VERB TECHNOLOGY : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)


Forward-Looking Statements




The following discussion and analysis of the results of operations and financial
condition of our company for the three and six month periods ended June 30, 2021
and 2020 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 ("SaaS") applications platform developer. Our
platform is comprised of a suite of interactive video-based sales enablement
business software products marketed on a subscription basis. Our applications,
available in both mobile and desktop versions, are offered as a fully integrated
suite, as well as on a standalone basis, and include verbCRM, our white-labelled
Customer Relationship Management ("CRM") application for large sales-based
enterprises; verbTEAMS, our CRM application for small-and medium-sized
businesses and solopreneurs; verbLEARN, our Learning Management System
application, verbLIVE, our Live Stream eCommerce application, and verbMAIL, our
interactive video sales communication tool integrated with Microsoft Outlook.



Our Technology


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



Our Products



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



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



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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.



verbTEAMS is our interactive, video-based CRM for small-and medium-sized
businesses and solopreneurs. verbTEAMS also incorporates verbLIVE as a bundled
application. verbTEAMS features self-sign-up, self-onboarding, self-configuring,
content management system capabilities, user level administrative capabilities,
and high-quality analytics capabilities in both mobile and desktop platforms
that sync with one another. It also has a built-in one-click sync capability
with Salesforce.


Verb Partnerships and Integrations




verbMAIL for Microsoft Outlook is a product of our partnership with Microsoft
and is available as an add-in to Microsoft Outlook for Outlook and Office 365
subscribers. verbMAIL allows users to create interactive videos seamlessly
within Outlook by clicking the verbMAIL icon in the Outlook toolbar. The videos
are automatically added to an email and can be sent easily through Outlook using
the user's contacts they already have in Outlook. The application allows users
to easily track viewer engagement and together with other features represents an
effective sales tool available for all Outlook users worldwide. Currently
offered without charge, a subscription-based paid version with a suite of
enhanced features for sales and marketing professionals is slated for release
later this year.


verbMAIL for Google Gmail is currently under development. It will include a
feature set substantially identical to verbMAIL for Outlook.




Salesforce Integration. We have completed and deployed the integration of
verbLIVE into Salesforce and have launched a joint marketing campaign with
Salesforce to introduce the verbLIVE plug-in functionality to current Salesforce
users. We 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 while we work to build adoption rates.



Popular Enterprise Back-Office System Integrations. We have integrated 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. Our experience confirms 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.



Non-Digital Products and Services




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. 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, in May 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 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.



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. As of August 9,
2021, we provide subscription-based application services to approximately 140
enterprise clients for use in over 60 countries, in over 48 languages, which
collectively account for a user base generated through more than 2.8 million
downloads of our verbCRM application. Among the new business sectors targeted
for this year are medical equipment and pharmaceutical sales, armed services and
government institutions, small businesses and individual entrepreneurs.



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Revenue Generation


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

1. Digital Revenue which is divided into two main categories:

a. 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. verbMAIL was released after the reporting period covered by this Form

10-Q and as such no revenue is attributed to verbMAIL.

b. 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.



2. 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.




Recent Developments



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SoloFire Acquisition



In September 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




Throughout 2020 and the first six months of 2021, governments and businesses
around the world continue to take actions to mitigate the spread of COVID-19 and
its variants, including, but not limited to, shelter-in-place orders,
quarantines, significant restrictions on travel, as well as restrictions that
prohibit many employees from going to work. Uncertainty with respect to the
economic effects of the pandemic has introduced significant volatility in the
financial markets.



Despite increased vaccine distribution programs and loosening of COVID-19
related restrictions in the regions in which we operate during the six months
ended June 30, 2021, both the pandemic and ongoing 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, and it is possible that COVID-19 variants may
lead to a re-introduction of lock-down measures in future periods.



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 emergence of
variants to COVID-19 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 six months ended June 30, 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 end of 2021. Our workforce has
continued to effectively develop and support our product and service offerings
notwithstanding the current environment.



