VerifyMe, Inc. - Annual Report: 2017 (Form 10-K)

The registrant had 84,896,325 shares of common stock outstanding as of the close of business on April 12, 2018.

   

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In February 2018, we entered into a reseller agreement with a global label manufacturer (the “GLM”). This particular label printer has major brand owners as clients which can utilize our technologies to protect their product labels and packaging from counterfeiting and product diversion. This label printer owns and operates printers and manufacturing equipment which can implement the Company’s technology. This reseller also has manufacturing facilities around the globe.

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Recent developments in copying and printing technologies have made it easier to counterfeit a wide variety of documents and products.  We have broken the current state of counterfeiting into two types.  The first type is what we call “Traditional Counterfeiting” These include mainly paper type documents and instruments such as bank checks, birth certificates, credentials, identification documents, stock certificates, currency, lottery tickets, credit cards, driver’s licenses, event and transportation tickets, coupons, and travelers’ checks.  As you can see most of the Traditional Counterfeiting targets are mainly paper type instruments which can be traditionally copied, scanned, color copied, hand drawn, etc. by both professional and consumers alike.  The other type of counterfeiting we call “Modern Counterfeiting”.  Although Traditional Counterfeiting targets are extremely important and cause mainly financial harm, “Modern Counterfeiting” targets on the other hand are much more sophisticated.  Both organized crime, consumers, small and large businesses and even governments partake in Modern Counterfeiting.  Modern Counterfeiting consists of the actual counterfeiting of major brand owner’s products such as expensive luxury items like jewelry, purses, military items (sabotage), drug manufacturing, consumables like tobacco, alcohol, golf clubs and even food and beverages.  Not only is the packaging and labeling counterfeited, the actual products are counterfeited.  The modern counterfeiter has become the scourge of the earth.  There are even reports of whole companies being counterfeited.  People are getting sick and sometimes even killed with counterfeit cough syrup, watered down cancer drugs and even toothpaste containing poisonous substances.

 

Not only are consumers at risk, brand owners are also at risk.  Normally brand owners feel a financial impact when someone is selling or diverting their products by counterfeiters.  The financial impact seems to be the lesser of the risk factors.  The additional more impactful risk facing brand owners and drug manufacturers is the liability issue.  A brand owner may be called to a court room to prove that a product is authentic or counterfeit to avoid major liability exposure in the form of judgements and fines as well as the extremely severe negative marketing exposure for such issues.

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Due to a recently signed contract with HP Indigo and Micro Focus, VerifyMe RainbowSecure™ technology can now be printed variably on high-speed, high-quality labels and packaging.  Our technology cannot be seen by the human eye and requires special authentication equipment to see in labels and packaging which can be authenticated via a secure cloud process.  Brand owners can not only prove the authenticity of a product, but it can also prevent product diversion and enhance track and trace operations which generates business intelligence as to where counterfeiting is occurring around the globe.  These contracts give the Company the ability to secure, protect and identify the labels and packages of drugs, cosmetics, food, beverages and all other consumable products.  We are now working with HP Indigo to roll out the technology to their 6000 series Indigo owners.  Micro Focus is also now marketing our combined track and trace solution. S-One will also provide VerifyMe with a global and sales and marketing reach for this solution.

Physical and Material Goods Anti-Counterfeit Industry — Overview

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Counterfeiting is a continuously evolving economic crime. It presents companies, governments and individuals with a unique set of problems and has become a sophisticated network of counterfeiting.  Counterfeiting devalues corporate reputations, hinders investment, and imposes costs upon many people every year.

The Size of the Market Opportunity

 

Based on Technology, the label and packaging market has been segmented as follows:

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Coding

 

Identification Cards and Secure Documents

 

 

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other important identity cards, official documents and security-related cards.

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Pharmaceuticals

 

Based on this growing threat, many countries have started to address vulnerabilities in the supply chain by enacting legislation which, among other things, requires the implementation of a comprehensive system designed to combat counterfeit, diluted or falsely labelled pharmaceuticals.  These systems are often referred to as serialization, or in the United States as e-Pedigree (electronic pedigree).  One jurisdiction that has enacted such regulations is California, which passed legislation requiring all “dangerous drugs” (defined as all prescription drugs) that are distributed in California must be serialized and have an electronic pedigree by January 1, 2016 and with limited exceptions cannot be sold by a pharmacy without a pedigree after July 1, 2017.

We believe that ePedigree and serialization requirements will likely be implemented in all aspects of the pharmaceutical supply chain, from the manufacturer to the packager, wholesaler, distributor and final dispensing entity. The ePedigree provides an “audit trail,” or documented evidence, to help to identify and catch counterfeiting and diversion. Serialization requires manufacturers, or third-party packagers in some virtual supply chains, to establish and apply to the smallest saleable unit package or immediate container a “unique identification number.” In some cases, drug makers are spending as much as 8-10% of a medicine pack’s total production cost only on solutions to protect it from duplication and counterfeiting, according to company executives. Our unique pigments embedded in the ink of a unique serialized barcode can provide a layered security foundation for a customer solution in this market.

The Federal Drug Administration (“FDA”) is currently implementing Title II of the Drug Quality and Security Act, entitled the “Drug Supply Chain Security Act.” This regulation requires drug manufactures to add product identifiers, such as our RainbowSecure™ technology as well as our VeriPAS^tm track and trace system, to certain prescription drug packages beginning in November 2017. Re-packagers must begin adding product identifiers in November 2018. We plan on selling directly to the pharmaceutical industry and their printers. We will also engage third party marketing and sales companies to present our solutions to the drug and pharmaceutical industry. The FDA intends to continue implementing the Drug Supply Chain Security Act to ensure that a full electronic identification system for prescription drugs is implemented by 2023.

