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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-39332
|
VERIFYME, INC. |
(Exact Name of Registrant as Specified in Its Charter) |
|
Nevada |
|
23-3023677 |
(State or Other Jurisdiction of
Incorporation or Organization) |
|
(I.R.S. Employer
Identification No.) |
|
|
|
801 International Parkway, Fifth Floor
Lake Mary, FL |
|
32746 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
|
|
|
(585) 736-9400 |
(Registrant’s Telephone Number, Including Area Code) |
(Former Name, Former Address and Former Fiscal
year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which
Registered |
Common Stock, par value $0.001 per share |
VRME |
The Nasdaq Capital Market |
Warrants to Purchase Common Stock |
VRMEW |
The Nasdaq Capital Market |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No o
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T §
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
o |
|
Accelerated filer |
o |
|
|
|
|
|
Non-accelerated filer |
x |
|
Smaller reporting company |
x |
|
|
|
|
|
Emerging growth company |
o |
|
|
|
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No x
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date: 10,384,698
shares of common stock outstanding at August 6, 2024.
PART I - FINANCIAL STATEMENTS
ITEM 1.
VerifyMe, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
| |
| | | |
| | |
| |
As of | |
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents including restricted cash | |
$ | 2,900 | | |
$ | 3,095 | |
Accounts receivable, net of allowance for credit loss reserve, $156 and $165 as of June 30, 2024 and December 31, 2023, respectively | |
| 1,214 | | |
| 3,017 | |
Unbilled revenue | |
| 751 | | |
| 1,282 | |
Prepaid expenses and other current assets | |
| 210 | | |
| 254 | |
Inventory | |
| 23 | | |
| 38 | |
TOTAL CURRENT ASSETS | |
| 5,098 | | |
| 7,686 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, NET | |
$ | 184 | | |
$ | 240 | |
| |
| | | |
| | |
RIGHT OF USE ASSET | |
| 378 | | |
| 468 | |
| |
| | | |
| | |
INTANGIBLE ASSETS, NET | |
| 6,539 | | |
| 6,927 | |
| |
| | | |
| | |
GOODWILL | |
| 5,334 | | |
| 5,384 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 17,533 | | |
$ | 20,705 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Term note, current | |
$ | 500 | | |
$ | 500 | |
Accounts payable | |
| 1,331 | | |
| 3,310 | |
Other accrued expense | |
| 808 | | |
| 988 | |
Lease liability- current | |
| 165 | | |
| 170 | |
Contingent liability- current | |
| 123 | | |
| 173 | |
TOTAL CURRENT LIABILITIES | |
| 2,927 | | |
| 5,141 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Contingent liability, non-current | |
$ | 401 | | |
$ | 751 | |
Long-term lease liability | |
| 223 | | |
| 307 | |
Term note | |
| 625 | | |
| 875 | |
Convertible Note – related party | |
| 475 | | |
| 475 | |
Convertible Note | |
| 625 | | |
| 625 | |
TOTAL LIABILITIES | |
$ | 5,276 | | |
$ | 8,174 | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Series A Convertible Preferred Stock, $.001 par value, 37,564,767 shares authorized; 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | |
| - | | |
| - | |
| |
| | | |
| | |
Series B Convertible Preferred Stock, $.001 par value; 85 shares authorized; 0.85 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | |
| - | | |
| - | |
Common stock, $0.001 par value; 675,000,000 authorized; 10,655,065 and 10,453,315 issued, 10,384,698 and 10,123,964 shares outstanding as of June 30, 2024 and December 31, 2023, respectively | |
| 11 | | |
| 10 | |
| |
| | | |
| | |
Additional paid in capital | |
| 95,504 | | |
| 95,031 | |
| |
| | | |
| | |
Treasury stock at cost; 270,367 and 329,351 shares at June 30, 2024 and December 31, 2023, respectively | |
| (464 | ) | |
| (659 | ) |
| |
| | | |
| | |
Accumulated deficit | |
| (82,748 | ) | |
| (81,849 | ) |
| |
| | | |
| | |
Accumulated other comprehensive loss | |
| (46 | ) | |
| (2 | ) |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| 12,257 | | |
| 12,531 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 17,533 | | |
$ | 20,705 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
VerifyMe, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except share data)
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, 2024 | | |
June 30, 2023 | | |
June 30, 2024 | | |
June 30, 2023 | |
| |
| | |
| | |
| | |
| |
NET REVENUE | |
$ | 5,352 | | |
$ | 5,335 | | |
$ | 11,111 | | |
$ | 10,996 | |
| |
| | | |
| | | |
| | | |
| | |
COST OF REVENUE(a) | |
| 3,262 | | |
| 3,749 | | |
| 6,761 | | |
| 7,889 | |
| |
| | | |
| | | |
| | | |
| | |
GROSS PROFIT | |
| 2,090 | | |
| 1,586 | | |
| 4,350 | | |
| 3,107 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
Segment management and Technology(a) | |
| 1,517 | | |
| 1,251 | | |
| 2,860 | | |
| 2,356 | |
General and administrative (a) | |
| 894 | | |
| 836 | | |
| 2,015 | | |
| 2,249 | |
Research and development | |
| 5 | | |
| 10 | | |
| 60 | | |
| 18 | |
Sales and marketing (a) | |
| 210 | | |
| 527 | | |
| 598 | | |
| 1,026 | |
Total Operating expenses | |
| 2,626 | | |
| 2,624 | | |
| 5,533 | | |
| 5,649 | |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE OTHER INCOME (EXPENSE) | |
| (536 | ) | |
| (1,038 | ) | |
| (1,183 | ) | |
| (2,542 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER (EXPENSE) INCOME | |
| | | |
| | | |
| | | |
| | |
Interest expenses, net | |
| (42 | ) | |
| (46 | ) | |
| (80 | ) | |
| (88 | ) |
Unrealized gain (loss) on equity investment | |
| - | | |
| 30 | | |
| - | | |
| (2 | ) |
Change in fair value of contingent consideration | |
| 232 | | |
| 172 | | |
| 364 | | |
| 172 | |
Other expense, net | |
| - | | |
| - | | |
| - | | |
| (2 | ) |
TOTAL OTHER INCOME (EXPENSE), NET | |
| 190 | | |
| 156 | | |
| 284 | | |
| 80 | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (346 | ) | |
$ | (882 | ) | |
$ | (899 | ) | |
$ | (2,462 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS PER SHARE | |
| | | |
| | | |
| | | |
| | |
BASIC | |
| (0.03 | ) | |
| (0.09 | ) | |
| (0.09 | ) | |
| (0.26 | ) |
DILUTED | |
| (0.03 | ) | |
| (0.09 | ) | |
| (0.09 | ) | |
| (0.26 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING | |
| | | |
| | | |
| | | |
| | |
BASIC | |
| 10,238,717 | | |
| 9,765,452 | | |
| 10,156,081 | | |
| 9,614,183 | |
DILUTED | |
| 10,238,717 | | |
| 9,765,452 | | |
| 10,156,081 | | |
| 9,614,183 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
VerifyMe, Inc.
