TONX 10-Q

TON Strategy Co (TONX)

10-Q 2021-11-15 For: 2021-09-30

View Original

Added on April 09, 2026

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
PART I - FINANCIAL INFORMATION	4
ITEM 1 - FINANCIAL STATEMENTS	4
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48
ITEM 4 - CONTROLS AND PROCEDURES	48
PART II - OTHER INFORMATION	49
ITEM 1 - LEGAL PROCEEDINGS	49
ITEM 1A - RISK FACTORS	49
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	60
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	60
ITEM 4 - MINE SAFETY DISCLOSURES	60
ITEM 5 - OTHER INFORMATION	60
ITEM 6 - EXHIBITS	61
SIGNATURES	62

Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	5

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)	7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	10

Notes to Condensed Consolidated Financial Statements (unaudited)	11-32

	September 30, 2021			December 31, 2020
	(unaudited)
ASSETS

Current assets:
Cash	$	3,658,000		$	1,815,000
Accounts receivable, net of allowance of $512,000 and $361,000, respectively		1,488,000			919,000
Inventory, net of allowance of $51,000 and $51,000, respectively		5,000			34,000
Prepaid expenses and other current assets		905,000			900,000
Total current assets		6,056,000			3,668,000

Right-of-use assets		2,305,000			2,730,000
Property and equipment, net of accumulated depreciation of $462,000 and $339,000, respectively		3,078,000			862,000
Intangible assets, net of amortization of $3,390,000 and $2,310,000, respectively		4,370,000			5,153,000
Goodwill		19,763,000			20,060,000
Other assets		317,000			69,000

Total assets	$	35,889,000		$	32,542,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	7,282,000		$	5,097,000
Accrued officers’ salary		1,113,000			822,000
Accrued interest (including $0 and $102,000 payable to related parties)		8,000			114,000
Advance on future receipts, net of discount of $515,000 and $67,000, respectively		1,853,000			110,000
Notes payable - related party		40,000			1,077,000
Deferred incentive compensation, current		521,000			521,000
Operating lease liability, current		582,000			596,000
Deferred revenue and customer deposits		902,000			272,000
Derivative liability		5,839,000			8,266,000

Total current liabilities		18,140,000			16,875,000

Long Term liabilities:
Notes payable		150,000			1,458,000
Note payable - related party, non-current		725,000			-
Deferred incentive compensation to officers		-			521,000
Operating lease liability, non-current		2,464,000			2,943,000
Total liabilities		21,479,000			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; 0 and 2,006 issued and outstanding as of September 30, 2021 and December 31, 2020		-			-
Class A units, 100 issued and authorized as of September 30, 2021 and December 31, 2020		-			-
Class B units, 2,642,159 shares authorized, 0 and 2,642,159 issued and outstanding as of September 30, 2021 and December 31, 2020		-			3,065,000
Common stock, $0.0001 par value, 200,000,000 shares authorized, 70,169,666 and 47,795,009 shares issued and outstanding as of September 30, 2021 and December 31, 2020		7,000			5,000
Additional paid-in capital		124,906,000			89,216,000
Accumulated deficit		(110,503,000	)		(81,541,000	)

Total stockholders’ equity		14,410,000			10,745,000

Total liabilities and stockholders’ equity	$	35,889,000		$	32,542,000

		1			2			3			4
	Three Months Ended September 30, 2021			Three Months Ended September 30, 2020			Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020

Revenue
SaaS recurring subscription revenue	$	1,846,000		$	1,478,000		$	4,908,000		$	3,809,000
Other digital		510,000			360,000			1,059,000			1,166,000
Total digital revenue		2,356,000			1,838,000			5,967,000			4,975,000

Design, printing, and fulfillment		461,000			836,000			1,553,000			2,277,000
Shipping		83,000			186,000			298,000			614,000
Total non-digital revenue		544,000			1,022,000			1,851,000			2,891,000

Total revenue		2,900,000			2,860,000			7,818,000			7,866,000

Cost of revenue
SaaS and other digital		542,000			349,000			1,651,000			843,000
Design, printing, and fulfillment		471,000			768,000			1,520,000			2,106,000
Shipping		73,000			188,000			249,000			554,000
Total cost of revenue		1,086,000			1,305,000			3,420,000			3,503,000

