VERIFYME, INC. The information in this Management's Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed 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, statements regarding our ability to continue as a going concern, 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:
· our ability to continue as a going concern and our history of losses;
· our ability to obtain additional financing;
· 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
Notwithstanding the above, Section 21E of the Exchange Act expressly states that the safe harbor for forward looking statements does not apply to companies that issue penny stocks. Accordingly, the safe harbor for forward looking statements under Section 21E of the Exchange Act is not currently available to us because we may be considered to be an issuer of penny stock.
18 Table of Contents Overview
We believe the brand protection technologies we own, once fully developed, can be used to enable businesses to reconstruct their overall approaches to security-from brand protection, product diversion and counterfeit identification to employee or customer monitoring. We are currently testing a pre-printed labeling system containing VeriPAS™ for third party on-line retailers to affix to their products that allows the third party retailer to engage with their customer through marketing and data gathering. In addition these pre-printed labels containing VeriPAS™ labels will allow the receiving customer to authenticate the product with their personal smartphone. We are also developing a thread made of fabric containing covert RainbowSecure® ink that will be sewn into clothing and apparel for authentication. A VeriPAS™ readable code for apparel labels is also being developed with a third party apparel manufacturer. Potential applications of our technologies are available in different types of products and industries-e.g., banking, gaming, apparel, tobacco, cosmetics, food, beverages, plastics, metal, event and transportation tickets, manufactured goods, tax stamps, fabrics, parts, driver's licenses, insurance cards, passports, computer software, on-line retail and credit cards. We have had revenue generating sales through re-seller agreements of our technology and through direct sales of our technology to global brand owners, and label and packaging printers.
Our brand protection technologies involve the utilization of invisible and/or color changing 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 which 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 a product which attaches to a smart-phone 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 products as anti-counterfeit systems:
• RainbowSecure®
• VeriPASTM Global Product Identifier, Track and Trace System
• SecureLight® • SecureLight+®
• VeriPAS™ Smartphone Authenticator
• VerifyMe Beeper
• VerifyMe As Authentic Labels
19 Table of Contents
RainbowSecure® 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 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 we have successfully run pilot production on the 7800 press which
runs on HP Indigo's newer series 4 platform, and will open up sheet-feed
products like folded cartons and plastic cards. In
VeriPAS™ technology combines the covert identifier of RainbowSecure® with the Micro Focus Track and Trace software which provides brand owners geographical business intelligence on counterfeiting as well as the ability to authenticate labels, packaging and products. Based on our discussions with other serialization, track and trace software providers we expect to add alternatives to clients beyond the Micro Focus GPAS system. This technology is currently being co-marketed with RainbowSecure® and our VeriPAS™ Smartphone Authenticator product. Several clients are in the testing stage with this product. To date, we have not derived revenue from this technology.
SecureLight® technology was developed as a result of our investment in new proprietary color changing inks that could penetrate broader markets. During the past decade, we have refined our technology and its applications, and now have what we believe to be the easiest, most cost effective and efficient authentication technology available in the world today. Our technology, known as SecureLight®, takes advantage of the new ubiquitous energy efficient fluorescent lighting to change the color of ink, resulting in hundreds of new applications ranging from credit cards to driver's licenses, passports, stock certificates, clothing labels, currency, ID cards, and tax stamps. The technology can also be used to protect apparel, pharmaceuticals, and virtually any other physical product, such as fabrics, plastics, ceramics and metal. In 2018, we received notice that patents involving this technology were approved in various European nations. We are attempting to commercialize this product.
SecureLight+® technology combines the covert characteristics of RainbowSecure® and the overt characteristics of SecureLight®. This provides a solution which can be authenticated in two different ways - by proprietary tuned laser devices, and also by anyone with fluorescent lighting, including end consumers. In 2018, we received notice that patents involving this technology were approved in various European nations. SecureLight+® has been successfully deployed in one country's drivers' licenses and another country's voter registration card program. We have begun to commercialize this product.
VeriPAS™ Smartphone Authenticator technology is a piece of hardware with a built-in lighting system and software that scans invisible RainbowSecure® codes. Product investigators attach their smartphone to this device which then reveals the hidden RainbowSecure® images on the smartphone screen which are then sent to the VeriPASTM 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.
VerifyMe Beeper technology is an authentication tool which we are marketing to customers in conjunction with our RainbowSecure® ink pigment. Authentication is provided in the form of an LED indicator, a camera device which reveals the hidden serialization numbers and codes on a viewing screen and an audible beeping device when placed on a label, product or package containing the RainbowSecure® technology. The handheld beeping device is tuned to authenticate the unique frequency of our RainbowSecure® invisible ink and will broadcast a beeping sound to confirm the authenticity when placed on products, labels and packaging containing our RainbowSecure® ink technology. The VerifyMe Beeper is designed for use by customers who desire instant authentication on items, such as event tickets at an entry gate. Our customized beeper will only positively identify a product bearing our unique anti-counterfeit solution. This technology is being commercialized and leased to customers.
VerifyMe® as Authentic™ technology is a dual-purpose pre-printed label with a visible serialized QR code for consumer scanning purposes, and an invisible serialized IR code for inspector scanning, authentication, and tracking purposes. This label was developed to provide covert brand protection for on-line retailers, while enabling consumer product authentication, promotion, engagement and education through the visible serialized QR code. This technology is being commercialized to prospective customers.
20 Table of Contents COVID-19 Pandemic
In
The COVID-19 pandemic has caused a major spike 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.
In connection with the COVID-19 pandemic, sales conferences and other in-person sales events have been curtailed. While this has resulted in a reduction of our sales-related transportation costs, it has limited our sales efforts. 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 COVID-19 pandemic, our customers may require that their programs be cancelled or reduced. We will continue to work in partnership with our customers to continually assess any potential impacts and opportunities to mitigate risk.
Results of Operations
Comparison of the three months ended
The following discussion analyzes our results of operations for the three months
ended
Revenue
Revenue for the three months ended
Gross Profit
Gross profit for the three months ended
General and Administrative Expenses
General and administrative expenses increased by
Legal and Accounting
Legal and accounting fees decreased by
21 Table of Contents Payroll Expenses
Payroll expenses were
Research and Development
Research and development expenses were
Sales and Marketing
Sales and marketing expenses were
Operating Loss
Operating loss for the three months ended
Net Loss
Our net loss increased by
Liquidity and Capital Resources
Our operations used
Cash used in investing activities was
Cash provided by financing activities during the three months ended
Going Concern
We have suffered recurring losses from operations and negative cash flows from
operations. These conditions raise substantial doubt about our ability to
continue as a going concern. In order to continue as a going concern, develop a
reliable source of revenues, and achieve a profitable level of operations, we
will need, among other things, additional capital resources. Since our
inception, we have focused on developing and implementing our business plan. Our
business plans and our ability to continue as a going concern are dependent on
our ability to raise capital through increased sales of product and the possible
exercise of outstanding options and warrants, through debt financing and/or
through future public and/or private offerings of our securities. However,
management cannot provide any assurances that we will be successful in
accomplishing any of our plans. On
Off-Balance Sheet Arrangements
None. 22 Table of Contents
Critical Accounting Policies
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.
Revenue Recognition
We account for revenues according to ASC Topic 606, "Revenue from Contracts with Customers" which established 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.
We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our 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 obligations are satisfied.
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, directors and non-employees 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 option pricing model. 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.
Recently Adopted Accounting Pronouncements
Recently adopted accounting pronouncements are discussed in Note 1 of the notes to the financial statements contained in this report.
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