VerifyMe, Inc. - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

For the quarterly period ended June 30, 2019

For the transition period from                      to                     

Commission file number 000-31927 

VERIFYME, INC.

(Exact Name of Registrant as Specified in Its Charter)

(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

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.

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:109,955,166 shares of common stock outstanding at August 9, 2019.

FINANCIAL STATEMENTS

ITEM 1. 

VerifyMe, Inc.

Balance Sheets

The accompanying notes are an integral part of these unaudited financial statements.

VerifyMe, Inc.

Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

VerifyMe, Inc.

Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

VerifyMe, Inc.

Statement of Stockholders' Equity (Deficit)

(Unaudited)

The accompanying notes are an integral part of these unaudited financial statements.

VerifyMe, Inc.

Statement of Stockholders' Equity (Deficit)

(Unaudited) 

The accompanying notes are an integral part of these unaudited financial statements.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

The Company was incorporated in the State of Nevada on November 10, 1999. The Company is based in Rochester, New York and its common stock, par value $0.001 per share, is traded on the over-the-counter market and quoted on the OTCQB.

The Company is a developmental stage technology solutions provider specializing in brand protection functions such as counterfeit prevention, authentication, serialization, track and trace features for labels, packaging and products. We deliver security solutions for identification and authentication of packaging, labels and products in a variety of applications. Leveraging our covert luminescent pigment, RainbowSecure®, which we began commercializing in 2018, we also developed the patent pending VeriPAS™ software system in 2018, which covertly and overtly serializes products to track a products “life cycle” for brand owners. VeriPAS™ is capable of fluorescing, decoding, and verifying invisible RainbowSecure® codes in the field – allowing investigators to quickly and efficiently authenticate product throughout the distribution chain, including warehouses, ports of entry, retail locations, and product purchased over the internet for inspection and investigative actions. This technology is coupled with a secure cloud based track and trace software engine which allows brands and investigators to see where products originate and where they are deployed with geo location mapping and intelligent programmable alerts. Brand owners access the VeriPAS™ software over the internet. Brand owners can then set rules of engagement, establish marketing programs for customer engagement and control, and monitor and protect their products “life cycle.” We have not yet derived any revenue from our VeriPAS™ software system and have derived minimal revenue from the sale of our RainbowSecure® technology.

The accompanying unaudited interim financial statements (the “Interim 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, 2018 as filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2019.  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, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.

The Company’s activities are subject to significant risks and uncertainties, including the need to secure additional funding for working capital and to further develop the Company’s intellectual property.

Basis of Presentation

The accompanying financial statements are presented in accordance with GAAP.

Revenue Recognition

The Company accounts for revenues according to 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 in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

During the three and six months ended June 30, 2019, the Company’s revenues consisted of revenue generated from customer’s printing labels utilizing the Company’s technology.

Basic and Diluted Net Income 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, 2019 and 2018, 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 years presented. For the three and six months ended June 30, 2019 there were approximately 48,877,000 anti-dilutive shares consisting of 19,614,000 shares issuable upon exercise of options, 22,041,000 shares issuable upon exercise of warrants and 7,222,000 shares issuable upon conversion of preferred stock.  For the three and six months ended June 30, 2018 there were approximately 42,703,000 anti-dilutive shares consisting of 18,014,000 shares relating to options, 11,375,000 shares relating to warrants and 13,314,000 shares relating to preferred share agreements.  

Going Concern

The Company has suffered recurring losses from operations and negative cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management's plans to continue as a going concern include raising additional capital through increased sales of product and by the sale of common shares. The Company’s business plans are dependent on the 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. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The Company’s existing cash resources are sufficient to sustain the Company’s operations through the third quarter of 2019. The Company needs to raise additional funds in the future in order to remain operational past that date. 

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), 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. The adoption of ASU 2018-07 did not have a material impact on the Company’s financial statements.

