VerifyMe, Inc. — Q1 2023 Form 10-Q
Registrant note: The filing is for VerifyMe, Inc. (Nasdaq: VRME, VRMEW), not Openworld, Inc. It covers the unaudited quarter ended March 31, 2023; dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
VerifyMe provides predictive-analytics logistics services for time- and temperature-sensitive shipments through PeriShip Global, alongside product traceability, brand protection and consumer-engagement solutions through VerifyMe Solutions. Its Q1 results include PeriShip Global, acquired in April 2022, for the full quarter and Trust Codes, acquired March 1, 2023, from that date.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $5.661 | $0.161 |
| Gross profit / margin | $1.754 / 31% | $0.123 / 76% |
| Operating expenses | $3.258 | $1.773 |
| Net loss | $1.580 | $1.394 |
| Loss per share, basic and diluted | $0.17 | $0.19 |
| Cash used in operating activities | $0.126 | $1.001 |
| Cash used in investing activities | $0.621 | $0.024 |
| Cash provided by financing activities | $0.423 | $0.036 |
PeriShip generated $5.414 million of Q1 revenue at a 29% gross margin; VerifyMe Solutions generated $0.247 million at a 68% margin. Revenue growth primarily reflects PeriShip’s acquisition and is not a like-for-like increase. The consolidated gross-margin decline likewise reflects PeriShip’s lower-margin business mix. The net loss widened despite higher revenue, as operating costs and interest expense increased and the prior-year period included a $0.252 million unrealized gain on an equity investment.
At March 31, cash and cash equivalents, including restricted cash, were $3.085 million, down from $3.411 million at year-end. Current assets were $5.906 million and current liabilities $3.809 million. Debt totaled approximately $2.25 million: $0.5 million drawn on a revolving credit line, $0.5 million current term debt and $1.25 million long-term term debt. The company reported covenant compliance and said it believed available cash would fund operations for the next 12 months. Operating cash use improved year over year, with management attributing the change to favorable working-capital movements.
Material changes, outlook and risks
- On March 1, 2023, the company acquired Trust Codes’ business and certain assets. The accounting purchase consideration was $2.113 million, comprising $0.363 million cash, $0.625 million in stock and $1.125 million estimated contingent consideration. Earn-out payments depend on five years of earnings targets and have no stated maximum; the preliminary purchase-price allocation remained subject to change.
- Management provided no specific financial guidance. It described growth opportunities in healthcare, pharmaceuticals, food and beverage, and small- and medium-sized business shipping, and cited potential cross-selling between its logistics and brand-protection offerings.
- Management noted softer demand for some higher-end perishable and cannabis-related services amid reduced discretionary spending. A downturn could hurt demand, though carrier cost-cutting could create outsourcing opportunities. PeriShip revenue is seasonal, typically higher in the fourth quarter.
- Customer and supplier concentration warrant attention: one customer represented 13% of Q1 revenue; two customers accounted for 45% of receivables; and one vendor supplied 99% of PeriShip transportation cost. The filing also identifies foreign-currency exposure, with no exchange-rate hedging program.
- Debt is secured by company and PeriShip assets. The $1 million revolving line expires in September 2023; the term note matures in September 2026. The company reported compliance with its financial and other covenants at quarter-end.
- General and administrative expense included $0.278 million of Trust Codes deal costs and approximately $0.191 million of severance expense, expected to be paid by year-end. Legal proceedings: none reported. Management stated disclosure controls were effective; Trust Codes was excluded from the internal-control assessment under the SEC’s recently acquired business guidance.
Most important facts for investors to verify
- Confirm the registrant and ticker: this filing is VerifyMe, Inc. (VRME), despite the request metadata naming Openworld, Inc.
- Assess how much of reported growth and future performance depends on PeriShip, and whether its 29% gross margin can improve.
- Review cash generation, working-capital movements and liquidity after the revolving line’s September 2023 expiration.
- Track the Trust Codes earn-out, including performance against targets, potential payments and final purchase-price allocation.
- Evaluate customer/vendor concentration, the economic sensitivity of shipping demand and potential dilution; the filing lists approximately 6.139 million anti-dilutive potential shares at quarter-end, including 4.814 million warrant shares.