VerifyMe, Inc. — Form 10-Q Summary
Period: Quarter and six months ended June 30, 2022. The supplied filing identifies the registrant as VerifyMe, Inc. (Nasdaq: VRME; warrants: VRMEW), not Openworld, Inc. Unless otherwise stated, financial amounts below are in thousands of dollars.
Business context and reporting period
VerifyMe provides brand authentication, protection and consumer-engagement technology. Its newly acquired subsidiary, PeriShip Global, provides logistics management for time- and temperature-sensitive shipments. The PeriShip business was acquired on April 22, 2022; its results are included from that date. The interim financial statements are unaudited.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $4,497 | $124 | $4,658 | $312 |
| Gross profit | $1,685 | $98 | $1,808 | $243 |
| Gross margin | 37% | 79% | 39% | 78% |
| Operating expenses | $3,007 | $1,526 | $4,780 | $2,886 |
| Net loss | $(12,555) | $(1,358) | $(13,949) | $(2,573) |
| Loss per share, basic and diluted | $(1.53) | $(0.18) | $(1.81) | $(0.37) |
Revenue growth was mainly from PeriShip, which contributed $4,231 in the quarter and six-month period. VerifyMe Solutions revenue was $266 for Q2 and $427 for the six months. PeriShip's reported gross margin was 36%; management attributed the lower consolidated margin versus 2021 to the acquisition mix and a shift toward VerifyMe track-and-trace serialization work.
At June 30, cash and cash equivalents were $3,751, down from $9,422 at year-end 2021. Current assets were $6,498 and current liabilities $2,589. Total assets were $18,095; total liabilities were $4,505. Debt was $2,000, comprising $500 current and $1,500 long-term, under the acquisition note bearing 6% annual interest. Operating cash use was $2,625 and investing cash use was $7,631 for the first half; financing provided $4,585. The company reported no off-balance-sheet arrangements.
Material changes and unusual items
- PeriShip was acquired for stated consideration of approximately $10.5 million: $7.5 million cash, a $2.0 million promissory note and 305,473 shares valued at approximately $1.0 million. The allocation included $4,092 of goodwill and $6,180 of acquired identifiable intangible assets.
- A $10,964 loss on the SPAC-related equity investment drove most of the first-half net loss. The investment’s reported fair value fell from $10,964 at December 31, 2021, to zero at June 30, 2022. The SPAC subsequently redeemed its public shares and liquidated; no sponsor distribution was anticipated, though final distributions, if any, were expected in Q3 2022.
- An April private placement generated approximately $5.0 million gross and $4.6 million net proceeds through common stock, pre-funded warrants and warrants. Common shares outstanding increased to 8,467,046 at June 30, from 7,196,677 at year-end 2021.
- The company recognized a $126 credit to share-based compensation after SPAC-related director awards were forfeited when the SPAC was liquidated.
Outlook, commentary and risks
Management expects revenue to increase but anticipates continued negative cash flows in 2022 as it expands the business. It expects to fund operations primarily with existing resources and future revenue, and may issue debt or additional equity. No quantified revenue or earnings guidance was provided. Management cited potential organic growth and acquisitions, and expected synergies from combining VerifyMe’s brand-protection technology with PeriShip’s logistics services.
Key disclosed risks include dependence on a single major carrier for PeriShip shipping services and customer referrals; the carrier’s potential competing logistics offering; shipping delays, weather and seasonality; technology, cybersecurity and service-provider disruptions; competition and economic conditions; and acquisition integration, financing, dilution and impairment risks. COVID-19-related customer delays or cancellations also remained possible. One vendor accounted for 99% of PeriShip transportation costs in the first half, and one customer represented 38% of receivables at June 30.
Disclosure controls and procedures were reported ineffective as of June 30 because of a material weakness related to inadequate segregation of duties and limited accounting staffing. Management said remediation efforts were underway, including additional hiring, and expected remediation before year-end 2022; the weakness would not be considered remediated until controls operated effectively for a sufficient period and were tested. The assessment excluded the recently acquired PeriShip business. No legal proceedings were reported.
Investor verification priorities
- Confirm the PeriShip acquisition’s contribution to sustainable revenue, margins, integration costs and cash generation.
- Review liquidity and cash burn against the $3,751 cash balance, acquisition-note repayments and management’s 2022 funding plans.
- Verify the final disposition and any distributions from the liquidated SPAC, and assess whether further investment-related effects remain.
- Assess dilution from outstanding warrants, pre-funded warrants and equity awards; the filing noted an August 11 notice to exercise 675,000 pre-funded warrants for $675.
- Monitor remediation and testing of the material weakness in financial reporting controls.
- Review the carrier relationship, transportation-cost concentration and customer concentration, including the carrier’s competing service plans.