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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ________ to ________
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(Registrant’s Telephone Number, Including Area Code) |
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(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which Registered |
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The
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Warrants to Purchase Common Stock |
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VRMEW |
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The Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
2
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PART I - FINANCIAL INFORMATION |
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ITEM 1. Financial Statements |
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| ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 23 |
| ITEM 4. | Controls and Procedures | 24 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 25 |
| ITEM 1A. | Risk Factors | 25 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| ITEM 3. | Defaults Upon Senior Securities | 26 |
| ITEM 4. | Mine Safety Disclosures | 26 |
| ITEM 5. | Other Information | 26 |
| ITEM 6. | Exhibits | 26 |
| SIGNATURES | 27 | |
FINANCIAL STATEMENTS
ITEM 1.
VerifyMe, Inc.
Balance Sheets
(In thousands, except share data)
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As of |
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June 30, 2021 |
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December 31, 2020 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts Receivable |
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Due from related parties |
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Prepaid expenses and other current assets |
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Inventory |
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TOTAL CURRENT ASSETS |
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INVESTMENTS |
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Equity Investment |
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PROPERTY AND EQUIPMENT |
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Equipment for lease, net of accumulated amortization of $
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INTANGIBLE ASSETS |
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Patents and Trademarks, net of accumulated amortization of $
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Capitalized Software Costs, net of accumulated amortization of $
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and other accrued expenses |
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$ |
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$ |
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TOTAL CURRENT LIABILITIES |
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LONG-TERM LIABILITIES |
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Term Note |
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$ |
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$ |
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TOTAL LIABILITIES |
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$ |
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$ |
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STOCKHOLDERS' EQUITY |
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Series A Convertible Preferred Stock, $.
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Series B Convertible Preferred Stock, $.
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Common stock, $.
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Additional paid in capital |
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Treasury stock as cost;
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(
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(
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Accumulated deficit |
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(
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(
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STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited financial statements.
VerifyMe, Inc.
Statements of Operations
(Unaudited)
(In thousands, except per share data)
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Three months ended |
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Six months ended |
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June 30, 2021 |
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June 30, 2020 |
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June 30, 2021 |
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June 30, 2020 |
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NET REVENUE |
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Sales |
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$ |
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$ |
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$ |
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$ |
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COST OF SALES |
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GROSS PROFIT |
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OPERATING EXPENSES |
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General and administrative (a) |
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Legal and accounting |
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Payroll expenses (a) |
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Research and development |
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Sales and marketing (a) |
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Total Operating expenses |
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LOSS BEFORE OTHER INCOME (EXPENSE) |
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(
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(
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(
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(
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OTHER INCOME (EXPENSE), NET |
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Interest income (expenses), net |
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(
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(
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Loss on extinguishment of debt |
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(
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Payroll Protection Program Debt Forgiveness |
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TOTAL OTHER INCOME (EXPENSE), NET |
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(
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(
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NET LOSS |
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$ |
(
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$ |
(
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$ |
(
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$ |
(
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LOSS PER SHARE |
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BASIC |
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$ |
(
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) |
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$ |
(
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$ |
(
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$ |
(
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) |
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DILUTED |
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$ |
(
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) |
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$ |
(
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) |
$ |
(
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) |
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$ |
(
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WEIGHTED AVERAGE COMMON SHARE OUTSTANDING |
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BASIC |
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DILUTED |
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(a) |
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The accompanying notes are an integral part of these unaudited financial statements.
VerifyMe, Inc.
Statements of Cash Flows
(Unaudited)
(In thousands)
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Six Months Ended |
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June 30, 2021 |
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June 30, 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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$ |
(
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$ |
(
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock based compensation |
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Fair value of options in exchange for services |
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Fair value of restricted stock awards issued in exchange for services |
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Fair value of restricted stock units issued in exchange for services |
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Payroll Protection Program Debt Forgiveness |
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(
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Fair value of warrants in exchange for services |
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Loss on Extinguishment of Debt |
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Amortization of debt discount |
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Common stock issued for interest expense |
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Amortization and depreciation |
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Changes in operating assets and liabilities: |
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Accounts Receivable |
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(
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) |
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Due from related parties |
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(
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Inventory |
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(
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Prepaid expenses and other current assets |
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(
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Accounts payable and accrued expenses |
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(
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Net cash used in operating activities |
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(
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(
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) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Due from related parties – deposit and reimbursable expenses on investment |
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(
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Purchase of Patents |
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(
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(
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Purchase of Equipment for lease |
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(
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(
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Purchase of equity investment |
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(
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Capitalized Software Costs |
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(
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Net cash used in investing activities |
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(
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(
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from public offering of securities |
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Proceeds from issuance of notes payable |
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Repayments of notes payable |
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(
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Repayment of bridge financing and early redemption fee |
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(
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Proceeds from convertible debt, net of costs |
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Increase in treasury shares (share repurchase program) |
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(
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) |
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Net cash provided by financing activities |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS - END OF PERIOD |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid during the period for: |
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Interest |
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$ |
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$ |
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Income taxes |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
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Common Stock issued in relation to conversion of 2020 Debentures and warrant cancellation |
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$ |
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$ |
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Relative fair value of common stock issued in connection with 2020 Debentures |
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$ |
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$ |
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Relative fair value of warrants issued in connection with 2020 Debentures |
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$ |
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$ |
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Beneficial conversion feature in connection with 2020 Debentures |
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$ |
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$ |
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|
Common stock issued to settle accrued payroll |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited financial statements.
VerifyMe, Inc.
