - - - (4,688,000 ) - (4,688,000 )
Net loss - - - - - - (3,115,000 ) (3,115,000 )
Balance at September 30, 2019 - 5,030 $ - 23,409,949 $ 2,000 $ 66,730,000 $ (49,133,000 ) $ 17,599,000

	Preferred Stock					Class A Units				Class B Units				Common Stock				Additional Paid-in			Accumulated
	Shares			Amount		Shares		Amount		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 and warrants		-			-		-		-		-		-		-		-		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 to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Nine months ended
September 30,
2020 September 30,
2019

Operating Activities:
Net loss $ (12,690,000 ) $ (8,466,000 )
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 4,796,000 2,880,000
Financing costs 248,000 1,625,000
Amortization of debt discount 384,000 1,647,000
Change in fair value of derivative liability (4,295,000 ) (3,320,000 )
Debt extinguishment, net - (1,536,000 )
Depreciation and amortization 1,108,000 1,025,000
Amortization of right-of-use assets 407,000 150,000
Allowance for inventory 28,000 5,000
Allowance for doubtful accounts (14,000 ) 31,000
Effect of changes in assets and liabilities:
Accounts receivable 152,000 (278,000 )
Prepaid expenses (175,000 ) 37,000
Inventory 63,000 90,000
Other assets - (41,000 )
Accounts payable, accrued expenses, and accrued interest 646,000 280,000
Operating lease liability (286,000 ) (109,000 )
Deferred revenue and customer deposits (162,000 ) (526,000 )
Net cash used in operating activities (9,790,000 ) (6,506,000 )

Investing Activities:
Cash paid upon acquisition of subsidiary - (15,000,000 )
Cash acquired upon acquisition of subsidiary 229,000 557,000
Purchase of property and equipment (317,000 ) (134,000 )
Net cash used by investing activities (88,000 ) (14,577,000 )

Financing Activities:
Proceeds from sale of common stock 16,781,000 18,524,000
Proceeds from sale of preferred stock - 4,688,000
Proceeds from issuance of notes payable 1,367,000 1,300,000
Advances on future receipts 728,000 -
Proceeds from convertible note payable - 432,000
Proceeds from related party notes payable - 58,000
Proceeds from warrant exercise 2,165,000 45,000
Payment of convertible notes payable - (2,025,000 )
Payment of notes payable - (630,000 )
Payment of related party notes payable - (58,000 )
Payment of advances of future receipts (1,424,000 ) -
Net cash provided by financing activities 19,617,000 22,334,000

Net change in cash 9,739,000 1,251,000

Cash - beginning of period 983,000 634,000

Cash - end of period $ 10,722,000 $ 1,885,000

Supplemental disclosures of cash flow information:
Cash paid for interest $ 100,000 $ 146,000

Supplemental disclosure of non-cash investing and financing activities:
Issuance of note payable upon acquisition of subsidiary $ 1,885,000 $ -
Fair value of common stock issued for subscription agreement $ 340,000 $ -
Fair value of restricted awards returned $ 485,000 $ -
Fair value of class B units issued upon acquisition of subsidiary $ 3,065,000 $ -
Fair value of common stock issued upon acquisition of subsidiary $ - $ 7,820,000
Conversion of note payable and accrued interest to common stock $ - $ 1,184,000
Fair value of derivative liability from issuance of convertible debt, inducement shares and warrant features $ 3,951,000 $ 6,561,000
Fair value of warrants issued and beneficial conversion feature to extinguish debt $ - $ 719,000
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
Lease assets and liabilities recorded upon adoption of ASC 842 $ - $ 1,856,000
Assets acquired from the acquisition of subsidiary $ 449,000 $ 3,364,000
Liabilities assumed from the acquisition of subsidiary $ 743,000 $ 3,221,000

	For the Three Months Ended
	March 31, 2021			March 31, 2020

Operating Activities:
Net loss	$	(8,345,000	)	$	(5,897,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Fair value of common shares issued for services and vested stock options		2,402,000			943,000
Gain on extinguishment of PPP note payable		(1,226,000	)		-
Debt extinguishment from modification of related party note payable		287,000			-
Deemed dividend to Series A preferred stockholders		-			3,951,000
Amortization of debt discount		475,000			137,000
Change in fair value of derivative liability		(500,000	)		(2,092,000	)
Depreciation and amortization		414,000			363,000
Amortization of right-of-use assets		140,000			135,000
Inventory reserve		-			(2,000	)
Allowance for doubtful account		124,000			50,000
Effect of changes in assets and liabilities:
Accounts receivable		(259,000	)		9,000
Inventory		(4,000	)		30,000
Prepaid expenses		(281,000	)		(12,000	)
Other assets		-			(45,000	)
Accounts payable, accrued expenses, and accrued interest		362,000			255,000
Deferred revenue and customer deposits		26,000			(44,000	)
Deferred incentive compensation		(377,000	)		-
Operating lease liability		(161,000	)		(47,000	)
Net cash provided (used) in operating activities		(6,923,000	)		(2,266,000	)

Investing Activities:
Gain on disposal of fixed assets		5,000
Purchases of property and equipment		-			(121,000	)
Net cash provided by (used in) investing activities		5,000			(121,000	)

Financing Activities:
Proceeds from sale of common stock		13,985,000			3,430,000
Advances on future receipts		4,290,000			-
Proceeds from warrant exercise		1,103,000			-
Proceeds from option exercise		377,000			-
Payment of advances of future receipts		(1,706,000	)		(411,000	)
Net cash provided by financing activities		18,049,000			3,019,000

Net change in cash		11,131,000			632,000

Cash - beginning of period		1,815,000			983,000

Cash - end of period	$	12,946,000		$	1,615,000

Supplemental disclosures of cash flow information:
Cash paid for interest	$	34,000		$	10,000
Cash paid for income taxes	$	-		$	-

Supplemental disclosure of non-cash investing and financing activities:
Fair value of derivative liability extinguished	$	2,286,000		$	-
Fair value of common share issued to settle accrued expenses	$	207,000		$	-
Reclassification of Class B upon conversion to common stock	$	3,065,000		$	-
Discount recognized from advances on future receipts	$	1,133,000		$	-
Fair value of derivative liability from issuance of warrants to Series A stockholders considered as a deemed dividend	$	-		$	3,951,000

The accompanying notes to the condensed consolidated financial statements

VERB TECHNOLOGY COMPANY, INC.

Notes to Condensed Consolidated Financial Statements

For the ~~Nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

(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 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~~Quarterly Report on Form 10-Q 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.

On 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.

On 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 1,4, 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. The par value per share of our Common Stock was not affected by the Reverse Stock Split. ~~All shares~~

On April 12, 2019, we acquired Sound Concepts Inc. (“Sound Concepts”). The acquisition was intended to augment and ~~per share amounts have been retroactively restated as if the reverse split occurred at the beginning~~diversify Verb’s internet and SaaS business (see Note 3).

On September 4, 2020, Verb Acquisition Co., LLC (“Verb Acquisition”), a subsidiary of the ~~earliest period presented.~~Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Ascend Certification, LLC, dba SoloFire (“SoloFire”) for the acquisition of Solofire. The acquisition was intended to augment and diversify Verb’s internet and SaaS business (see Note 3).

Nature of Business

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 Customer Relationship Management application, verbLEARN, our Learning Management System application, ~~and~~ verbLIVE, our Live Stream eCommerce ~~application.~~application, and verbTEAMS, our self-onboarding video-based CRM and content management application for small business and solopreneurs, with seamless synchronization with Salesforce, that also comes bundled with verbLIVE.

~~We also~~Historically, we 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. We use the term “client” and “customer” interchangeably.

COVID-19

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, has adversely affected workforces, customers, economies, and financial markets globally. It has also disrupted the normal operations of many businesses. This outbreak could decrease spending, adversely affect demand for the Company’s products, and harm the Company’s business and results of operations. 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 quarter ended March 31, 2021. 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. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.

As of March 31, 2021, the Company has been following the recommendations of local health authorities to minimize exposure risk for its employees, including the temporary closure of its corporate office and having employees work remotely. Most vendors have transitioned to electronic submission of invoices and payments.

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/A~~10-K for the fiscal year ended December 31, ~~2019~~2020 filed with the SEC on ~~June 4, 2020.~~March 31, 2021 (the “2020 Annual Report”). The consolidated balance sheet as of December 31, ~~2019~~2020 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 consolidated financial statements include the accounts of Verb Technology Company, Inc., Verb Direct, LLC, ~~its wholly owned subsidiary,~~ and Verb Acquisition ~~Co, LLC, its wholly owned subsidiary.~~Co., LLC. Intercompany ~~transactions~~accounts have been eliminated in the 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 ~~nine months~~quarter ended ~~September 30, 2020,~~March 31, 2021, the Company incurred a net loss of ~~$12,690,000~~$8,345,000 and used cash in operations of ~~$9,790,000.~~$6,923,000. 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. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2019 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

~~As of September 30, 2020, we had cash on hand of $10,772,000. We believe we have sufficient cash to sustain operations through September 2021.~~ 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, assumptions made in purchase price allocations, impairment testing of long-term assets, realization of deferred tax assets, determining fair value of derivative liabilities, and valuation of equity instruments issued for services. 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 September 30, 2020, we had no customers that accounted for 10% of our accounts receivable individually. As of December 31, 2019, we had one customer that accounted for 10% of our accounts receivable individually and in aggregate. As of September 30, 2020 and 2019, we had no customers who accounted for 10% or more of our revenues.

As of September 30, 2020, we had two vendors that accounted for 10% or more of our accounts payable individually and 38% in aggregate. As of December 31, 2019, we had one vendor that accounted for 10% or more of our accounts payable individually and in aggregate. As of September 30, 2020 and 2019, we had one vendor that accounted 10% or more of our purchases.

~~Reclassifications~~

Certain revenue amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications consist of reclassification of digital revenue between SaaS recurring subscription revenue and other digital revenue to provide additional clarity. These reclassifications had no effect to the previously reported net loss.

Revenue Recognition

The Company derives its revenue primarily from ~~subscriptions to its digital~~providing application services through the SaaS application, digital marketing and sales support services, ~~though it also derives revenue~~ from ~~certain non-digital services, such~~the sale of customized print products and training materials, branded apparel, and digital tools, as ~~printing and fulfillment services, the Company provides to some of~~demanded by its ~~larger enterprise clients.~~customers. The subscription revenue from the application services are recognized over the life of the estimated subscription contracts and any extensions thereto. While the Company has been offering subscription services for a limited period of time, to date, the Company estimates the life of the subscription period to be approximately 36 months.period. The Company also charges certain customers setup ~~design, and~~or installation fees for the creation and development of websites ~~among other associated~~ and ~~complimentary services.~~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 ~~non-digital~~ revenue, and the related costs are reflected in cost of ~~non-digital~~ 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 ~~the digital delivery of access to~~shipment from our ~~applications,~~facilities, and our performance obligations are satisfied at that time. Shipping and handling activities ~~for our non-digital services~~ 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.

~~Design assets of the websites and applications are recognized when the work is completed. Licensing revenue is recognized over the estimated subscription period.~~

A description of our principal revenue generating activities is as follows:

Digital Revenue which is divided into two main categories:

SaaS recurring subscription revenue – represents digital subscription-based SaaS recurring revenue associated with verbCRM, verbLEARN, and verbLIVE. The revenue is recognized over the subscription period.

SaaS recurring digital revenue based on contract-based subscriptions to our verb app products and platform services which include verbCRM, verbLEARN, verbLIVE, and verbTeams. The revenue is recognized over the subscription period.

Non-SaaS, non-recurring digital revenue, which is revenue generated by the use of our app products and in-app purchases, such as sampling and other services obtained through the app. The revenue for samples is recognized upon completion and shipment, while the design fees are recognized when the service has been rendered and the app is delivered to the customer.

Non-digital revenue, which is revenue we generate from non-app, non-digital sources through ancillary services we provide as an accommodation to our clients and customers. These services, which we now outsource to a strategic partner as part of a cost reduction plan we instituted in 2020, include:

	a.	Design, printing services, and fulfillment. The revenue is recognized upon completion and shipment of products or fulfillment to the customer.

	b.	Shipping services. The revenue is recognized when the corresponding products or fulfillment are shipped.

~~Other Digital – represents digital non-subscription-based revenue consisting~~Revenues during the three months ended March 31, 2021 and 2020 were all generated from the United States of product sample revenue as well as design fees generated through or in connection with our applications. The revenue for samples is recognized upon completion and shipment, while the design fees are recognized when the service has been rendered and the app is delivered to the customer.America.

Welcome kits and fulfilment – We offer design and printing services to certain of our larger clients who request corporate starter kits for their new sales reps, and fulfillment of various customer products that our clients use for their marketing needs. The revenue is recognized upon completion and shipment of the starter kits or fulfillment products to the customer.