Consumer Products

 

Counterfeit items are a significant and growing problem with all kinds of consumer-packaged goods, especially in the luxury retail and apparel industries.  Our unique ink pigments can be incorporated in dyes and used by manufacturers in these industries to combat counterfeiting and piracy of actual physical goods. Our pigments expressed as inks can also be used on packaging, as well to track products that have been lost in transit, whether misplaced or stolen.

 

 

Food and Beverage

 

 

Printing and Packaging

 

 

The Opportunity

 

As counterfeiting continues to increase and losses to manufacturers and others continue to escalate, we believe that those entities will seek better technologies to minimize their exposure. These technologies, however, must also be cost-effective, easy to integrate, and highly resistant to counterfeiting themselves. We offer products in two related market segments. We offer security Ink taggants in the Anti-Counterfeiting/Authentication Industry and we offer a software product called VeriPAS^tm in the identifier/track and trace industry.

Our Solutions 

In the areas of authentication and serialization of physical goods, we offer clients the following products as anti-counterfeit systems:

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RainbowSecure™

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SecureLight™

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SecureLight+™

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Authentication tools

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VeriPAStm Global Product Identifier, Track and Trace System

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RainbowSecure™ technology was our first technology to be patented. It combines an invisible ink with a proprietary tuned laser to enable counterfeit products to be exposed. It has been widely accepted in the gaming industry, where the technology has been used by casinos to protect their chips, dice, and playing cards from fraud.

In 2017, VerifyMe signed a five-year contract with HP Indigo to print this technology on packages and labels on their 6000 series digital Presses.  In January 2018, VerifyMe signed a contract with Micro Focus to use RainbowSecure™ in their Global Product Authentication, Track and Trace system (software). The technology also features a unique double layer of security which remains entirely covert at all times and provides licensees with additional protection. RainbowSecure™ is particularly well-suited to closed and controlled environments, such as casinos that want to verify transactions within a specific area, labels, packaging, textiles, plastics and metal products which need authentication.

SecureLight™ technology was developed as a result of our investment in new proprietary color changing inks that could penetrate broader markets and result in far greater revenues. During the past nine years, we have refined our technologies and their applications, and now have what we believe to be the easiest, most cost effective and efficient authentication technologies available in the world today. Our technology, known as SecureLight™, takes advantage of the new ubiquitous energy efficient fluorescent lighting to change the color of ink, resulting in hundreds of new applications ranging from credit cards to driver’s licenses, passports, stock certificates, clothing labels, currency, ID cards, and tax stamps. The technologies can also be used to protect apparel, pharmaceuticals, and virtually any other physical product.

SecureLight+™ technology combines the covert characteristics of RainbowSecure and the overt characteristics of SecureLight. This provides a solution which can be authenticated in two different ways - by proprietary tuned laser devices, and also by anyone with fluorescent lighting including end consumers.

VeriPAS^tm Technology combines the covert identifier of RainbowSecure™ with the Micro Focus Track and Trace software which provides brand owners geographical business intelligence on counterfeiting as well as the ability to authenticate labels, packaging and products.

 

Raw Material Suppliers

 

Our security pigments are manufactured from naturally occurring inorganic rare earth materials. The manufacturing process includes both chemical and mechanical elements. In many cases, we produce pigments that are unique to a customer or product line. This uniqueness can be achieved through a variety of techniques, including custom formulation or combination of our proprietary pigments and/or incorporation of other specialized taggants.

 

 

Distribution

 

 

Digital Authentication Technologies and Products

 

VerifyMe Authenticator is a digital identity management software platform that provides extensible authentication mechanisms that can be dynamically invoked to achieve a specified degree of identity assurance. The Authenticator platform incorporates a risk engine that associates individual risk parameters and scores with every unique authentication mechanism. The risk engine then generates aggregate risk scores based on the specific combination of individual authentication mechanisms used to confirm the identity of the human being.

 

We are now enhancing this product and getting it ready for deployment into the financial services industry.  We cannot assure you we will generate any revenues from these efforts.

We believe that the digital technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from identity and authentication to the management of legacy passwords and PINs. We empower our customers to take advantage of the full capabilities of smart mobile devices and provide solutions that are both simple to use and deliver the highest level of security. These solutions can be applied to corporate networks, financial services, e-gov services, digital wallets, mobile payments, entertainment, subscription services, and social media.

The challenges associated with digital access control and identity theft are problems that are highly relevant in the world today. Consumers, citizens, employees, governments and employers demand comprehensive solutions that are timely, reliable but not intrusive. The current widespread use of passwords and personal identification numbers, or PINs for authentication has proven to be unsecure and inadequate. Individuals increasingly expect anywhere-anytime experiences—whether they are making purchases, crossing borders, accessing services or logging into online accounts or corporate resources. They expect those experiences to ensure the protection of their privacy and to provide uncompromising confidentiality.

 

 

Verification is the front door of all access and transactions. The most fundamental action is to identify “who the person is and how you identify yourself” We feel our VerifyMe digital authentication is the building block that answers that question. Our VerifyMe Verification technology ensures that users are who they say they are.  Our technology becomes their virtual credentials which are protected from fraud and theft.  There are literally hundreds of millions of identities stolen annually. It is absolutely crucial to know which users have the right to access particular information or transaction, and whether or not unauthorized users have been prevented from accessing those same critically important items.