Statement of Stockholders' Equity (Deficit)
(Unaudited)
(In thousands, except share data)
|
|
|
Series A Convertible Preferred Stock |
|
|
Series B Convertible Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Treasury Stock |
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
|
Number of Shares |
|
|
Amount |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||||||||
|
Balance at March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Fair value of stock options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Fair value of warrants issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common Stock in relation to conversion of 2020 Debentures, interest expense and cancellation of warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued in relation to public offering of securities |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Cancellation of Common Stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
Series A Convertible Preferred Stock |
|
|
Series B Convertible Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Treasury Stock |
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
|
Number of Shares |
|
|
Amount |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||||||||
|
Balance at March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Restricted stock awards, net of shares withheld for employee tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restricted Stock Units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Repurchase of Common Stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(
|
) |
|
|
- |
|
|
|
(
|
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
VerifyMe, Inc.
Statement of Stockholders' Equity (Deficit)
(Unaudited)
(In thousands, except share data)
|
|
|
Series A Convertible Preferred Stock |
|
|
Series B Convertible Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Treasury Stock |
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
|
Number of Shares |
|
|
Amount |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||||||||
|
Balance at December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Fair value of stock options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Fair value of warrants issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued in connection with 2020 Debentures |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Beneficial conversion feature in connection with 2020 Debentures |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with 2020 Debentures |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common Stock in relation to Conversion of 2020 Debentures and interest expense and cancellation of warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued in relation to public offering of securities |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Cancellation of Common Stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
Series A Convertible Preferred Stock |
|
|
Series B Convertible Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Treasury Stock |
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
|
|
Number of Shares |
|
|
Amount |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||||||||
|
Balance at December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
Fair value of stock options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restricted stock awards, net of shares withheld for employee tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Restricted Stock Units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Common stock in relation to public offering of securities |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Repurchase of Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(
|
) |
|
|
- |
|
|
|
(
|
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
VerifyMe, Inc.
Notes to the Financial Statements (unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
VerifyMe, Inc. (“VerifyMe,” the “Company,” “we,” “us,” or “our”) was incorporated in the State of Nevada on November 10, 1999. The Company is based in Rochester, New York and its common stock, par value $0.
The Company is a technology solutions provider specializing in brand protection and supply chain functions such as counterfeit prevention, authentication, serialization, consumer engagement, and track and trace features for labels, packaging and products. Until 2018, the Company primarily engaged in the research and development of its technologies. The Company began to commercialize its covert luminescent pigment, RainbowSecure®, in 2018 and also developed the patented VeriPAS TM software system in 2018, which covertly and overtly serializes products to remotely track a product’s “life cycle” for brand owners. In April 2021 VerifyMe launched a rebranding and messaging campaign to more fully market all of their products and services to include a new website and marketing materials. RainbowSecure® has been renamed to VerifyInk TM and when coupled with Verify Authenticate TM and VerifyMe Track & Trace TM product lines, we believe we provide the only covert serialization and authentication solution on HP Indigo (a division of HP Inc.) printing systems. Our patented smartphone authenticator device, VerifyAuthenticator TM is capable of fluorescing, decoding, and verifying invisible VerifyInk TM printed overt and covert codes in the field. This product allows investigators to authenticate product quickly and efficiently throughout the distribution chain, including warehouses, ports of entry, retail locations, and product purchased over the internet. This technology is coupled with a secure cloud-based track and trace software engine that allows brands and investigators to monitor the complete supply chain from product origination to the end user utilizing geo location mapping and intelligent programable alerts. When coupled with overt serialization codes, brand owners can then set rules of engagement, gather rich business intelligence, establish marketing programs for customer engagement and control and monitor and protect their products’ “life cycle.” We have derived minimal revenue from our authentication and track and trace software system and have derived limited revenue from the sale of our VerifyInk TM and VerifyCode TM technology.
The Company’s activities are subject to significant risks and uncertainties, including its ability to successfully commercialize its technologies and the need to further develop the Company’s intellectual property.
Reclassifications
Certain amounts presented for the three and six months ended June 30, 2021 reflect reclassifications made to conform to the presentation in our current reporting period.
Basis of Presentation
The accompanying unaudited interim financial statements (the “Interim Statements”) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The Interim Statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2021. The accompanying Interim Statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
Equity Investments
Equity investments are reported at fair value with changes in unrecognized gains or losses included in other income on the statement of operations.
Revenue Recognition
The Company accounts for revenues according to Accounting Standards Codification (“ASC”) Topic 606, “ Revenue from Contracts with Customers” which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
•
identify the contract with a customer;
•
identify the performance obligations in the contract;
•
determine the transaction price;
•
allocate the transaction price to performance obligations in the contract; and
•
recognize revenue as the performance obligation is satisfied.
During the three and six months ended June 30, 2021, the Company’s revenues were primarily made up of revenue generated from printing labels and through our product authentication technology, as we expanded into the personal protective equipment industry in the first quarter of 2021.
Basic and Diluted Net Income per Share of Common Stock
The Company follows Financial Accounting Standards Board (“FASB”) ASC 260, “Earnings Per Share,” when reporting earnings per share resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss for each of the periods presented, common stock equivalents, including preferred stock, stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.