Consolidated Statements of Comprehensive
Loss
(Unaudited)
(In thousands)
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, 2024 | | |
June 30, 2023 | | |
June 30, 2024 | | |
June 30, 2023 | |
NET LOSS | |
$ | (346 | ) | |
$ | (882 | ) | |
$ | (899 | ) | |
$ | (2,462 | ) |
| |
| | | |
| | | |
| | | |
| | |
Change in fair value of interest rate, Swap | |
| 2 | | |
| 2 | | |
| 5 | | |
| 1 | |
| |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| 18 | | |
| (46 | ) | |
| (49 | ) | |
| (48 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total Comprehensive Loss | |
$ | (326 | ) | |
$ | (926 | ) | |
$ | (943 | ) | |
$ | (2,509 | ) |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
VerifyMe, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| |
| | | |
| | |
| |
Six months ended | |
| |
June 30, 2024 | | |
June 30, 2023 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss | |
$ | (899 | ) | |
$ | (2,462 | ) |
Adjustments to reconcile net loss to net cash used in operating activities : | |
| | | |
| | |
Allowance for bad debt | |
| 9 | | |
| 4 | |
Stock based compensation | |
| 89 | | |
| 41 | |
Unrealized loss on equity investment | |
| - | | |
| 2 | |
Change in fair value of contingent consideration | |
| (364 | ) | |
| (172 | ) |
Fair value of restricted stock awards and restricted stock units issued in exchange for services | |
| 608 | | |
| 560 | |
Loss on disposal of equipment | |
| - | | |
| 2 | |
Impairments | |
| 13 | | |
| 34 | |
Amortization and depreciation | |
| 599 | | |
| 540 | |
Unrealized loss on foreign currency transactions | |
| 30 | | |
| 10 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 1,790 | | |
| 3,156 | |
Unbilled revenue | |
| 530 | | |
| 451 | |
Inventory | |
| 15 | | |
| 34 | |
Prepaid expenses and other current assets | |
| 47 | | |
| 46 | |
Accounts payable, other accrued expenses and net change in operating leases | |
| (2,155 | ) | |
| (2,709 | ) |
Net cash provided by (used) in operating activities | |
| 312 | | |
| (463 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of patents | |
| (12 | ) | |
| (42 | ) |
Purchase of office equipment | |
| (5 | ) | |
| (24 | ) |
Cash paid in business combination | |
| - | | |
| (363 | ) |
Deferred implementation costs | |
| - | | |
| (56 | ) |
Capitalized software costs | |
| (174 | ) | |
| (373 | ) |
Net cash used in investing activities | |
| (191 | ) | |
| (858 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from line of credit | |
| - | | |
| 800 | |
Proceeds from SPP Plan | |
| 21 | | |
| 71 | |
Contingent consideration payments | |
| (36 | ) | |
| - | |
Tax withholding payments for employee stock-based compensation in exchange for shares surrendered | |
| (47 | ) | |
| (3 | ) |
Increase in treasury shares (share repurchase program) | |
| (1 | ) | |
| (10 | ) |
Repayment of debt and line of credit | |
| (250 | ) | |
| (250 | ) |
| |
| | | |
| | |
Net cash (used in) provided by financing activities | |
| (313 | ) | |
| 608 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (3 | ) | |
| (1 | ) |
| |
| | | |
| | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | |
| (195 | ) | |
| (714 | ) |
CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH- BEGINNING OF PERIOD | |
| 3,095 | | |
| 3,411 | |
CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH- END OF PERIOD | |
$ | 2,900 | | |
$ | 2,697 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |
| | |
| |
Cash paid during the period for: | |
| | |
| |
Interest | |
$ | 94 | | |
$ | 68 | |
Income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
Change in fair value of interest rate, swap | |
$ | 5 | | |
$ | 1 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
VerifyMe, Inc.
Consolidated Statements of Stockholders'
Equity
(Unaudited)
(In thousands, except share data)
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Series
A Convertible | | |
Series
B Convertible | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Preferred | | |
Preferred | | |
Common | | |
| | |
Treasury | | |
| | |
| | |
| |
| |
Stock | | |
Stock | | |
Stock | | |
Additional | | |
Stock | | |
| | |
| | |
| |
| |
Number of | | |
Number of | | |
Number of | | |
Paid-In | | |
Number of | | |
Accumulated Other | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Comprehensive
Loss | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at March 31, 2023 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 9,348,914 | | |
| 10 | | |
| 93,790 | | |
| 348,075 | | |
| (793 | ) | |
| (6 | ) | |
| (80,039 | ) | |
| 12,962 | |
Restricted stock awards, net of shares withheld for
employee tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| 485,444 | | |
| - | | |
| 146 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 146 | |
Restricted Stock Units, net of shares withheld for employee
tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 148 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 148 | |
Common stock issued in relation to Stock Purchase Plan | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,407 | | |
| - | | |
| 27 | | |
| (407 | ) | |
| 1 | | |
| - | | |
| - | | |
| 28 | |
Accumulated Other Comprehensive Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (44 | ) | |
| - | | |
| (44 | ) |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (882 | ) | |
| (882 | ) |
Balance at June 30, 2023 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 9,842,765 | | |
| 10 | | |
| 94,111 | | |
| 347,668 | | |
| (792 | ) | |
| (50 | ) | |
| (80,921 | ) | |
| 12,358 | |
| |
Series
A Convertible | | |
Series
B Convertible | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Preferred | | |
Preferred | | |
Common | | |
| | |
Treasury | | |
| | |
| | |
| |
| |
Stock | | |
Stock | | |
Stock | | |
Additional | | |
Stock | | |
| | |
| | |
| |
| |
Number of | | |
Number of | | |
Number of | | |
Paid-In | | |
Number of | | |
Accumulated Other | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Comprehensive
Loss | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at March 31, 2024 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 10,176,603 | | |
| 10 | | |
| 95,438 | | |
| 308,462 | | |
| (589 | ) | |
| (66 | ) | |
| (82,402 | ) | |
| 12,391 | |
Restricted stock awards | |
| - | | |
| - | | |
| - | | |
| - | | |
| 140,000 | | |
| 1 | | |
| 127 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 128 | |
Restricted Stock Units, net of shares withheld for employee
tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| 38,095 | | |
| - | | |
| (103 | ) | |
| (38,095 | ) | |
| 125 | | |
| - | | |
| - | | |
| 22 | |
Common stock issued for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 30,000 | | |