In today’s world we have global workforces, customers, systems and data.  Unfortunately, we have the same global sophisticated cybercrime.   Therefore, vetting users and access also means asking important questions about authentication, such as which authentication method is most appropriate given a resource, channel or specific risk factor.

We believe that our digital verification technology meets user expectations for ease of use, privacy and overall experiences especially in financial and healthcare enterprises. For connected organizations, the authentication process is like the front door. To users, it’s important not only to smoothly reach the systems or data they need, but to know that their own account access and data is secured. Authentication is crucial, but it needs to be frictionless to avoid frustrating users whether they are customers, partners, or employees.

Passwords are no longer enough - In isolation, passwords are a brittle measure. It has been proven time and time again that even strong credentials can be stolen, cracked or coaxed from end users. Given today’s threat landscape, good security requires strong authentication practices, one of which is multi-factor authentication (“MFA”). Our MFA system requires no passwords at all.

By using multiple independent factors VerifyMe’s verification system significantly increases the effort that cybercriminals must exert to break in and access the protected transaction or data.  Also attempts that fail for lack of additional factors raises immediate red flags to end users and their financial or data system administrators.

Additionally, our multi-factor authentication does not use tokens or complicated, tiered passwords.  Our digital technologies involve the utilization of multiple authentication mechanisms, some of which we own.  These mechanisms include biometric factors, knowledge factors, possession factors and location factors.   Biometric factors include facial recognition with liveness detection, finger print and voice recognition.  Knowledge factors include a personal gesture swipe and a safe and panic color choice.  Possession factor includes devices that the user has in their possession such as a smartphone, smart watch, and other wearable computing devices.  The location factor geo-locates the user during a secure login.  We surround these authentication mechanisms with proprietary systems that improve the usability and the security of the solutions. Our solutions allow the assessment and quantification of risk using a sophisticated patented heuristic scoring mechanism.  We have specialized systems that perform ‘liveness’ detection to insure the subject of authentication is in fact a live human being. We have software systems that introduce learning capabilities into our solutions to improve the ease of use and flexibility.

In summation we believe that by using a host of factors and our proprietary scoring system gives a 99% assurance that the person behind the transaction is the person they say they are.

The digital technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from identity and authentication to the management of legacy passwords and PINs. We empower our customers to take advantage of the full capabilities of smart mobile devices and provide solutions that are both simple to use and deliver the highest level of security.

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Cryptocurrencies

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Blockchain Authentication

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Corporate Networks

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Digital Drop Box Access

 

 

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Physical Access

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Banking

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Financial Transaction Services

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Medical

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Gaming

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Retail

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Notary

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Digital Wallets

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Legal

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Government (e-gov services)

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Military

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Pharmaceutical

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Immigration

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Entertainment

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Social Media

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Mobile Payments

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Subscription services

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Employee Time Systems

 

 Digital Authentication Industry Background

 

Internet and Enterprise Security.  With the advent of personal computers and distributed information systems in the form of wide area networks, intranets, local area networks and the Internet, as well as other direct electronic links, many organizations have implemented applications to enable their workforce and third parties, including vendors, suppliers and customers, to access and exchange data and perform electronic transactions. As a result of the increased number of users having direct and remote access to such enterprise applications, data and financial assets have become increasingly vulnerable to unauthorized access and misuse.

 

 

Individual User Security.  In addition to the need for enterprise-wide security, the proliferation of personal computers, personal digital assistants and mobile telephones in both the home and office settings, combined with widespread access to the Internet, have created significant opportunities for electronic commerce by individual users such as electronic bill payment, home banking and home shopping.

 

Strong Authentication Market

 

Password Manager/Digital Wallet Market

 

 

The Opportunity

 

As identity theft and data breaches continue to increase and losses to service providers and individuals continue to escalate, we see both enterprises and consumers seeking better solutions to protect their interests. These solutions must be cost effective, easy to integrate, and simple to use.

 

 

According to the November 2016 market research report prepared by www.marketsandmarkets.com, the biometric system market size is expected to increase from USD 10.74 billion in 2015 to USD 32.73 billion by 2022, at a compound annual growth rate of 16.79% between 2016 and 2022. Any transaction or action which requires authentication of an individual is a potential opportunity for a strong multi-factor solution such as VerifyMe Authenticator. This is a very large market opportunity, within which we are focused on four specific segments:

 

Fast and Easy to Use

 

 

Support for Any Authentication Method

 

 

 

Multi-Factor Confidence Scores

 

 

Secure Platform, Easy to Integrate

 

VerifyMe Authenticator can be delivered either as managed service from our secure cloud or as licensed software which can be operated with existing infrastructure.  VerifyMe Authenticator also features the following benefits:

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Available to be white-labeled and integrated into existing digital platforms;

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Non-Stop, audited, monitored, private cloud service;

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Three independent, fault tolerant, redundant data centers;

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Global load balancing and traffic management;

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High level commercial API’s can be integrated in hours; and

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Complete audit information, including fresh biometrics.

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Our Technology

 

Intellectual property is important to our business. Our current patent portfolio consists of 11 granted US patents and two US patent applications pending. In addition, 6 patent applications were abandoned.  The company plans on filing for reinstatement on at least 3 of the abandoned patent applications.

 

Our Intellectual Property

 

It is cost prohibitive to file patents worldwide.  We continue to develop new anti-counterfeiting technologies and we apply for patent protection for these technologies in countries with the most market potential and strong patent enforcement tools.  When a new product or process is developed, we may seek to preserve the economic benefit of the product or process by applying for a patent in each jurisdiction in which the product or process is likely to be exploited.