We began the period ended June 30, 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 six months ended June 30, 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 period ended June 30, 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.



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Results of Operations


Three Months Ended June 30, 2021 as Compared to the Three Months Ended June 30,
2020

The following is a comparison of our results of operations for the three months
ended June 30, 2021 and 2020:



                                             Three Months        Three Months
                                            Ended June 30,      Ended June 30,
                                                 2021                2020             Change

Revenue

SaaS recurring subscription revenue $ 1,601,000 $ 1,274,000 $ 327,000
Other digital revenue

                               209,000            406,000         (197,000 )
Design, printing, and fulfillment                   477,000            713,000         (236,000 )
Shipping                                            105,000            259,000         (154,000 )
Total revenue                                     2,392,000          2,652,000         (260,000 )

Cost of Revenue
Digital                                             569,000            264,000          305,000
Design, printing, and fulfillment                   464,000            662,000         (198,000 )
Shipping                                             86,000            209,000         (123,000 )
Total cost of revenue                             1,119,000          1,135,000          (16,000 )

Gross margin                                      1,273,000          1,517,000         (244,000 )

Operating expenses
Research and development                          3,213,000          1,627,000        1,586,000
Depreciation and amortization                       400,000            357,000           43,000
General and administrative                        6,542,000          4,018,000        2,524,000
Total operating expenses                         10,155,000          6,002,000        4,153,000

Loss from operations                             (8,882,000 )       (4,485,000 )     (4,397,000 )

Other income (expense), net
Other income (expense)                               20,000              9,000           11,000
Interest expense - amortization of debt
discount                                           (565,000 )         (137,000 )       (428,000 )
Change in fair value of derivative
liability                                        (2,445,000 )        1,228,000       (3,673,000 )
Gain on extinguishment of PPP note
payable                                              91,000                  -           91,000
Interest expense                                    (31,000 )          (39,000 )          8,000
Total other income, net                          (2,930,000 )        

1,061,000 (3,991,000 )


Net loss to common stockholders             $   (11,812,000 )   $   (3,424,000 )   $ (8,388,000 )




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Revenue


SaaS recurring subscription revenue for the quarter ended June 30, 2021 was $1.6
million, an increase of $327,000, or 26% over the quarter ended June 30, 2020.
The increase in SaaS recurring revenue is attributed to the addition of new
clients and the expansion of existing clients for subscriptions to one or more
of the software products in our suite of products that comprise our sales
enablement platform. Those products now include verbCRM, verbLEARN, verbTEAMS,
verbLIVE, and verbMAIL. The revenue we derive from these products is divided
into two main categories: digital revenue and non-digital revenue. Within the
digital revenue 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 strategic partner as
part of a cost reduction plan we instituted in 2020. Non-SaaS, non-digital
revenue totaling $582,000 for the quarter ended June 30, 2021 was down versus
the $972,000 reported for the quarter ended June 20, 2020, consistent with our
strategic decision to focus our sales initiatives on the higher margin SaaS
recurring subscription revenue products.



The table below sets forth our quarterly revenues from the quarter ended June
30, 2019 through the quarter ended June 30, 2021, which reflects the trend of
revenue since our NASDAQ listing in April 2019:



                                                  2019 Quarterly Revenue                                      2020 Quarterly Revenue                             2021 Quarterly Revenue
                                           Q2               Q3               Q4               Q1               Q2               Q3               Q4               Q1               Q2

SaaS recurring subscription revenue $ 858,000 $ 953,000 $

 995,000      $ 1,057,000      $ 1,274,000      $ 1,478,000      $ 1,305,000      $ 1,461,000      $ 1,601,000
Other digital revenue                      596,000          485,000          344,000          400,000          406,000          360,000          218,000          340,000          209,000
Total digital revenue                    1,454,000        1,438,000        1,339,000        1,457,000        1,680,000        1,838,000        1,523,000        1,801,000        1,810,000