For each of the three and six months ended June 30, 2021 and 2020, there were shares potentially issuable, that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the years presented. For the three and six months ended June 30, 2021, there were approximately
NOTE 2 – EQUITY INVESTMENT
On February 26, 2021, the Company formed VMEA Holdings Inc. (the “Sponsor Entity”), a Delaware corporation and wholly owned subsidiary of the Company, that owns G3 VRM Acquisition Corp. (the “SPAC”), a Delaware corporation and special purpose acquisition company being co-sponsored by the Company. On April 12, 2021, the Sponsor Entity converted to a Delaware limited liability company, changed its name to “G3 VRM Holdings LLC” and a co-sponsor was added as a member of the Sponsor Entity resulting in an equity interest of
As a result of ceasing to have a controlling financial interest in G3 VRM Holdings LLC on April 12, 2021, the Company accounted for the Sponsor Entity as an equity investment and has elected the fair value option resulting in a carrying value of $
On July 6, 2021, the SPAC consummated the IPO of
As of July 6, 2021, a total of $
NOTE 3 – RELATED PARTIES
As of June 30, 2021, the Company has related party receivables consisting of: (i) $
NOTE 4 – PROPERTY AND EQUIPMENT
Equipment for Lease
During the six months ended June 30, 2021 and 2020, the Company capitalized $
NOTE 5 – INTANGIBLE ASSETS
Patents and Trademarks
As of June 30, 2021, the current patent and trademark portfolios consist of
Capitalized Software
Costs incurred in connection with the development of software related to our proprietary digital products are accounted for in accordance with FASB ASC 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market. Amortization of capitalized software costs begins once the product is available to the market. Capitalized software costs are amortized over the estimated life of the related product, generally
NOTE 6 – TERM NOTE
On May 17, 2020, the Company entered into a paycheck protection program term note for $
The Company applied for and was notified in June 2021 that $69 thousand in eligible payroll expenditures as described in the CARES Act, has been forgiven. Loan forgiveness is reflected in other income in the accompanying Statements of Operations. The forgiveness recognized during the six months ended June 30, 2021, included principal of $
NOTE 7 – STOCKHOLDERS’ EQUITY
The Company expensed $
During the six months ended June 30, 2021, the Company issued
Effective January 1, 2021, the Company approved restricted stock units or restricted stock awards, for each non-employee director, with a grant date fair value equal to $
The Company expensed $
On April 16, 2021, upon vesting of the restricted stock awards held by our Chief Executive Officer, the Company withheld and retired
Effective April 15, 2021, Norman Gardner, our former Chairman of the board of directors retired from the board of directors. Mr. Gardner was awarded
On April 15, 2021, the board of directors granted the Company's Chief Financial Officer, an award of
In April 2021, the Company granted an employee, an award of
Effective March 1, 2021, the Company amended and restated the Consulting Agreement it has with its Chief Operating Officer.
On February 9, 2021, the Company entered into an underwriting agreement with Maxim Group LLC (“Maxim”), as the representative of several underwriters pursuant to which the Company agreed to issue and sell to the underwriters in an underwritten public offering an aggregate of
On June 17, 2020, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, as representative of the underwriters (the “Representative”), for an underwritten public offering (the “Offering”) of an aggregate of 2,173,913 Units consisting of one share (each a “Share” and collectively, the “Shares”) of the Company’s common stock, and a warrant to purchase one share of Common Stock (each a “Warrant” and collectively, the “Warrants”) at an exercise price equal to $
Of the 2,173,913 Units purchased in the Offering,
Pursuant to the Underwriting Agreement, the Company agreed to issue to the Representative, as a portion of the underwriting compensation payable to the Representative, warrants to purchase up to a total of
In connection to the closing of the Offering and the related automatic conversion of the 2020 Debentures (as defined below) the Company issued
In May 2020, the Company rescinded and cancelled an aggregate of
On April 16, 2020, the Company granted Mr. White a restricted stock award of
On March 6, 2020, the Company completed the offering of senior secured convertible debentures (the “2020 Debentures”) and warrants and raised $
Shares Held in Treasury
As of June 30, 2021 and December 31, 2020, the Company had
NOTE 8 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS
During 2013, the Company adopted the 2013 Omnibus Equity Compensation Plan (the “2013 Plan”). Under the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based awards up to an aggregate of
On November 14, 2017, the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”) that covered the potential issuance of
On August 10, 2020, the Company’s Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), subject to stockholder approval, which authorizes the potential issuance of up to
The 2020 Plan is administered by the Compensation Committee which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.
The Company has issued non-qualified stock options pursuant to contractual agreements with non-employees. Options granted under the agreements are expensed when the related service or product is provided.
On April 15, 2021, Norman Gardner agreed to cancel options to purchase
No stock options were granted during the six months ended June 30, 2021.
Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties and judgements.
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Forfeited/Cancelled/Expired |
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Balance as of June 30, 2021 |
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Exercisable as of June 30, 2021 |
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The following table summarizes the activities for the Company’s unvested stock options for the six months ended June 30, 2021:
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Unvested Options |
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Balance as of December 31, 2020 |
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Vested |
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Balance as of June 30, 2021 |
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$ |
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During the three and six months ended June 30, 2021 the Company expensed $
As of June 30, 2021, there was $
The following table summarizes the activities for the Company’s warrants for the three months ended June 30, 2021:
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Warrants Outstanding |
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Number of Shares |
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Balance as of December 31, 2020 |
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Balance as of June 30, 2021 |
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Exercisable as of June 30, 2021 |
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NOTE 9 – CONCENTRATIONS
Revenue
For the three and six months ended June 30, 2021, three customers represented
Accounts Receivable
As of June 30, 2021, two customers represented
NOTE 10 – SUBSEQUENT EVENTS
In August 2021, upon vesting of the restricted stock awards held by our Chief Executive Officer, the Company withheld and retired
In August 2021, the Company issued
In July 2021, the Company issued
On August 12, 2021, the Company extended its share repurchase program to expire on August 16, 2022. All other terms and conditions remained the same.
| 15 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited financial statements and notes.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.