Shipping – We charge our customers the costs plus a markup related to the shipping of their welcome kits and fulfillment products. The revenue is recognized when the corresponding welcome kits or fulfillment products are shipped.

~~Contract Liabilities~~

~~Contract liabilities represents consideration received from customers under a revenue contract but the Company has not yet delivered or completed its performance obligation to the customer.~~

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~~revenue upon sale of products to our customers.

Concentration of Credit and Other Risks

The Company’s concentration of credit risk includes its concentrations from key customers and vendors. As of March 31, 2021, we have one vendor that accounted for 40% of our purchases individually and in aggregate. In addition, we had 2 vendors that account for 10% and 28% of accounts payable individually and 38% in aggregate as of March 31, 2021.

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~~Reclassifications

~~The~~Certain revenue amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications consist of reclassification of digital revenue of $400,000 between SaaS recurring subscription revenue and other digital revenue to provide additional clarity. These reclassifications had no effect to the previously reported net loss.

Contract Liabilities

Contract liabilities represents consideration received from customers under a revenue contract, but the Company ~~issues stock options and warrants, shares of Common Stock, and equity interests as share-based compensation~~has not yet delivered or completed its performance obligation 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.customer.

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 ~~September 30,~~March 31, 2021, and 2020, ~~and 2019,~~ the Company had total outstanding options of ~~5,099,038~~5,799,013 and ~~2,914,641,~~4,417,108, respectively, and warrants of ~~13,351,245~~12,422,562 and ~~11,132,960,~~13,651,050, respectively, and outstanding restricted stock awards of ~~2,908,530~~2,751,508 and ~~0, and 2,642,159 shares common shares potentially issuable from our Class B Units that were issued in August 2020,~~1,475,329, respectively, which were excluded from the computation of net loss per share because they are anti-dilutive.

Goodwill ~~and Intangible Assets~~

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.~~is performed annually at December 31 (its fiscal year end). Recoverability of goodwill is determined by comparing the fair value of Company’s reporting ~~units~~unit 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~~ As of ~~Verb Direct, formerly Sound Concepts, occurred on April 12, 2019.~~March 31, 2021 and December 31, 2020, management determined there were no indications of impairment. The Company will perform ~~its first~~their next impairment ~~test~~analysis in December ~~2020.~~2021.

~~The acquisition~~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 ~~Verb Acquisition Co formerly Ascend Certification, occurred on September 4, 2020.~~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. As of March 31, 2021 and December 31, 2020, there was no impairment of intangible assets. The Company will perform ~~its first~~their next impairment ~~test~~analysis in ~~fiscal~~December 2021.

~~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 September 30, 2020 or December 31, 2019.

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC 820 and ASC 825 for ~~disclosures about fair value~~disclosure and measurement of ~~its financial instruments and ASC 820 to measure~~ 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 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 acquired two operating subsidiaries, Verb Direct and Ascend Certification (see Note 3) with various revenue channels. Operations of these two subsidiaries are integrated since they have similar customer base and the Company having a single sales team, marketing department, customer service department, operations department, finance and accounting department to support its operations. 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~~determined that there is ~~based on a management approach to segment~~only one 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.unit or segment.

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.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)~~: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.~~.” ASU 2020-06 ~~will simplify the accounting for convertible instruments by reducing~~reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible ~~preferred stock. Limiting the accounting models~~debt instrument will ~~result in fewer embedded conversion~~be accounted for as a single liability measured at its amortized cost as long as no other features ~~being separately recognized from the host contract~~require bifurcation and recognition as ~~compared with current GAAP. Convertible instruments that continue to be subject to~~derivatives. By removing those separation models, ~~are (1) those with embedded conversion features that are not clearly and closely related to~~ the ~~host contract, that meet the definition~~effective interest rate of ~~a derivative, and that do not qualify for a scope exception from derivative accounting and (2)~~ convertible debt instruments ~~issued with substantial premiums~~will be closer to the coupon interest rate. Further, the diluted net income per share calculation for ~~which~~convertible instruments will require the ~~premiums are recorded as paid-in capital. ASU 2020-06 also amends~~Company to use the ~~guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.~~if-converted method. ASU 2020-06 will be effective ~~July~~January 1, 2024, for the ~~Company.~~Company and is to be adopted through a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is permitted, but no earlier than ~~July~~January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial ~~statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company.~~statements.

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.	ACQUISITIONS

a.	ACQUISITION OF VERB DIRECT

On April 12, 2019, Verb completed ~~its~~the acquisition of Verb Direct (formerly ~~known as~~ Sound Concepts, Inc.) 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 a 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 for a total purchase price of $22,820,000.

. The acquisition was intended to augment and diversify Verb’s internet and SaaS business. ~~Key factors that contributed to~~As a result of this acquisition, the Company recorded goodwill of $16,337,000 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

$6,340,000. 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 nine months ended September 30, 2020, the Company recorded amortization expense of $945,000. As of September 30, 2020, the remaining unamortized balance of the intangible assets was $4,420,000.

Subsequent to its acquisition, Verb Direct recognized revenues in the aggregate of $7.7 million and $6.6 million during the nine months ended September 30, 2020 and 2019, respectively and $2.8 million and $2.9 million during the three months ended September 30, 2020 and 2019, respectively.

b.	ACQUISITION OF ASCEND CERTIFICATION

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”), the sellers party thereto (collectively, the “Sellers”), and Steve Deverall, solely in his capacity as the seller representative, under which Sellers agreed to sell their entire interest in SoloFire, representing all of the outstanding limited liability company membership interests of SoloFire, to Verb Acquisition for a base purchase price of $5,700,000, subject to certain post-closing adjustments totaling $750,000 for an adjusted purchase price of $4,950,000. As a result, Verb Acquisition issued to the Sellers an amended promissory note of $1,885,000 and 2,642,159 Class B Units of Verb Acquisition which are exchangeable for 2,642,159 shares of Verb’s Common Stock with an estimated fair value of $3,065,000 (see Note 16) for a total purchase price of $4,950,000. The promissory note is unsecured, bears interest at a rate of 0.14% per annum and will mature in October 2020. The amended promissory note was paid in full on October 1, 2020.

The acquisition was intended to augment and diversify Verb’s SaaS business. Key factors that contributed to the recorded provisional goodwill and intangible assets in the aggregate of ~~$5,245,000~~$4,845,000 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 SaaS business.

Verb is required to allocate the purchase price to the acquired tangible assets, identifiable intangible assets, and assumed liabilities based on their fair values. ~~At the date~~As of ~~the acquisition and of this Quarterly Report on Form 10-Q,~~March 31, 2021, management has not yet finalized ~~its valuation analysis.~~the purchase price allocation. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill and intangible assets. The following table summarizes the provisional fair value of the assets assumed and liabilities acquired and the provisional purchase price allocation on the date of acquisition:

Assets Acquired:
Cash	$	229,000					$	229,000
Accounts receivable		219,000		$	448,000			207,000		$	436,000
Liabilities Assumed:
Current liabilities		(653,000	)					(241,000	)
Long-term liabilities		(90,000	)		(743,000	)		(90,000	)		(331,000	)
Intangible assets (provisional)					1,883,000						1,122,000
Goodwill (provisional)					3,362,000						3,723,000
Purchase Price				$	4,950,000					$	4,950,000

The provisional 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 provisional intangible assets, which consist of developed technology of ~~$1,700,000~~$1,000,000 are being amortized over 5-years, customer relationships of ~~$120,000~~$70,000 are being amortized over 3 years, non-competition clause of ~~$60,000~~$50,000 is being amortized over 3 years, and domain names of ~~$3,000~~$2,000 are determined to have infinite lives but will be tested for impairment on an annual basis.

During the ~~nine months~~quarters ended ~~September 30,~~March 31, 2021 and 2020, the Company recorded amortization expense of ~~$33,000. As of September 30, 2020,~~$370,000 and $325,000, respectively, related to the ~~remaining unamortized balance of~~intangibles discussed above. The following table summarizes the amortization expense for both Verb Direct and Ascend to be recorded in future periods for intangible assets ~~was $1,850,000.~~that are subject to amortization and excludes intangible assets with infinite life (i.e. domain names) of $442,000:

Year ending	Amortization
2021 remaining	$	1,065,000
2022		1,375,000
2023		1,302,000
2024		465,000
2025 and thereafter		133,000
Total amortization	$	4,340,000

The following ~~comparative~~ unaudited ~~statements~~pro forma statement of operations present the Company’s ~~results of operations after giving effect to the purchase of Verb Direct and SoloFire based on the historical financial statements of the Company and Verb Direct and SoloFire. The unaudited~~ pro forma ~~statements~~results of operations for the ~~nine and three months~~quarters ended ~~September 30,~~March 31, 2020 ~~and 2019~~to give effect to the ~~transaction to the merger~~acquisition of Ascent Certification as if it had occurred on January 1, ~~2019.~~2020.

Three months
ended
September 30, 2020

Three months
ended
September 30, 2019

Nine months
ended
September 30,
2020

Nine months
ended
September 30,
2019

(Proforma unaudited) (Proforma unaudited) (Proforma unaudited) (Proforma,
unaudited)
SaaS recurring subscription revenue $ 1,661,000 $ 1,201,000 $ 4,511,000 $ 3,383,000
Other digital revenue 360,000 485,000 1,166,000 1,354,000
Welcome kits and fulfilment 836,000 1,164,000 2,277,000 5,213,000
Shipping 186,000 271,000 614,000 1,443,000
Total Revenue 3,043,000 3,121,000 8,568,000 11,393,000

Cost of revenue 1,344,000 1,548,000 3,661,000 5,951,000

Gross margin 1,699,000 1,573,000 4,907,000 5,442,000

Operating expenses (9,771,000 ) (5,353,000 ) (21,615,000 ) (16,100,000 )

Other income, net 574,000 526,000 3,550,000 1,406,000

Net loss $ (7,498,000 ) $ (3,254,000 ) $ (13,158,000 ) $ (9,252,000 )

	Quarter Ended March 31, 2020
	(Proforma, unaudited)
SaaS recurring subscription revenue	$	1,312,000
Other digital revenue		400,000
Design, printing, and fulfilment		728,000
Shipping		169,000
Total Revenue		2,609,000

Cost of revenue		1,122,000

Gross margin		1,487,000

Operating expenses		5,412,000

Other income, net		1,914,000

Net loss		(2,011,000	)

Deemed dividend to Series A preferred		(3,951,000	)

Net loss to common stockholders	$	(5,962,000	)

Pursuant to the provisions of ASC 805, the following results of operations of Verb Acquisition subsequent to the acquisition are as follows:

	Verb Acquisition September 1, 2020 through March 31, 2021
	(unaudited)
Revenue	$	439,000
Cost of revenue		202,000
Operating expenses		1,295,000
Other income / (expense)		-
Net loss	$	(1,058,000	)

4.	PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

	September 30, 2020 (unaudited)			December 31, 2019			March 31, 2021			December 31, 2020

Computers	$	29,000		$	29,000		$	29,000		$	29,000
Furniture and fixture		75,000			75,000			75,000			75,000
Machinery and equipment		40,000			39,000			23,000			39,000
Leasehold improvement		1,057,000			741,000			1,058,000			1,058,000
Total property and equipment		1,201,000			884,000			1,185,000			1,201,000
Accumulated depreciation		(294,000	)		(164,000	)		(372,000	)		(339,000	)
Total property and equipment, net	$	907,000		$	720,000		$	813,000		$	862,000

During the period ended March 31, 2021, the Company sold certain machinery and equipment with a cost of $16,000 and accumulated depreciation of $11,000 for cash proceeds of $11,000. As a result, the Company recognized a gain of $6,000 and was reported as part of other income. Depreciation expense amounted to ~~$130,000~~$44,000 and $35,000 for ~~nine~~the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

5.	RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

The Company ~~has entered into several~~ leases ~~that~~certain warehouse, corporate office space and equipment under an operating lease agreement. We determine if an arrangement is a lease at inception. Lease assets are ~~accounted for~~presented as operating ~~leases~~lease right-of-use assets and the related liabilities are presented as lease liabilities 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 offices located in Newport Beach, California 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. Pursuantour consolidated balance sheets 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.~~Leases.

~~As September 30, 2020~~Operating lease right-of-use (“ROU”) assets and ~~December 31, 2019,~~liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in lease arrangements is not readily determinable and the Company ~~had recorded right~~utilizes its incremental borrowing rate in determining the present value of ~~use assets~~lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of ~~$2,868,000~~what its credit rating would be. The operating lease ROU asset includes any lease payments made and ~~$3,275,000, respectively, net~~excludes lease incentives.