Design, printing, and fulfillment 1,784,000 1,164,000

 965,000          728,000          713,000          836,000          467,000          615,000          477,000
Shipping                                   495,000          271,000          181,000          169,000          259,000          186,000          109,000          110,000          105,000
Total non-digital revenue                2,279,000        1,435,000        1,146,000          897,000          972,000        1,022,000          576,000          725,000          582,000

Grand total                            $ 3,733,000      $ 2,873,000      $ 2,485,000      $ 2,354,000      $ 2,652,000      $ 2,860,000      $ 2,099,000      $ 2,526,000      $ 2,392,000




Cost of Revenue


Total cost of revenue for the quarter ended June 30, 2021 was $1.1 million,
compared to $1.1 million for the quarter ended June 30, 2020. The slight
decrease in cost of revenue is primarily attributed to a decrease in non-digital
costs offset by increased digital costs to support additional enterprise
customers on the platform, increased users within our existing customer base,
and free trials associated with verbLIVE.



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Gross Margin



Total gross margin for the quarter ended June 30, 2021 was $1.3 million,
compared to $1.5 million for the prior year quarter. The decrease is attributed
to increased hosting fees associated with free trials of verbLIVE, lower other
digital revenue, and lower non-digital revenue.



Operating Expenses



Research and development expenses were $3.2 million for the quarter ended June
30, 2021, as compared to $1.6 million for the quarter ended June 30, 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 the development of verbLIVE,
our attribution feature, enhancements to verbCRM, as well as the Microsoft
Outlook integration, and our new Marketplace platform.



Depreciation and amortization expenses were $400,000 for the quarter ended June
30, 2021
, as compared to $357,000 for the quarter ended June 30, 2020. The
increase is associated with the amortization of SoloFire intangible assets.




General and administrative expenses for the quarter ended June 30, 2021 were
$6.5 million, as compared to $4.0 million for the quarter ended June 30, 2020.
The increase in spending was to support growth, anticipated product launches,
implementation of Netsuite computerized ERP system, ongoing compliance with
Sarbanes Oxley, and an additional quarter of Solofire operations. The notable
increases in general and administrative expenses versus the quarter ended June
30, 2020 were increases in professional service cost of $1,104,000, labor cost
of $929,000, and marketing and promotion cost of $287,000.



Other income (expense), net, for the quarter ended June 30, 2021 was
($2,930,000), which was attributed to a change in the fair value of derivative
liability of ($2,445,000), the amortization of debt discount of ($565,000), and
interest expense of ($31,000). These were offset by a gain on debt
extinguishment of $91,000 and other income of $20,000. Other income (expense),
net, for the quarter ended quarter ended June 30, 2020 totaled $1.1 million,
which was attributed to a change in the fair value of derivative liability of
$1.2 million and other income of $9,000, offset by interest expense for
amortization of debt discount of ($137,000) and interest expense of ($39,000).



Six Months Ended June 30, 2021 as Compared to the Six Months Ended June 30, 2020

The following is a comparison of our results of operations for the six months
ended June 30, 2021 and 2020:



                                              Six Months          Six Months
                                            Ended June 30,      Ended June 30,
                                                 2021                2020             Change

Revenue

SaaS recurring subscription revenue $ 3,062,000 $ 2,331,000 $ 731,000
Other digital revenue

                               549,000            806,000          (257,000 )
Design, printing, and fulfillment                 1,092,000          1,441,000          (349,000 )
Shipping                                            215,000            428,000          (213,000 )
Total revenue                                     4,918,000          5,006,000           (88,000 )

Cost of Revenue
Digital                                           1,109,000            494,000           650,000
Design, printing, and fulfillment                 1,049,000          1,338,000          (324,000 )
Shipping                                            176,000            366,000          (190,000 )
Total cost of revenue                             2,334,000          2,198,000           136,000

Gross margin                                      2,584,000          2,808,000          (224,000 )

Operating expenses
Research and development                          6,097,000          2,901,000         3,196,000
Depreciation and amortization                       814,000            719,000            95,000
General and administrative                       13,885,000          7,533,000         6,352,000
Total operating expenses                         20,796,000         

