VerifyMe, Inc. — Form 10-Q Summary
Period: Quarter ended September 30, 2023; unaudited consolidated results. The request metadata names Openworld, Inc., but the filing identifies the registrant as VerifyMe, Inc. (Nasdaq: VRME; warrants: VRMEW).
Business context
VerifyMe operates Precision Logistics, which provides time- and temperature-sensitive shipping management and predictive analytics, and Authentication, which provides product traceability and brand-protection solutions. Precision Logistics generated most revenue. The company acquired Trust Codes Global on March 1, 2023; its results are included from that date.
Financial performance
Amounts below are in millions of dollars except per-share data. Balance-sheet figures are as of September 30, 2023; comparisons are with the corresponding 2022 period or December 31, 2022, as applicable.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5.604 | $5.215 | $16.600 | $9.873 |
| Gross profit / margin | $2.292 / 41% | $1.855 / 36% | $5.866 / 35% | $3.663 / 37% |
| Operating expenses | $3.147 | $2.730 | $9.263 | $7.510 |
| Net loss | $(0.930) | $(0.557) | $(3.392) | $(14.506) |
| Diluted loss per share | $(0.09) | $(0.06) | $(0.35) | $(1.76) |
- Q3 revenue rose 7%, primarily from organic growth in Precision Logistics premium services. Nine-month revenue rose about 68%, mainly because PeriShip Global, acquired in April 2022, contributed for the full nine months in 2023. Authentication revenue declined in both comparison periods.
- Q3 gross margin improved to 41%, attributed to higher-margin premium logistics services and software-related Authentication services. Nine-month margin declined to 35% from 37%.
- Q3 net loss increased, reflecting higher operating costs and the absence of the prior-year debt-extinguishment gain, partly offset by higher gross profit. The nine-month loss narrowed substantially because the prior-year period included an $10.964 million equity-investment loss that did not recur.
Cash, debt and liquidity
- Cash and cash equivalents, including restricted cash, were $3.007 million, down from $3.411 million at year-end. Current assets were $5.615 million and current liabilities $3.634 million, giving working capital of approximately $1.981 million.
- Operating cash use was $0.599 million for the nine months, versus $2.668 million in 2022. Investing cash use was $1.080 million; financing provided $1.277 million. Cash declined by $0.404 million overall.
- Total reported debt was approximately $3.1 million: $1.5 million under the PNC term note, $0.5 million drawn on the revolving line, and $1.1 million of convertible notes. The convertible notes bear 8% interest, mature in August 2026, and are convertible at $1.15 per share; $0.425 million was purchased by related parties, including management and directors.
- The PNC facility is secured and includes financial and other covenants. The company reported compliance at September 30; after quarter-end, PNC waived certain events of default, amended covenants, and extended the revolving line to September 30, 2024. Management stated that available cash should fund operations for the next 12 months.
Outlook, risks and unusual items
- No specific revenue, earnings, or cash-flow guidance was provided. Management cited growth opportunities in small and midsize food, agriculture, pharmaceutical, and healthcare logistics, and potential synergies between logistics and authentication offerings.
- Management noted softer demand for some higher-end perishable and cannabis shipments amid reduced discretionary spending, and acknowledged that a recession could weaken demand. The business is seasonal, with logistics revenue generally higher in the fourth quarter.
- Customer and supplier concentration is significant: one customer represented 23% of Q3 revenue and 18% of nine-month revenue; one customer accounted for 34% of receivables; and one vendor represented 99% of Precision Logistics transportation cost.
- The Trust Codes acquisition included $0.363 million cash, $0.625 million in stock, and estimated contingent consideration of $1.125 million at acquisition. The contingent payment has no stated maximum; $0.989 million was recorded as a liability at quarter-end. Purchase-price allocation remained preliminary, and fair-value changes may create earnings volatility.
- Nine-month results include approximately $0.579 million of severance expense and $0.278 million of Trust Codes acquisition costs. The company also recorded $0.034 million of intangible-asset impairment. No legal proceedings were reported. Management said there were no material changes to previously disclosed risk factors.
- Disclosure controls were assessed as effective. Trust Codes Global was excluded from the quarter-end internal-control assessment under the SEC’s acquired-business transition guidance.
Key facts for investors to verify
- Whether the post-quarter PNC waiver and amended covenants resolve the identified default events, and the company’s compliance with revised terms.
- Cash burn and liquidity relative to management’s 12-month funding expectation, particularly if demand weakens.
- Customer and transportation-vendor concentration, and the sustainability of Precision Logistics revenue and gross margins.
- Trust Codes earn-out assumptions, the potentially unlimited maximum payment, and final acquisition accounting.
- Potential dilution from convertible notes, warrants, and equity awards; the filing reports approximately 8.385 million anti-dilutive potential shares for 2023 periods.