Research and Development

 

 

 

Our Revenue Model

 

To date, we have not generated significant revenue. VerifyMe has three potential revenue streams.

  

RainbowSecure™ We believe that our recent contract with HP Indigo will create demand for our RainbowSecure™ and VeriPAS^tm products.  Working with HP Indigo and S-One Labels and Packaging, we are creating a co-marketing programs to effectively reaches all 6000 series HP Indigo owners.   We also will reach out to brand owners and make them aware of our physical security solutions which can provide brand owners counterfeit prevention protection. We intend to generate revenues primarily by collecting license fees based on usage fees generated from HP Indigo 6000 series users as well as non-digital press technology usage.  Our revenue is derived utilizing a royalty rate based on the volume of a particular label or package printed with our RainbowSecure™ technology e.g. a royalty on each impression. We also have revenue that will be generated with the sales of authentication devices from manufacturers who incorporate our technologies into their manufacturing processes and user authentication protocols, as well as through the sale of pigments to be incorporated in inks and dyes and the sale of authentication tools.

Our VeriPAS^tm technology product is an identifier, track and trace system which generates revenue from a contracted usage fee per impression rate based on the number of labels and packages printed with the technology.

Our VerifyMe Digital Authentication technology is a software system.  The revenue to be generated from this product will be in the form of a contracted per transaction fee and or a monthly service fee.

Sales and Marketing Strategy:

Due to our 2017 signed five-year contract with HP Indigo we plan on marketing directly with HP Indigo 6000 series owners as well as the label and packaging printing industry including both traditional and digital printers and users to address their clients’ needs for our covert serialization. Those printers will market and resell our technologies to both current and future brand owner clients.

Currently the only HP Indigo model approved for the use of our technology is the HP Indigo 6000.  We plan on working with HP Indigo to expand the number of HP Indigo Models that can utilize our technology.

In addition to the printing industry we will be marketing directly to all brand owners who utilize labels and packaging for their products. Brand owners can be licensed directly by VerifyMe and direct their personal printer to print their labels and packaging with the VerifyMe printing technologies.  The brand owner will therefore pay their royalties directly to VerifyMe based on the number of labels and packages units that their printer applied the technology to.

  

 

 

The FDA is currently implementing Title II of the Drug Quality and Security Act, entitled the “Drug Supply Chain Security Act.” This regulation requires drug manufactures to add product identifiers, such as our RainbowSecure™ technology as well as our VeriPAS^tm track and trace system, to certain prescription drug packages beginning in November 2017. Re-packagers must begin adding product identifiers in November 2018.  We will also engage third party marketing and sales companies to present our solutions to the drug and pharmaceutical industry. The FDA intends to continue implementing the Drug Supply Chain Security Act to ensure that a full electronic identification system for prescription drugs is implemented by 2023.

Another marketing out-reach is that our track and trace partner, Micro Focus is contracted to cross sell our technologies as part of their Global Product Authentication System called “GPAS”.  We are also contracted with Micro Focus to re-sell their GPAS product with our RainbowSecure™ technology under our own trademarked name, VeriPAS^tm which stands for VerifyMe Global Product Authentication System.

An additional marketing strategy is to incorporate our technology into the high-speed inkjet hardware that traditional Flexo and Commercial Printers use to add a variable data feature for their clients.

Some of the major brand segments that need our type of label, packaging and serialization identifier products are:

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Digital VerifyMe Authenticator Technology Marketing Strategy

Our VerifyMe Authenticator Digital software technology will be marketed directly to potential clients through the use of demonstrations and trade shows.

 

Competition

The market for protection from counterfeiting, diversion, theft and forgery is a mature more than 25-year old industry dominated by a number of large, well-established companies, particularly in the area of traditional overt security technologies where repeating static produced images are commonly used. This is due to the fact that security printing for currency production began in Europe over a century ago and has resulted in the establishment of old-line security printers which have branched out into brand and product protection as well. In North America, brand protection products, such as tamper-resistant packaging, security labels, and anti-theft devices are readily available and utilized on a widespread basis. In recent years, however, demand has increased for more sophisticated overt and covert security technologies with a strong desire for technologies that can provide variable images and data. Competitors can be segregated into the following groups: (i) Security Ink Manufacturers. These are generally well-established companies such as SICPA and Sun Chemical, whose core business is manufacturing and selling printing inks; (ii) System Integrators. These companies have often evolved from other sectors in the printing industry, mainly security printing manufacturers, technology providers, or packaging and label manufacturers. These companies offer a range of security solutions, enabling them to provide a complete suite of solutions tailored to the customer’s specific needs and requirements. The companies in this space include 3M, DuPont, Honeywell, and Avery Dennison; (iii) System Consultancy Groups. These companies offer a range of technologies from several different providers and tailor specific solutions to end-users; (iv) Traditional Authentication Technology Providers. These purveyors include companies like American Banknote Holographics, Crown Roll Leaf and Digimarc, which provide holograms and digital watermarking, respectively; (v) Product Diversion Tracking Providers. Applied DNA Sciences Next-Generation Technology Providers LLC falls into this group, along with several companies such as Applied DNA Sciences, Authentix, DNA Technologies, and Identif, Kodak Traceless, which provide on-product and in-product tagging technologies; (vi) Traditional Security Printers. This group includes traditional security printers such as Thomas de la Rue, Canadian Banknote, and Banknote Corporation or America, and Portals, whose core products are printing the world’s currencies; and (vii) Biometric Solution Providers. These companies offer biometric authentication capabilities to be integrated with existing mobile device authentication, such as OT-Morpho and ImageWare Systems.