Gross margin		1,814,000			1,555,000			4,398,000			4,363,000

Operating Expenses:
Research and development		3,513,000			2,407,000			9,610,000			5,308,000
Depreciation and amortization		400,000			388,000			1,214,000			1,108,000
General and administrative		6,130,000			6,655,000			20,018,000			14,187,000
Total operating expenses		10,043,000			9,450,000			30,842,000			20,603,000

Loss from operations		(8,229,000	)		(7,895,000	)		(26,444,000	)		(16,240,000	)

Other income (expense), net
Other income (expense), net		8,000			(2,000	)		85,000			1,000
Financing costs		-			(248,000	)		-			(248,000	)
Interest expense - amortization of debt discount		(497,000	)		(110,000	)		(1,537,000	)		(384,000	)
Change in fair value of derivative liability		(141,000	)		975,000			(2,086,000	)		4,295,000
Gain on extinguishment of notes payable		82,000			-			1,399,000			-
Debt extinguishment, net		-			-			(287,000	)		-
Interest expense		(28,000	)		(40,000	)		(92,000	)		(114,000	)
Total other income (expense), net		(576,000	)		575,000			(2,518,000	)		3,550,000

Net loss		(8,805,000	)		(7,320,000	)		(28,962,000	)		(12,690,000	)

Deemed dividends to Series A stockholders		(348,000	)		-			(348,000	)		(3,951,000	)

Net loss to common stockholders	$	(9,153,000	)	$	(7,320,000	)	$	(29,310,000	)	$	(16,641,000	)

Net loss per share to common stockholders - basic and diluted	$	(0.14	)	$	(0.18	)	$	(0.48	)	$	(0.51	)
Weighted average number of common shares outstanding - basic and diluted		66,760,177			41,216,642			60,705,062			32,375,054

					Amount				Amount					Amount					Amount
	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, 2020		2,006		$	-		100	$	-		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 private placement
Sale of common stock from private placement, shares
Sale of common stock from public offering		-			-		-		-		-			-			11,915,000		2,000		18,849,000			-			18,851,000
Issuance of common stock from warrant exercise		-			-		-		-		-			-			2,254,411		-		2,784,000			-			2,784,000
Issuance of common stock from option exercise		-			-		-		-		-			-			509,465		-		569,000			-			569,000
Fair value of common shares issued to settle note payable – related party		-			-		-		-		-			-			194,175		-		200,000			-			200,000
Fair value of common shares issued to settle lawsuit		-			-		-		-		-			-			600,000		-		678,000			-			678,000
Conversion of Series A Preferred to common stock		(2,006	)		-		-		-		-			-			1,978,728		-		348,000			-			348,000
Fair value of warrants issued to Series A preferred stockholders – deemed dividend		-			-		-		-		-			-			-		-		(348,000	)		-			(348,000	)
Fair value of common shares issued for services		-			-		-		-		-			-			1,198,610		-		1,926,000			-			1,926,000
Fair value of common shares issued to settle accounts payable		-			-		-		-		-			-			10,500		-		19,000			-			19,000
Fair value of vested restricted stock awards		-			-		-		-		-			-			889,212		-		1,285,000			-			1,285,000
Fair value of vested stock options and warrants		-			-		-		-		-			-			-		-		1,234,000			-			1,234,000
Extinguishment of derivative liability upon exercise of warrants		-			-		-		-		-			-			-		-		4,513,000			-			4,513,000
Fair value of common shares issued to settle accrued expenses		-			-		-		-		-			-			182,397		-		281,000			-			281,000
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			-			-
Fair value of warrants issued to Series A Preferred stockholders
Class A units issued upon incorporation of Verb Acquisition Co.
Class A units issued upon incorporation of Verb Acquisition Co. shares
Fair value of Class B Units issued for the acquisition of Ascend Certification
Fair value of Class B Units issued for the acquisition of Ascend Certification, shares
Net loss		-			-		-		-		-			-			-		-		-			(28,962,000	)		(28,962,000	)
Balance at September 30, 2021		-		$	-		100	$	-		-		$	-			70,169,666	$	7,000	$	124,906,000		$	(110,503,000	)	$	14,410,000