11,153,000 9,643,000


Loss from operations                            (18,212,000 )       

(8,345,000 ) (9,867,000 )


Other income (expense), net
Other income (expense)                               74,000              3,000            71,000
Interest expense - amortization of debt
discount                                         (1,040,000 )         (274,000 )        (766,000 )
Change in fair value of derivative
liability                                        (1,945,000 )        3,320,000        (5,265,000 )
Gain on extinguishment of PPP note
payable                                           1,317,000                  -         1,317,000
Debt extinguishment, net                           (287,000 )                -          (287,000 )
Interest expense                                    (64,000 )          (74,000 )          10,000
Total other income, net                          (1,945,000 )        

2,975,000 (4,920,000 )


Loss before income tax provision                (20,157,000 )       

(5,370,000 ) (14,787,000 )


Deemed dividend to Series A preferred
stockholders                                              -         

(3,951,000 ) 3,951,000


Net loss to common stockholders             $   (20,157,000 )   $   (9,321,000 )   $ (10,836,000 )




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Revenue



SaaS recurring revenue increased 31% versus the six months ended June 30, 2020.
The increase in SaaS recurring revenue is attributed to the addition of new
clients and 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, verbLIVE, and verbMAIL. The revenue we
derive from these products is divided into two main categories: digital revenue
and non-digital revenue. Within the digital revenue 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 strategic partner as part of a cost reduction plan we instituted in 2020.
Total revenue for the six months ended June 30, 2021 was $4.9 million, a 2%
decrease compared to the $5.0 million reported for the six months ended June 30,
2020. The decrease in revenue is attributed entirely to our non-digital
products, consistent with our strategic decision to focus our sales initiatives
on the higher margin SaaS recurring subscription revenue products.



Total digital revenue for the six months ended June 30, 2021 was $3.6 million,
an increase of 15% compared to the $3.1 million reported for the six months
ended June 30, 2020. The increase was primarily driven from SaaS recurring
subscription-based revenue associated with our verbCRM, verbLEARN, verbTEAMS,
and verbLIVE applications totaling $3.1 million, an increase of 31% compared to
$2.3 million reported for the six months ended June 30, 2020. Non-subscription
digital revenue for the quarter ended June 30, 2021 was $549,000, compared to
$806,000 for the six months ended June 30, 2020.



Total non-digital revenue for the six months ended June 30, 2021 was $1.3
million, compared to $1.9 million reported for the six months ended June 30,
2020, which again, is consistent with the Company's strategy to exit the low
margin printing, fulfillment, and shipping aspects of the legacy business to
focus on our SaaS recurring revenue products.



Cost of Revenue



Total cost of revenue for the six months ended June 30, 2021 was $2.3 million,
compared to $2.2 million for the six months ended June 30, 2020. The increase in
cost of revenue is primarily attributed to additional enterprise customers on
the platform, increased users within our existing customer base, free trials
associated with verbLIVE, all offset by a decrease in non-digital costs.



Gross Margin


Total gross margin for the six months ended June 30, 2021 was $2.6 million,
compared to $2.8 million for the six months ended June 30, 2020. The decrease is
attributed to increased hosting fees associated with free trials of verbLIVE,
lower other digital revenue, and lower non-digital revenue.



Operating Expenses



Research and development expenses were $6.1 million for the six months ended
June 30, 2021, as compared to $2.9 million for the six months ended June 30,
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 the
development of verbLIVE, our attribution feature, enhancements to verbCRM, as
well as the Microsoft Outlook integration, and our new Marketplace platform.



Depreciation and amortization expenses were $814,000 for the six months ended
June 30, 2021, as compared to $719,000 for the six months ended June 30, 2020.
The increase is associated with the amortization of SoloFire intangible assets.