The components of ~~amortization. As September 30, 2020~~lease expense and ~~December 31, 2019, the Company had recorded lease liabilities of $3,696,000 and $3,982,000, respectively,~~supplemental cash flow information related to ~~these leases.~~leases for the period are as follows:

	Period Ended September 30, 2020 (unaudited)			Period Ended September 30, 2019 (unaudited)			Period Ended March 31, 2021			Period Ended March 31, 2020
Lease cost
Operating lease cost (included in general and administration in the Company’s statement of operations)	$	524,000		$	281,000		$	175,000		$	175,000

Other information

Cash paid for amounts included in the measurement of lease liabilities	$	383.000		$	281,000		$	196,000		$	-
Weighted average remaining lease term – operating leases (in years)		4.70			5.44			4.54			5.11
Average discount rate – operating leases		4.0	%		4.0	%		4.0	%		4.0	%

	September 30, 2020 (unaudited)		December 31, 2019		March 31, 2021		December 31, 2020
Operating leases
Right-of-use assets, net of amortization of $756,000 and $349,000, respectively	$	2,868,000	$	3,275,000
Right-of-use assets					$	2,590,000	$	2,730,000

Short-term operating lease liabilities	$	595,000	$	391,000	$	591,000	$	596,000
Long-term operating lease liabilities		3,101,000		3,591,000		2,786,000		2,943,000
Total operating lease liabilities	$	3,696,000	$	3,982,000	$	3,377,000	$	3,539,000

Year ending	Operating Leases
2021		595,000
2022		751,000
2023		773,000
2024		472,000
2025 and thereafter		1,189,000
Total lease payments		3,780,000
Less: Imputed interest/present value discount		(403,000	)
Present value of lease liabilities	$	3,377,000

6.	ADVANCE OF FUTURE RECEIPTS

The Company has the following advances on future receipts as of ~~September 30, 2020:~~March 31, 2021:

Note	Issuance Date	Maturity Date	Interest Rate			Original Borrowing		Balance at September 30, 2020			Balance at December 31, 2019			Issuance Date	Maturity Date	Interest Rate			Original Borrowing		Balance at March 31, 2021			Balance at December 31, 2020

Note 1	December 24, 2019	June 30, 2020		10	%	$	506,000	$	-		$	503,000		June 30, 2020	February 25, 2021		108	%		506,000		-			89,000
Note 2	December 24, 2019	June 30, 2020		10	%		506,000		-			503,000		June 30, 2020	February 25, 2021		108	%		506,000		-			88,000
Note 3	June 30, 2020	February 25, 2021		10	%		506,000		297,000			-		January 13, 2021	September 10, 2021		108	%		844,000		556,000			-
Note 4	June 30, 2020	February 25, 2021		10	%		506,000		297,000			-		January 13, 2021	September 10, 2021		108	%		844,000		556,000			-
Note 5														January 22, 2021	July 1, 2021		108	%		2,040,000		1,454,000			-
Note 6														February 18, 2021 – March 3, 2021	August 3, 2021 – August 15, 2021		12	%		1,696,000		1,329,000			-
Total						$	1,012,000		594,000			1,006,000							$	1,012,000		3,895,000			177,000
Debt discount									(176,000	)		(274,000	)									(725,000	)		(67,000	)
Net								$	418,000		$	732,000									$	3,170,000		$	110,000

Note 1 and 2

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 auto withdrew an aggregate of $6,000 from the Company’s operating account each banking day. The term of the agreement extended until the advances are paid in full. The notes did not bear any interest, however, the interest was imputed at a rate of 28% based on the face value of the note. These advances were secured by the Company’s tangible and intangible assets.

The Company accounted these advances on future receipts as a liability pursuant to current accounting guidelines. As a result, the Company recorded a liability of $1,012,000 to account for the future receipts sold and a debt discount of $285,000 to account for the difference between the future receipts sold and the cash received. The debt discount was being amortized over the term of the agreement. As of December 31, 2019, outstanding balance of the advances amounted to $1,006,000 and the unamortized debt discount of $274,000.

~~During the period ended September 30, 2020, the Company paid the entire amount due of $1,006,000 and amortized the corresponding debt discount for $274,000.~~

~~Note 3 and 4~~

On June 30, 2020, the Company received two secured advances from ~~the same~~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~~notes did not bear any interest, however, the average interest was imputed at a rate of 28% based on the face value of the 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.~~proceeds received. As a result, the Company recorded a liability of $1,012,000 to account for the future receipts sold and a debt discount of $284,000 to account for the difference between the future receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.

During the ~~period~~quarter ended ~~September 30, 2020,~~March 31, 2021, the Company paid ~~$418,000~~the entire balance due of $177,000 and amortized the remaining debt discount of $67,000.

Note 3 and 4

On January 13, 2021, the Company received two secured advances from the same unaffiliated third party (see Note 1 and 2) totaling $1,213,000 for the purchase of future receipts/revenues of $1,688,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an aggregate of $11,000 from the Company’s operating account each banking day. The term of the agreement extends until the advances are paid in full. The notes did not bear any interest, however, the average interest was imputed at a rate of 28% based on the face value of the note and proceeds received. The Company may pay off either note for $744,000 if paid within 30 days of funding; for $775,000 if paid between 31 and 60 days of funding; or for $806,000 if paid within 61 to 90 days of funding. These advances are secured by the Company’s tangible and intangible assets. As a result, the Company recorded a liability of $1,688,000 to account for the future receipts sold and a debt discount of $475,000 to account for the difference between the future receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.

During the quarter ended March 31, 2021, the Company paid $753,000 of the balance outstanding and amortized ~~$108,000~~$148,000 of the debt discount. As of ~~September 30, 2020~~March 31, 2021 outstanding balance of the notes amounted to ~~$594,000~~$1,112,000 and the unamortized balance of the debt discount was ~~$176,000.~~$327,000.

Note 5

On January 22, 2020, the Company received a secured advance from an unaffiliated third party totaling $1,440,000 for the purchase of future receipts/revenues of $2,040,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an aggregate of $13,000 from the Company’s operating account each banking day. The term of the agreement extends until the advances are paid in full. The notes did not bear any interest, however, the interest was imputed at a rate of 29% based on the face value of the note and the proceeds received. The Company may pay off either note for $1,725,000 if paid within 30 days of funding; for $1,860,000 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 a result, the Company recorded a liability of $2,040,000 to account for the future receipts sold and a debt discount of $600,000 to account for the difference between the future receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.

During the quarter ended March 31, 2021, the Company paid $587,000 of the balance outstanding and amortized $248,000 of the debt discount. As of March 31, 2021 outstanding balance of the notes amounted to $1,454,000 and the unamortized balance of the debt discount was $352,000.

Note 6

In February and March, the Company received secured advances from an unaffiliated third party totaling $1,637,000 for the purchase of future receipts/revenues of $1,696,000. Pursuant to the terms of the agreement the unaffiliated third-party will auto withdraw an average of $283,000 from the Company’s operating account each month. The term of the agreement extends until the advances are paid in full. The notes did not bear any interest, however, the interest was imputed at a rate of 3% based on the face value of the notes and the proceeds received. As a result, the Company recorded a liability of $1,696,000 to account for the future receipts sold and a debt discount of $59,000 to account for the difference between the future receipts sold and the cash received. The debt discount is being amortized over the term of the agreement.

During the quarter ended March 31, 2021, the Company paid $367,000 of the balance outstanding and amortized $12,000 of the debt discount. As of March 31, 2021 outstanding balance of the notes amounted to $1,329,000 and the unamortized balance of the debt discount was $46,000.

7.	NOTES PAYABLE – RELATED PARTIES

The Company has the following related parties notes payable as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

Note		Issuance Date	Maturity Date	Interest Rate			Original Borrowing		Balance at September 30, 2020		Balance at December 31, 2019				Issuance Date	Maturity Date	Interest Rate			Original Borrowing		Balance at March 31, 2021			Balance at December 31, 2020
Note 1 (A)		December 1, 2015	February 8, 2021		12.0	%	$	1,249,000	$	825,000	$	825,000			December 1, 2015	February 8, 2023		12.0	%	$	1,249,000	$	725,000		$	725,000
Note 2 (B)		December 1, 2015	April 1, 2017		12.0	%		112,000		112,000		112,000			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			April 4, 2016	June 4, 2021		12.0	%		343,000		240,000			240,000
Total notes payable – related parties	Total notes payable – related parties									1,177,000		1,177,000		Total notes payable – related parties									1,077,000			1,077,000
Non-current										-		(1,065,000	)										(725,000	)		-
Current									$	1,177,000	$	112,000										$	352,000		$	1,077,000

(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~~matured on February 8, 2021, as amended. A total of 30% of the original note balance or $375,000 was convertible to common stock and was converted in 2018 while the remaining note balance of $825,000 is not convertible. During the year ended December 31, 2020, the Company made payments of $100,000. On February 25, 2021 the Company extended the note to February 8, 2023 with no changes to the other terms of the note agreement. As of December 31, 2020, the outstanding balance of the note amounted to $725,000.

~~As of September 30, 2020, and December 31, 2019, the outstanding balance of the note amounted to $825,000, respectively.~~


		In February 2021, the Mr. Cutaia and Company amended the note payable and extended the maturity date from February 8, 2021 to February 8, 2023 or an extension of two years. In exchange for the extension, the Company issued Mr. Cutaia warrants to purchase 138,889 shares of common stock with a fair value of $287,000. The warrants are fully vested, exercisable at $2.61 per share and will expire in three years. There were no other changes to the original terms of the note payable. In accordance with ASC 450-70, modifications or exchanges are considered extinguishments with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. The instruments are considered “substantially different” when the present value of the cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. As the fair value of the warrants granted amounted to $287,000 for which is approximately 40% of the outstanding note payable, pursuant to ASC 470, the Company accounted the modification as an extinguishment of debt which requires the measurement of the modified debt and additional consideration to be at fair value. As a result, the Company recognized a loss on debt extinguishment of $287,000 and a corresponding credit to contributed capital.

		As of March 31, 2021, the outstanding balance of the note amounted to $725,000.

	(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 ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019,~~2020, the outstanding principal balance of the note amounted to $112,000, respectively. As of ~~September 30, 2020,~~March 31, 2021, 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. A total of 30% of the original note balance or $103,000 was convertible to common stock and was converted in 2018 while the remaining note balance of $240,000 is not convertible. 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 ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, the outstanding balance of the note amounted to $240,000, respectively.

Total interest expense for notes payable to related parties was ~~$106,000~~$32,000 and $35,000 for ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The Company paid ~~$100,000~~$34,000 and ~~$96,000~~$10,000 in interest for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

8.	NOTES PAYABLE

The Company has the following notes payable as of ~~September 30, 2020:~~March 31, 2021:

Note	Issuance Date	Maturity Date	Interest Rate			Original Borrowing		Balance at September 30, 2020		Issuance Date	Maturity Date	Interest Rate			Balance at March 31, 2021			Balance at December 31, 2020
Note A	April 17, 2020	April 17, 2022		1.00	%	$	1,218,000	$	1,218,000	April 17, 2020	April 17, 2022		1.00	%	$	-		$	1,218,000
Note B	May 15, 2020	May 15, 2050		3.75	%		150,000		150,000	May 15, 2020	May 15, 2050		3.75	%		150,000			150,000
Note C	May 1, 2020	May 1, 2022		3.75	%		90,000		90,000	May 1, 2020	May 1, 2022		3.75	%		90,000			90,000
Note D	September 4, 2020	October 1, 2020		0.14	%		1,982,000		1,885,000
Total notes payable							3,440,000		3,343,000							240,000			1,458,000
Non-current							1,458,000		1,458,000							(240,000	)		(1,458,000	)
Current						$	1,982,000	$	1,885,000						$	-		$	-

(A)

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. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan as of ~~September 30,~~December 31, 2020.

On January 4, 2021 the entire note and accrued interest, totaling $1,226,000, was forgiven and accounted as a gain on debt extinguishment.


(B)	On May 15, 2020, the Company executed an unsecured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster Loan program in the amount of $150,000. The loan is secured by all tangible and intangible assets of the Company and payable over 30 years at an interest rate of 3.75% per annum. Installment payments, including principal and interest, will begin on May 15, 2021. As part of the loan, the Company also received an advance of $10,000 from the SBA. While the SBA refers to this program as an advance, it was written into law as a grant. This means that the amount given through this program does not need to be repaid. As a result, the Company accounted this $10,000 as part of “Other Income” in ~~the accompanying Statement of Operations.~~fiscal 2020.

	(C)	OnAs a result of the acquisition of Solofire in September 2020, the Company assumed Solofire’s PPP loan of $90,000 it obtained in May 1, 2020 ~~SoloFire received loan proceeds in the amount of $90,000~~ under the Paycheck Protection Program (“PPP”) (see discussion “a”). The ~~PPP, established as part~~Company is currently in the process of applying for 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~~forgiveness 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. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan as of September 30, 2020. loan.