| - | | |
| 42 | | |
| | | |
| | | |
| | | |
| | | |
| 42 | |
Accumulated Other Comprehensive Income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 20 | | |
| - | | |
| 20 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (346 | ) | |
| (346 | ) |
Balance at June 30, 2024 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 10,384,698 | | |
| 11 | | |
| 95,504 | | |
| 270,367 | | |
| (464 | ) | |
| (46 | ) | |
| (82,748 | ) | |
| 12,257 | |
| |
Series A | | |
Series B | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Convertible | | |
Convertible | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Preferred | | |
Preferred | | |
Common | | |
| | |
Treasury | | |
| | |
| | |
| |
| |
Stock | | |
Stock | | |
Stock | | |
Additional | | |
Stock | | |
Accumulated Other | | |
| | |
| |
| |
Number of | | |
| | |
Number of | | |
| | |
Number of | | |
| | |
Paid-In | | |
Number of | | |
| | |
Comprehensive | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Loss | | |
Deficit | | |
Total | |
Balance at December 31, 2022 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 8,951,035 | | |
| 10 | | |
| 92,987 | | |
| 389,967 | | |
| (949 | ) | |
| (3 | ) | |
| (78,459 | ) | |
| 13,586 | |
Restricted stock awards, net of shares withheld for employee
tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| 485,444 | | |
| - | | |
| 147 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 147 | |
Restricted stock units, net of shares withheld for employee
tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,750 | | |
| - | | |
| 410 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 410 | |
Common stock issued in relation to Stock Purchase Plan | |
| - | | |
| - | | |
| - | | |
| - | | |
| 57,245 | | |
| - | | |
| (58 | ) | |
| (48,500 | ) | |
| 167 | | |
| - | | |
| - | | |
| 109 | |
Common stock issued in relation to Acquisition | |
| - | | |
| - | | |
| - | | |
| - | | |
| 353,492 | | |
| - | | |
| 625 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 625 | |
Repurchase of common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,201 | ) | |
| - | | |
| - | | |
| 6,201 | | |
| (10 | ) | |
| - | | |
| - | | |
| (10 | ) |
Accumulated other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (47 | ) | |
| - | | |
| (47 | ) |
Net loss | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,462 | ) | |
| (2,462 | ) |
Balance at June 30, 2023 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 9,842,765 | | |
| 10 | | |
| 94,111 | | |
| 347,668 | | |
| (792 | ) | |
| (50 | ) | |
| (80,921 | ) | |
| 12,358 | |
| |
Series A | | |
Series B | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Convertible | | |
Convertible | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Preferred | | |
Preferred | | |
Common | | |
| | |
Treasury | | |
| | |
| | |
| |
| |
Stock | | |
Stock | | |
Stock | | |
Additional | | |
Stock | | |
Accumulated Other | | |
| | |
| |
| |
Number of | | |
| | |
Number of | | |
| | |
Number of | | |
| | |
Paid-In | | |
Number of | | |
| | |
Comprehensive | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Loss | | |
Deficit | | |
Total | |
Balance at December 31, 2023 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 10,123,964 | | |
| 10 | | |
| 95,031 | | |
| 329,351 | | |
| (659 | ) | |
| (2 | ) | |
| (81,849 | ) | |
| 12,531 | |
Restricted stock awards | |
| - | | |
| - | | |
| - | | |
| - | | |
| 140,000 | | |
| 1 | | |
| 275 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 276 | |
Restricted stock units, net of shares withheld for employee tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| 39,845 | | |
| - | | |
| 160 | | |
| (38,095 | ) | |
| 125 | | |
| - | | |
| - | | |
| 285 | |
Common stock issued in relation to Stock Purchase Plan | |
| - | | |
| - | | |
| - | | |
| - | | |
| 21,889 | | |
| - | | |
| (46 | ) | |
| (21,889 | ) | |
| 71 | | |
| - | | |
| - | | |
| 25 | |
Common stock issued for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 60,000 | | |
| - | | |
| 84 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 84 | |
Repurchase of Common Stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,000 | ) | |
| - | | |
| - | | |
| 1,000 | | |
| (1 | ) | |
| - | | |
| - | | |
| (1 | ) |
Accumulated other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (44 | ) | |
| - | | |
| (44 | ) |
Net loss | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (899 | ) | |
| (899 | ) |
Balance at June 30, 2024 | |
| - | | |
| - | | |
| 0.85 | | |
| - | | |
| 10,384,698 | | |
| 11 | | |
| 95,504 | | |
| 270,367 | | |
| (464 | ) | |
| (46 | ) | |
| (82,748 | ) | |
| 12,257 | |
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
VerifyMe, Inc.
Notes to the Consolidated Financial Statements
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
VerifyMe, Inc. (“VerifyMe”) was incorporated
in the State of Nevada on November 10, 1999. VerifyMe, together with its subsidiaries, including Trust Codes Global Limited (“Trust
Codes Global”) and PeriShip Global LLC (“PeriShip Global”), (together the “Company,” “we,” “us,”
or “our”) is based in Lake Mary, Florida and its common stock, par value $0.001 per share, and warrants to purchase common
stock are traded on The Nasdaq Capital Market (“Nasdaq”) under the trading symbols “VRME” and “VRMEW,”
respectively.
VerifyMe, is a traceability and customer support
services provider using specialized software and process technology. The Company operates a Precision Logistics Segment and an Authentication
Segment to provide specialized logistics for time-and-temperature sensitive products, as well as item level traceability, anti-diversion
and anti-counterfeit protection, brand protection and enhancement technology solutions. Through our Precision Logistics segment, we provide
a value-added service for sensitive parcel management driven by a proprietary software platform that provides predictive analytics from
key metrics such as pre-shipment weather analysis, flight-tracking, sort volumes, and traffic, delivered to customers via a secure portal.
The portal provides real-time visibility into shipment transit and last-mile events which is supported by a service center. Through our
Authentication segment our technologies enable brand owners to gather business intelligence through the supply chain, cross-sell products,
detect counterfeit activities, monitor product diversion, and build brand loyalty utilizing our unique dynamic codes which are read by
consumers with their smart phones. The Company’s activities are subject to significant risks and uncertainties. See the “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections
in this report.