	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 June 30, 2020		3,246		$	-		-	$	-		-	$	-		30,267,063	$	3,000	$	71,399,000	$	(61,955,000	)	$	9,447,000
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
Conversion of Series A Preferred to common stock		(840	)		-		-		-		-		-		663,341				-		-			-
Fair value of common shares issued for services		-			-		-		-		-		-		193,533		-		230,000		-			230,000
Fair value of vested restricted stock awards		-			-		-		-		-		-		1,028,806		-		1,002,000		-			1,002,000
Fair value of vested stock options and warrants		-			-		-		-		-		-		-		-		689,000		-			689,000
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		-			-		-		-		-		-		-		-		-		(7,320,000	)		(7,320,000	)
Balance at September 30, 2020		2,406		$	-		100	$	-		2,642,159	$	3,065,000		46,663,790	$	5,000	$	87,979,000	$	(69,275,000	)	$	21,774,000

		2021			2020
	Nine Months Ended
	September 30, 2021			September 30, 2020

Operating Activities:
Net loss	$	(28,962,000	)	$	(12,690,000	)
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		4,652,000			4,796,000
Financing cost		-			248,000
Amortization of debt discount		1,537,000			384,000
Change in fair value of derivative liability		2,086,000			(4,295,000	)
Debt extinguishment costs, net		(1,112,000	)		-
Depreciation and amortization		1,214,000			1,108,000
Amortization of right-of-use assets		424,000			407,000
Allowance for inventory		-			28,000
Disposal of property and equipment		(6,000	)		-
Allowance for doubtful accounts		151,000			(14,000	)
Effect of changes in assets and liabilities:
Accounts receivable		(721,000	)		152,000
Prepaid expenses and other assets		(330,000	)		(175,000	)
Inventory		29,000			63,000
Deferred incentive compensation		(521,000	)		-
Accounts payable, accrued expenses, and accrued interest		3,198,000			646,000
Operating lease liability		(493,000	)		(286,000	)
Deferred revenue and customer deposits		631,000			(162,000	)
Net cash used in operating activities		(18,223,000	)		(9,790,000	)

Investing Activities:
Proceeds from the sale of property and equipment		11,000			-
Cash acquired upon acquisition of subsidiary		-			229,000
Capitalized software development costs		(2,329,000	)		-
Purchase of property and equipment		(26,000	)		(317,000	)
Net cash used in investing activities		(2,344,000	)		(88,000	)

Financing Activities:
Proceeds from sale of common stock		18,851,000			16,781,000
Proceeds from notes payable		-			1,367,000
Advances on future receipts		7,368,000			728,000
Proceeds from warrant exercise		2,784,000			2,165,000
Proceeds from option exercise		569,000			-
Payment of advances of future receipts		(7,162,000	)		(1,424,000	)
Net cash provided by financing activities		22,410,000			19,617,000

Net change in cash		1,843,000			9,739,000

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

Cash - end of period	$	3,658,000		$	10,722,000

Supplemental disclosures of cash flow information:
Cash paid for interest	$	112,000		$	100,000
Cash paid for income taxes		1,000			-
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 derivative liability extinguished		4,513,000			-
Fair value of class B units issued upon acquisition of subsidiary		-			3,065,000
Fair value of common shares issued to settle accounts payable		19,000			-
Fair value of common shares issued to settle accrued expenses		281,000			-
Reclassification of Class B upon conversion to common stock		3,065,000			-
Fair value of common stock issued to settle notes payable – related party		200,000			-
Fair value of common stock received in exchange for employee’s payroll taxes		130,000			-
Fair value of common stock issued for future services		164,000			-
Discount recognized from advances on future receipts		2,484,000			-
Fair value of derivative liability from issuance of warrants to Series A stockholders considered as a deemed dividend		-			3,951,000
Fair value of debt forgiveness		1,400,000			-
Assets acquired from the acquisition of subsidiary		-			449,000
Liabilities assumed from the acquisition of subsidiary		-			743,000
Fair value of warrants issued to Series A preferred stockholders - deemed dividend		348,000			-
Fair value of common stock issued to settle lawsuit	$	678,000		$	-

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

	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.

	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.

	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.