Our actual results and financial condition may differ materially from those express or implied in such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
| · | the ongoing coronavirus (“COVID-19”) pandemic; |
| · | our relatively new business model and lack of significant revenues; |
| · | our ability to prosecute, maintain or enforce our intellectual property rights; |
| · | disputes or other developments relating to proprietary rights and claims of infringement; |
| · | the accuracy of our estimates regarding expenses, future revenues and capital requirements; |
| · | the implementation of our business model and strategic plans for our business and technology; |
| · | the successful development of our sales and marketing capabilities; |
| · | the potential markets for our products and our ability to serve those markets; |
| · | the rate and degree of market acceptance of our products and any future products; |
| · | our ability to retain key management personnel; |
| · | regulatory developments and our compliance with applicable laws; and |
| · | our liquidity. |
For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and our other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements in this report are made only as of the date hereof or as indicated and represent our views as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise, except as required by law.
| 16 |
Overview
VerifyMe, Inc. (“VerifyMe,” the “Company,” “we” “us” or “our”) is a technology solutions provider specializing in brand protection and supply chain functions such as counterfeit prevention, authentication, serialization, consumer engagement, track and trace features for labels, packaging and products. The Company was formed in Nevada on November 10, 1999. Until 2018, we were primarily engaged in the research and development of our technologies. We began to commercialize our covert luminescent pigment, RainbowSecure®, in 2018, and we also developed the patented VeriPAS™ software system in 2018 that covertly and overtly serializes products to remotely track a product’s “life cycle” for brand owners. In April 2021 VerifyMe launched a rebranding and messaging campaign to more fully market all of our products and services to include a new website and marketing materials. RainbowSecure® has been renamed to VerifyInk TM and when coupled with VerifyMe Authenticate™ and VerifyMe Track & Trace™ we believe it provides the only covert serialization and authentication HP Indigo (a division of HP, Inc.) printing systems. Our patented smartphone authenticator device, VerifyAuthenticator TM , is capable of fluorescing, decoding, and verifying invisible VerifyInk TM printed codes in the field. This product allows investigators to authenticate product quickly and efficiently throughout the distribution chain, including warehouses, ports of entry, retail locations, and product purchased over the internet. This technology is coupled with a secure cloud-based track and trace software engine that allows brands and investigators to monitor the complete supply chain from product origination to the end user utilizing geolocation mapping and intelligent programable alerts. Brand owners access the VerifyMe Authenticate™ and VerifyMe Track & Trace™ software through a web portal over the internet. Brand owners can then set rules of engagement, and when coupled with overt serialized codes, gather rich business intelligence, establish marketing programs for customer engagement and control, monitor and protect their products’ “life cycle.” We have derived minimal revenue from our authentication and track and trace software system and have derived limited revenue from the sale of our VerifyInk TM , VerifyMe Authenticate™ and VerifyMe Track & Trace™ technology.
Our brand protection technologies involve the utilization of invisible and visible inks, which are compatible and printed with modern digital and standard printing presses. The inks may be used with certain printing systems such as digital, offset, flexographic, silkscreen, gravure, inkjet and toner-based laser printers. The inks can be used to print both static and variable images utilizing digital printing presses and third-party digital inkjet systems that are attached to traditional printing presses. Our invisible ink can be used in fixed images, variable images or serialized codes, bar codes or QR codes. We have developed and patented a product that attaches to a smartphone that reads our invisible ink codes into sophisticated cloud-based track and trace software. We also have a product that informs users that our invisible ink is present for authentication. Based upon our experience, we believe that the ink technologies may be incorporated into most existing manufacturing processes.
In the areas of authentication and serialization of physical goods, we offer clients the following brand protection security and anti-counterfeit product lines:
| · | VerifyMe Authenticate™ for product authentication |
| · | VerifyMe Track & Trace™ for product supply chain control |
| · | VerifyMe Engage™ for consumer engagement |
| · | VerifyMe Online™ for on-line (web) brand monitoring |
These four productions lines are powered by one or more of the following technologies:
| · | VerifyCode™ |
| · | VerifyInk™ |
| · | VerifyLabel™ |
| · | VerifyChip™ |
| · | VerifyMe Online™ |
VerifyInk TM technology was our first technology to be patented. It combines an invisible ink with a proprietary tuned laser to enable counterfeit products to be exposed. In 2017, we signed a five-year contract with Indigo Division of HP Inc. (“HP Indigo”) to print this technology on packages and labels on their 6000 series presses. Our technology has been tested and approved by HP Indigo 6000 series presses and more recently was qualified on HP Indigo’s 6900 series presses. In addition, we successfully trialed production on their 7900 press series used for sheet-fed products like folded cartons and plastic cards. HP Indigo informed us that other press models will be qualified once clients formally request in writing the need for qualification for current unqualified models. In addition, HP Indigo is producing sample secure government products such as tax stamp samples for governments with our VerifyInk TM invisible ink technology. HP Indigo has showcased these samples at various global government and print service providers trade shows. Customers can use a handheld beeping device, our VerifyChecker™, tuned to authenticate the unique frequency of our VerifyInk TM invisible ink, to broadcast a beeping sound to confirm the authenticity when placed on products, labels and packaging containing our VerifyInk TM ink. VerifyChecker™ devices are being commercialized and leased to customers, typically for one year. In December 2017, we signed a contract with a top tier a strategic partner to use VerifyInk TM in their cloud-based authentication and track and trace system. The technology also features a unique double layer of security that remains entirely covert at all times and provides licensees with additional protection. Under the contract with our strategic partner, we have a re-seller agreement where we sell their cloud-based authentication and track and trace system with our VerifyInk TM identifier under our own trademarked name, VerifyCode™. In May 2019, we entered into a strategic partnership with INX, the third largest producer of inks in North America, to co-develop inkjet inks to be used for inkjet printing in combination with high speed, high volume label and packaging printing presses. In 2020, INX, in conjunction with Print craft Inc., successfully-tested an appeal garment containing our VerifyInk TM ink. This secured garment survived the 50 wash and dry cycle test. We are now in the commercialization phase of this technology and in conjunction with INX and Print craft Inc are broadly marketing to major brands. In February 2021, INX completed the development of a version of our VerifyInk TM security ink for metal and plastic objects and INX is now co-marketing the new security ink to its global clients. The specially formulated inks will enable these printing presses to print our VerifyInk TM invisible ink technology, which includes our variable VerifyCode™ serialization, track and trace technology. We believe VerifyInk TM is particularly well-suited to closed and controlled environments that want to verify transactions within a specific area, as well as labels, packaging, textiles, plastics and metal products that need authentication. We have derived limited revenue from the sale of our VerifyInk TM technology.