NOTE 2 – INTANGIBLE ASSETS

Patents and Trademarks

The current patent and trademark portfolios consist of 10 granted US patents and 1 granted European patent validated in 4 countries, 4 pending US and foreign patent applications, 4 registered US trademark, and 9 pending US and foreign trademark applications. Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 17 to 19 years. During the six months ended June 30, 2019 and 2018, the Company capitalized $28,574 and $825 of patent and trademarks costs. Amortization expense for patents and trademarks was $5,928 and $5,860 for the three months ended June 30, 2019 and 2018, and $11,635 and $10,984 for the six months ended June 30, 2019 and 2018, respectively.

Capitalized Software

Costs incurred in connection with the development of software related to our proprietary digital products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market. Amortization of capitalized software development costs begins once the product is available to the market. Capitalized software development costs are amortized over the estimated life of the related product, generally three years, using the straight-line method. The Company will evaluate its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company had Capitalized Software of $116,427 and $70,231 as of June 30, 2019 and December 31, 2018, respectively. The Company has not incurred a depreciation charge as the software was not available for use as of June 30, 2019. 

NOTE 3 – CONVERTIBLE PREFERRED STOCK

The Company is authorized to issue Series A Convertible Preferred Stock, par value of $0.001 per share (the “Series A”) and Series B Convertible Preferred Stock, par value of $0.001 per share (the “Series B”). As of June 30, 2019, there were no shares of Series A outstanding and 0.85 of a share of Series B outstanding. Each share of Series A and Series B has limited voting rights, is entitled to participate with the common stock on liquidation and holders of Series A and Series B are subject to beneficial ownership limitations.

Series A Convertible Preferred Stock

During the six months ended June 30, 2019, 304,778 shares of Series A were converted into 6,095,569 shares of the Company’s common stock.

During the six months ended June 30, 2018, 20,000 shares of Series A were converted into 400,000 shares of the Company’s common stock.

Series B Convertible Preferred Stock

During the six months ended June 30, 2018, 0.07 of a share of Series B was converted into 599,362 shares of the Company’s common stock.

NOTE 4 – STOCKHOLDERS’ EQUITY

For the three and six months ended June 30, 2019 the Company expensed $0 relative to restricted stock units. For the three and six months ended June 30, 2018 the Company expensed $248 and $8,625 relative to restricted stock units.

During the six months ended June 30, 2019, the Company granted a total of 1,200,000 restricted stock awards to five directors of the Company for their services. The restricted stock awards vest in equal quarterly installments over a one-year period. On February 27, 2019 three directors resigned from the Company’s Board of Directors, effective March 1, 2019. This resulted in a cancellation of 320,000 shares related to the portion of the unvested restricted stock awards these directors had received.

The Company expensed $118,846 and $84,220 in costs related to restricted stock awards for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, the Company expensed $183,866 and $226,781 relative to restricted common stock.

During the six months ended June 30, 2019, the Company issued 71,324 shares of restricted common stock for a total expense of $15,000 related to consulting services. During the six months ended June 30, 2018, the Company issued 169,500 shares of restricted common stock for a total expense of $44,119 related to consulting services.

During the six months ended June 30, 2018, 37,500 restricted stock units vested in relation to a consulting services agreement and a total of $8,625 was expensed.

During the six months ended June 30, 2018, the Company granted a total of 600,000 shares of restricted common stock awards to two directors of the Company, each receiving 300,000 shares of restricted common stock, for joining the Board of Directors. On April 25, 2018, the Company approved the immediate vesting of all of the Company’s outstanding restricted common stock issued in 2017 and 2018 to non-employee directors of the Company.

During the three months ended June 30, 2018, the Company granted a total of 1,425,000 shares of restricted common stock to the directors and the Chief Executive Officer of the Company for their services and 150,000 shares to one attorney, that vested quarterly over a one-year period.

In 2017, the Company authorized a private placement with a maximum offering amount of $2,100,000 allowing investors to purchase units consisting of 715,000 shares of common stock and 715,000 five-year warrants exercisable at $0.15 per share. In January 2018 the Company’s Board of Directors increased the size of the private placement by an additional amount beyond the $2,100,000 limit. During the six months ended June 30, 2018, the Company raised gross proceeds of $1,154,211 for the purchase of 16,513,311 shares of common stock and 16,513,311 warrants. Of these amounts, gross proceeds of $530,777 for the purchase of 7,590,111 shares of common stock and 7,590,111 warrants related to purchases by directors and relatives of the directors of the Company.