Assets Acquired:
Cash	$	229,000
Accounts receivable		207,000		$	436,000
Liabilities Assumed:
Current liabilities		(241,000	)
Long-term liabilities		(90,000	)		(331,000	)
Intangible assets					1,419,000
Goodwill					3,426,000
Purchase Price				$	4,950,000

Year ending	Amortization
2021 remaining (remaining 3 months)	$	416,000
2022		1,466,000
2023		1,464,000
2024		395,000
2025 and thereafter		186,000
Total amortization	$	3,927,000

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
	(Proforma, unaudited)			(Proforma, unaudited)
SaaS recurring subscription revenue	$	1,661,000		$	4,511,000
Other digital		360,000			1,166,000
Welcome kits and fulfilment		836,000			2,277,000
Shipping		186,000			614,000
Total revenue		3,043,000			8,568,000

Cost of revenue		1,344,000			3,661,000

Gross margin		1,699,000			4,907,000

Operating expenses		(9,771,000	)		(21,615,000	)

Other income, net		574,000			3,550,000

Net loss		(7,498,000	)		(13,158,000	)

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

Net loss attributed to common stockholders	$	(7,498,000	)	$	(17,109,000	)

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Revenue	$	276,000		$	795,000
Cost of revenue		(65,000	)		(184,000	)
Operating expenses		(897,000	)		(1,474,000	)
Other income/ (expense)		-			-
Net loss	$	(686,000	)	$	(863,000	)

	September 30, 2021			December 31, 2020

Computers	$	29,000		$	29,000
Furniture and fixture		75,000			75,000
Machinery and equipment		49,000			39,000
Leasehold improvement		1,058,000			1,058,000
Software development		2,329,000			-
Total property and equipment		3,540,000			1,201,000
Accumulated depreciation		(462,000	)		(339,000	)
Total property and equipment, net	$	3,078,000		$	862,000

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

Other information

Cash paid for amounts included in the measurement of lease liabilities	$	593,000		$	383,000
Weighted average remaining lease term – operating leases (in years)		4.15			4.70
Average discount rate – operating leases		4.0	%		4.0	%

	September 30, 2021		December 31, 2020
Operating leases
Right-of-use assets	$	2,305,000	$	2,730,000

Short-term operating lease liabilities	$	582,000	$	596,000
Long-term operating lease liabilities		2,464,000		2,943,000
Total operating lease liabilities	$	3,046,000	$	3,539,000

Year ending	Operating Leases
2021 (remaining 3 months)	$	184,000
2022		751,000
2023		773,000
2024		472,000
2025 and thereafter		1,189,000
Total lease payments		3,369,000
Less: Imputed interest/present value discount		(323,000	)
Present value of lease liabilities	$	3,046,000

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

Note A	June 30, 2020	February 25, 2021		28	%	$	506,000	$	-		$	89,000
Note B	June 30, 2020	February 25, 2021		28	%		506,000		-			88,000
Note C	January 13, 2021	September 10, 2021		28	%		844,000		-			-
Note D	January 13, 2021	September 10, 2021		28	%		844,000		-			-
Note E	January 22, 2021	July 1, 2021		28	%		2,040,000		-			-
Note F	February 18, 2021 – March 3, 2021	August 3, 2021 – August 15, 2021		3	%		1,696,000		-			-
Note G	June 30, 2021	December 31, 2021		7	%		1,210,000		618,000
Note H	June 30, 2021	March 1, 2022		28	%		2,720,000		1,750,000			-
Total						$	10,366,000		2,368,000			177,000
Debt discount									(515,000	)		(67,000	)
Net								$	1,853,000		$	110,000

	(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 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.

		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. 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.

		As of September 30, 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 December 31, 2020, the outstanding principal balance of the note amounted to $112,000. On September 24, 2021 the Company settled the entire note payable and all corresponding accrued interest and accounts payable related to the former board member for $140,000, which resulted in a gain of $82,000.

	(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 matured on June 4, 2021, as amended. 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 September 30, 2021, and December 31, 2020, the outstanding balance of the note amounted to $40,000 and $240,000, respectively.

	(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 PPP loan was payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. As of December 31, 2020, the outstanding balance of the PPP loan was $1,218,000. On January 4, 2021 the entire PPP loan 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, 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 fiscal 2020.

	(C)	As a result of the acquisition of SoloFire in September 2020, the Company assumed SoloFire’s PPP loan of $90,000 it obtained in May 2020 under the same PPP (see discussion “A”). On May 17, 2021 the entire note and accrued interest, totaling $91,000, was forgiven and accounted as a gain on debt extinguishment.