	~~(D)~~	On September 4, 2020, Verb Acquisition issued a note payable to the owners of SoloFire, in the amount of $1,982,000, as part of the consideration related to the acquisition of SoloFire. The note bears interest at a rate of 0.14% per annum, with a maturity date of October 1, 2020. Effective September 30, 2020, the note was amended to $1,885,000 to account for contractual working capital adjustments. All other terms remain the same. On October 1, 2020, Verb Acquisition paid off the note in full.

9.	DEFERRED INCENTIVE COMPENSATION TO OFFICERS

Note	Date	Payment Date	Balance at September 30, 2020			Balance at December 31, 2019			Date	Payment Date	Balance at March 31, 2021		Balance at December 31, 2020

Rory Cutaia (A)	December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022	$	430,000		$	430,000		December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022	$	215,000	$	430,000
Rory Cutaia (B)	December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022		324,000			324,000		December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022		161,000		324,000
Jeff Clayborne (A)	December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022		125,000			125,000		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		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					664,000		1,042,000
Non-current				(521,000	)		(1,042,000	)				-		(521,000	)
Current			$	521,000		$	-				$	664,000	$	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,~~$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 ~~these~~the Employees. The Company will pay 50% of the Annual Incentive Compensation on January 10, 2021 and the remaining 50% on January 10, 2022.

On January 12, 2021, the Company paid $215,000 and paid the remaining $63,000 due subsequent to March 31, 2021.

(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~~Up-Listing to Nasdaq and ~~the acquisition~~Acquisition of Verb Direct during fiscal 2019, totaling $324,000 and ~~$162,000,~~$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 ~~these~~the Employees. The Company will pay 50% of the Nasdaq ~~up-listing award~~Up-Listing Award on January 10, 2021 and the remaining 50% on January 10, 2022.

On January 12, 2021, the Company paid $163,000 and paid the remaining $81,000 due subsequent to March 31, 2021.

10.	CONVERTIBLE SERIES A PREFERRED STOCK AND WARRANT OFFERING

On August 14, 2019, we entered into ~~a Securities Purchase Agreement (the “SPA”)~~the SPA with ~~certain accredited investors (the “Preferred Purchasers”),~~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 ~~warrants (the “August Warrants”)~~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 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).

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 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 ranking 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 in 2019 (see Note 11).

During the ~~three months~~year ended ~~September 30,~~December 31, 2020, ~~1,990~~in preparation for 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. In return for the waiver, the Company granted these Series A stockholders warrants to purchase 2,303,861 shares of Common Stock valued at $3,951,000 (see Note 12). As of December 31, 2020, 2,006 shares of Series A Preferred stock are outstanding.

During the period ended March 31, 2021, 300 shares of Preferred Stock were converted into ~~1,405,274~~272,278 shares of Common Stock. As of ~~September 30, 2020, 2,406~~March 31, 2021, 1,706 shares Series A Preferred stock are ~~outstanding and potentially convertible into approximately 2.2 million shares of Common Stock.~~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~~In prior year, the Company granted certain warrants that included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder.

As a result, the fundamental transaction clause of these warrants 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~~are being re-measured ~~at the end of~~ every reporting period with the change in value reported in the statement of operations.~~As of December 31, 2019, the Company had recorded a derivative liability of $5,048,000.~~

During the period ended September 30, 2020, the Company recorded a derivative liability of $3,951,000 as a result of the issuance of 2,303,861 warrants to acquire common stock to Series A Preferred stockholders (see Note 12). The Company also recorded a change in fair value of ($4,295,000) to account for the changes in the fair value of these derivative liabilities during the nine months ended September 30, 2020. In addition, 95,000 shares of the Series A warrants that were accounted as derivative liability were exercised. As result, the Company computed the fair value of the corresponding derivate liability one last time which amounted to $159,000 and the pursuant to current accounting guidelines, the extinguishment was accounted as part of equity.

At September 30, 2020, the fair value of the derivative liability amounted to $4,545,000. The details of derivative liability transactions as of and for the periods ended September 30, 2020 and 2019 are as follows:

September 30, 2020 September 30, 2019
Beginning Balance $ 5,048,000 $ 2,576,000
Fair value upon issuance of notes payable and warrants 3,951,000 6,561,000
Change in fair value (4,295,000 ) (3,320,000 )
Extinguishment (159,000 ) (2,227,000 )
Ending Balance $ 4,545,000 $ 3,591,000

The derivative liabilities were valued using a Binomial pricing model with the following average assumptions:

	September 30, 2020			Upon Issuance			December 31, 2019			March 31, 2021			Upon Extinguishment in 2021			December 31, 2020
Stock Price	$	1.08		$	1.70		$	1.55		$	1.40		$	2.45		$	1.65
Exercise Price	$	1.62		$	1.55		$	1.88		$	1.41		$	1.10		$	1.41
Expected Life		2.78			5.0			3.53			2.92			3.83			3.17
Volatility		107	%		212	%		216	%		135	%		157	%		107	%
Dividend Yield		0	%		0	%		0	%		0	%		0	%		0	%
Risk-Free Interest Rate		0.14	%		2.47	%		1.64	%		0.27	%		0.34	%		0.23	%

Fair Value	$	4,545,000		$	3,951,000		$	5,048,000
Warrants										$	5,480,000		$	-		$	8,266,000
Convertible Notes											-			-			-
Total Fair Value										$	5,480,000		$	2,286,000		$	8,266,000

The expected life of the note and warrants was based on the remaining contractual ~~term.~~term of the instruments. The Company uses the historical volatility of its Common Stock to estimate the future volatility for its Common Stock. The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank.

As of December 31, 2020, the outstanding fair value of the derivative liability amounted to $8,266,000.

During the period ended March 31, 2021, the Company recorded a charge of ($500,000) to account for the changes in the fair value of these derivative liabilities during the period ended March 31, 2021. In addition, 1,027,578 shares of the Series A warrants that were accounted as derivative liability were exercised. As result, the Company computed the fair value of the corresponding derivate liability one last time which amounted to ($2,286,000) and the pursuant to current accounting guidelines, the extinguishment was accounted as part of equity.

At March 31, 2021, the fair value of the derivative liability amounted to $5,480,000. The details of derivative liability transactions for the period ended March 31, 2021 and 2020 are as follows:

	March 31, 2021			March 31, 2020
Beginning balance	$	8,266,000		$	5,048,000
Fair value upon issuance of notes payable and/or warrants		-			3,951,000
Change in fair value		(500,000	)		(2,092,000	)
Extinguishment		(2,286,000	)		-
Ending balance	$	5,480,000		$	6,907,000

12.	~~EQUITY TRANSACTIONS~~COMMON STOCK

The Company’s Common Stock activity for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 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.

The Company’s private placement is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (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.

As a result of this private placement, from February through April 2020, a total of 4,237,833 shares of Common Stock were sold in exchange for cash proceeds of $4,444,000, net of direct fees and expenses in the aggregate of $641,000.

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 as Part of the Company’s~~ Public Offering

On ~~July 24, 2020,~~March 15, 2021, the Company ~~concluded its public~~completed a registered direct offering ~~pursuant to a registration statement on Form S-1 (File No. 333-239055)~~with institutional investors for the purchase and ~~issued and sold 12,545,453~~sale of 9,375,000 shares of ~~Common Stock (which included 1,636,363 shares~~common stock at a purchase price of ~~Common Stock sold pursuant to the exercise by the underwriters of an overallotment option). The~~$1.60 per share which resulted in net proceeds of $14,129,000. Included in the $14,129,000 is a refund of $144,000 from the underwriter that was received subsequent to ~~the Company, after deducting the underwriting discounts and commissions and direct offering expenses was $12,337,000.~~March 31, 2021.

Shares Issued for Services

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company issued ~~962,583~~935,994 shares of Common Stock to vendors for services rendered and to be rendered with a fair value of ~~$1,126,000.~~$1,424,000. 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.

~~13.~~

~~RESTRICTED STOCK AWARDS~~

~~Pursuant to the Company’s December 2019 Omnibus Incentive Plan, a summary of restricted stock award activity for the nine months ended September 30, 2020 is presented below.~~

Weighted-
Average Grant Date
Shares Fair Value Fair Value

Non-vested at December 31, 2019 1,486,354 $ 2,021,000 $ 1.36
Granted 2,871,471 3,379,000 1.18
Vested/deemed vested (1,050,856 ) (2,696,000 ) 1.26
Returned
(336,533
)
485,000

1.31

Forfeited (61,906 ) (91,000 ) 1.47
Non-vested at September 30, 2020 2,908,530 $ 3,544,000 $ 1.22

On April 10, 2020, the board of directors of 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 number of Shares issued were determined 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 589,098 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 its vesting term.

During the period ended September 30, 2020, the Company granted an additional 2,871,471 shares of its restricted stock to employees and members of Board of Directors. The Restricted Stock Awards vest in various dates, starting on grant date up to July 2024. These Restricted Stock Awards were valued based on market value of the Company’s stock price at the respective date of grant and had aggregate fair value of $3,379,000, which is being amortized as stock compensation expense over its vesting term.

~~During the period ended September 30, 2020 336,533~~ In addition, 4,641 shares granted to ~~various~~ employees that vested were returned to the Company in exchange for the Company paying the corresponding income and payroll taxes of these employees amounting ~~$485,000.~~$10,000. Pursuant to current accounting guidelines, the Company accounted the return of the ~~336,533~~4,641 shares and the payment of ~~$485,000~~$10,000 for income and payroll taxes paid on behalf the employees as a reduction in additional paid in capital.

Shares Issued for Debt

During the three months ended March 31, 2021, the Company issued 121,842 shares of Common Stock to vendors certain employees as settlement of payroll of $207,000 that was previously recorded as accrued payroll as of December 31, 2020. These shares of Common Stock were valued based on the market value of the Company’s Common Stock price at the issuance date and approximates the carrying value of the accrued payroll.

13.	RESTRICTED STOCK AWARDS

On December 20, 2019, the Company approved and adopted the Verb Technology Company, Inc. 2019 Omnibus Incentive Plan (the “Plan”).

A summary of restricted stock unit activity for the quarter ended March 31, 2021 is presented below.

							Weighted-
							Average
							Grant Date
	Shares			Fair Value			Fair Value

Non-vested at December 31, 2020		2,185,946		$	1,943,000		$	1.17
Granted		813,265			1,374,000			1.69
Vested/deemed vested		(247,703	)		(447,000	)		1.16
Forfeited		-			-			-
Non-vested at March 31, 2021		2,751,508		$	2,870,000		$	1.33

On January 4, 2021, the Company granted an additional 813,265 shares of its restricted stock to employees and members of Board of Directors. The Restricted Stock Units vest in various dates up to January 2025. These Restricted Stock Units were valued based on market value of the Company’s stock price at the respective date of grant and had aggregate fair value of $1,374,000, which is being amortized as stock compensation expense over its vesting term.

The total fair value of restricted stock ~~award~~units that vested or deemed vested ~~during~~for the ~~nine months~~quarter ended ~~September 30, 2020~~March 31, 2021 was ~~$2,696,000~~$447,000 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of ~~September 30, 2020,~~March 31, 2021 the amount of unvested compensation related to issuances of restricted stock ~~award~~units was ~~$3,544,000~~$2,870,000 which will be recognized as an expense in future periods as the shares vest.

When calculating basic net loss per share, these shares are included in weighted average common shares outstanding from the time they vest. When calculating diluted net loss per share, these shares are included in weighted average common shares outstanding as of their grant date.

14.	STOCK OPTIONS

~~Effective October 16, 2014,~~On December 20, 2019, the Company adopted ~~the 2014 Stock Option~~its 2019 Omnibus Incentive Plan (the ~~“2014 Plan”~~“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 ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 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 $ 1.73 2.54 $ 995,000
Granted 1,035,637 1.37 - -
Forfeited (170,321 ) 3.53 - -
Exercised - - - -
Outstanding at September 30, 2020 5,099,038 $ 1.59 2.54 $ -

Vested September 30, 2020 2,563,321 $ 1.89 $ -

Exercisable at September 30, 2020 1,644,015 $ 2.16 $ -

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Options			Price		Life (Years)		Value

Outstanding at December 31, 2020		6,031,775		$	1.55		2.68	$	1,932,000
Granted		664,000			1.38		-		-
Forfeited		(564,032	)		1.87		-		-
Exercised		(332,730	)		1.13		-		-
Outstanding at March 31, 2021		5,799,013		$	1.62		2.46	$	387,000

Vested March 31, 2021		3,304,078		$	1.71			$	322,000

Exercisable at March 31, 2021		2,023,118		$	1.94			$	133,000

At ~~September 30, 2020, there was no~~March 31, 2021, the intrinsic value asof the ~~exercise price of these stock~~outstanding options ~~were greater than the market price.~~was $387,000.