 

 

To compete effectively, we are seeking to establish key relationships with major digital solution equipment and distribution providers such as we have done with HP Indigo.  While leveraging these relationships, we still expect that we will need to expend significant resources in technology and marketing. Many of our competitors have substantially greater financial, human and other resources than we have. As a result, we may not have sufficient resources to develop and market our services to the market effectively.

We expect competition with our products and services to continue and intensify in the future. We believe competition in our principal markets is primarily driven by:

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product performance, features and liability;

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price; new laws and regulations;

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product innovation and timing of new product introductions;

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ability to develop, maintain and protect proprietary products and technologies;

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sales and distribution capabilities;

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technical support and service;

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brand loyalty;

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applications support; and

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breadth of product line.

If a competitor develops superior technology or cost-effective alternatives to our products, our business, financial condition and results of operations could be significantly harmed.

Major Customers/Vendors

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Facilities

Employees

 

ITEM 1A. RISK FACTORS

Not applicable for smaller reporting companies.  

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2. PROPERTIES.

 

Our principal offices are currently located at 75 S. Clinton Avenue, Suite 1525 Rochester, NY 14604 which we rent on a non-contractual basis for approximately $1,000 per month.

ITEM 3. LEGAL PROCEEDINGS.

 

From time to time, the Company may be a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this Annual Report the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

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We have previously disclosed all sales of securities without registration under the Securities Act of 1933 other than the following:

 

 

Equity compensation plan information

During 2013, the Board adopted, and our shareholders approved, a new comprehensive incentive compensation plan (the “2013 Plan”) which served as the successor incentive compensation plan to a 2003 Stock Option Plan covering (i) 20,000,000 new shares of our common stock, plus (ii) the number of shares of our common stock subject to outstanding grants under the 2003 Plan as of the date of the 2013 Annual Meeting, plus (iii) the number of shares of our common stock remaining available for issuance under the 2003 Plan.

The 2013 Plan covers 22,013,530 outstanding options and no longer will be used for future grants.

On November 14, 2017, the Company adopted the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) which provides for the issuance of awards covering 13 million shares of common stock under the 2017 Plan. Awards granted under the 2017 Plan may be Incentive Stock Option, Non-Qualified Stock Options, Stock Appreciation Rights, or Restricted Stock Units which are awarded to all employees, consultants and directors of the Company.

Equity compensation plan information as of December 31, 2017

* As of December 31, 2017, under the 2013 Plan and 2017 Plan.

Since our inception, we have focused on developing and implementing our business plan. Our business plans are dependent on our ability to raise capital through private placements of our common stock and/or preferred stock, through the possible exercise of outstanding options and warrants, through debt financing and/or through future public offering of our securities. As of March 31, 2018, we had cash resources of approximately $2,376,000. Our existing cash resources are sufficient to sustain our operations during the next twelve months, however we may need to raise additional funds in the future in order to expand our business. While we have met our working capital needs since 2017 with funds supplied by and through our directors, we cannot assure you they will continue funding us if we need additional capital, or if they do, how dilutive the financing will be.

Cautionary Note Regarding Forward Looking Statements

This Annual Report includes forward-looking statements including statements regarding liquidity, anticipated cash flows, future capital-raising activity, and the development of anti-counterfeiting technologies. All statements other than statements of historical facts contained in this Annual Report, including statements regarding our future financial position, anticipated future revenues, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” elsewhere in this Annual Report. Other sections of this Annual Report may include additional factors which could adversely affect our business and financial performance. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following Risk Factors before deciding whether to invest in our Company. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of the common stock could decline.

 

If our technology cannot be used to successfully prevent counterfeiting, we may not be able to generate material revenue.

Our market is characterized by new and evolving technologies. Counterfeiting is constantly evolving in order to create items which appear to be legitimate and evade regulations which would seize counterfeit items and penalize counterfeiters. In order to stay competitive our technologies will need to be sufficiently complex so that they cannot be reproduced or copied by counterfeiters. If we are unable to develop and integrate effective anti-counterfeiting technologies to address the increasingly sophisticated technological needs of our customers in a timely and cost-effective manner, we may not be successful in preventing counterfeiting and we may not be able to generate material revenue.

 

Presently our personnel consist of one employee and three contractors.  Our agreement with the GLM includes sales support. Our potential customers are large companies which do not impulsively enter into large contracts.  Accordingly, we may be required to hire sales persons.  If our management team, The GLM and any sales persons we hired are unsuccessful, we may be unable to generate material revenue.

If we cannot manage our growth effectively, we may not become profitable.

Businesses which grow rapidly often have difficulty managing their growth. Our staff presently consists of one employee and three contractors. If we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and your investment could be lost.

  

In order to market our digital technology, we need to resolve certain functionality issues but we do not presently have resources to engage in research and development activities.

We rely on strategic partnerships with larger companies which integrate our technologies into their product offerings. This distribution strategy leaves us largely dependent upon the success of our partners. In 2017, we signed a five-year contract with HP Indigo to print RainbowSecure™ technology on packages and labels on their 6000 series digital presses.  In January of 2018, we signed a contract with Micro Focus to use RainbowSecure™ in their Global Product Authentication, Track and Trace system (software). If our strategic partners who include our technology in their products cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technology, or these partners are unsuccessful in their efforts, expanding deployment of our technology our business and future growth would be materially and adversely affected.

As a result of our recent financings we are obligated to issue a substantial number of additional shares of common stock, which will dilute our present shareholders.