Reclassifications
Certain amounts presented
for the three and six months ended June 30, 2023, reflect reclassifications made to conform to the presentation in
our current reporting period. These reclassifications had no effect on the previously reported net loss.
Basis of Presentation
The accompanying unaudited interim consolidated
financial statements (the “Interim Statements”) include the accounts of VerifyMe and its wholly owned subsidiaries PeriShip
Global and Trust Codes Global. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated
financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information
and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not
included herein. The Interim Statements should be read in conjunction with the financial statements and notes thereto included in the
Company’s latest Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission
(the “SEC”) on March 29, 2024. The accompanying Interim Statements are unaudited; however, in the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The interim
results for the three and six months ended June 30, 2024, are not necessarily indicative of the results to be expected for the year ending
December 31, 2024, or for any future interim periods.
Restricted Cash
The following table provides a reconciliation
of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts
in the consolidated statements of cash flows (dollars in thousands):
Schedule
of cash, cash equivalents and restricted cash | |
| | |
| |
| |
As
of | |
| |
June
30, 2024 | | |
December
31,2023 | |
| |
| | |
| |
Cash
and cash equivalents | |
$ | 2,900 | | |
$ | 3,032 | |
Restricted
cash | |
| - | | |
| 63 | |
Total
cash and cash equivalents including restricted cash | |
$ | 2,900 | | |
$ | 3,095 | |
The Company classifies cash and cash equivalents
that are restricted from operating use for the next twelve months as restricted cash. No cash was subject to restriction as of June
30, 2024. As of December 31, 2023, the Company held $63 thousand subject to restrictions.
Segment Reporting
Operating segments are defined as components of
an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or
decision-making group, in deciding the method by which to allocate resources and assess performance. The Company has two reportable segments,
namely, (i) Precision Logistics and (ii) Authentication. See Note 11 - Segment Reporting, for further discussion of the Company’s
segment reporting structure.
Foreign Currency Translation
The functional currency of our New Zealand operations
is the local currency, New Zealand dollar (NZD). The translation of the foreign currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted average
exchange rates prevailing during the year. The unrealized gains and losses resulting from such translation are included as a component
of comprehensive income. Translation gains and losses arising from currency exchange rate fluctuations on transactions denominated in
a currency other than the local functional currency are included in “General and administrative” on our Consolidated Statements
of Operations. The foreign currency transaction for the three and six months ended June 30, 2024, was a $16 thousand gain and $46 thousand
loss, respectively. The foreign currency transaction losses for the three and six months ended June 30, 2023, were immaterial.
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Recent Accounting Pronouncements
In November
2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): “Improvements
to Reportable Segment Disclosures”, which requires public entities with a single reportable segment to provide all the disclosures
required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements
to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included
within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position
of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate
resources. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December
15, 2024, applied retrospectively with early adoption permitted. The Company adopted the new standard beginning January 1, 2024. Note
11 – Segment Reporting has been updated to reflect the new disclosure requirements and certain amounts have been reclassified in
the Consolidated Statement of Operations. There is no other impact of adoption of this standard on the Company’s consolidated financial
statements and disclosures.
Fair Value of Financial Instruments
The Company’s financial instruments consist
of accounts receivable, unbilled revenue, accounts payable, notes payable and accrued expenses, contingent consideration and long-term
derivative assets or liabilities. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair
value because of their short maturities. The Company believes the carrying amount of its notes payable approximates fair value based
on rates and other terms currently available to the Company for similar debt instruments.
The Company follows FASB ASC 820, “Fair
Value Measurements and Disclosures,” and applies it to all assets and liabilities that are being measured and reported on a fair
value basis. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following
three categories:
Level 1: Quoted market prices in active markets
for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable
inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The level in the fair value within which a fair
value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table presents the Company’s
financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their
level within the fair value hierarchy as of June 30, 2024 and December 31, 2023.
Amounts in Thousands ('000)
Schedule
of fair value assets measured on recurring basis | |
| | |
| |
| |
Derivative
Asset | | |
Contingent
Consideration | |
| |
(Level
2) | | |
(Level
3) | |
| |
| | |
| |
Balance as of December
31, 2023 | |
$ | 4 | | |
$ | (924 | ) |
| |
| | | |
| | |
Change in
fair value of Contingent Consideration | |
| - | | |
| 364 | |
| |
| | | |
| | |
Payments | |
| - | | |
| 36 | |
| |
| | | |
| | |
Change in
fair value to interest rate, SWAP, recognized in other comprehensive loss | |
| 5 | | |
| - | |
| |
| | | |
| | |
Balance at June 30, 2024 | |
$ | 9 | | |
$ | (524 | ) |
Revenue Recognition
The Company accounts for revenues according to Accounting Standards
Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” which establishes principles
for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts
to provide goods or services to customers.
The Company applies the following five steps,
separated by reportable segments, in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations
under each of its agreements.
| · | identify the contract with a customer; |
| · | identify the performance obligations in the contract; |
| · | determine the transaction price; |
| · | allocate the transaction price to performance obligations in the contract; and |
| · | recognize revenue as the performance obligation is satisfied. |
For more detailed information about reportable
segments, see Note 11 – Segment reporting. The Company generally considers completion of an agreement, or Statement of Work (“SOW”)
and/or purchase order as a customer contract, provided collection is considered probable.
Precision Logistics
Our Precision Logistics segment consists of two
service lines, Proactive and Premium. Under our Proactive service line, clients pay us directly for carrier service coupled with our proactive
logistics service. Terms typically range 7 days and no longer than 30 days. The Company has determined it is the principal and recognizes
shipment fees in gross revenue. Under our Premium service line, we provide complete white-glove shipping monitoring and predictive analytics
services. This service includes customer web portal access, weather monitoring, temperature control, full service center support and last
mile resolution. Payment terms are typically 30-45 days.
Under both service lines in our Precision Logistics
segment, our performance obligation is met, and revenue is recognized, when the packages are delivered. The transaction fees consist of
fixed consideration made up of amounts contractually billed to the customer. There are no variable considerations in the transaction fee,
in either service line.
Authentication
Our Authentication segment primarily consists
of our brand protection service line which consists of a custom suite of products that offer clients traceability and brand solutions.