| 17 |
VerifyMe Track & Trace™ supply chain serialization, track and trace technology combines the VerifyInk TM printed as a dynamic code and an overt dynamic code, VerifyCode™, with our strategic partner’s cloud-based authentication and track and trace system that provides brand owners geographical business intelligence on counterfeiting and diversion as well as the ability to authenticate labels, packaging and products. Using information from a smartphone screen, our VerifyCode TM technology, can provide authentication and data submission information. A customer or end-user can scan information from a product label or QR code and send it to the cloud where our VerifyMe Authenticate™ and VerifyMe Track & Trace™ software can verify authenticity of the product, as well as track and trace the product from production through delivery. Certain clients are in the testing stage with this product. Revenue for this product was received for the first time in 2020 and a reorder was received in the first quarter of 2021. To date, we have recognized minimal revenue from this technology.
VerifyAuthenticator TM technology is a piece of patented hardware with a built-in illumination system and software that scans invisible VerifyInk TM codes. Product investigators attach their smartphone to this device that then reveals the hidden VerifyInk TM images on the smartphone screen that are then sent to VerifyMe Authenticate™ and VerifyMe Track & Trace™ software in the cloud for authentication and data submission. These devices have been commercialized and are being leased to customers. Leases are typically one year in length and are auto-renewable. Revenue from this product is at an initial stage and minimal at this time.
VerifyMeChecker™ technology is an authentication tool that we are marketing to customers in conjunction with our VerifyInk TM . The VerifyChecker™ is a handheld beeping device that is tuned to authenticate the unique frequency of our VerifyInk TM invisible ink and will broadcast a beeping sound to confirm the authenticity when placed on products, labels and packaging containing our VerifyInk TM . The VerifyChecker™ is designed for use by customers who desire instant authentication on items, such as event tickets at an entry gate. Our customized checker will only positively identify a product bearing our unique anti-counterfeit solution. This technology is being commercialized and leased to customers, typically for one year auto-renewable terms. We are in the process of upgrading the functionality of this device so that it wirelessly connects to a mobile phone allowing authentication attempts to be recorded in the cloud by geo-location, inspectors names, and with time and date stamp. We expect to be able to commercialize this update in Q3 2021.
VerifyLabel™ labels are dual-purpose pre-printed labels with a visible serialized QR code for consumer scanning purposes, and an invisible serialized code for inspector scanning, authentication and tracking purposes. This label can be either a standard label or designed with tamper evident features. It was developed to provide covert brand protection for e-commerce retailers to enable consumer product authentication, promotion, engagement and education through the visible serialized QR code. This technology has been successfully launched with tamper evident features and is being used in personal protective equipment and in the cannabis sector, without the covert component.
VerifyMe® Online™ includes, through our collaboration with a strategic partner, a brand clearance and protection leader, technologies and services that better enable customers to effectively tackle counterfeit websites, domains and e-commerce platforms offering counterfeit products. To date, we have not derived revenue from this technology.
We believe that our brand protection security technologies, coupled with our contract with HP Indigo, can be used to enable brand owners to securely prevent counterfeiting, prevent product diversion and authenticate labels, packaging and products and alleviate the brand owner’s liability from counterfeit products that physically harm consumers. Our covert technologies give brand owners the ability to control, monitor and protect their products life cycle. Also, our technologies allow brand owners to prove whether the product causing an issue is authentic or counterfeit.
Our digital technologies are contained in a web portal known as VerifyMe Authenticate™ and VerifyMe Track & Trace™, utilizing our strategic partner’s centralized cloud- based authentication and track and trace system platform. Utilizing our strategic partner’s software team, we have embedded our patented invisible code system into their cloud-based authentication track and trace platform that allows inspectors to utilize our smartphone attachment to read unique invisible, serial codes, visible barcodes, NFC, RFID and for every label, package and or product into the VerifyMe Authenticate™ and VerifyMe Track & Trace™, cloud-based software portal. GPS locations of the scans of inspectors and end users are captured for the brand owner to monitor. Our cloud- based authentication and track and trace platform is agnostic to the type of input codes used so the solution can be deployed with our covert VerifyCodes TM , overt VerifyCodes TM printed in any barcode symbology, NFC, RFID and can be integrated into SAP.
| 18 |
In addition, we have the ability to wirelessly broadcast signals from our VerifyChecker TM device when our VerifyInk TM is found on a product or label. This signal then triggers a GPS location to be recorded in the cloud-based VerifyMe Authenticate™ and VerifyMe Track & Trace™ software application. Together, the handheld light sensor device (VerifyChecker TM ) and the smartphone attachment authenticator (VerifyAuthenticator TM ) provide the brand owner the ability to monitor their inspector team activities thru the VerifyMe Authenticate™ and VerifyMe Track & Trace™ web portal.
Business Intelligence and Consumer Engagement
A key feature of our digital technologies is the ability for the brand owner to gather rich business intelligence and engage with the consumer using our authentication test as the initial contact with the consumer. For example, consumers can simply scan a visible unique code generated by the VerifyCode™ web portal that is printed on labels and packages using their smartphone camera. Once the consumer scans the code, an instant authenticity check is made using algorithms stored in the cloud to determine the products authenticity on a multiple of factors. Once this test is completed, the brand owner can then engage with the consumer by providing marketing materials, videos, discount coupons, product specifications, or cross sell other products with this consumer engagement software we provide to the brand owner in the cloud-based VerifyCode™ software.