During the ~~nine months~~quarter ended ~~September 30, 2020~~March 31, 2021, the Company granted stock options to employees to purchase a total of ~~1,035,637~~664,000 shares of Common Stock for services ~~to be~~ rendered. The options have an average exercise price of ~~$1.37~~$1.76 per share, expire in five years, vesting one and ~~cliff vest over a period of 0.4 to 4~~four years from ~~the~~ grant date. The total fair value of these options at ~~the~~ grant date was approximately ~~$1,242,000~~$1,103,000 using the Black-Scholes Option ~~pricing~~Pricing model.

The total stock compensation expense recognized relating to the vesting of stock options for the ~~nine months~~quarter ended ~~September 30, 2020~~March 31, 2021 amounted to ~~$1,215,000.~~$448,000. As of ~~September 30, 2020,~~March 31, 2021, the total unrecognized stock-based compensation expense was ~~$3.8 million,~~$4,059,000, which is expected to be recognized as part of operating expense through ~~August 2024.~~March 2025. In addition, a total of 332,730 shares of stock options were exercised. As a result of the exercise of the option, the Company issued 332,730 shares of common stock and received cash of $377,000.

The fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:

Nine months ended September 30,
2020 2019
Risk-free interest rate 0.17% - 0.39 % 1.55% - 2.75 %
Average expected term 1 to 5 years 3.6 to 5 years
Expected volatility 270.10 - 270.57 % 180 – 275.29 %
Expected dividend yield - -

	Three months ended March 31,
	2021			2020
Risk-free interest rate		0.10% - 0.36	%		0.39	%
Average expected term		5 years			5 years
Expected volatility		240.03	%		270.1	%
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.

15.

WARRANTS

The Company has the following warrants outstanding as of ~~September 30, 2020,~~March 31, 2021, all of which are exercisable:

	Warrants			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value							Weighted-
													Weighted-		Average
Outstanding at December 31, 2019		10,930,991		$	3.07		4.25	$	-
													Average		Remaining		Aggregate
													Exercise		Contractual		Intrinsic
										Warrants			Price		Life (Years)		Value

Outstanding at December 31, 2020											13,351,251		$	2.48		3.38	$	3,022,000
Granted		4,630,654			1.17		-		-		138,889			2.61		-		-
Forfeited		(244,800	)		3.53		-		-		-			-		-		-
Exercised		(1,965,594	)		1.10		-		-		(1,067,578	)		1.10		-		-
Outstanding at September 30, 2020, all vested		13,351,251		$	2.50		3.63	$	-
Outstanding at March 31, 2021, all vested											12,422,562		$	2.60		3.14	$	1,328,000

At ~~September 30, 2020, there was no~~March 31, 2021 the intrinsic value asof the ~~exercise price of these stock~~outstanding warrants ~~were greater than the market price.~~was $1,328,000.

During the ~~period~~quarter ended ~~September 30, 2020,~~March 31, 2021, the Company granted ~~416,199~~138,889 warrants to ~~a consultant~~an officer as part of a ~~private placement offering and 2,303,861 warrants to Series A stockholders~~note extension (see Note ~~12)~~7). In addition, the Company also granted warrants to certain shareholders to purchase 1,910,594 shares of common stock as part of settlement with regards to the Company’s public offering that occurred in July 2020 (see Note 12) . The warrants are fully vested upon grant, exercisable at $1.10 per share, expire in 0.01 year with an estimated fair value of $248,000 using the Black-Scholes Option pricing model. The Company accounted the estimated fair value of $248,000 as a financing costs.

During the ~~period~~quarter ended ~~September 30, 2020,~~March 31, 2021, a total of ~~1,965,594~~1,067,578 warrants were exercised into ~~1,965,594~~1,036,600 shares of Common Stock at a weighted average exercise price of $1.10. The Company received cash of ~~$2,165,000~~$1,103,000 upon exercise of the warrants.

16.	ISSUANCE OF CLASS A and B UNITS

Class A Units – ~~during~~During the ~~period~~year ended ~~September 30,~~December 31, 2020, the Company created an separate class of equity instrument called Class A Units. Concurrently, the Company formed a wholly owned subsidiary, Verb Acquisition, and issued 100 Class A units ~~to the Company~~ as part of the organization of Verb Acquisition. The Class A Units have the following rights and privileges:

	1.	Class A units are a standalone financial instrument;
	2.	Priority on distributions;
	2.3.	Ability to remove the ~~manager~~;manager;
	3.4.	Drag-along rights;
	4.5.	Power to dissolve Verb Acquisition provided that a majority of the Class B Units also approve the dissolution;
	5.6.	Ability to appoint a liquidator to wind up the affairs of Verb Acquisition;
	6.7.	Entitled to distributions;
	7.8.	Approve board appointments; and
	8.9.	Approve any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class B Units also approve the amendment.

There were no issued and outstanding shares of Class A Unit as of March 31, 2021 and December 31, 2020.

Class B Units – ~~during~~During the ~~period~~year ended ~~September 30,~~December 31, 2020, the Company created a separate class of an equity instrument called Class B Units. Concurrently, our wholly owned subsidiary, Verb Acquisition, issued 2,642,159 Class B Units as part of its acquisition of SoloFire (see Note 3). The Class B Units have the following rights and privileges:

	1.	Class B units are a standalone financial instrument;
	2.	Exchangeable for shares of the Company’s Common Stock at a conversion rate of 1 to 1;
	2.3.	Power to dissolve Verb Acquisition, provided that a majority of the Class A Units also approve the dissolution;
	3.4.	Entitled to profit distributions;
	4.5.	Approve board appointments made by the Class A Units; and
	5.6.	Approve any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class A Units also approve the amendment.

As the Class B Units are exchangeable for the Company’s Common Stock, for valuation purposes, the Company determined to use the trading price of the Company’s Common Stock at the date of the acquisition of SoloFire which amounted to $3,065,000.

On March 4, 2021, 2,642,159 all Class B units were converted into 2,642,159 shares of Verb Technology common stock.

17.	COMMITMENTS AND CONTINGENCIES

Litigation

EMA Financial, LLC

On April 24, 2018, EMA Financial, LLC, ~~(“EMA”),~~or 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~~set forth four causes of action and ~~seeks~~sought 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 weit 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.” On December 22, 2020, the court entered a Memorandum and Order partly granting, and partly denying, EMA’s motion for summary judgment on damages, awarding damages only in respect to the value of the warrant shares EMA would have received if it had used the proper formula in its March 2018 warrant exercise notice, plus certain prejudgment interest and per diem interest. On January 21, 2021, the court entered a final judgment in favor of EMA, in the amount of $463,571.98. The court ~~went~~did not award EMA any attorneys’ fees or expenses. While the court ruled in the Company’s favor by dismissing the majority of EMA’s suit on the finding that EMA attempted to ~~order~~utilize an improper warrant exercise formula, the court nevertheless found that ~~in light~~the Company should have accepted the exercise notice and issued the shares the Company believed EMA was then due. Instead of ~~this finding,~~ordering the ~~parties should submit a proposal for future proceedings. Accordingly,~~Company to deliver those shares today, the court ordered the Company to pay the highest value of those shares on the relevant date, to which the Company has ~~instructed its counsel to prosecute~~taken exception. Accordingly, on February 17, 2021, the Company’s ~~claims~~counsel filed a notice of appeal to appeal the court’s judgment to the United States District Court for ~~reimbursement~~the Second Circuit. EMA filed a notice of ~~all of~~cross-appeal and a hearing or briefing for this case is scheduled in June 2021. The Company has established an appropriate reserve to pay for the ~~costs it incurred~~approximately $464,000 judgment in ~~connection with this action, including all attorneys’ fees as well as all damages it incurred as a result of EMA’s conduct.~~the event its appeal is not successful.

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. This former employee filed his complaint in the Superior Court of California for the County of Los Angeles on November 20, 2019, styled Meyerson v. Verb Technology Company, Inc., et al. (Case No. 19STCV41816). The Company does not believe 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. On February 9, 2021, the former employee’s counsel filed a motion for summary judgment, or in the alternative, summary adjudication against the Company. The Company ~~intends~~does not believe the court will grant this motion and it has instructed its counsel to ~~seek~~continue its efforts in seeking a dismissal of the former employee’s claims.

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.~~19-CV-05896 (the “Hartmann Class Action”). The complaint ~~purports~~purported to be brought on behalf of a class of persons or entities who purchased or otherwise acquired the Company’s ~~Common Stock~~common stock between January 3, 2018 and May 2, 2018, and ~~alleges~~alleged 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~~sought unspecified costs and damages. ~~The Company believes~~For additional information, refer to the ~~complaint is without merit.~~section entitled “Legal Proceedings” from the 2020 Annual Report.

On ~~May 15, 2020, we executed~~February 18, 2021, the Court entered a ~~binding Memorandum of Understanding with the lead plaintiff in~~final order and judgment approving the class action ~~lawsuit to settle~~settlement and dismissed the Hartmann Class Action with prejudice. The stipulation of settlement approved (the “Stipulation of Settlement”) by the court on February 18, 2021 provided for, amongst other things, a full and final release, settlement, and discharge of all claims arising from the Hartmann Class Action in consideration of the Company’s payment of a $640,000 settlement amount, which is payable over 12 months. Furthermore, among other things, the Stipulation of Settlement provided that ~~action~~(1) the Company denied each and ~~release~~all of the claims ~~asserted therein. The terms~~alleged by plaintiffs, (2) the Company denied any allegation of wrongdoing, fault, liability, violation of the law, or damage whatsoever arising out of its conduct, (3) the Company denied that it or any of its officers, directors, or employees made any material misstatements or omissions, (4) the Company maintained that it had a meritorious defense to all claims alleged in the Hartmann Class Action, and (5) the Company agreed that the basis of us entering into the Stipulation of Settlement was to avoid the uncertainties, burden, and expense of further litigation and to put the claims arising from the Hartmann Class Action to rest, finally and forever. The Company believes that the settlement ~~are confidential pending submission~~of the Hartmann Class Action approved by the court is favorable to the ~~court,~~Company and ~~subject to several contingencies, including but not limited to court approval. We believe we have~~ultimately benefits its shareholders. The Company has established an appropriate reserve to account for the ~~potential settlement.~~$640,000 settlement of the Hartmann Class Action.

~~By Order dated October 27, 2020,~~During the ~~court granted preliminary approval~~period ended March 31, 2021, the Company paid $56,000 pursuant to the Stipulation of ~~the class action settlement.~~Settlement. As of March 31, 2021, outstanding balance due amounted to $468,000.

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.~~19-CV-08393-AB-SS (the “Moore Derivative Action”). The ~~derivative action~~Moore Derivative Action also arises out of the ~~January 3, 2018, announcement by~~defense of the ~~Company of its agreement with Oracle America, Inc.~~Hartmann Class Action described above. The ~~derivative action~~Moore 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.~~Hartmann Class Action. 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.

On November 5, 2020, wethe Company executed a binding settlement term sheet with the lead plaintiff in the derivative action to settle that action and release all claims asserted ~~therein. The~~therein, the terms of ~~the settlement are~~which were confidential ~~pending submission to the court,~~ and subject to several contingencies, including, ~~but not limited~~without limitation, court approval. On March 1, 2021, the court preliminarily approved the settlement of the Moore Derivative Action. The stipulation and agreement of settlement preliminarily approved (the “Stipulation and Agreement of Settlement”) by the court on March 1, 2021 provided for, amongst others things, a full and final release, settlement, and discharge of all claims arising from the Moore Derivative Action in consideration of the Company’s agreement to institute certain changes and/or modifications to its corporate governance and business ethics practices and plaintiff’s counsel receiving its attorneys’ fees and expenses, which amounted to $75,000. Furthermore, amongst other things, the Stipulation and Agreement of Settlement preliminarily approved by the court ~~approval.~~

provided that (1) the Company denied each and every claim alleged by plaintiff, and (2) the Company denied any allegation of wrongdoing, fault, and liability, (3) the Company denied committing any violation of the law or breach of fiduciary duty, and (4) the Company concluded that it is desirable that the Moore Derivative Action be settled on the terms and subject to the conditions of the Stipulation and Settlement Agreement to avoid the ongoing cost and distraction of litigation. The Company ~~knows~~believes that the settlement of ~~no other material pending legal proceedings~~the Moore Derivative Action preliminarily approved by the court is favorable to ~~which~~ the Company ~~or any~~and ultimately benefits its shareholders. The court intends to set a hearing for the final approval of ~~its subsidiaries is a party or to which any~~the settlement 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,~~Moore Derivative Action approximately 60 days after March 1, 2021. On April 1, 2021, the Company ~~does not know of any such proceedings contemplated by any governmental authorities.~~paid $75,000 to cover the attorney fees and expenses that were due.

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 financial statements.

Board of Directors

The Company has committed an aggregate of $475,000 in ~~annual~~ 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~~quarter ended ~~September 30, 2020~~March 31, 2021 was ~~$309,000~~$119,000 As of ~~September 30, 2020,~~March 31, 2021, total board fees to be recognized in future period amounted to ~~$90,000~~$356,000 and will be recognized once the service has been rendered.