    

From June 2017 to January 2018, we engaged in a series of private placement transactions issuing $2,683,211 worth of common stock and warrants to accredited investors. This transaction caused us to issue a total of 38,378,011 shares of common stock and 38,378,011 warrants exercisable at $0.15 to investors. For a period of 30-days, beginning on February 20, 2018, holders of our $0.15 warrants were able to exercise their warrants at a reduced exercise price of $0.10 per warrant share. The Program has been extended to May 22, 2018. As of the date of this Annual Report, we issued 15,322,583 shares of common stock upon exercise of warrants. In the future, we may grant additional options, warrants and convertible securities. The exercise, conversion or exchange of options, warrants or convertible securities, including for other securities, will dilute the percentage ownership of our shareholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may be expected to exercise or convert such options, warrants and convertible securities at a time when we would be able to obtain additional equity capital on terms more favorable than such securities or when our common stock is trading at a price higher than the exercise or conversion price of the securities. The exercise or conversion of outstanding warrants, options and convertible securities will have a dilutive effect on the securities held by our shareholders. We have in the past, and may in the future, exchange outstanding securities for other securities on terms that are dilutive to the securities held by other shareholders not participating in such exchange.

    

Because our common stock is subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and market price.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTCQB is presently less than $5.00 per share and therefore we are considered a “penny stock” according to SEC rules. Further, we do not expect our stock price to rise above $5.00 in the immediate future. The “penny stock” designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.

Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors to purchase and sell or otherwise make it difficult to sell shares of penny stocks. The “penny stock” designation may continue to have a depressive effect upon our common stock price.

Due to factors beyond our control, our stock price may be volatile.

Any of the following factors could affect the market price of our common stock:

•

Our failure to generate increasing material revenues;

•

Cancellation of key contracts;

•

Regulatory changes including new laws and rules which adversely affect companies in our line of business;

•

Our public disclosure of the terms of any financing which we consummate in the future;

•

Our failure to become profitable;

•

Our failure to raise working capital;

•

Any acquisitions we may consummate;

•

Announcements by us or our competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments;

 

 

•

Changes in our management;

•

Our failure to meet financial forecasts we or broker-dealers publicly disclose;

•

The sale of large numbers of shares of common stock which we may register in the future;

•

Short selling activities; or

•

Changes in market valuations of similar companies.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.

Our common stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our common stock.

Until recently, there has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our shareholders sell substantial amounts of our outstanding common stock, preferred stock, convertible notes issuable upon the exercise of outstanding warrants or other convertible securities, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. The shares of our restricted common stock will be freely tradable upon the earlier of: (i) effectiveness of any registration statement covering such shares and (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act.

Because we may issue preferred stock without the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire us and could depress our stock price.

In general, our Board may issue, without a vote of our shareholders, one or more additional series of preferred stock that have more than one vote per share, although the Company’s ability to designate and issue preferred stock is currently restricted by covenants under our agreements with prior investors. Without these restrictions, our Board could issue preferred stock to investors who support us and our management and give effective control of our business to our management. Additionally, issuance of preferred stock could block an acquisition resulting in both a drop in our stock price and a decline in interest of our common stock. This could make it more difficult for shareholders to sell their common stock. This could also cause the market price of our common stock shares to drop significantly, even if our business is performing well.

The DTC acts as a depository or nominee for street name shares that investors deposit with their brokers. DTC in the last several years has increasingly imposed a chill or freeze on the deposit, withdrawal and transfer of common stock of issuers whose common stock trades on the tiers of the OTC Markets. Depending on the type of restriction, a chill or freeze can prevent shareholders from buying or selling shares and prevent companies from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period of time (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed against our common stock again in the future, if it were your ability to sell your shares would be limited. In such event, your investment will be adversely affected.

Because we cannot raise capital from conventional bank financing, shareholders will be diluted in the future as a result of the issuance of additional securities.

Because we may not be able to attract the attention of major brokerage firms, it could have a material impact upon the price of our common stock.

It is not likely that securities analysts of major brokerage firms will provide research coverage for our common stock since these firms cannot recommend the purchase of our common stock under the penny stock rules referenced in an earlier risk factor. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It may also make it more difficult for us to attract new investors at times when we require additional capital.

As disclosed in the Company’s Form 8-K filed on December 1, 2017, the Audit Committee of the Company approved the dismissal of Morison Cogen LLP (“Former Auditor”) as the Company’s independent registered public accountant on November 27, 2017.

 

During the Company’s two most recent fiscal years, and through the date of their dismissal: (i) there were no disagreements (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and the Former Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of the Former Auditor would have caused the Former Auditor to make reference to the subject matter of the disagreement in connection with its reports on the Company’s consolidated financial statements for such years, and (ii) there were no “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). A copy of the Former Auditor’s letter, dated November 27, 2017, is attached as Exhibit 16.1 to this Form 10-K.

PART III

 

The information required in Items 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference to the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of December 31, 2017.