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

Rory Cutaia (A)		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		161,000		324,000
Jeff Clayborne (A)		December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022		63,000		125,000
Jeff Clayborne (B)		December 23, 2019	50% on January 10, 2021 and 50% on January 10, 2022		82,000		163,000

Total					521,000		1,042,000
Non-current					-		(521,000	)
Current				$	521,000	$	521,000

	September 30, 2021			Upon Extinguishment in 2021			December 31, 2020
Stock Price	$	1.92		$	2.47		$	1.65
Exercise Price	$	1.41		$	1.18		$	1.41
Expected Life		2.42			3.32			3.17
Volatility		122	%		144	%		107	%
Dividend Yield		0	%		0	%		0	%
Risk-Free Interest Rate		0.35	%		0.33	%		0.23	%
Total Fair Value	$	5,839,000		$	4,513,000		$	8,266,000

	September 30, 2021			September 30, 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		2,086,000			(4,295,000	)
Extinguishment		(4,513,000	)		(159,000	)
Ending balance	$	5,839,000		$	4,545,000

							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		(889,212	)		(1,285,000	)		1.09
Forfeited		-			-			-
Non-vested at September 30, 2021		2,109,999		$	2,032,000		$	1.41

	Nine Months Ended September 30,
	2021			2020
Risk-free interest rate		0.10% - 0.92	%		0.17% - 0.39	%
Average expected term		5 years			1 to 5 years
Expected volatility		232.84 -240.03	%		270.10 - 270.57	%
Expected dividend yield		-			-

	1.	Class A units are a standalone financial instrument;
	2.	Priority on distributions;
	3.	Ability to remove the manager;
	4.	Drag-along rights;
	5.	Power to dissolve Verb Acquisition provided that a majority of the Class B Units also approve the dissolution;
	6.	Ability to appoint a liquidator to wind up the affairs of Verb Acquisition;
	7.	Entitled to distributions;
	8.	Approve board appointments; and
	9.	Approve any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class B Units also approve the amendment.

	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;
	3.	Power to dissolve Verb Acquisition, provided that a majority of the Class A Units also approve the dissolution;
	4.	Entitled to profit distributions;
	5.	Approve board appointments made by the Class A Units; and
	6.	Approve any amendments to Verb Acquisition’s operating agreement, provided that a majority of the Class A Units also approve the amendment.

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

Revenue
SaaS recurring subscription revenue	$	1,846,000		$	1,478,000		$	368,000
Other digital		510,000			360,000			150,000
Total digital revenue		2,356,000			1,838,000			518,000

Design, printing, and fulfillment		461,000			836,000			(375,000	)
Shipping		83,000			186,000			(103,000	)
Total non-digital revenue		544,000			1,022,000			(478,000	)

Total revenue		2,900,000			2,860,000			40,000

Cost of Revenue
Digital		542,000			349,000			193,000
Design, printing, and fulfillment		471,000			768,000			(297,000	)
Shipping		73,000			188,000			(115,000	)
Total cost of revenue		1,086,000			1,305,000			(219,000	)

Gross margin		1,814,000			1,555,000			259,000

Operating expenses
Research and development		3,513,000			2,407,000			1,106,000
Depreciation and amortization		400,000			388,000			12,000
General and administrative		6,130,000			6,655,000			(525,000	)
Total operating expenses		10,043,000			9,450,000			593,000

Loss from operations		(8,229,000	)		(7,895,000	)		(334,000	)

Other income (expense), net
Other income (expense)		8,000			(2,000	)		10,000
Financing costs		-			(248,000	)		248,000
Interest expense - amortization of debt discount		(497,000	)		(110,000	)		(387,000	)
Change in fair value of derivative liability		(141,000	)		975,000			(1,116,000	)
Gain on extinguishment of note payable		82,000			-			82,000
Interest expense		(28,000	)		(40,000	)		12,000
Total other income, net		(576,000	)		575,000			(1,151,000	)

Loss before income tax provision		(8,805,000	)		-			(1,485,000	)

Deemed dividend to Series A preferred stockholders		(348,000	)		-			(348,000	)

Net loss to common stockholders	$	(9,153,000	)	$	(7,320,000	)	$	(1,833,000	)

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

Revenue
SaaS recurring subscription revenue	$	1,846,000	$	1,601,000	$	245,000
Other digital		510,000		209,000		301,000
Total digital revenue		2,356,000		1,810,000		546,000

Design, printing, and fulfillment		461,000		477,000		(16,000	)
Shipping		83,000		105,000		(22,000	)
Total non-digital revenue		544,000		582,000		(38,000	)