General and administrative expenses for the six months ended June 30, 2021 were
$13.9 million, as compared to $7.5 million for the six months ended June 30,
2020. The increase in spending was to support growth, anticipated product
launches, implementation of Netsuite computerized ERP system, ongoing compliance
with Sarbanes Oxley, and an additional six months of Solofire operations. The
notable increases versus the six months ended June 30, 2020 were increases in
labor of $1.7 million, professional services of $1.5 million, non-cash stock
compensation expense of $1.1 million, and marketing and promotion of $994,000.



Other income (expense), net, for the six months ended June 30, 2021 was
($1,945,000), which was attributed to a change in the fair value of derivative
liability of ($1,945,000), the amortization of debt discount of ($1,040,000),
debt extinguishment of ($287,000) and interest expense of ($64,000). These were
offset by a gain on extinguishment of PPP notes payable and accrued interest of
$1,317,000 and other income of $74,000. Other income (expense), net, for the six
months ended quarter ended June 30, 2020 totaled $2,975,000, which was
attributed to a change in the fair value of derivative liability of $3,320,000
and other income of $3,000, offset by interest expense for amortization of debt
discount of ($274,000), and interest expense of ($74,000).



Use of Non-GAAP Measures – Modified EBITDA




In addition to our results under generally accepted accounted principles
("GAAP"), we present Modified EBITDA as a supplemental measure of our
performance. However, Modified EBITDA is not a recognized measurement under GAAP
and should not be considered as an alternative to net income, income from
operations or any other performance measure derived in accordance with GAAP or
as an alternative to cash flow from operating activities as a measure of
liquidity. We define Modified EBITDA as net income (loss), plus interest
expense, depreciation and amortization, stock-based compensation, financing
costs and changes in fair value of derivative liability.



39






Management considers our core operating performance to be that which our
managers can affect in any particular period through their management of the
resources that affect our underlying revenue and profit generating operations
that period. Non-GAAP adjustments to our results prepared in accordance with
GAAP are itemized below. You are encouraged to evaluate these adjustments and
the reasons we consider them appropriate for supplemental analysis. In
evaluating Modified EBITDA, you should be aware that in the future we may incur
expenses that are the same as or similar to some of the adjustments in this
presentation. Our presentation of Modified EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or non-recurring
items.



                                              Three Months Ended                      Six Months Ended
                                      June 30, 2021       June 30, 2020      June 30, 2021       June 30, 2020

Net loss                              $  (11,812,000 )   $    (3,424,000 )   $  (20,157,000 )   $    (5,370,000 )

Adjustments:
Other (income) / expense, net                (20,000 )            (9,000 )          (74,000 )            (3,000 )
Stock compensation expense                 1,264,000           1,609,000          3,666,000           2,552,000
Amortization of debt discount                565,000             137,000          1,040,000             274,000
Change in fair value of derivative
liability                                  2,445,000          (1,228,000 )        1,945,000          (3,320,000 )
Gain on extinguishment of PPP loan
payable                                      (91,000 )                           (1,317,000 )
Debt extinguishment, net                           -                   -            287,000                   -
Interest expense                              31,000              39,000             64,000              74,000
Depreciation and amortization                400,000             357,000            814,000             719,000
Total EBITDA adjustments                   4,594,000             905,000   
      6,425,000             296,000
Modified EBITDA                       $   (7,218,000 )   $    (2,519,000 )   $  (13,732,000 )   $    (5,074,000 )




The $4.7 million decrease in Modified EBITDA for the three months ended June 30,
2021, compared to the same period in 2020, resulted from increased research and
development, three months of expenses related to SoloFire, an increase in
professional services, labor related costs to support growth, and marketing
and
promotion.


The $8.7 million decrease in Modified EBITDA for the six months ended June 30,
2021, compared to the same period in 2020, resulted from increased research and
development, six months of expenses related to SoloFire, an increase in
professional services, labor related costs to support growth, and marketing
and
promotion.