COVID-19
The COVID-19 pandemic disrupted businesses and affected production and sales across a range of industries, as well as caused volatility in the financial markets, which negatively impacted our results of operations for the first half of 2021. The full extent of the impact of the COVID-19 pandemic on our customer demand, sales and financial performance will depend on certain developments, including, among other things, the continued duration and spread of the outbreak, the effectiveness of vaccines against new variants, the availability of vaccines and vaccination rates, , and the impact on our customers and employees, all of which are uncertain and cannot be predicted. Please see Item 1A, “Risk Factors- Risks Relating to the COVID-19 Pandemic” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and our other filings with the SEC in this Report for additional information regarding certain risks associated with the pandemic.
The COVID-19 pandemic has caused an increase in demand for safety products such as masks and gloves, COVID-19 test kits, medications and vaccines to treat the virus, which we believe has further caused an increase in counterfeit products. Our suite of technology solutions for global manufacturers, distributors and sellers are designed to allow consumers to prove authenticity and we have proactively reached out to global manufacturers who are seeking to provide their customers authenticity in their products. We believe we have a dynamic management and sales team in place with the ability to seamlessly work remotely to minimize any operational disruption.
After an approximately one-year COVD-19 related hiatus we have recently begun attending sales conferences and other in-person sales initiatives. Since we have recently begun face to face sales presentations and trade shows we are experiencing a small increase in travel related costs versus the previous 12 months. We expect these travel related costs to grow which should be offset by increased sales activity. VerifyMe has continued to be aggressive in regards to sales and marketing efforts as we have completed a new website which is generating new leads and we have expanded our sales force. We also have started our first social media advertising campaign. New leads are being generated due to these actions. We continue to work with our sales representatives to look for alternative ways to communicate effectively and promote sales both with our customers and potential customers.
Further, we anticipate that as a result of the continued COVID-19 pandemic, our customers may still require that their programs be cancelled, delayed or reduced. We will continue to work in partnership with our customers to continually assess any potential impacts and opportunities to mitigate risk.
SPAC Investment
On July 6, 2021, we acted as the co-sponsor for the initial public offering of G3 VRM Acquisition Corp, a special purpose acquisition company, or SPAC, through a contribution into G3 VRM Holdings LLC, or the Sponsor Entity. The Sponsor Entity holds founder shares equal to 20% of the shares underlying the Units issued in the SPAC IPO (2,446,500 founder shares, net of up to 218,500 founder shares subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised, and 210,000 founder shares transferred to the officers and certain directors of the SPAC), plus 516,280 shares underlying Private Placement units purchase by the Sponsor Entity in connection with the SPAC’s IPO. The closing of the IPO of 10,626,000 Units, including 626,000 Units pursuant to the partial exercise of the underwriter’s over-allotment, generated gross proceeds of $106,260 thousand. As co-sponsor, we indirectly, through the Sponsor Entity, beneficially own approximately 9.42% of the outstanding shares of G3 VRM Acquisition upon consummation of the IPO; which are subject to forfeiture upon certain conditions and restrictions on transfer.
| 19 |
As of June 30, 2021, we have accounted for the Sponsor Entity as an equity investment with a carrying value of $11 thousand. Upon effectiveness of the IPO registration statement on June 30, 2021, we and the co-sponsor each transferred $2,713 thousand, for an aggregate of $5,425 thousand, to the Sponsor Entity pursuant to the Private Placement agreement to be transferred to the SPAC upon closing of the IPO, including up to $225 thousand each, or an aggregate of $450 thousand, subject to the underwriters’ over-allotment option.
We believe our sponsorship of the SPAC will allow us to pursue an equity interest in larger companies and add value without diluting the equity interests of our shareholders.
Results of Operations
Comparison of the three months ended June 30, 2021 and 2020
The following discussion analyzes our results of operations for the three months ended June 30, 2021 and 2020.
Revenue
Revenue for the three months ended June 30, 2021 was $124 thousand, a 65% increase as compared to $75 thousand for the three months ended June 30, 2020. The increase in revenue primarily related to increased use of our security printing and authentication serialization technology.
Gross Profit
Gross profit for the three months ended June 30, 2021 was $98 thousand, compared to $62 thousand for the three months ended June 30, 2020. The resulting gross margin was 79% for the three months ended June 30, 2021, compared to 83% for the three months ended June 30, 2020. The decrease in our gross profit margin relates to a shift in product mix, with an increase in the use of our secure track and trace serialization technology. We believe our high gross profit margins demonstrate our business model’s ability to generate profitable growth.
General and Administrative Expenses
General and administrative expenses increased by $463 thousand to $895 thousand for the three months ended June 30, 2021 from $432 thousand for the three months ended June 30, 2020. The increase primarily related to increases in non-cash stock-based compensation of $251 thousand, and increased costs associated with being a Nasdaq listed company of approximately $115 thousand, of which $47 thousand related to our annual meeting of shareholders.
Legal and Accounting
Legal and accounting fees increased by $20 thousand to $88 thousand for the three months ended June 30, 2021 from $68 thousand for the three months ended June 30, 2020. The increase relates primarily to the expansion of our accounting department, partially offset by savings in legal fees during the period.
Payroll Expenses
Payroll expenses were $234 thousand for the three months ended June 30, 2021, an increase of $9 thousand from $225 thousand, for the three months ended June 30, 2020. The increase related primarily to increases in salaries and number of employees, offset by a decrease in stock based compensation of $50 thousand.
Research and Development
Research and development expenses were $12 thousand and $0 for the three months ended June 30, 2021 and 2020, respectively. The increase is due to continued development costs associated with commercialized product lines.
Sales and Marketing
Sales and marketing expenses were $297 thousand and $79 thousand for the three months ended June 30, 2021 and 2020, respectively. The increase primarily related to an expansion of our sales team and marketing outreach. We expanded our sales team to address growing domestic and international opportunities.