Terms typically range between 30 and 90 days. Our performance obligation is met, and revenue is recognized, when our products are shipped
or delivered depending on the specific agreement with the customer. The transaction fee is made up of fixed consideration based on the
related purchase order or agreement. Warranties and other variable considerations are analyzed by the Company, in terms of historical
warranties, current economic trends, and changes in customer demand, and have been determined to be insignificant in the three and six
months ended June 30, 2024.
Goodwill
Goodwill represents the excess of purchase price
over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, the Company tests goodwill for impairment
on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company
first assesses qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment test.
The assessment considers factors such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and
our share price. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative
assessment, that it is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which
could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance,
other entity specific events and sustained decrease in share price.
Basic and Diluted Net Loss per Share of Common Stock
The Company follows FASB ASC 260, “Earnings
Per Share,” when reporting earnings per share resulting in the presentation of basic and diluted earnings per share. Because
the Company reported a net loss for each of the periods presented, common stock equivalents, including preferred stock, stock options
and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.
For the three and six months ended June 30, 2024,
and 2023, there were shares potentially issuable, that could dilute basic earnings per share in the future that were excluded from the
calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the
periods presented. For the three and six months ended June 30, 2024, there were approximately 8,208,000 anti-dilutive shares consisting
of 2,177,000 unvested performance restricted stock units, restricted stock units, and restricted stock awards, 301,000 shares issuable
upon exercise of stock options, 4,629,000 shares issuable upon exercise of warrants, 957,000 shares issuable upon conversion of convertible
debt, and 144,000 shares issuable upon conversion of preferred stock. For the three and six months ended June 30, 2023, there were approximately
7,108,000 anti-dilutive shares consisting of 1,998,000 unvested performance restricted stock units, restricted stock units, restricted
stock awards and options under the stock purchase plan, 337,000 shares issuable upon exercise of stock options, 4,629,000 shares issuable
upon exercise of warrants, and 144,000 shares issuable upon conversion of preferred stock.
Stock-Based Compensation
We account for stock-based compensation under
the provisions of FASB ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition
of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We
estimate the fair value of stock options on the date of grant using the Black-Scholes model. The assumptions used in the Black-Scholes
option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions
can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. The value
of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the
straight-line method. For performance restricted stock units with stock price appreciation targets (see Note 6 – Stock Options,
Restricted Stock and Warrants), we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations
that took different future price paths over the restricted stock unit’s contractual life based on the appropriate probability distributions
(which are based on commonly applied Black Scholes inputs). The fair value was determined by taking the average of the grant date fair
values under each Monte Carlo simulation trial. We recognize compensation expense on a straight-line basis over the performance period
and there is no ongoing adjustment or reversal based on actual achievement during the period.
We account for stock-based compensation awards
to non-employees in accordance with ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting , which aligns accounting for share-based payments issued to nonemployees to that of employees under the
existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees
under Subtopic 505-50, “Equity – Equity-Based Payments to Non-Employees”.
All issuances of stock options or other equity
instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value
of the equity instruments issued. Non-employee equity-based payments are recorded as an expense over the service period, as if we had
paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services,
the fair value of the equity-based payments will be re-measured, and the non-cash expense recognized during the period will be adjusted
accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of
the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed.
NOTE 2 – REVENUE
Revenue by Category
The following series of tables present our revenue disaggregated by
various categories (dollars in thousands).
Schedule of disaggregation of revenue | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Authentication | | |
Precision Logistics | | |
Consolidated | |
Revenue | |
Three Months Ended June 30, | | |
Three Months Ended June 30, | | |
Three Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Proactive services | |
$ | - | | |
$ | - | | |
$ | 3,945 | | |
$ | 4,200 | | |
$ | 3,945 | | |
$ | 4,200 | |
Premium services | |
| - | | |
| - | | |
| 1,299 | | |
| 1,014 | | |
| 1,299 | | |
| 1,014 | |
Brand protection services | |
| 108 | | |
| 121 | | |
| - | | |
| - | | |
| 108 | | |
| 121 | |
| |
$ | 108 | | |
$ | 121 | | |
$ | 5,244 | | |
$ | 5,214 | | |
$ | 5,352 | | |
$ | 5,335 | |
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
Authentication | | |
Precision Logistics | | |
Consolidated | |
Revenue | |
Six Months Ended June 30, | | |
Six Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Proactive services | |
$ | - | | |
$ | - | | |
$ | 8,170 | | |
$ | 8,704 | | |
$ | 8,170 | | |
$ | 8,704 | |
Premium services | |
| - | | |
| - | | |
| 2,688 | | |
| 1,924 | | |
| 2,688 | | |
| 1,924 | |
Brand protection services | |
| 253 | | |
| 368 | | |
| - | | |
| - | | |
| 253 | | |
| 368 | |
| |
$ | 253 | | |
$ | 368 | | |
$ | 10,858 | | |
$ | 10,628 | | |
$ | 11,111 | | |
$ | 10,996 | |
Contract Balances
The timing of revenue recognition, billings and
cash collections results in unbilled revenue (contract assets) and deferred revenue (contract liabilities) on the consolidated balance
sheets. Amounts charged to our clients become billable according to the contract terms, which usually consider the delivery completion.
Unbilled amounts will generally be billed and collected within 30 days but typically no longer than 60 days. When we advance
bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within twelve months.
These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting
period. Changes in the contract asset and liability balances during the six-month period ended June 30, 2024, were not materially impacted
by any other factors.
Applying the practical expedient in ASC Topic
606, we recognize the incremental costs of obtaining contracts (i.e. sales commissions) as an expense when incurred if the amortization
period of the assets that we otherwise would have recognized is one year or less. As of June 30, 2024, we did not have any capitalized
sales commissions.
For all periods presented, contract liabilities
were not significant.
The following table provides information about
contract assets from contracts with customers:
Schedule of contract assets from contracts with customers | |
| | |
| |
| |
Contract Asset | |
| |
June 30, | |
In Thousands | |
2024 | | |
2023 | |
Beginning balance, January 1 | |
$ | 1,282 | | |
$ | 1,185 | |
Contract asset additions | |
| 4,329 | | |
| 3,326 | |
Reclassification to accounts receivable, billed to customers | |
| (4,860 | ) | |
| (3,777 | ) |
Ending balance (1) | |
$ | 751 | | |
$ | 734 | |
______________
NOTE 3 – BUSINESS COMBINATIONS
Trust Codes Global Limited
On March 1, 2023, we acquired, through Trust Codes
Global, the business and certain assets of Trust Codes Limited (“Trust Codes”), specializing in brand protection, anti-counterfeiting,
and consumer engagement technology with an expertise in the food and agriculture industry. Trust Codes Global uses unique QR codes or
IoT, coupled with GS1 standards to deliver cloud-based brand protection based on a unique per-item digital identity to protect brand and
product authenticity, increase data visualization of a product through the end to end supply chain, and creates a data-drive engine to
inform and educate consumers of the product. The Company accounted for the transaction as an acquisition of a business under ASC 805 –
Business Combination. The purchase price was approximately $1.0 million which consisted of $0.36 million in cash paid at closing
and 353,492 shares of common stock of the Company, representing $0.65 million in stock consideration. In addition, the purchase agreement
requires consideration contingent upon the achievement of earnings targets during a five-year period subsequent to the closing of the
acquisition. The earn-out consideration is estimated at $1.1 million at the acquisition date, however the maximum amount of the payment
is unlimited. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the Company.