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



  ? Modified EBITDA does not reflect our cash expenditures, or future
    requirements, for capital expenditures or contractual commitments;

? Modified EBITDA does not reflect changes in, or cash requirements for, our

working capital needs;

? Modified EBITDA does not reflect future interest expense, or the cash

requirements necessary to service interest or principal payments, on our

debts; and

? Although depreciation and amortization are non-cash charges, the assets being

depreciated and amortized will often have to be replaced in the future, and

Modified EBITDA does not reflect any cash requirements for such replacements.

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 $20,157,000 during the six months ended
June 30, 2021. We also utilized cash in operations of $13,620,000 during the six
months ended June 30, 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.



40





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, 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 June 30, 2021, we had cash of $6,449,000. We estimate our operating
expenses for the next twelve months may continue to exceed any revenue we
generate, and we may need to raise capital through either debt or equity
offerings to continue operations. 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 six months ended June 30, 2021 and 2020:



                                                        Six Months Ended
                                               June 30, 2021       June 30, 2020
Cash used in operating activities              $  (13,620,000 )   $    (4,673,000 )
Cash provided (used) in investing activities           11,000            (316,000 )
Cash provided by financing activities              18,243,000           5,384,000
Increase in cash                               $    4,634,000     $       395,000




Cash Flows - Operating



For the six months ended June 30, 2021, our cash flows used in operating
activities amounted to $13.6 million, compared to cash used for the six months
ended June 30, 2020 of $4.7 million. The change is attributed to the growth of
the business, product development, marketing and promotion, professional
services, inclusion of SoloFire operating expenses, a change in deferred
compensation of ($521,000), a change in accounts receivable of ($511,000), a
change in prepaid expenses of ($322,000), offset a change in accounts payable,
accrued expenses, and accrued interest of 433,000, and a change in deferred
revenue and customer deposits of $405,000 compared to the six months ended
June
30, 2020.



Cash Flows - Investing



For the six months ended June 30, 2021, our cash flows from investing activities
amounted to $11,000, which was attributed to proceeds from the sale of fixed
assets. For the six months ended June 30, 2020, our cash flows used in investing
activities amounted to $(316,000). The change is attributed to fixed asset
purchases associated with new offices in Newport Beach, California.



41






Cash Flows - Financing


Our cash provided by financing activities for the six months ended June 30, 2021
amounted to $18.2 million, which represented $14.1 million of net proceeds from
the issuance of shares of our common stock, advances on future receipts of $7.4
million, proceeds from warrant exercises of $1.1 million, and proceeds from
option exercises of $377,000, all offset by ($4.7) million of payments against
advance on future receipts. Our cash provided by financing activities for the
six months ended June 30, 2020 amounted to $5.4 million, which represented $4.4
million of net proceeds from the issuance of shares of our common stock and $1.4
million of net proceeds from notes payable, offset by ($1.0) million of payments
against advance on future receipts, and deferred offering costs of ($150,000).



Notes Payable – Related Parties




We had the following outstanding notes payable to related parties as of June 30,
2021:



                                                                           Original          Balance at
    Note        Issuance Date      Maturity Date      Interest Rate        Borrowing        June 30, 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              40,000
Total notes payable - related parties, net                                 
                       877,000
Non-current                                                                                       (725,000 )
Current                                                                                    $       152,000



(A) On December 1, 2015, we issued a convertible note payable to Mr. Rory J.

Cutaia, our 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 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, we made payments of

$100,000. On February 25, 2021 we extended the note to February 8, 2023 with

no changes to the other terms of the note agreement. As of June 30, 2021,

the outstanding balance of the note amounted to $725,000. On May 19, 2021

the Board approved the ability to convert the note into equity at the

discretion of the holder. The conversion price is the fair market value of

our common stock on the day of conversion.

(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 June 30, 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 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, as amended, bears interest at a rate of 12% per
      annum, is secured by our assets, and matured on June 4, 2021. On May 19,

2021 the Board approved the ability to convert the note into equity at the

discretion of the holder. The conversion price is the fair market value of

the Company’s common stock on the day of conversion. On May 19, 2021

$200,000 was converted into 194,175 shares of common stock. The conversion

price was $1.03 that was the closing price of the Company’s common stock on

the day of conversion. As of June 30, 2021, the outstanding balance of the

      note amounted to $40,000.