 

 

										Filed or
				Incorporated by Reference						Furnished
Exhibit No.		Exhibit Description		Form		Date		Number		Herewith
3.1(i)		Articles of Incorporation, as amended		10-Q		August 19, 2015		3.1
3.2(ii)		Amended and Restated Bylaws of VerifyMe, Inc.		8-K		August 15, 2017		3.1
4.1		Second Amended Certificate of Designation for Series A Preferred Stock		8-K		June 18, 2015		3.2
4.2		Certificate of Designation for Series B Preferred Stock		8-K		June 18, 2015		3.3
10.1		Form of Securities Purchase Agreement, dated as of November 15, 2016+		10-K		April 12, 2017		10.15
10.2		Form of Warrant for Purchase of Common Stock		10-K		April 12, 2017		4.2
10.3		2017 Equity Incentive Plan		8-K		November 20, 2017		10.1
10.4		Securities Exchange Agreement +		8-K		May 31, 2017		10.1
10.5		Form of Promissory Note dated January 24, 2017		10-Q		May 15, 2017		10.1
10.6		Form of Warrant dated January 24, 2017		10-Q		May 15, 2017		10.2
10.7		Form of Option Agreement dated January 31, 2017		10-Q		May 15, 2017		10.3
10.8		Form of Option Agreement dated February 6, 2017		10-Q		May 15, 2017		10.4
10.9		Form of Option Agreement dated February 6, 2017		10-Q		May 15, 2017		10.5
10.10		Form of Promissory Note dated February 13, 2017		10-Q		May 15, 2017		10.6
10.11		Form of Warrant dated February 13, 2017		10-Q		May 15, 2017		10.7
10.12		Form of Promissory Note dated March 28, 2017		10-Q		May 15, 2017		10.8
10.13		Form of Warrant dated March 28, 2017		10-Q		May 15, 2017		10.9

 

 

+            Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplemental to the Securities and Exchange Commission staff upon request.

 

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to VerifyMe, Inc., at the address on the cover page of this report, Attention: Corporate Secretary.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

 

 

 

CONTENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

VerifyMe, Inc.

Opinion on the Financial Statements

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

We have served as the Company's auditor since 2018.

Houston, Texas

April 16, 2018

 

VerifyMe, Inc.

Balance Sheets

 

		Year Ended
		December 31, 2017				December 31, 2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	693,001			$	22,644
Prepaid expenses and other current assets			18,668				9,425
Inventory			-				17,093
TOTAL CURRENT ASSETS			711,669				49,162
OTHER ASSETS
Patents and Trademarks, net of accumulated amortization of
$237,331 and $194,236 as of December 31, 2017 and December 31, 2016			191,507				231,952
TOTAL ASSETS		$	903,176			$	281,114
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	923,202			$	867,436
Notes payable net of discount of $0 and $60,931, as of December 31, 2017 and December 31, 2016			50,000				68,069
Common stock payable – related party			122,478
Embedded derivative liability			-				228,718
Warrant liability			-				394,744
TOTAL CURRENT LIABILITIES			1,095,680				1,558,967
STOCKHOLDERS' DEFICIT
Series A Convertible Preferred Stock, $.001 par value, 37,564,767 shares
authorized; 324,778 shares issued and outstanding as of December 31, 2017 and
397,778 shares issued and outstanding as of December 31, 2016			325				398
Series B Convertible Preferred Stock, $.001 par value; 85 shares
authorized; 0.92 shares issued and outstanding as of December 31, 2017 and
December 31, 2016			-				-
Series C Convertible Preferred Stock, $.001 par value; 7,500,000 shares
authorized, 0 shares issued and outstanding as of December 31, 2017 and
1,912,500 issued and outstanding as of December 31, 2016			-				1,913
Series D Convertible Preferred Stock, $.001 par value;  6,000,000
shares authorized; 0 shares issued and outstanding as of December 31, 2017
and 166,750 issued and outstanding as of December 31, 2016			-				167
Common stock of $.001 par value; 675,000,000 authorized; 53,873,872 and 8,681,236 issued, 53,523,332 and 8,330,696 shares outstanding as of December 31, 2017 and December 31, 2016			53,522				8,331
Additional paid in capital			56,198,126				40,469,272
Treasury stock at cost (350,540 shares at December 31, 2017 and  December 31, 2016)			(113,389	)			(113,389	)
Accumulated deficit			(56,331,088	)			(41,644,545	)
STOCKHOLDERS' DEFICIT			(192,504	)			(1,277,853	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	903,176			$	281,114

 

The accompanying notes are an integral part to these financial statements.

 

 

VerifyMe, Inc.

Statements of Operations

 

 

		Year Ended
		December 31, 2017				December 31, 2016
NET REVENUE
Sales		$	-			$	37,055
TOTAL NET REVENUE			-				37,055
COST OF SALES			-				24,363
GROSS PROFIT			-				12,692
OPERATING EXPENSES
General and administrative (a)			1,689,883				1,010,648
Legal and accounting			246,520				414,032
Payroll expenses (a)			767,257				1,789,303
Research and development			128,044				250,180
Sales and marketing			3,800				282,867
Total Operating expenses			2,835,504				3,747,030
LOSS BEFORE OTHER INCOME (EXPENSE)			(2,835,504	)			(3,734,338	)
OTHER (EXPENSE) INCOME
Interest expenses			(218,316	)			(12,871	)
Loss on settlement of related party notes payable			(331,912	)			-
Other income			392				-
Loss on disposition of fixed assets			-				(4,981	)
Change in fair value of warrants			-				3,357,149
Change in fair value of embedded derivative liability			-				698,303
Fair value of warrants in excess of consideration for convertible preferred stock			-				(1,949,517	)
			(549,836	)			2,088,083
NET LOSS		$	(3,385,340	)		$	(1,646,255	)
Deemed dividend on convertible preferred shares			(596,878	)			-
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(3,982,218	)		$	(1,646,255	)
LOSS PER SHARE
BASIC		$	(0.14	)		$	(0.24	)
DILUTED		$	(0.14	)		$	(0.24	)
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
BASIC			28,244,361				6,860,955
DILUTED			28,244,361				6,860,955

The accompanying notes are an integral part to these financial statements.