All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The Company incurred $278 thousand in relation
to acquisition related costs which have been included in General and administrative in the six months ended June 30, 2023, in the accompanying
Consolidated Statements of Operations. Trust Codes Global is included in the Authentication segment and the results of its operations
have been included in the consolidated financial statements beginning March 1, 2023. The pro-forma financial information for Trust Codes
is immaterial to our results of operations and impractical to provide.
The following table summarizes the purchase price
allocation for the acquisition (dollars in thousands).
Schedule of business acquisitions | |
| | | |
|
Cash | |
$ | 363 | | |
|
Fair value of contingent consideration | |
| 1,125 | | |
|
Stock (issuance of 353,492 shares of common stock) (a) | |
| 625 | | |
|
Total purchase price | |
$ | 2,113 | | |
|
| |
| | | |
|
| |
| | | |
Amortization |
| |
| | | |
Period |
Purchase price allocation: | |
| | | |
|
Prepaid expenses | |
$ | 25 | | |
|
Property and Equipment, net | |
| 18 | | |
|
ROU Asset | |
| 171 | | |
|
Developed Technology | |
| 485 | | |
8 years |
Trade Names/Trademarks | |
| 148 | | |
18 years |
Customer Relationships | |
| 68 | | |
10 years |
Goodwill | |
| 1,383 | | |
|
Accounts payable and other accrued expenses | |
| (14 | ) | |
|
Current lease liability | |
| (63 | ) | |
|
Long term lease liability | |
| (108 | ) | |
|
| |
$ | 2,113 | | |
|
Contingent Consideration
ASC Topic 805 requires that contingent consideration
to be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized
in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities using an appropriate valuation
methodology, typically either an income-based approach or a simulation model, such as the Monte Carlo model, depending on the structure
of the contingent consideration arrangement. Contingent consideration is valued using significant inputs that are not observable in the
market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are
reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued
to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated
statements of operations, and could cause a material impact to, and volatility in, our results. Changes in the fair value of contingent
consideration obligations may result from changes in discount periods and rates and changes in the timing and amount of revenue and/or
earnings projections.
As of June 30, 2024, contingent consideration
presented as current liability totaled $123 thousand. As of June 30, 2024, we also had accrued long term contingent consideration totaling
$401 thousand related to the acquisition of Trust Codes on the consolidated balance sheets and represents the portion of contingent consideration
estimated to be payable greater than twelve months from the balance sheet date. On May 15, 2024, a payment of $36 thousand was paid for
contingent consideration.
NOTE 4 – INTANGIBLE ASSETS AND GOODWILL
Goodwill
Goodwill represents costs in excess of values
assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill
is deemed to have an indefinite life and is not amortized but is tested for impairment annually, and at any time when events suggest an
impairment more likely than not has occurred. We test goodwill at the reporting unit level.
ASC Topic 350, “Intangibles - Goodwill
and Other” (“ASC Topic 350”), permits an entity to first assess qualitative factors to determine whether it
is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it
is necessary to perform a quantitative goodwill impairment test. Under ASC Topic 350, an entity is not required to perform
a quantitative goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying
amount. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP.
Determining the fair value of a reporting unit
is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue
growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market
conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable
but are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The timing and frequency of our
goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. We
will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.
Each of our two reportable segments represents
an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level
below an operating segment, under ASC Topic 350, “Intangibles - Goodwill and Other”. We determined that we have
two reporting units for purposes of goodwill impairment testing, which represent our two reportable business segments, as discussed below.
Changes in the carrying amount of goodwill by
reportable business segment for the six months ended June 30, 2024, were as follows (in thousands):
Schedule of goodwill by reportable business segment | |
| | | |
| | | |
| | |
| |
Authentication | | |
Precision Logistics | | |
Total | |
Net book value at | |
| | | |
| | | |
| | |
January 1, 2024 | |
$ | 1,396 | | |
$ | 3,988 | | |
$ | 5,384 | |
| |
| | | |
| | | |
| | |
2024 Activity | |
| | | |
| | | |
| | |
Foreign currency translation | |
| (50 | ) | |
| - | | |
| (50 | ) |
Net book value at | |
| | | |
| | | |
| | |
June 30, 2024 | |
$ | 1,346 | | |
$ | 3,988 | | |
$ | 5,334 | |
Intangible Assets Subject to Amortization
Our intangible assets include amounts recognized
in connection with patents and trademarks, capitalized software and acquisitions, including customer relationships, tradenames, developed
technology and non-compete agreements. Intangible assets are initially valued at fair market value using generally accepted valuation
methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life
of the intangible assets. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. Except
for goodwill, we do not have any intangible assets with indefinite useful lives.