~~COVID-19~~

In March 2020, the World Health Organization declared that the rapidly spreading COVID-19 outbreak was a global pandemic (the “COVID-19 pandemic”). In response to the COVID-19 pandemic, many governments around the world have implemented, and continue to implement, a variety of measures to reduce the spread of COVID-19, including travel restrictions and bans, instructions to residents to practice social distancing, quarantine advisories, shelter-in place orders and required closures of non-essential businesses.

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.

18.	SUBSEQUENT EVENTS

Issuance of Common Stock

Subsequent to ~~September 30, 2020,~~March 31, 2021, the Company issued ~~30,000~~233,959 shares of Common Stock to vendors for services rendered with a fair value of ~~$33,000.~~$283,000. 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 March 31, 2021, 100,149 shares granted to employees that vested were returned to the Company in exchange for the Company paying the corresponding income and payroll taxes of these employees amounting $121,000. Pursuant to current accounting guidelines, the Company accounted the return of the 100,149 shares and the payment of $121,000 for income and payroll taxes paid on behalf the employees as a reduction in additional paid in capital.

Grant of Stock Options

Subsequent to ~~September 30, 2020,~~March 31, 2021, the Company granted stock options to an employee to purchase a total of ~~914,171~~225,000 shares of Common Stock for to be services rendered. The options have an ~~average~~ exercise price of ~~$1.33~~$1.36 per share, expire in five years, and vest over a period of ~~0.5 to~~ 4 years from grant date. The total fair value of these options at the grant date was ~~$1,016,000~~$286,000 using the Black-Scholes option pricing model.

~~Restricted Stock Awards~~

Subsequent to September 30, 2020, the Company issued a 60,000 Restricted Stock Awards to an advisory board member that cliff vest quarterly over one year from grant date with an aggregate fair value of $68,000.

~~Registration of Common Stock, Options of Common Stock, and Shares of Common Stock Underlying Warrants~~

On October 20, 2020, the Company filed a registration statement on Form S-3 with the SEC. The prospectus contained in the registration statement to the proposed resale by the selling security holders named in the prospectus or their permitted assigns of an aggregate of up to 8,393,387 shares of our Common Stock held by the selling security holders, which amount consists of (i) 5,087,326 shares of Common Stock outstanding as of the date of the registration statement, (ii) an aggregate of 416,199 shares of Common Stock issuable upon exercise of Common Stock purchase warrants issued to a non-U.S. consultant in connection with a private placement of Common Stock to certain of the Company’s selling security holders, (iii) 247,703 restricted stock units granted pursuant to a Restricted Stock Award Agreement, and (iv) an aggregate of 2,642,159 shares of Common Stock which will be issued in the future from time to time to those of the Company’s selling security holders that are holders of Class B Units of Verb Acquisition under an exchange agreement among the holders of Class B Units pursuant to which the holders of Class B Units may exchange their Class B Units for shares of the Company’s Common Stock on a one-for-one basis.

~~Payment of Note Payable~~Employment Activities

~~In October 2020,~~On April 28, 2021, in the ~~Company paid in full~~Company’s process to reorganize its development team and related processes, it eliminated the ~~note payable~~position of ~~$1,885,000 issued in September 2020 for~~Chief Product Officer. Accordingly, the ~~acquisition~~employment of ~~SoloFire (see Note 3 and 8).~~Julie Ann Holdren, the Company’s former Chief Product Officer, ended on the same date.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion and analysis of the results of operations and financial condition of our company for the three-month ~~period~~periods ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019,~~ should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical fact and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to business decisions, are subject to change. These uncertainties and contingencies can cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and “Verb” refer to Verb Technology Company, Inc., a Nevada corporation, individually, or as the context requires, collectively with its subsidiary, Verb Direct, LLC, or Verb Direct, on a consolidated basis, unless otherwise specified.

Overview

We are a Software-as-a-Service ~~or SaaS,~~(“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 ~~application;~~(“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;~~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, ~~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,~~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 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, ~~which are~~ 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. ~~For the nine months ended September 30, 2020, verbCRM was 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~~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, and adds~~clicked on, in addition to adding gamification features that enhance the learning aspects of the application. verbLEARN launched in the fourth quarter of 2019, and for the nine months ended September 30, 2020 it was not a significant source of subscription-based SaaS recurring digital revenue because during that period it has been offered to our clients as a free-trial add-on service.

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. ~~verbLIVE is currently in final beta-testing, and is expected to launch commercially in December 2020.~~ A mobile app-based version of verbLIVE, with enhanced features, is currently in development and is expected to be released in early ~~first~~second quarter of 2021.

~~The Verb In-App Eco-System~~verbTEAMS

~~To more effectively~~is our interactive, video-based CRM for small-and medium-sized businesses and ~~efficiently monetize our current large~~solopreneurs. verbTEAMS also incorporates verbLIVE as a bundled application. verbTEAMS incorporates self-sign-up, self-onboarding, self-configuring, content management system capabilities, user ~~base, we have developed~~level administrative capabilities, and ~~have begun to deploy in-app purchase~~high-quality analytics capabilities ~~for all verbCRM users. This feature is currently being distributed~~in both mobile 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 purchasedesktop platforms that sync with one another. It also has a built-in one-click sync 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 finalizing development and testing of 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.Salesforce.

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~~have launched a joint marketing campaign with Salesforce to introduce the verbLIVE plug-in functionality to current Salesforce users. AWe have also developed a verbCRM sync application for Salesforce users that 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.~~basis while we work to build adoption rates.

We have ~~also~~ 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~~Our experience demonstrates 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 ~~intend~~have completed working to introduce an integration of ~~verbLIVE and verbCORE~~our interactive video technology into Microsoft Outlook ~~before year-end, with~~and following the public beta we are currently conducting, we anticipate a ~~broader scale~~broad-scale launch in ~~early first quarter~~the summer of 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, onin 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~~receives 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 ~~virtually~~ 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, 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,~~As of May 10, 2021, we provide subscription-based application services to approximately ~~100~~140 enterprise clients for use in over 60 countries, in over 48 languages, which collectively account for a user base generated through more than ~~1.6~~2.0 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;
	●	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 and Microsoft among others with whom we have executed partnership agreements, for access to our applications that we either have integrated or 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.

Recent Developments

~~verbLIVE Marketing and Monetization Strategies~~

~~Salesforce~~

verbLIVE is currently available to Salesforce users in the Salesforce App Exchange Marketplace under the Salesforce partner program. For a monthly subscription fee of $24.99 per user per month, every Salesforce user that subscribes will have the ability to click on their contacts icon in their Salesforce dashboard and from the drop-down menu they will see a verbLIVE icon. By clicking that, Salesforce users will be able to launch their own verbLIVE live stream ecommerce session and invite people to participate directly from their Salesforce contacts list. We worked with Salesforce to develop a marketing campaign to promote verbLIVE within the Salesforce ecosystem that launched on October 1, 2020.

~~verbLIVE Pre-Sales~~

As previously disclosed, 17 of our existing clients have signed up for verbLIVE during the pre-launch marketing last quarter. We believe that these corporate clients have a combined potential individual user base of 465,350 users which represent the total addressable market among the existing clients that have already signed on. Historically, our penetration rates among our existing corporate clients vary but on the low end it is approximately 10%. Adopting that 10% rate, we believe that we have the potential to attract 46,000 users to subscribe and pay for verbLIVE. Currently, we charge $9.99 to $14.99 per user per month for verbLIVE depending on the features and package for existing verbCRM users, though at launch, we may charge a lower price, including a free trial period. Applying the lower price of $9.99 per user and a penetration rate of 10% for this analysis, we believe that we could potentially capture approximately $460,000 of SaaS recurring revenue per month - or approximately $5.5 million of annual recurring revenue. We are encouraged by the fact that many of these prospective users already have our verbCRM app on their mobile device which allows us to send very targeted marketing messages promoting verbLIVE, including video demonstrations explaining what verbLIVE could do for their business. In addition, our platform is already integrated into many of our clients’ back-office providers making adoption for these clients and users much faster and easier. This is a small part of our internal modeling and should not be interpreted by anyone as a guarantee of performance or results. Notwithstanding the foregoing, which is an example only, our current projected usage models forecast far greater numbers than the 10% penetration rates for our existing signed customers, which we projected earlier this year, and much greater numbers still when we add anticipated adoption rates from the as yet untapped market outside our existing business.

Last quarter, we reported that we were working diligently to ramp up capacity before a larger launch to ensure that we do not face service outages from overloaded servers. Notwithstanding these efforts, we may nevertheless experience server overloads as it is difficult to predict the rate of adoption and usage. We now report that we have begun final testing on the platform enhancements that have been designed and built to accommodate tens of thousands of simultaneous live streams, logins, viewers, and interactions on a global basis. Upon satisfactory completion of the testing, we will begin satisfying our existing back-log of current verbCRM users as discussed above.

We also intend to release a new small business-focused version of our interactive video CRM application, that incorporates verbLIVE which we expect to release before year-end. This new application, called verbTEAMS, is designed to appeal to a larger target market than our verbCRM application as it 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 synch capability with Salesforce. verbTEAMS is designed for small businesses and entrepreneurs with a feature set we believe is highly scalable and unique in the marketplace, that will be very competitive with the most popular CRM systems available today.

~~We are currently working on another product that will represent an entirely new vertical for our Company that we expect to disclose next quarter.~~

SoloFire Acquisition

OnIn September 4, 2020 we completed the acquisition of Ascend Certification, LLC, dba SoloFire (“SoloFire”). SoloFire develops and markets leading SaaS-based sales enablement applications for sales representatives of medical device, diagnostics and life sciences companies. SoloFire’s platform empowers sales and marketing teams by allowing them to efficiently find, show, share and track regulatory and industry compliant, accurate and up-to-date content. With SoloFire, content can be locally stored, making it accessible without Wi-fi or mobile data, which is often a challenge in hospital environments. The sales tools can be tailored to a company’s unique medical products, while creating personalized sales conversations with physicians and other stakeholders. In addition, insights from in-depth analytics capabilities enable sales and marketing teams to identify and replicate the content that most resonates with clients, driving higher conversion rates. We have begun combining VERB’s sales enablement solutions, including our interactive video and interactive livestream ecommerce features, with the SoloFire mobile and desktop applications to provide even more powerful tools for this exciting new target market.

Impact of COVID-19 on Our Business and Industry

In the three months ended March 31, 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 quarter ended March 31, 2021 and through the filing of this Quarterly 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 quarter ended March 31, 2021 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 March 31, 2021, 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 quarter ended March 31, 2021. 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.

Results of Operations

Three Months Ended ~~September 30, 2020~~March 31, 2021 as Compared to the Three Months Ended ~~September 30, 2019~~March 31, 2020

The following is a comparison of our results of operations for the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Change			Quarter Ended March 31, 2021			Quarter Ended March 31, 2020			Change
		(unaudited)			(unaudited)
Revenue
SaaS recurring subscription revenue	$	1,478,000		$	953,000		$	525,000		$	1,461,000		$	1,057,000			404,000
Other digital revenue		360,000			485,000			(125,000	)		340,000			400,000			(60,000	)
Welcome kits and fulfillment		836,000			1,164,000			(328,000	)
Design, printing, and fulfillment											615,000			728,000			(113,000	)
Shipping		186,000			271,000			(85,000	)		110,000			169,000			(59,000	)
Total revenue		2,860,000			2,873,000			(13,000	)		2,526,000			2,354,000			172,000

Cost of revenue
SaaS and other digital		349,000			221,000			128,000
Welcome kits and fulfillment		768,000			990,000			(222,000	)
Cost of Revenue
Digital											540,000			230,000			310,000
Design, printing, and fulfillment											585,000			676,000			(91,000	)
Shipping		188,000			280,000			(92,000	)		90,000			157,000			(67,000	)
Total cost of revenue		1,305,000			1,491,000			(186,000	)		1,215,000			1,063,000			152,000

Gross margin		1,555,000			1,382,000			173,000			1,311,000			1,291,000			20,000

Operating expenses:
Operating expenses
Research and development		2,407,000			1,214,000			1,193,000			2,884,000			1,274,000			1,610,000
Depreciation and amortization		388,000			518,000			(130,000	)		414,000			363,000			51,000
General and administrative		6,655,000			3,292,000			3,363,000			7,343,000			3,514,000			3,829,000
Total operating expenses		9,450,000			5,024,000			4,426,000			10,641,000			5,151,000			5,490,000

Loss from operations		(7,895,000	)		(3,642,000	)		(4,253,000	)		(9,330,000	)		(3,860,000	)		(5,470,000	)