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Operating Loss
Operating loss for the three months ended June 30, 2021 was $1,428 thousand, an increase in loss of $686 thousand compared to $742 thousand for the three months ended June 30, 2020. The increase in loss primarily related to the expansion of our sales team and marketing outreach totaling an increase of approximately $215 thousand, and an increase of stock-based compensation of $204 thousand.
Net Loss
Our net loss decreased by $1,295 thousand to $1,358 thousand for the three months ended June 30, 2021 from $2,653 thousand for the three months ended June 30, 2020. The decrease was primarily due to amortization of debt discount related to our convertible debentures included in interest expense in the second quarter of 2020. The resulting loss per share for the three months ended June 30, 2021 was $0.18 per diluted share, compared to $1.04 per diluted share for the three months ended June 30, 2020.
Comparison of the Six Months Ended June 30, 2021 and 2020
The following discussion analyzes our results of operations for the six months ended June 30, 2021 and 2020.
Revenue
We generated revenue of $312 thousand for the six months ended June 30, 2021, an 87% increase compared to $167 thousand for the six months ended June 30, 2020. The revenue primarily related to security printing with our authentication serialization technology for two large global brand owners as well as a new application of our technology, in the personal protective equipment space.
Gross Profit
Gross profit for the six months ended June 30, 2021 was $243 thousand, compared to $137 thousand for the six months ended June 30, 2020. The resulting gross margin was 78% for the six months ended June 30, 2021, compared to 82% for the six months ended June 30, 2020. The decrease in our gross profit margin relates to a shift in product mix, with an increase in the use of our secure track and trace serialization technology. We believe our high gross profit margins demonstrate our business model’s ability to generate profitable growth.
General and Administrative Expenses
General and administrative expenses increased by $714 thousand to $1,684 thousand for the six months ended June 30, 2021 from $970 thousand for the six months ended June 30, 2020. The increase primarily related to increases in non-cash stock-based compensation of $314 thousand, and increased cost associated with being a Nasdaq listed company of approximately $184 thousand.
Legal and Accounting
Legal and accounting fees increased by $77 thousand to $214 thousand for the six months ended June 30, 2021 from $137 thousand for the six months ended June 30, 2020. The increase relates primarily to the expansion of our accounting department, partially offset by savings in legal fees.
Payroll Expenses
Payroll expenses were $427 thousand for the six months ended June 30, 2021, an increase of $108 thousand from $319 thousand for the six months ended June 30, 2020. The increase related to an increase in the executive compensation and an increase in the number of our employees.
Research and Development
Research and development expenses were $17 thousand and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase is due continued development costs associated with commercialized product lines.
Sales and Marketing
Sales and marketing expenses were $544 thousand and $122 thousand for the six months ended June 30, 2021 and 2020, respectively. The increase primarily related to an expansion of our sales team and marketing outreach in 2021. We expanded our sales team to address growing domestic and international opportunities.
Operating Loss
Operating loss for the six months ended June 30, 2021 was $2,643 thousand an increase in loss of $1,232 thousand compared to $1,411 thousand for the six months ended June 30, 2020. The increase in loss primarily related to an increase in non-cash stock-based compensation, an increase in employee headcount, and sales and marketing outreach to meet our growing number of opportunities, and increased costs associated with being a Nasdaq listed company. In addition, operating loss for the six months ended June 30, 2021 included approximately $1,007 thousand of stock-based compensation compared to approximately $688 thousand of stock-based compensation for the six months ended June 30, 2020.
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Net Loss
Our net loss for the six months ended June 30, 2021 was $2,573 thousand a decrease in net loss of $1,172 thousand compared to $3,745 thousand for the six months ended June 30, 2020. The decrease in net loss primarily was due to amortization of debt discount related to our convertible debentures included in interest expense the six months ended June 30, 2020. The resulting loss per share for the six months ended June 30, 2021 was $0.37 per diluted share, compared to $1.56 per diluted share for the six months ended June 30, 2020.
Liquidity and Capital Resources
Our operations used $1,668 thousand of cash during the six months ended June 30, 2021 compared to $699 thousand during the comparable period in 2020, relating primarily to an increase in employee headcount, an expansion of our sales team and marketing outreach efforts and an increase in expenses related to operating as a Nasdaq listed company.
Cash used in investing activities was $3,125 thousand during the six months ended June 30, 2021 compared to $51 thousand during the six months ended June 30, 2020. The increase relates primarily to the deposit for units in the SPAC of $2,713 thousand, reimbursable expenses for the SPAC of $208 thousand, (see Note 3 – Related Parties in the accompanying notes to the financial statements).
Cash provided by financing activities during the six months ended June 30, 2021, was $8,216 thousand compared to $10,092 thousand during the six months ended June 30, 2020. On February 12, 2021, as part of our public offering of an aggregate 1,750,000 shares of common stock, we generated aggregate gross proceeds of $9.3 million and net proceeds of $8.4 million, less underwriting discounts and commissions and other offering expenses, including the partial exercise of the over-allotment option resulting in gross proceeds of $530 thousand. We believe that our cash and cash equivalents, together with the net proceeds from this offering, will fund our operations through 2025.
In November 2020, we announced a share repurchase program to spend up to $1.5 million to repurchase shares of our common stock until August 16, 2021. On August 12, 2021, we extended this program to expire on August 16, 2022. All other terms and conditions remained the same. To date, 67,516 shares have been purchased for a total of $228 thousand.
While we expect revenues to increase, we expect continued negative cash flows as we incur increased costs associated with expanding our business. We expect to continue to fund our operations primarily through utilization of our current financial resources, future revenue, and through the issuance of debt or equity.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial position, results of operations or cash flows.