Intangible assets with finite lives are subject
to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as
follows (in thousands):
Schedule of intangible assets subject to amortization | |
| | | |
| | | |
| | | |
| | |
June 30, 2024 | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
Weighted Average Remaining Useful Life (Years) | |
Patents and Trademarks | |
$ | 1,766 | | |
$ | (394 | ) | |
$ | 1,372 | | |
| 12 | |
Capitalized Software | |
| 161 | | |
| (125 | ) | |
| 36 | | |
| 2 | |
Customer Relationships | |
| 1,905 | | |
| (412 | ) | |
| 1,493 | | |
| 8 | |
Developed Technology | |
| 3,614 | | |
| (1,227 | ) | |
| 2,387 | | |
| 5 | |
Internally Used Software | |
| 1,087 | | |
| (108 | ) | |
| 979 | | |
| 6 | |
Non-Compete Agreement | |
| 191 | | |
| (84 | ) | |
| 107 | | |
| 3 | |
Deferred Implementation | |
| 198 | | |
| (33 | ) | |
| 165 | | |
| 9 | |
Total Intangible Assets | |
$ | 8,922 | | |
$ | (2,383 | ) | |
$ | 6,539 | | |
| | |
December 31, 2023 | |
| | | |
| | | |
| | | |
| | |
Patents and Trademarks | |
$ | 2,002 | | |
$ | (564 | ) | |
$ | 1,438 | | |
| 13 | |
Capitalized Software | |
| 161 | | |
| (109 | ) | |
| 52 | | |
| 2 | |
Customer Relationships | |
| 1,908 | | |
| (317 | ) | |
| 1,591 | | |
| 9 | |
Developed Technology | |
| 3,632 | | |
| (938 | ) | |
| 2,694 | | |
| 5 | |
Internally Used Software | |
| 914 | | |
| (62 | ) | |
| 852 | | |
| 6 | |
Non-Compete Agreement | |
| 191 | | |
| (65 | ) | |
| 126 | | |
| 3 | |
Deferred Implementation | |
| 198 | | |
| (24 | ) | |
| 174 | | |
| 9 | |
Total Intangible Assets | |
$ | 9,006 | | |
$ | (2,079 | ) | |
$ | 6,927 | | |
| | |
Amortization expense for intangible assets was
$540 thousand and $495 thousand for the six months ended June 30, 2024, and 2023, respectively. During the six months ended June 30, 2024,
the Company impaired certain assets related to its Patents by $13 thousand, to bring the gross carrying amount related to these assets
to zero, as these technologies are no longer in use.
Patents and Trademarks
As of June 30, 2024, our current patent and trademark
portfolios consist of eight granted U.S. patents and two granted European patents (one validated in four countries of France, Germany,
United Kingdom, and Italy and one validated in three countries of France, Germany and United Kingdom), three pending U.S. and foreign
patent applications, twenty-three registered U.S. trademarks, two EU trademark registrations, one Colombian trademark registration, one
Australian trademark registration, one Japanese trademark registration, one Mexican trademark registration, one Singaporean trademark
registration, two UK trademark registrations, seven NZ trademark registration, one OAPI (African Intellectual Property Organization) trademark
registration, and one pending US and one foreign trademark application in Nigeria. The Company abandoned one patent during the six months
ended June 30, 2024.
The Company expects to record amortization expense
of intangible assets over the next 5 years and thereafter as follows (in thousands):
Schedule of future amortization expense |
| |
Fiscal Year ending December 31, |
|
2024 (six months remaining) |
$ | 572 |
2025 |
| 1,109 |
2026 |
| 1,104 |
2027 |
| 1,070 |
2028 |
| 696 |
Thereafter |
| 1,988 |
Total |
$ | 6,539 |
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company expensed $127 thousand and $275 thousand
related to restricted stock awards for the three and six months ended June 30, 2024, respectively. The Company expensed $147 thousand
and $148 thousand related to restricted stock awards for the three and six months ended June 30, 2023, respectively.
The Company expensed $69 thousand and $333 thousand
related to restricted stock units for the three and six months ended June 30, 2024, and $149 thousand and $412 thousand related to restricted
stock units for the three and six months ended June 30, 2023.
During the six months ended June 30, 2024, the
Company issued 1,750 shares of common stock upon vesting of restricted stock units, and 38,095 shares of common stock from treasury shares,
net of common stock withheld for taxes.
On March 31, 2024, the Company issued 30,000 of
restricted common stock, vesting immediately, with a value of $42 thousand, for consulting services. On June 30, 2024, the Company issued
an additional 30,000 of restricted common stock, vesting immediately, with a value of $42 thousand, for consulting services.
Non-Qualified Stock Purchase Plan
On June 10, 2021, the stockholders of the Company
approved a non-qualified stock purchase plan (the “2021 Plan”). The 2021 Plan provides eligible participants, including employees,
directors and consultants of the Company, the opportunity to purchase shares of the Company’s common stock thereby increasing their
interest in the Company’s continued success. The maximum number of common stock reserved and available for issuance under the 2021
Plan is 500,000 shares. The purchase price of shares of common stock acquired pursuant to the exercise of an option will be the lesser
of 85% of the fair market value of a share (a) on the enrollment date, and (b) on the exercise date. The 2021 Plan is not intended to
qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).
The Company applied FASB ASC 718, “Compensation-Stock Compensation” and estimated the fair value using the Black-Scholes
model, as the 2021 Plan is considered compensatory. In relation to the 2021 Plan the Company expensed $0 and $4 thousand for the three
and six months ended June 30, 2024, respectively. During the six months ended June 30, 2024 the Company received $21 thousand in proceeds
related to the 2021 Plan. The Company has currently suspended new offering periods under the 2021 Plan.
Shares Held in Treasury
As of June 30, 2024, and December 31, 2023, the
Company had 270,367 and 329,351 shares, respectively, held in treasury with a value of approximately $464 thousand and $659 thousand,
respectively.
On February 29, 2024, seven participants exercised
their option under the Company’s non-qualified stock purchase plan, and as a result, 21,889 shares were issued from treasury, with
an exercise price of $0.97 per share.
Shares Repurchase Program
In December 2023, the Company’s Board of
Directors approved a new share repurchase program to allow the Company to spend up to $0.5 million to repurchase shares of its common
stock so long as the price per share does not exceed $1.00 until December 14, 2024. During the six months ended June 30, 2024, the Company
repurchased 1,000 shares of common stock for $1 thousand under the Company’s current program.
NOTE 6 – STOCK OPTIONS, RESTRICTED STOCK
AND WARRANTS
During 2013, the Company adopted the 2013 Omnibus
Equity Compensation Plan (the “2013 Plan”). Under the 2013 Plan, the Company is authorized to grant awards of stock options,
restricted stock, restricted stock units and other stock-based awards up to an aggregate of 400,000 shares of common stock. The
2013 Plan is intended to permit certain stock options granted to employees under the 2013 Plan to qualify as incentive stock options. All
options granted under the 2013 Plan, which are not intended to qualify as incentive stock options are deemed to be non-qualified stock
options.
On November 14, 2017, the Executive Committee
of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”) which covered the potential
issuance of 260,000 shares of common stock. The 2017 Plan provided that directors, officers, employees, and consultants of the Company
were eligible to receive equity incentives under the 2017 Plan at the discretion of the Board or the Board’s Compensation Committee.