Other income (expense), net
Other income / (expense), net		(2,000	)		(9,000	)		7,000
Financing costs		(248,000	)		(1,486,000	)		1,238,000
Other income (expense)											54,000			(6,000	)		60,000
Interest expense - amortization of debt discount		(110,000	)		(21,000	)		(89,000	)		(475,000	)		(137,000	)		(338,000)
Change in fair value of derivative liability		975,000			2,802,000			(1,827,000	)		500,000			2,092,000			(1,592,000	)
Gain on extinguishment of PPP note payable											1,226,000			-			1,226,000
Debt extinguishment, net		-			(691,000	)		691,000			(287,000	)		-			(287,000	)
Interest expense		(40,000	)		(68,000	)		28,000			(33,000	)		(35,000	)		2,000
Total other income (expense), net		575,000			527,000			207,000
Total other income, net											985,000			1,914,000			(929,000	)

Net loss	$	(7,320,000	)	$	(3,115,000	)	$	(4,205,000	)
Deemed dividend to Series A preferred stockholders											-			(3,951,000	)		3,951,000

Net loss to common stockholders										$	(8,345,000	)	$	(5,897,000	)	$	(2,448,000	)

Revenue

Total revenue for the quarter ended ~~September 30, 2020~~March 31, 2021 was $2.5 million, a 7% increase compared to the $2.4 million reported for the quarter ended March 31, 2020. The increase in revenue is attributed to the addition of new clients and ~~September 30, 2019 was $2.9 million. While~~ the expansion of existing clients for access to one or more of our suite of software products on our sales enablement platform. Those products now include verbCRM, verbLEARN, verbTEAMS, and verbLIVE. The revenue ~~was flat in total, the mix between~~we derive from these products is divided into two main categories: digital revenue and non-digital ~~changed. Digital~~revenue. Within the digital revenue ~~increased $400,000 offset~~category, we have two forms of revenue. The first is SaaS recurring digital revenue based on contract-based subscriptions to our products and platform services. The second is non-SaaS, non-recurring digital revenue which is revenue generated by use of our apps and in-app purchases, such as sampling and other services obtained through the app. Non-digital revenue is revenue we generate from non-app, non-digital sources through ancillary services we provide as an accommodation to our clients and customers. These include printing and shipping services which we now outsource to a ~~decrease~~strategic partner as part of a cost reduction plan we instituted in ~~non-digital revenue of $413,000.~~2020.

Total digital revenue for the quarter ended ~~September 30, 2020~~March 31, 2021 was $1.8 million, an increase of 24% compared to ~~$1.4~~the $1.5 million reported for the quarter ended ~~September 30, 2019. Total~~March 31, 2020. The increase was primarily driven from SaaS recurring subscription-based revenue associated with our verbCRM, verbLEARN, verbTEAMS, and verbLIVE applications totaling $1.5 million, and increase of 38% compared to $1.1 million reported for the quarter ended March 31, 2020. Non-subscription digital revenue for the quarter ended September 30, 2020 consisted of subscription-based SaaS recurring revenue associated with our verbCRM, verbLEARN, and SoloFire applications of $1.5 million and non-subscription-based revenue of $360,000. Total digital revenueMarch 31, 2021 was $340,000, compared to $400,000 for the quarter ended September 30, 2019 consisted of subscription-based SaaS recurring revenue associated with our verbCRM application of $953,000 million and non-subscription-based revenue of $485,000. The increase in our SaaS recurring subscription revenue of $525,000 is attributed to a net increase of 36 enterprise clients on our platform as of September 30, 2020 versus September 30, 2019, the expansion of our product offering with existing enterprise clients, and the addition of SoloFire.March 31, 2020.

Total non-digital revenue for the quarter ended ~~September 30, 2020~~March 31, 2021 was ~~$1.0 million,~~$725,000, a decrease of 19% compared to ~~$1.4 million~~$897,000 reported for the quarter ended ~~September 30, 2019. Total non-digital revenue for~~March 31, 2020, ~~consisted of revenue generated from~~which is consistent with the Company’s strategy to exit the low margin 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 $836,000;~~ and shipping ~~fees associated with client welcome kits and fulfillment~~aspects of ~~186,000. The decrease in non-digital~~the legacy business to focus on digital revenue ~~versus 2019 is attributed to a shift in resources from non-digital to SaaS recurring subscription revenue.~~streams.

The table below sets forth our quarterly revenues from the quarter ended March 31, 2019 through the quarter ended ~~September 30, 2020,~~March 31, 2021, which reflects the trend of revenue since our acquisition of Verb Direct in April ~~2019.~~

2019:

2019 Quarterly Revenue 2020 Quarterly Revenues
Q1 Q2 Q3 Q4 Q1 Q2 Q3
SaaS recurring subscription revenue $ 9,000 $ 858,000 $ 953,000 $ 995,000 $ 1,057,000 $ 1,274,000 $ 1,478,000
Other digital revenue - 596,000 485,000 344,000 400,000 406,000 360,000
Total digital revenue $ 9,000 $ 1,454,000 $ 1,438,000 $ 1,339,000 $ 1,457,000 $ 1,680,000 $ 1,838,000

Welcome kits and fulfillment - 1,784,000 1,164,000 965,000 728,000 713,000 836,000
Shipping - 495,000 271,000 181,000 169,000 259,000 186,000
Total non-digital revenue $ - $ 2,279,000 $ 1,435,000 $ 1,146,000 $ 897,000 $ 972,000 $ 1,022,000

Grand total $ 9,000 $ 3,733,000 $ 2,873,000 $ 2,485,000 $ 2,354,000 $ 2,652,000 $ 2,860,000

	2019 Quarterly Revenue								2020 Quarterly Revenue								2021
	Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1
SaaS recurring subscription revenue	$	9,000	$	858,000	$	953,000	$	995,000		1,057,000		1,274,000		1,478,000		1,305,000		1,461,000
Other digital revenue		-		596,000		485,000		344,000		400,000		406,000		360,000		218,000		340,000
Total digital revenue	$	9,000	$	1,454,000	$	1,438,000	$	1,339,000		1,457,000		1,680,000		1,838,000		1,523,000		1,801,000

Design, printing, and fulfillment		-		1,784,000		1,164,000		965,000		728,000		713,000		836,000		467,000		615,000
Shipping		-		495,000		271,000		181,000		169,000		259,000		186,000		109,000		110,000
Total non-digital revenue	$	-	$	2,279,000	$	1,435,000	$	1,146,000		897,000		972,000		1,022,000		576,000		725,000

Grand total	$	9,000	$	3,733,000	$	2,873,000	$	2,485,000		2,354,000		2,652,000		2,860,000		2,099,000		2,526,000

Cost of Revenue

Total cost of revenue for the quarter ended ~~September 30, 2020~~March 31, 2021 was ~~$1.3~~$1.2 million, compared to ~~$1.5~~$1.1 million for the quarter ended ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase in cost of revenue ~~of $186,000~~ is primarily ~~attributed to lower non-digital revenue, offset by an increase digital costs of $128,000~~ attributed to additional enterprise customers on the platform, ~~and~~ increased users within our existing customer ~~base.~~base, free trials associated with verbLIVE, all offset by a decrease in non-digital costs.

Gross Margin

~~The shift in resources to our SaaS recurring subscription revenue reflects an increase in~~Total gross margin ~~to 54%~~ for the quarter ended ~~September 30, 2020 versus 48% for~~March 31, 2021 was virtually flat compared to the quarter ended ~~September 30, 2019.~~March 31, 2020. The ~~shift had a material impact as gross margin increased $173,000 while gross~~slight increase is attributed to an increase in digital revenue, ~~was flat for the quarter ended September 30, 2020 versus September 30, 2019.~~offset by lower non-digital revenue and increase hosting fees driven by verbLIVE free trials.

Operating Expenses

Research and development expenses were ~~$2.4~~$2.9 million for the quarter ended ~~September 30, 2020,~~March 31, 2021, as compared to ~~$1.2~~$1.3 million for the quarter ended ~~September 30, 2019.~~March 31, 2020. 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 the development of verbLIVE, ~~plus~~our attribution feature, enhancements to verbCRM, as well as the Microsoft Outlook integration, and our ~~core platform to facilitate native integrations with Salesforce, Microsoft, and other channel partners.~~new Marketplace platform.

Depreciation and amortization expenses were ~~$388,000~~$414,000 for the quarter ended ~~September 30, 2020,~~March 31, 2021, as compared to ~~$518,000~~$363,000 for the quarter ended ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase is primarily attributed to lower amortization expense of intangible assets of $152,000 for the quarter ended September 30, 2020 versus the quarter ended September 30, 2019. The decrease is attributed to the Company estimating the value of Verb Direct’s opening balance sheet for the quarter ended September 30, 2019, whileassociated with the amortization ~~for the quarter end September 30, 2020 was based on a revised value~~ of the Verb Direct opening balance sheet provided by a third-party expert. This decrease is offset by incremental amortization associated with leasehold improvements related to our corporate headquarters, and other depreciation and amortization attributed to Verb Direct.SoloFire intangible assets.

General and administrative expenses for the quarter ended ~~quarter ended September 30, 2020~~March 31, 2021 were ~~$6.7~~$7.3 million, as compared to ~~$3.3~~$3.5 million for the quarter ended ~~September 30, 2019.~~March 31, 2020. The increase in ~~general~~spending was to support growth, anticipated product launches, implementation of Netsuite, ongoing compliance with Sarbanes Oxley, and ~~administrative expenses is related to~~ an ~~increase~~additional quarter of Solofire operations. The notable increases versus the quarter ended March 31, 2020 were increases in non-cash stock compensation expense of $1.5 million, additional labor ~~related costs to support growth~~ of ~~$606,000, SoloFire expenses of $582,000 primarily driven by retention bonuses, an increase in professional services of $432,000 primarily attributed to the acquisition of SoloFire, and~~$833,000, increased marketing and promotion of ~~$232,000.~~$701,000, and increased professional services of $409,000.

Other income (expense), net, for the quarter ended ~~September 30, 2020~~March 31, 2021 was ~~$575,000,~~$986,000, which was attributed to a gain on extinguishment of a PPP note payable of $1,226,000, a change in the fair value of derivative liability of ~~$975,000~~$500,000, other income of $54,000, offset by ~~financing costs of ($248,000), interest expense for~~ amortization of debt discount of ($~~110,000)~~475,000), debt extinguishment ($287,000) and interest expense of ($~~40,000), and other income of ($2,000)~~33,000). Other income (expense), net, for the quarter ended September 30, 2019 was $527,000, which was attributed to a change in the fair value of derivative liability of $2.8 million, offset by financing costs of ($1,486,000), debt extinguishment of ($691,000), interest expense of ($68,000), interest expense for amortization of debt discount of ($21,000), and other expense of ($9,000).

~~Nine months ended September 30, 2020 as Compared to the Nine months ended September 30, 2019~~

~~The following is a comparison of our results of operations for the nine months ended September 30, 2020 and 2019:~~

Nine months ended
September 30, 2020

Nine months ended
September 30, 2019
Change
(unaudited) (unaudited)
Revenue
SaaS recurring subscription revenue $ 3,809,000 $ 1,820,000 $ 1,989,000
Other digital revenue 1,166,000 1,081,000 85,000
Welcome kits and fulfillment 2,277,000 2,948,000 (671,000 )
Shipping 614,000 766,000 (152,000 )
Total revenue 7,866,000 6,615,000 1,251,000

Cost of revenue
SaaS and other digital 843,000 427,000 416,000
Welcome kits and fulfillment 2,106,000 2,375,000 (269,000 )
Shipping 554,000 761,000 (207,000 )
Total cost of revenue 3,503,000 3,563,000 (60,000 )

Gross margin 4,363,000 3,052,000 1,311,000

Operating expenses:
Research and development 5,308,000 3,113,000 2,195,000
Depreciation and amortization 1,108,000 1,025,000 83,000
General and administrative 14,187,000 8,803,000 5,384,000
Total operating expenses 20,603,000 12,941,000 7,662,000

Loss from operations (16,240,000 ) (9,889,000 ) (6,351,000 )

Other income (expense), net
Other income (expense), net 1,000 (10,000 ) 11,000
Financing costs (248,000 ) (1,625,000 ) 1,377,000
Interest expense - amortization of debt discount (384,000 ) (1,647,000 ) 1,263,000
Change in fair value of derivative liability 4,295,000 3,320,000 975,000
Debt extinguishment, net - 1,536,000 (1,536,000 )
Interest expense (114,000 ) (151,000 ) 37,000
Total other income (expense), net 3,550,000 1,423,000 2,127,000

Net loss $ (12,690,000 ) $ (8,466,000 ) $ (4,224,000 )

~~Revenue~~

Total revenue for the nine months ended September 30, 2020 was $7.9 million, compared to $6.6 million for the nine months ended September 30, 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 verbCRM, verbLEARN, SoloFire; (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 nine months ended September 30, 2020 was $5.0 million, compared to $2.9 million for the nine months ended September 30, 2019. Total digital revenue for the nine months ended September 30, 2020 consisted of subscription-based SaaS recurring revenue associated with our verbCRM, verbLEARN, and SoloFire applications of $3.8 million and non-subscription-based revenue of $1.2 million.