 

		Series A								Series B							Series C								Series D
		Convertible								Convertible							Convertible								Convertible
		Preferred								Preferred							Preferred								Preferred									Common
		Stock								Stock							Stock								Stock									Stock								Additional
		Number of								Number of							Number of								Number of									Number of								Paid-In				Treasury				Deferred				Accumulated
		Shares				Amount								Amount			Shares					Amount			Shares					Amount				Shares				Amount				Capital				Stock				Compensation				Deficit				Total
Balance at December 31, 2015			441,938			$	442				1.00			$	-								-								-				5,977,030			$	5,977			$	39,779,414			$	(113,389	)		$	(1,842,334	)		$	(39,998,290	)		$	(2,168,180	)
Conversion of Series A Convertible Preferred Stock			(44,160	)			(44	)			-				-								-								-				883,200				883				(839	)			-				-				-				-
Conversion of Series B Convertible Preferred Stock											(0.08	)			-								-								-				647,983				675				(675	)			-				-				-				-
Sale of Series C Convertible Preferred Stock																			3,087,500				3,088								-				1,231,912				-				-				-				-				-				1,235,000
Stock issuance costs																																			(17,500	)			-				-				-				-				-				(17,500	)
Conversion of Series C Convertible Preferred Stock																			(1,175,000	)			(1,175	)			166,750				167				1,175,000				1,175				-				-				-				-				-
Stock on embedded derivative liability																																			350,500																								350,500
Sale of Series D Convertible Preferred Stock			-				-				-				-								-								-												66,533				-				-				-				66,700
Deemed dividend distribution			-				-				-				-								-								-												(1,277,521	)			-				-				-				(1,277,521
Issuance of stock for services			-				-				-				-								-								-				32,983				33				20,742				-				-				-				20,775
Issuance of restricted stock for services			-				-				-				-								-								-				40,000				40				(40	)			-				-				-				-
Forfeiture of restricted stock units			-				-				-				-								-								-				(452,500	)			(452				(1,069,256	)			-				1,069,708				-				-
Warrants issued in conjunction with notes payable											-				-								-								-				-				-				69,500				-				-				-				69,500
Fair value of stock options and warrants																																			-				-				1,405,877				-				-				-				1,405,877
Decrease in fair value of restricted stock units																																			-				-				(89,375	)			-				89,375				-				-
Amortization of deferred compensation																																			-				-				-				-				683,251				-				683,251
Net loss																																											-				-				-				(1,646,255	)			(1,646,255	)
Balance at December 31, 2016			397,778				398				0.92								1,912,500				1,913				166,750				167				8,330,696				8,331				40,469,272				(113,389	)							(41,644,545	)			(1,277,853	)
Cumulative adjustment related to change in accounting principle (Note 1, Change in Accounting Principle)			-				-				-				-				-				-				-				-				-				-				11,924,665								-				(11,301,203	)			623,462
Adjusted balance at January 1, 2017			397,778				398				0.92				-				1,912,500				1,913				166,750				167				8,330,696				8,331				52,393,937				(113,389	)			-				(52,945,748	)			(654,391	)
Conversion of Series A Convertible Preferred Stock			(73,000	)			(73	)			-				-				-				-				-				-				1,460,000				1,460				(1,387	)			-				-				-				-
Conversion of Series C Convertible Preferred Stock			-				-								-				(1,912,500	)			(1,913	)			-				-				4,767,858				4,768				(2,855	)			-				-				-				-
Conversion Preferred C - Warrants			-				-				-				-				-				-				-				-				6,175,000				6,175				(6,175	)															-
Conversion of Series D Convertible Preferred Stock			-				-				-				-				-				-				(166,750	)			(167	)			496,429				496				(329	)			-				-				-				-
Conversion Preferred D - Warrants			-				-				-				-				-				-				-				-				1,985,716				1,986				(1,986	)															-
Sale of common stock			-				-				-				-				-				-				-				-				19,451,575				19,452				1,340,798				-				-				-				1,360,250
Sale of common stock - Past issuances			-				-				-				-				-				-				-				-				503,432				503				(503	)															-
Stock Based Compensation			-				-				-				-				-				-				-				-				2,050,372				2,050				137,758								-								139,808
Stock issuance costs			-				-				-				-				-				-				-				-								-				(32,325	)			-				-				-				(32,325	)
Conversion of related party notes payable and accrued interest into common stock			-				-				-				-				-				-				-				-				4,402,079				4,402				601,133				-				-				-				605,535
Discount on warrants issued in conjunction with related party notes payable			-				-				-				-				-				-				-				-				-				-				113,586				-				-				-				113,586
Fair value of stock option			-				-				-				-				-				-				-				-				-				-				1,295,741				-				-				-				1,295,741
Restricted Stock units and awards			-				-				-				-				-				-				-				-				2,175,000				2,175				64,650				-				-				-				66,825
Deemed dividend distribution on issuance of common stock for conversion of Series C and Series D			-				-				-				-				-				-				-				-				-				-				(596,878	)															(596,878	)
Accretion of deemed dividend distribution on issuance of common stock for conversion of Series C and Series D			-				-				-				-				-				-				-				-				-				-				596,878																596,878
Common stock and warrants issued for services			-				-				-				-				-				-				-				-				1,725,175				1,724				296,083																297,807
Net loss			-				-				-				-				-				-				-				-				-				-				-				-				-				(3,385,340	)			(3,385,340	)
Balance at December 31, 2017			324,778			$	325				0.92			$	-				-			$	-				-			$	-				53,523,332			$	53,522			$	56,198,126			$	(113,389	)						$	(56,331,088	)		$	(192,504	)