Total revenue	$	2,900,000	$	2,392,000	$	508,000

	2019 Quarterly Revenue				2020 Quarterly Revenue								2021 Quarterly Revenue
	Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3
SaaS recurring subscription revenue	$	953,000	$	995,000	$	1,057,000	$	1,274,000	$	1,478,000	$	1,305,000	$	1,461,000	$	1,601,000	$	1,846,000
Other digital		485,000		344,000		400,000		406,000		360,000		218,000		340,000		209,000		510,000
Total digital revenue		1,438,000		1,339,000		1,457,000		1,680,000		1,838,000		1,523,000		1,801,000		1,810,000		2,356,000

Design, printing, and fulfillment		1,164,000		965,000		728,000		713,000		836,000		467,000		615,000		477,000		461,000
Shipping		271,000		181,000		169,000		259,000		186,000		109,000		110,000		105,000		83,000
Total non-digital revenue		1,435,000		1,146,000		897,000		972,000		1,022,000		576,000		725,000		582,000		544,000

Grand total	$	2,873,000	$	2,485,000	$	2,354,000	$	2,652,000	$	2,860,000	$	2,099,000	$	2,562,000	$	2,392,000	$	2,900,000

	Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020			Change

Revenue
SaaS recurring subscription revenue	$	4,908,000		$	3,809,000		$	1,099,000
Other digital		1,059,000			1,166,000			(107,000	)
Total digital revenue		5,967,000			4,975,000			992,000

Design, printing, and fulfillment		1,553,000			2,277,000			(724,000	)
Shipping		298,000			614,000			(316,000	)
Total non-digital revenue		1,851,000			2,891,000			1,040,000

Total revenue		7,818,000			7,866,000			(48,000	)

Cost of Revenue
Digital		1,651,000			843,000			808,000
Design, printing, and fulfillment		1,520,000			2,106,000			(586,000	)
Shipping		249,000			554,000			(305,000	)
Total cost of revenue		3,420,000			3,503,000			(83,000	)

Gross margin		4,398,000			4,363,000			35,000

Operating expenses
Research and development		9,610,000			5,308,000			4,302,000
Depreciation and amortization		1,214,000			1,108,000			106,000
General and administrative		20,018,000			14,187,000			5,831,000
Total operating expenses		30,842,000			20,603,000			10,239,000

Loss from operations		(26,444,000	)		(16,240,000	)		(10,204,000	)

Other income (expense), net
Other income (expense)		85,000			1,000			84,000
Financing costs		-			(248,000	)		248,000
Interest expense - amortization of debt discount		(1,537,000	)		(384,000	)		(1,153,000	)
Change in fair value of derivative liability		(2,086,000	)		4,295,000			(6,381,000	)
Gain on extinguishment of note payable		1,399,000			-			1,399,000
Debt extinguishment, net		(287,000	)		-			(287,000	)
Interest expense		(92,000	)		(114,000	)		22,000
Total other income, net		(2,518,000	)		3,550,000			(6,068,000	)

Loss before income tax provision		(28,962,000	)		(12,690,000	)		(16,272,000	)

Deemed dividend to Series A preferred stockholders		(348,000	)		(3,951,000	)		3,603,000

Net loss to common stockholders	$	(29,310,000	)	$	(16,641,000	)	$	(12,669,000	)

	Three Months Ended						Nine Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020

Net loss	$	(8,805,000	)	$	(7,320,000	)	$	(28,962,000	)	$	(12,690,000	)

Adjustments:
Other (income) / expense, net		(8,000	)		2,000			(85,000	)		(1,000	)
Stock compensation expense		986,000			2,244,000			4,652,000			4,796,000
Financing costs		-			248,000			-			248,000
Amortization of debt discount		497,000			110,000			1,537,000			384,000
Change in fair value of derivative liability		141,000			(975,000	)		2,086,000			(4,295,000	)
Gain on extinguishment of note payable		(82,000	)		-			(1,399,000	)		-
Debt extinguishment, net		-			-			287,000			-
Interest expense		28,000			40,000			92,000			114,000
Depreciation and amortization		400,000			388,000			1,214,000			1,108,000
Total EBITDA adjustments		1,962,000			2,057,000			8,384,000			2,354,000
Modified EBITDA	$	(6,843,000	)	$	(5,263,000	)	$	(20,578,000	)	$	(10,336,000	)

	●	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.