Revenue Recognition
Our revenue transactions include sales of our ink canisters, software, licensing, pre-printed labels, integrated solutions and leasing of our equipment. We recognize revenue based on the principals established in ASC Topic 606, “Revenue from Contracts with Customers.” Revenue recognition is made when our performance obligation is satisfied. Our terms vary based on the solutions we offer and are examined on a case-by-case basis. For licensing of our VerifyInk TM technology we depend on the integrity of our clients’ reporting.
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Stock-based Compensation
We account for stock-based compensation under the provisions of FASB ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.
We account for stock-based compensation awards to non-employees in accordance with ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees.
All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments are recorded as an expense over the service period, as if we had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity-based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed.
Recently Adopted Accounting Pronouncements
Recently adopted accounting pronouncements are discussed in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
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ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the three months ended June 30, 2021, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2021, our disclosure controls and procedures were ineffective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We have an inherit material weakness in controls due to a lack of segregation of duties, resulting from limited staffing in our accounting department. As of May 10, 2021, we have hired a Corporate Financial Controller in an effort to address this inherit weakness and as part of our remediation efforts.
(b) Changes in internal control over financial reporting
Other than the remediation efforts underway, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
To address the material weaknesses identified, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC, and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, except as noted below.
Our investment in G3 VRM Acquisition Corp. (the “SPAC”) could be lost if the SPAC is unable to consummate a business combination or if its business combination proves unsuccessful.
On July 6, 2021, we acted as the sponsor for the initial public offering of G3 VRM Acquisition Corp, a special purpose acquisition company, or SPAC, through a contribution into the SPAC’s sponsor, G3 VRM Holdings LLC, or the Sponsor Entity. The Sponsor Entity holds founder shares equal to 20% of the shares underlying the Units issued in the SPAC IPO (2,446,500 founder shares, net of up to 218,500 founder shares subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised, and 210,000 founder shares issued to the officers and certain directors of the SPAC), plus 516,280 shares underlying private placement units purchase by the Sponsor Entity in connection with the SPAC’s IPO. Our investment in the SPAC through the Sponsor Entity equaled approximately $2,592 thousand, and our ownership in the Sponsor Entity is 44.4%. The Sponsor Entity and all holders of founder shares and private placement securities have agreed to waive any right to distributions under the trust established for the benefit of the SPAC’s public shareholders. Accordingly, if the SPAC is unable to complete its initial business combination within 12 months from the closing of the IPO (or 15 or 18 months from the closing of the IPO, if we and the co-sponsor extend the period of time to consummate a business combination by depositing additional funds into the trust account as described in more detail in IPO prospectus), the SPAC will redeem 100% of the public shares for cash, the rights will expire worthless, and the founder shares and the private placement securities will be worthless. Even if the SPAC is able to complete a business combination within the allotted time, if the combined company is unable to maintain adequate results from operations, then our investment in the SPAC could lose value and may ultimately become worthless. There can be no assurance that the SPAC will complete a business combination within the allotted time or that any such business combination will be successful.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In April 2021, the Company issued 2,174 shares of restricted common stock in relation to investor relation services.
In June 2021, the Company issued 1,087 shares of restricted common stock in relation to investor relation services .
These securities described above were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), as set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from registration was required. The recipients of the securities described in the transactions above acquired the securities for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof.
Use of Proceeds
On June 17, 2020, our Registration Statement on Form S-1 (File No. 333-234155), as amended (the “Registration Statement”) relating to an underwritten public offering of an aggregate of 2,173,913 units consisting of one share of the Company’s common stock and a warrant to purchase one share of common stock at an exercise price equal to $4.60 per share of common stock was declared effective by the SEC. The cash proceeds from the offering were $9,023 thousand, net of underwriting discounts and commissions of approximately $800 thousand and fees and expenses of approximately $450 thousand. There has been no material change in the expected use of the net proceeds from the offering, as described in our final prospectus filed with the SEC on June 19, 2020 pursuant to Rule 424(b)(4). As of June 30, 2021 this offering has terminated.
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Share Repurchase Plan
ISSUER PURCHASES OF EQUITY SECURITIES
| Period |
Total Number of Shares
(or Units) Purchased |
Average Price Paid per
Share (or Units) |
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs (1) |
Approximate Dollar Value of Shares
that
May Yet Be Purchased Under the Plans or Programs (1) (In thousands) |
|||||||||
| 04/01/2021-04/30/2021 | - | - | - | - | |||||||||
| 05/01/2021-05/31/2021 | 35,561 | $3.30 | 35,561 | $1,383 | |||||||||
| 06/01/2021-06/30/2021 | 31,955 | $3.44 | 31,955 | $1,273 | |||||||||
| Total | 67,516 | $3.37 | 67,516 | $1,273 |
(1) Purchases made pursuant to the Company’s share repurchase program announced on November 17, 2020, pursuant to which the Company is authorized to purchase up to $1.5 million worth of shares of its common stock. Under the repurchase program, shares of the Company’s common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be suspended or discontinued at any time until it expires on August 16, 2021. On August 12, 2021, the Company extended its share repurchase program to expire on August 16, 2022. All other terms and conditions remained the same.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
The information included under the heading Share Repurchase Plan of Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this form 10-Q, is incorporated by reference herein.
ITEM 6: EXHIBITS
| Exhibit No. | Description | |
| 10.1* | Independent Contractor Consulting Agreement, dated April 15, 2021, with Norman Gardner | |
| 31.1* | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
*Filed herewith
# Denotes management compensation plan or contract
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VERIFYME, INC. | |
| Date: August 13, 2021 | By: /s/ Patrick White |
| Patrick White | |
|
Chief Executive Officer (Principal Executive Officer) |
|
| Date: August 13, 2021 | By: /s/ Margaret Gezerlis |
| Margaret Gezerlis | |
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
|
27
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|