Total non-digital revenue for the nine months ended September 30, 2020 was $2.9 million, compared to $3.7 million for the nine months ended September 30, 2019. Total non-digital revenue for 2020 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 $2.3 million; and shipping fees associated with client welcome kits and fulfillment of $614,000.

~~Cost of Revenue~~

Total cost of revenue for the nine months ended September 30, 2020 was $3.5 million, compared to $3.6 for the nine months ended September 30, 2019. The decrease in cost of revenue is primarily attributed by lower non-digital revenue for the nine months ended September 30, 2020 versus September 30, 2019 offset by additional enterprise customers on the platform and increased users within our existing customer base.

~~Gross Margin~~

~~The shift in resources to our SaaS recurring subscription revenue reflects an increase in gross margin to 55% for the~~ quarter ended ~~September 30,~~March 31, 2020 versus 46% for the quarter ended September 30, 2019. The shift had a material impact on gross margin as gross margin increased $1.3 million, while gross revenue increased $1.3 million for the quarter ended September 30, 2020 versus September 30, 2019.

~~Operating Expenses~~

Research and development expenses were $5.3 million for the nine months ended September 30, 2020, as compared to $3.1 million for the nine months ended September 30, 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, development of verbLIVE, plus enhancements to verbCRM and our core platform to facilitate native integrations with Salesforce, Microsoft, and other channel partners.

Depreciation and amortization expenses were $1.1 million for the nine months ended September 30, 2020, as compared to $1.0 million for the nine months ended September 30, 2019. The increase is associated with an additional three months of amortization related to the intangible asset recorded as part of the acquisition of Verb Direct in April 2019 totaling $325,000, amortization of SoloFire intangible assets, amortization of leasehold improvements related to our corporate headquarters, other depreciation and amortization attributed to Verb Direct, offset by lower amortization of intangible assets for the quarter ended September 30, 2020 versus the quarter ended September 30, 2019 due to the change in the value of the Verb Direct’s opening balance sheet.

General and administrative expenses for the nine months ended September 30, 2020 were $14.2 million, as compared to $8.8 million for the nine months ended September 30, 2019. The increase in general and administrative expenses is primarily related to general and administration expenses attributed to an increase in stock compensation expense oftotaled $1.9 million, labor related costs to support growth of $1.1 million, Verb Direct of $950,000, expenses from SoloFire of $582,000 primarily driven by retention bonuses, professional services of $507,000 primarily attributed to the SoloFire, marketing and promotion of $307,000, and increased facility costs associated with our corporate headquarters of $174,000.

~~Other income (expense), net, for the nine months ended September 30, 2020 was $3.6~~ million, which was attributed to a change in the fair value of derivative liability of $4.3 million and other income (expense), net of $1,000, offset by interest expense for amortization of debt discount of ($384,000), financing costs of ($248,000), and interest expense of ($114,000). Other income (expense), net, for the nine months ended September 30, 2019 was $1.4 million, which was attributed to a change in the fair value of derivative liability of $3.3 million, debt extinguishment of $1.5$2.1 million, offset by interest expense for amortization of debt discount of ($~~1.6) million, financing costs of ($1.6) million,~~137,000), interest expense of ($~~151,000)~~35,000), and other ~~income (expense), net~~expense of ($~~10,000)~~6,000).

Use of Non-GAAP Measures - Modified EBITDA

In addition to our ~~GAAP~~ results under generally accepted accounted principles (“GAAP”), we present ~~modified~~Modified EBITDA as a supplemental measure of our performance. However, ~~modified~~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~~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, and other (income) / expense, net.~~

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. ~~Readers~~You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating ~~modified~~Modified EBITDA, ~~readers~~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~~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 For the Nine months ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Net loss $ (7,320,000 ) $ (3,115,000 ) $ (12,690,000 ) $ (8,466,000 )

Adjustments:
Other (income) / expense, net 2,000 9,000 (1,000 ) 10,000
Stock compensation expense 2,244,000 792,000 4,796,000 2,880,000
Financing costs 248,000 1,486,000 248,000 1,625,000
Amortization of debt discount 110,000 21,000 384,000 1,647,000
Change in fair value of derivative liability (975,000 ) (2,802,000 ) (4,295,000 ) (3,320,000 )
Debt extinguishment, net - 691,000 - (1,536,000 )
Interest expense 40,000 68,000 114,000 151,000
Depreciation and amortization 388,000 518,000 1,108,000 1,025,000
Income tax provision - - - -
Total EBITDA adjustments 2,057,000 783,000 2,354,000 2,482,000
Modified EBITDA $ (5,263,000 ) $ (2,332,000 ) $ (10,336,000 ) $ (5,984,000 )

	Quarter Ended
	March 31, 2021			March 31, 2020

Net loss	$	(8,345,000	)	$	(1,946,000	)

Adjustments
Other (income) / expense		(54,000	)		6,000
Stock compensation expense		2,402,000			943,000
Amortization of debt discount		475,000			137,000
Change in fair value of derivative liability		(500,000	)		(2,092,000	)
Gain on extinguishment of PPP note payable		(1,226,000	)		-
Debt extinguishment, net		287,000			-
Interest expense		33,000			35,000
Depreciation and amortization		414,000			363,000
Income tax provision		-			-

Total EBITDA adjustments		1,831,000			(608,000	)
Modified EBITDA	$	(6,514,000	)	$	(2,554,000	)

The ~~$2.9~~$4.0 million decrease in ~~modified~~Modified EBITDA for the ~~three months~~quarter ended ~~September 30, 2020~~March 31, 2021, compared to the same period in ~~2019,~~2020, resulted from ~~the increase in~~increased research and development, an extra quarter of expenses related to SoloFire, ~~primarily driven by retention bonuses,~~ an increase in professional services, ~~primarily attributed to the acquisition of SoloFire,~~ labor related costs to support growth, and marketing and ~~promotion, offset by higher margin attributed to an increase in digital revenue offset by lower non-digital revenue.~~

The $4.4 million decrease in modified EBITDA for the nine months ended September 30, 2020 compared to the same period in 2019, resulted from increased research and development, expenses related to SoloFire primarily driven by retention bonuses, an increase in professional services primarily attributed to the acquisition of SoloFire, labor related costs to support growth, marketing and promotion, increased facility costs associated with our corporate headquarters, and nine months of Verb Direct general and administrative expenses for 2020 versus the six months of Verb Direct results in 2019, offset by an increase in gross margin.promotion.

We present ~~modified~~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~~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.

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 ~~$12.7 million~~$8,345,000 during the ~~nine months~~quarter ended ~~September 30, 2020.~~March 31, 2021. We also utilized cash in operations of ~~$9.8 million~~$6,923,000 during the ~~nine months~~quarter ended ~~September 30, 2020.~~March 31, 2021. 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 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~~2020 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 ~~September 30, 2020,~~March 31, 2021, we had cash of ~~$10.7 million.~~$12,946,000. We ~~are in~~estimate our operating expenses for the ~~early stages of our business. We are required~~next twelve months may continue to ~~fund growth from financing activities,~~exceed any revenue we generate, and we ~~intend~~may need to ~~rely on a combination of~~raise capital through either debt or equity ~~and debt financings.~~offerings to continue operations. 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.

The following is a summary of our cash flows from operating, investing, and financing activities for the quarters ended March 31, 2021 and 2020:

	Quarter Ended
	March 31, 2021			March 31, 2020
Cash used in operating activities	$	(6,923,000	)	$	(2,266,000	)
Cash used in investing activities		5,000			(121,000	)
Cash provided by financing activities		18,049,000			3,019,000
Increase in cash	$	11,131,000		$	632,000

Cash Flows – Operating

For the ~~nine months~~quarter ended ~~September 30, 2020,~~March 31, 2021, our cash flows used in operating activities amounted to ~~$9.8~~$6.9 million, compared to cash used for the ~~nine months~~quarter ended ~~September 30, 2019~~March 31, 2020 of ~~$6.5~~$2.3 million. The change is attributed to the growth of the business, product development, marketing and promotion, professional services, inclusion of ~~Verb Direct and~~ SoloFire operating expenses, ~~professional services, and~~a change in deferred compensation of ($377,000), a change in prepaid expenses of ($~~212,000) compared to September 30, 2019, offset by an increase in gross margin,~~269,000), a change in accounts receivable of ~~$430,000, deferred revenue and customer deposits of $364,000,~~($268,000) compared to ~~September 30, 2019.~~March 31, 2020.

Cash Flows – Investing

For the ~~nine months~~quarter ended ~~September 30,~~March 31, 2021, our cash flows from investing activities amounted to $5,000, which was attributed to the gain on sale of assets. For the quarter ended March 31, 2020, our cash flows used ~~from~~in investing activities amounted to ~~$88,000 compared to the cash used for the nine months ended September 30, 2019 of $14.6 million.~~$(121,000). The change is attributed to ~~the purchase of Verb Direct (formerly Sound Concepts) in April 2019 offset by~~ fixed asset purchases associated with our new corporate headquarters in Newport Beach, ~~California and cash received of $229,000 related to the acquisition of SoloFire in September 2020.~~California.

Cash Flows – Financing

Our cash provided by financing activities for the ~~nine months~~quarter ended ~~September 30, 2020~~March 31, 2021 amounted to ~~$19.6~~$18.0 million, which represented ~~$16.8~~$14.0 million of net proceeds from the issuance of shares of our common stock, advances on future receipts of $4.3 million, proceeds from warrant exercises of ~~$2.2~~$1.1 million, ~~a paycheck protection program loan~~and proceeds from option exercises of ~~$1.2 million, advances on future receipts of $728,000, and an economic injury disaster loan of $150,000,~~$377,000, all offset by ~~$1,424,000~~($1.7) million of payments against advance on future receipts. Our cash provided by financing activities for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 amounted to ~~$22.3~~$3.0 million, which represented ~~$18.5~~$3.4 million of net proceeds from the issuance of shares of our ~~Common Stock, $4.7 million~~common stock, offset by $411,000 of ~~net proceeds from~~payments against advance on future receipts. Our cash provided by financing activities for the ~~issuance of shares of our Series A Preferred Stock, $1.3 million of proceeds from notes payable,~~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, ~~and $45,000 of proceeds from warrant exercises, partially~~ offset by ~~$2.0 million paid in connection with convertible notes outstanding, $630,000 paid in connection with notes outstanding, and $58,000 paid in connection with related party notes outstanding.~~$326,000 of deferred offering costs.

Notes Payable – Related Parties

We have the following outstanding notes payable to related parties as of ~~September 30, 2020:~~March 31, 2021:

Note Issuance Date Maturity Date Interest Rate Original Borrowing Balance at
September 30,
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 -
Current $ 1,177,000

Note	Issuance Date	Maturity Date	Interest Rate			Original Borrowing		Balance at March 31, 2021

Note (A)	December 1, 2015	February 8, 2023		12.0	%	$	1,249,000	$	725,000
Note (B)	December 1, 2015	April 1, 2017		12.0	%		112,000		112,000
Note (C)	April 4, 2016	June 4, 2021		12.0	%		343,000		240,000

Total notes payable – related parties, net									1,077,000
Non-current									(725,000	)
Current								$	352,000

	(A)	On December 1, 2015, wethe Company issued a convertible note payable to Mr. Rory J. Cutaia, ~~our~~the Company’s majority stockholder and Chief Executive Officer, ~~and then-majority stockholder,~~ to consolidate all loans and advances made by Mr. Cutaia to ~~our company~~the Company as of that date. The note bears interest at a rate of 12% per annum, is secured by ~~our~~the Company’s assets, and ~~will mature~~matured on February 8, 2021, as amended. A total of 30% of the original note balance or $375,000 was convertible to common stock and was converted in 2018 while the remaining note balance of $825,000 is not convertible. During the year ended December 31, 2020, the Company made payments of $100,000. On February 25, 2021 the Company extended the note to February 8, 2023 with no changes to the other terms of the note agreement. As of March 31, 2021, the outstanding balance of the note amounted to $725,000.

	(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 ~~September 30, 2020,~~March 31, 2021, the outstanding principal balance of the note was equal to $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. A total of 30% of the original note balance or $103,000 was convertible to common stock and was converted in 2018 while the remaining note balance of $240,000 is not convertible. 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. As of March 31, 2021, the outstanding balance of the note amounted to $240,000.

Deferred Incentive Compensation

Note

Issuance Date

Maturity Date

Balance at
September 30, 2020

Issuance Date

Maturity Date

Balance at
December 31, 2020

Rory J. Cutaia (A)

December 23, 2019