VerifyMe, Inc. — Form 10-Q summary
Entity note: The filing identifies the registrant as VerifyMe, Inc., not Openworld, Inc. It covers the unaudited quarter ended March 31, 2018, compared with the quarter ended March 31, 2017.
Business context
VerifyMe develops anti-counterfeiting, product-authentication and digital identity-security technologies. It seeks to commercialize these technologies through licensing and direct sales. The filing describes an early-stage business and provides no revenue figure in the statements of operations presented.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 or prior period |
|---|---|---|
| Operating expenses | $741,567 | $188,505 |
| Net loss | $1,123,633 | $304,587 |
| Loss per share, basic and diluted | $0.01 | $0.04 |
| Cash used in operating activities | $982,041 | $144,422 |
| Cash and cash equivalents, March 31 | $2,341,401 | $23,222 at March 31, 2017 |
| Current liabilities, March 31 | $563,191 | $1,095,680 at December 31, 2017 |
Revenue, gross profit and operating margins are not stated in the supplied statements, so margins cannot be assessed. Financing activities provided $2,631,266 in Q1 2018, including $1,154,777 from common-stock sales and $1,476,489 from warrant exercises. Total assets were $2,569,701 at quarter-end, versus $903,176 at December 31, 2017.
Changes and unusual items
- Net loss increased by $819,046 year over year. Operating expenses rose substantially, including general and administrative expense of $495,574 versus $142,061, and payroll expense of $92,051 versus $22,810. The company attributed some increases to non-cash compensation.
- Q1 included a $779,000 shareholder-settlement expense, comprising $500,000 cash and $279,000 in shares. The agreement ended certain revenue-sharing arrangements and terminated an obligation to issue 3.7 million warrants. Management said anticipated future savings justified the cost.
- A $397,725 gain from forgiveness of vendor payables partly offset expenses. These settlement and forgiveness items materially affected reported results.
- The company raised capital through a private placement and warrant exercises. Common shares issued and outstanding increased from 53.5 million at December 31 to 92.6 million at March 31; 96.3 million shares were reported outstanding as of May 8. The filing notes substantial potential dilution from outstanding warrants, options and preferred-share agreements.
- The balance sheet includes $50,000 of notes payable that matured in October 2011 and remain unpaid; the holder had not demanded payment. Accrued interest was $34,667 at March 31.
Liquidity, outlook and risks
Management reported cash of $2,504,056 as of May 14, 2018 and expected it to meet working-capital needs for more than 12 months. It cautioned that the company must generate revenue and positive operating cash flow; otherwise, it may need additional, potentially dilutive financing or could cease operating its current business. Management estimated $150,000 was needed to develop its digital patents and stated a goal of doing so in 2018. These are expectations, not assured outcomes.
Key risks include the need for additional funding, the ability to convert sales leads into meaningful product sales and revenue, and commercialization of the company’s technologies. Management concluded that disclosure controls and procedures were ineffective as of March 31, 2018. No material change in internal control over financial reporting during the quarter was reported.
Important facts for investors to verify
- Confirm the correct issuer: the supplied filing is for VerifyMe, Inc., despite the request metadata naming Openworld, Inc.
- Review the settlement’s cash and share costs, the canceled revenue-sharing obligations, and the expected savings.
- Assess cash runway against the reported operating cash use, ongoing development needs, and the company’s ability to generate revenue.
- Evaluate dilution from the private placement, warrant exercises, outstanding options and warrants, and preferred securities.
- Clarify the past-due $50,000 note and accrued interest, and review the disclosure-control weaknesses.
- Check the legal-and-accounting expense comparison: the statements show $9,044 for Q1 2017, while the MD&A contains a conflicting figure of $124,660.