42





Deferred Incentive Compensation



                                                                                 Balance at
       Note            Issuance Date                Maturity Date               June 30, 2021

                                         50% on January 10, 2021 and 50% on
Rory J. Cutaia (A)   December 23, 2019   January 10, 2022                      $       215,000
                                         50% on January 10, 2021 and 50% on
Rory J. Cutaia (B)   December 23, 2019   January 10, 2022                              161,000
                                         50% on January 10, 2021 and 50% on
Jeff Clayborne (A)   December 23, 2019   January 10, 2022                               63,000
                                         50% on January 10, 2021 and 50% on
Jeff Clayborne (B)   December 23, 2019   January 10, 2022                               82,000
Total deferred compensation payable - related parties, net                 
           521,000
Non-current                                                                                  -
Current                                                                        $       521,000



(A) On December 23, 2019, we awarded Rory Cutaia, our Chief Executive Officer and

Jeff Clayborne, our Chief Financial Officer annual incentive compensation of

$430,000 and $125,000, respectively, for services rendered. We have

determined that it is in our best interest and in the best interest of our

stockholders to defer payments to Messrs. Cutaia and Clayborne. We paid 50%

of the annual incentive compensation on January 10, 2021 and the remaining

50% on January 10, 2022.

During the six months ended June 30, 2021, the Company paid $278,000 of the

outstanding balance. As of June 30, 2021, the outstanding balance amounted to

$278,000.

(B) On December 23, 2019, we awarded Rory Cutaia, our Chief Executive Officer and

Jeff Clayborne, our Chief Financial Officer a bonus for the successful

up-listing to The NASDAQ Capital Market and the acquisition of Verb Direct

totaling $324,000 and $162,000, respectively. We have determined that it is

in our best interest and in the best interest of our stockholders to defer

    payments to Messrs. Cutaia and Clayborne. We paid 50% of these awards on
    January 10, 2021 and the remaining 50% on January 10, 2022.

    During the six months ended June 30, 2021, we paid $243,000 of the
    outstanding balance. As of June 30, 2021, the outstanding balance amounted to
    $243,000.




Advance on Future Receipts



                                                           Interest         Original         Balance at
    Note         Issuance Date        Maturity Date          Rate          Borrowing        June 30, 2021

                   January 13,         September 10,
Note A                 2021                2021                    28 %   $    844,000     $       213,000
                   January 13,         September 10,
Note A                 2021                2021                    28 %        844,000             213,000
                   February 18,          August 3,
                   2021 - March        2021 - August
Note B               3, 2021             15, 2021                   3 %      1,696,000             440,000
                                       December 31,
Note C            June 30, 2021            2021                     7 %      1,210,000           1,210,000
Note D            June 30, 2021        March 1, 2022               28 %      2,720,000           2,720,000
Total                                                                     $  9,354,000           4,796,000
Debt discount                                                              
                    (1,013,000 )
Net                                                                                        $     3,783,000



(A) On January 13, 2021, the Company received two secured advances from the same

unaffiliated third party 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 interest was imputed at a rate of 28% based on the

face value of the note. 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.




43

(B) In February and March, 2021, 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. 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.



(C) On June 30, 2021, the Company received secured advances from an unaffiliated

third party totaling $1,210,000 for the purchase of future receipts/revenues

of $1,303,000. Pursuant to the terms of the agreement the unaffiliated

third-party will auto withdraw an average of $197,000 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 7% based on the face value of the notes and

the proceeds received. As a result, the Company recorded a liability of

$1,210,000 to account for the future receipts sold and a debt discount of

$92,000 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.

