Business context and reporting period
VerifyMe, Inc. and subsidiaries filed this unaudited Form 10-Q for the quarter ended March 31, 2021. The company provides brand-protection and supply-chain technologies, including product authentication, serialization, and track-and-trace services. It reported limited revenue from these offerings and described commercialization and market acceptance as significant challenges. The supplied metadata names Openworld, Inc., but the filing identifies the registrant as VerifyMe, Inc. (Nasdaq: VRME; warrants: VRMEW); verify the issuer identity.
Financial performance and position
Unless otherwise stated, amounts are in U.S. dollars in thousands.
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $188 | $92; up 104% |
| Gross profit / margin | $145 / 77% | $75 / 82% |
| Operating expenses | $1,360 | $744 |
| Operating loss | $(1,215) | $(669) |
| Net loss | $(1,215) | $(1,092), including $423 of net other expense in 2020 |
| Loss per share, basic and diluted | $(0.19) | $(0.49) |
| Cash used in operating activities | $(904) | $(335) |
| Cash used in investing activities | $(131) | $(29) |
| Cash provided by financing activities | $8,447 | $997 |
Revenue growth reflected a new application in personal protective equipment. Gross margin declined due to product mix, including increased use of secure track-and-trace serialization. Operating expenses rose, particularly sales and marketing, general and administrative, and legal and accounting costs. Management attributed higher operating cash use chiefly to sales-team expansion and public-company costs.
At March 31, 2021, cash and cash equivalents were $15,351, versus $7,939 at December 31, 2020. Current assets were $15,813 and current liabilities $433. Total liabilities were $505, including a $72 long-term PPP term note; stockholders’ equity was $15,989. The company raised $8,447 in net proceeds from its February public offering. Management stated that available cash, including offering proceeds, was expected to fund operations through 2025, while also expecting continued negative cash flows.
Material changes, outlook, and risks
- The February 2021 offering issued 1.75 million shares, generating approximately $9.3 million gross and $8.4 million net proceeds, including partial exercise of the over-allotment option. Shares outstanding at quarter-end were 7,359,042.
- Management expected revenue to increase but anticipated ongoing negative cash flows as the business expands. No quantified revenue, earnings, or cash-flow guidance was provided.
- In April 2021, the company rebranded its product and marketing materials. It also co-sponsored a SPAC through a consolidated subsidiary; the SPAC filed an IPO registration statement in April. These are subsequent events, not Q1 operating results.
- Two customers accounted for 97% of Q1 revenue and 90% of accounts receivable at quarter-end, indicating substantial customer concentration.
- Management cited COVID-19 uncertainty, the company’s limited revenue history, commercialization and market-acceptance challenges, intellectual-property risks, sales execution, key-personnel retention, regulatory matters, and liquidity as risks. It noted pandemic-related disruption to sales activity and possible customer program delays or reductions.
- Disclosure controls and procedures were assessed as ineffective at March 31, 2021 due to a material weakness involving insufficient segregation of duties. The company said it hired a Corporate Financial Controller in May as a remediation step. Management also reported additional procedures to support the financial statements.
- The company reported no legal proceedings and no material changes to the risk factors disclosed in its 2020 Form 10-K. It had announced a share-repurchase program of up to $1.5 million, but had made no purchases as of the filing.
- Subsequent events included the board chair’s retirement and a new consulting agreement providing fees and stock awards. The filing also says two customers represented 97% of revenue; investors should assess the sustainability and terms of this concentrated business.
Key facts investors should verify
- Confirm the issuer and reporting metadata: the filing is for VerifyMe, Inc., not Openworld, Inc.
- Assess whether the 104% revenue increase can persist given the very low revenue base, limited commercialization, and customer concentration.
- Review cash burn and the assumptions behind management’s stated funding runway through 2025, including potential future financing needs.
- Evaluate dilution from the offering and outstanding equity awards: 3,779,243 warrants and 473,771 options were outstanding at quarter-end; potential shares were excluded from diluted loss per share as anti-dilutive.
- Track remediation of the disclosure-control material weakness and subsequent developments relating to the SPAC, PPP loan forgiveness, and post-quarter leadership and compensation arrangements.