Business context and reporting period
This is VerifyMe, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2020, filed November 12, 2020. The request identifies Openworld, Inc.; the supplied filing is for VerifyMe, Inc. VerifyMe develops brand-protection technologies, including authentication, serialization, and product tracking solutions. It reported that revenue remained limited and was primarily from printing labels using its technology.
Financial results and position
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 |
|---|---|---|
| Revenue | $100,697 | $267,799 |
| Gross profit / margin | $82,076 / 82% | $219,204 / 82% |
| Operating loss | $983,072 | $2,393,738 |
| Net loss | $982,829 | $4,728,049 |
| Basic and diluted loss per share | $0.18 | $1.38 |
For the nine months, operating cash use was $1.30 million, investing cash use was $74,566, and financing provided $10.09 million. Cash at September 30 was $8.98 million, versus $252,766 at December 31, 2019. Total assets were $9.76 million and total liabilities were $615,195, including a $72,400 long-term PPP loan; no convertible debt remained outstanding. Current assets were $9.21 million and current liabilities $542,795.
Material changes versus the prior comparable period
Quarterly revenue rose 79% from $56,225; nine-month revenue rose 87% from $143,158. Management attributed the increase principally to security printing for two large global brand owners. Gross margin was 82% in both 2020 periods; the comparable margins were 85% for the quarter and 79% for the nine months.
Quarterly operating expenses increased to $1.07 million from $709,855, and the operating loss widened. Nine-month operating expenses rose to $2.61 million from $1.96 million, with higher public-company costs, stock-based compensation, and sales and marketing contributing. Nine-month net loss increased from $1.89 million, principally because $1.99 million of convertible-debt discount amortization and a $280,504 debt-extinguishment loss affected 2020 results.
The company raised $9.02 million net in a June public offering and converted its 2020 debentures into common stock following its Nasdaq listing. Common shares outstanding increased from 2,232,112 at year-end 2019 to 5,577,529 at September 30, 2020; warrants and other potential share issuances may add further dilution.
Outlook, risks, contingencies, and unusual items
No quantified revenue, earnings, or cash-flow guidance is provided. Management said the offering proceeds mitigated substantial doubt about the company’s ability to continue as a going concern and were expected to cover estimated liquidity needs for the 12 months following issuance of the financial statements. The company nevertheless has recurring operating losses and cash burn.
Management said COVID-19 had not materially adversely affected reported nine-month results, but warned that customer demand, sales, in-person marketing, operations, and access to capital could be affected. The company cited its limited operating history and revenues, dependence on a small number of customers, intellectual-property risks, market acceptance and sales execution, liquidity, and Nasdaq listing requirements as risks. Three customers accounted for 99% of quarterly revenue; two customers accounted for 93% of nine-month revenue. Two customers represented 89% of accounts receivable.
Disclosure controls and procedures were deemed ineffective as of September 30, 2020 because of a material weakness related to insufficient staffing to segregate duties. The company had engaged an accounting firm to perform certain accounting functions. Subsequent events include an $85,000 settlement payment recorded as an accrued expense and amendments increasing the CEO’s annual salary to $280,000 and the chairman’s annual consulting fee to $175,000.
Important facts for investors to verify
- Confirm the filing applies to the intended issuer: it names VerifyMe, Inc., not Openworld, Inc.
- Review revenue durability and customer concentration, including the reliance on a small number of global brand owners.
- Assess cash burn against the company’s stated 12-month liquidity outlook and the timing or conditions of PPP loan forgiveness.
- Evaluate potential dilution from outstanding warrants, options, restricted awards, and the increase in shares issued.
- Track remediation of the disclosed material weakness and any changes in disclosure-control effectiveness.
- Review COVID-19 impacts, Nasdaq continued-listing compliance, and the status of the $85,000 settlement accrual.