(D) On June 30, 2021, the Company received secured advances from an unaffiliated

third party totaling $1,960,000 for the purchase of future receipts/revenues

of 2,720,000. Pursuant to the terms of the agreement the unaffiliated

third-party will auto withdraw an aggregate of $15,200 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 28% based on the face value of the note

and the proceeds received. The Company may pay off the note for $2,200,000 if

paid within 45 days of funding and for $2,380,000 if paid between 46 and 60

days of funding. These advances are secured by the Company’s tangible and

intangible assets. As a result, the Company recorded a liability of

$2,720,000 to account for the future receipts sold and a debt discount of

$760,000 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.




Notes Payable



                                                                   Interest         Original          Balance at
       Note             Issuance Date         Maturity Date          Rate           Borrowing        June 30, 2021
Note A                   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
Note C                    May 1, 2020           May 1, 2022              3.75 %          90,000                   -
Total notes payable                                                                   1,458,000             150,000
Non-current                                                                          (1,458,000 )          (150,000 )
Current                                                                           $           -     $             -



(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 loan 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.

On January 4, 2021, the entire note and accrued interest was forgiven and was

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 under the Economic Injury Disaster Loan program in
    the aggregate principal of $150,000, in exchange for net proceeds of
    $149,900. $100 of financing costs is included in the original principal

amount. The loan is unsecured and payable over 30 years at an interest rate

of 3.75%. Installment payments, including principal and interest, will begin

    on May 15, 2021.




44

(C) On May 1, 2020, SoloFire received loan proceeds in the amount of $90,000

under the PPP. The loan 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.

On May 17, 2021 the entire note and accrued interest was forgiven and was

    accounted as a gain on debt extinguishment.



Critical Accounting Policies

Our financial statements have been prepared in accordance with GAAP, which
require that we make certain assumptions and estimates that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of net revenue and expenses during each reporting period.



Use of Estimates



The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported periods. Significant
estimates include valuation of derivative liability, valuation of debt and
equity instruments, share-based compensation arrangements and long-lived assets.
Amounts could materially change in the future.



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.



We use Level 2 inputs for our valuation methodology for the derivative
liabilities as their fair values were determined by using a Binomial pricing
model. Our derivative liabilities are adjusted to reflect fair value at each
period end, with any increase or decrease in the fair value being recorded in
results of operations as adjustments to fair value of derivatives.



45






Share-Based Payments



We account for share-based awards to employees and nonemployee directors and
consultants in accordance with the provisions of ASC 718, Compensation-Stock
Compensation, and under the recently issued guidance following FASB's
pronouncement, ASU 2018-07, Compensation-Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and
applicable updates adopted, share-based awards are valued at fair value on the
date of grant and that fair value is recognized over the requisite service, or
vesting, period. We value our equity awards using the Black-Scholes option
pricing model, and account for forfeitures when they occur.



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



Goodwill


In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, we
review the recoverability of the carrying value of goodwill at least annually or
whenever events or circumstances indicate a potential impairment. Our impairment
testing will be done annually at December 31 (our fiscal year end).
Recoverability of goodwill is determined by comparing the fair value of our
reporting units to the carrying value of the underlying net assets in the
reporting units. If the fair value of a reporting unit is determined to be less
than the carrying value of its net assets, goodwill is deemed impaired and an
impairment loss is recognized to the extent that the carrying value of goodwill
exceeds the difference between the fair value of the reporting unit and the fair
value of its other assets and liabilities.



Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements.

Intangible Assets with Finite Useful Lives

We have certain finite lived intangible assets that were initially recorded at
their fair value at the time of acquisition. These intangible assets consist of
developed technology. Intangible assets with finite useful lives are amortized
using the straight-line method over their estimated useful life of five years.



We review all finite lived intangible assets for impairment when circumstances
indicate that their carrying values may not be recoverable. If the carrying
value of an asset group is not recoverable, we recognize an impairment loss for
the excess carrying value over the fair value in our consolidated statements of
operations.


Recently Issued Accounting Pronouncements




For a summary of our recent accounting policies, refer to Note 2, Summary of
Significant Accounting Policies, of our unaudited condensed consolidated
financial statements included under Item 1 - Financial Statements in this Form
10-Q.

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