On August 10, 2020, the Company’s Board
of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), subject to stockholder approval, which authorizes the
potential issuance of up to 1,069,110 shares of common stock. On September 30, 2020, the Company’s stockholders approved the 2020
Plan, and upon such approval the 2020 Plan became effective and the 2017 Plan was terminated. Shares of common stock underlying existing
awards under the 2017 Plan may become available for issuance pursuant to the terms of the 2020 Plan under certain circumstances. Employees
and non-employee directors of the Company or its affiliates, and other individuals who perform services for the Company or any of its
affiliates, are eligible to receive awards under the 2020 Plan at the discretion of the Board of Directors or the Board’s Compensation
Committee.
On March 28, 2022, the Company’s Board of
Directors adopted the First Amendment to the 2020 Plan, subject to stockholder approval, which increased the shares authorized for potential
issuance under the 2020 Plan to 2,069,100 shares of common stock and extended the term of the 2020 Plan to June 9, 2023. On June 9, 2022,
the Company’s stockholders approved the First Amendment to the 2020 Plan. On April 17, 2023, the Company’s Board of Directors
adopted the Second Amendment to the 2020 Plan, subject to stockholder approval, which increased the shares authorized for potential issuance
under the 2020 Plan to 3,069,100 shares of common stock and extended the term of the 2020 Plan to June 6, 2033. On June 6, 2023, the Company’s
stockholders approved the Second Amendment to the 2020 Plan. On March 18, 2024, the Company’s Board of Directors adopted the Third
Amendment to the 2020 Plan, subject to stockholder approval, which increased the shares authorized for potential issuance under the 2020
Plan to 4,069,100 shares of common stock and extended the term of the 2020 Plan to June 4, 2033. On June 4, 2024, the Company’s
stockholders approved the Third Amendment to the 2020 Plan.
The 2020 Plan, as amended, is administered by
the Compensation Committee which determines the persons to whom awards will be granted, the number of awards to be granted and the specific
terms of each grant, including the vesting thereof, subject to the provisions of the plan.
In connection with incentive stock options, the
exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110%
of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company). The aggregate fair market
value (determined at the time of the grant) of stock with respect to which incentive stock options are exercisable for the first time
by any individual during any calendar year (under all plans of the Company and its affiliates) shall not exceed $100 thousand, and the
options in excess of $100 thousand shall be deemed to be non-qualified stock options, including prices, duration, transferability and
limitations on exercise. The maximum number of shares of common stock that may be issued under the 2020 Plan pursuant to incentive stock
options may not exceed, in the aggregate, 1,000,000.
The Company has issued non-qualified stock options
pursuant to contractual agreements with non-employees. Options granted under the agreements are expensed when the related service
or product is provided. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The
Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair
value represent management’s best estimates and involve inherent uncertainties and judgements.
Stock Options
The following table summarizes the activities
for the Company’s stock options as of June 30, 2024:
Schedule of stock options | |
| | | |
| | | |
| | | |
| | |
| |
Options Outstanding | |
| |
| | |
| | |
Weighted - | | |
| |
| |
| | |
| | |
Average | | |
| |
| |
| | |
| | |
Remaining | | |
Aggregate | |
| |
| | |
Weighted- | | |
Contractual | | |
Intrinsic | |
| |
Number of | | |
Average | | |
Term | | |
Value | |
| |
Shares | | |
Exercise Price | | |
(in years) | | |
(in thousands)(1) | |
Balance as of December 31, 2023 | |
| 301,471 | | |
$ | 4.56 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Forfeited/Cancelled/Expired | |
| (471 | ) | |
$ | 212.50 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Balance as of June 30, 2024 | |
| 301,000 | | |
$ | 4.24 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable as of June 30, 2024 | |
| 301,000 | | |
$ | 4.24 | | |
| 0.7 | | |
$ | - | |
As of June 30, 2024, the Company had no unvested stock options.
During the six months ended June 30, 2024, and
2023, the Company expensed $0 thousand, with respect to options.
As of June 30, 2024, there was $0 unrecognized
compensation cost related to outstanding stock options.
Restricted Stock Awards and Restricted Stock
Units
The following table summarizes the unvested restricted
stock awards as of June 30, 2024:
Schedule of unvested restricted stock awards | |
| | | |
| | |
| |
| | |
Weighted - | |
| |
| | |
Average | |
| |
Number of | | |
Grant | |
| |
Award Shares | | |
Date Fair Value | |
| |
| | |
| |
Unvested at December 31, 2023 | |
| 416,669 | | |
| 1.44 | |
| |
| | | |
| | |
Granted | |
| 140,000 | | |
| 1.60 | |
| |
| | | |
| | |
Vested | |
| (416,669 | ) | |
| 1.44 | |
| |
| | | |
| | |
Balance at June 30, 2024 | |
| 140,000 | | |
$ | 1.60 | |
As of June 30, 2024, total unrecognized share-based
compensation cost related to unvested restricted stock awards is $209 thousand, which is expected to be recognized over a weighted-average
period of less than one year.
The following table summarizes the unvested time
based restricted stock units as of June 30, 2024:
Schedule of unvested restricted stock units | |
| | | |
| | |
| |
| | |
Weighted - | |
| |
| | |
Average | |
| |
Number of | | |
Grant | |
| |
Unit Shares | | |
Date Fair Value | |
Unvested at December 31, 2023 | |
| 371,253 | | |
| 1.32 | |
| |
| | | |
| | |
Granted | |
| 35,000 | | |
| 1.60 | |
| |
| | | |
| | |
Vested | |
| (70,527 | ) | |
| 1.33 | |
| |
| | | |
| | |
Forfeited | |
| (25,334 | ) | |
| 1.23 | |
| |
| | | |
| | |
Balance at June 30, 2024 | |
| 310,392 | | |
$ | 1.34 | |
As of June 30, 2024, total
unrecognized share-based compensation cost related to unvested restricted stock units was $206 thousand, which is expected to be recognized
over a weighted-average period of 1.2 years.
The following table summarizes the unvested performance
restricted stock units as of June 30, 2024:
Schedule of unvested performance restricted stock units | |
| | | |
| | |
| |
| | |
Weighted - | |
| |
| | |
Average | |
| |
Number of | | |
Number of | |
| |
Unit Shares | | |
Unit Shares | |
Unvested at December 31, 2023 | |
| 1,438,760 | | |
| 1.51 | |
| |
| | | |
| | |
Granted | |
| 480,000 | | |
| 1.12 | |
| |
| | | |
| | |
Forfeited/Cancelled | |
| (192,100 | ) | |
| 1.78 | |
| |
| | | |
| | |
Balance at June 30, 2024 | |
| 1,726,660 |