VerifyMe, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2023; filed August 10, 2023. The supplied filing is for VerifyMe, Inc. (Nasdaq: VRME, VRMEW), not Openworld, Inc. Amounts below are in thousands of dollars except per-share data and percentages.
Business context
VerifyMe operates Precision Logistics, which provides predictive, time- and temperature-sensitive shipping services, and Authentication, which provides product traceability and brand-protection solutions. Precision Logistics generated most revenue. The March 2023 acquisition of Trust Codes added brand-protection and consumer-engagement technology to Authentication.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $5,335 | $4,497 | $10,996 | $4,658 |
| Gross profit | $1,820 | $1,685 | $3,574 | $1,808 |
| Gross margin | 34% | 37% | 33% | 39% |
| Operating loss before other income (expense) | $(1,038) | $(1,322) | $(2,542) | $(2,972) |
| Net loss | $(882) | $(12,555) | $(2,462) | $(13,949) |
| Diluted loss per share | $(0.09) | $(1.50) | $(0.26) | $(1.78) |
- Q2 revenue rose 19%; first-half revenue rose $6,338, primarily reflecting the inclusion of PeriShip Global for a full six months in 2023 versus its acquisition on April 22, 2022. Authentication revenue declined year over year in both periods.
- Gross margin contracted, which management attributed mainly to the mix of proactive and premium logistics services. Q2 gross profit increased $135; first-half gross profit increased $1,766.
- The much lower net loss versus 2022 chiefly reflects the nonrecurrence of a $10,964 realized loss on an equity investment recognized in 2022. Q2 2023 also included a $172 gain from a change in the fair value of Trust Codes contingent consideration.
- At June 30, 2023, cash and cash equivalents, including restricted cash, were $2,697, versus $3,411 at December 31, 2022. Current assets were $5,072 and current liabilities $3,719.
- For the first half, operating cash use was $463, investing cash use $858, and financing cash provided $608. Cash declined $714. Operating cash use was lower than the prior-year $2,625, which management attributed to more favorable working-capital movements.
- Debt totaled approximately $2,425: $1,300 current debt, including $800 drawn on the revolving line, and $1,125 long-term term-note debt. The $1 million revolving facility was due to expire in September 2023; the term note matures in September 2026. An interest-rate swap effectively fixed the rate on its notional amount at 7.602%.
- Stockholders’ equity was $12,358. Common shares outstanding were 9,842,765 at quarter-end; the filing reports 9,899,767 outstanding as of August 4, 2023. Approximately 7.108 million potentially dilutive shares were excluded from diluted loss per share as anti-dilutive.
Material changes, outlook and risks
- Acquisitions: Trust Codes was acquired effective March 1, 2023. The filing describes approximately $1.0 million of upfront consideration—$363 cash and $625 stock—plus estimated contingent consideration of $1,125. The acquisition allocation reports total purchase price of $2,113; the earn-out’s maximum is unlimited, and the allocation was preliminary. The filing says it was expected to be finalized in Q3 2023.
- Liquidity outlook: Management said cash and cash equivalents were expected to fund operations for the next 12 months and noted that additional debt or equity could be issued to support growth or acquisitions. This is management’s estimate, not a guarantee. The revolving line’s September 2023 maturity makes its renewal, repayment, or refinancing an important near-term item to check.
- Business conditions: Management described softer demand for some high-end perishable and cannabis-related services amid reduced discretionary spending. It also cited a major carrier’s cost reductions and weaker demand, while viewing outsourcing opportunities as a potential offset. Precision Logistics revenue is generally higher in Q4 because of holiday shipments.
- Concentration: One customer represented 16% of Q2 revenue and 15% of first-half revenue; one customer accounted for 23% of accounts receivable at quarter-end. One vendor represented 99% of Precision Logistics transportation cost in the first half.
- Other risks and unusual items: Foreign-currency movements affect the New Zealand operation; the company said it had no exchange-rate hedging program. It recorded $34 of intangible-asset impairment in the first half and abandoned three patents. Goodwill and acquired-asset valuations involve estimates and impairment risk. No material changes to previously disclosed risk factors were reported; no legal proceedings or off-balance-sheet arrangements were disclosed.
- Management and controls: Adam Stedham became CEO in June and President in August. The President/COO and CFO left effective July 31, 2023; successor executives were appointed effective August 1. Management concluded disclosure controls were effective at June 30 and reported no material quarterly change in internal control over financial reporting. Trust Codes was excluded from the internal-control assessment under the SEC’s acquired-business transition guidance.
- Guidance: The filing provides no specific revenue, earnings, or cash-flow forecast. Interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the revolving credit facility was renewed, repaid, or refinanced after its September 2023 maturity, and the company’s liquidity after quarter-end.
- The final Trust Codes purchase-price allocation, earn-out valuation and potential payment exposure, and subsequent operating contribution.
- Whether revenue growth can be sustained and gross margins recover, given the service mix and dependence on Precision Logistics.
- Customer and transportation-vendor concentration, including any changes in the major carrier relationship or demand environment.
- Share-based compensation, executive separation costs, and potential dilution from awards and warrants.