In January 2018, the Chairman of the Board of Directors, made a cashless exercise of 5,000,000 options related to services rendered in 2017, resulting in the issuance of 4,027,778 shares of common stock, see Note 5.

On January 30, 2018, the Company authorized a 30-day offer, beginning on February 20, 2018, to the holders of the Company’s outstanding warrants exercisable at $0.15 to exercise their warrants at $0.10 per share.  This authorization was extended until the latter of 30 days after the receipt of all Investment Letters, as defined below, in connection with the Settlement Shares, as defined below, or June 30, 2018.  For the six months ended June 30, 2018, 20,764,860 shares of warrants were exercised and a total of 20,764,860 shares of common stock were issued for gross proceeds of $2,076,486. Included in the above amounts are gross proceeds of $1,205,458 from directors which resulted in 12,054,576 warrants converted into the issuance of 12,054,576 common stock. The offer to exercise $0.15 warrants at $0.10 per share expired on June 30, 2018 and the Company did not extend the offer.

In January 2018, a member of the Board exercised 104,876 warrants with an exercise price of $0.15 and a total of 104,876 shares of common stock were issued for gross proceeds of $15,731.

On March 31, 2018, the Company entered into a Confidential Settlement Agreement (the “Settlement Agreement”) with Paul Klapper, a member of the Company’s Board at that time, and certain other parties named in the Settlement Agreement. Pursuant to the terms of the Settlement Agreement, the Company (i) paid a total of $500,000 (the “Settlement Amount”) to a fund controlled by Paul Klapper and an additional party, and (ii) issued a total of 1,000,000 shares of the Company’s common stock to the fund and the third party (the “Settlement Shares”). The shares were valued at $279,000 whereby $139,500 related to common stock issued to a related party and $139,500 related to common stock issued to a third party. The Settlement Agreement provides for cancellation as of March 31, 2018 of certain revenue sharing agreements between the Company and each of Mr. Klapper (or an affiliate) and the third party, and terminates the Company’s obligation to issue warrants to purchase 3.7 million shares of the Company’s common stock at an exercise price of $0.40 per share. Mr. Klapper joined the Board of Directors on July 14, 2017 and resigned as of March 31, 2018.

In January 2018, the Company issued 1,749,683 shares of common stock and 1,749,683 warrants with an exercise price of $0.15 to Mr. Klapper relating to the Note payable conversion that took place in June 2017.

 On March 28, 2018, the Company accelerated the vesting of 150,000 shares of restricted common stock owned by Mr.  Klapper.

In April 2018, the former Chief Executive Officer of the Company exercised his warrants at an exercise price of $0.01 for gross proceeds of $1,000 resulting in an issuance of 100,000 shares.

NOTE 5 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS

During 2013, the Company adopted an incentive 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 of up to an aggregate of 20,000,000 shares of common stock. The 2013 Plan is intended to permit 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-statutory stock options. The 2013 Plan is no longer used for future grants.

On November 14, 2017, the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”) which covers the potential issuance of 13,000,000 shares of common stock. The 2017 Plan provides that directors, officers, employees, and consultants of the Company will be eligible to receive equity incentives under the 2017 Plan at the discretion of the Board of Directors or the Compensation Committee of the Board of Directors (the “Compensation Committee”). The Compensation Committee may adopt rules and regulations to carry out the terms of the 2017 Plan. The Plan terminates on November 14, 2027 unless sooner terminated.

The 2017 Plan 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 2017 Plan.

In connection with incentive stock options issuable under the 2017 Plan, 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).

Incentive stock options under all plans of the Company shall not exceed $1,000,000 per calendar year. If any employee shall have the right to first exercise any options in excess of $100,000 during any calendar year, the options in excess of $100,000 shall be deemed to be non-statutory stock options, including prices, duration, transferability and limitations on exercise.

The Company issued non-statutory 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 judgments.

During the six months ended June 30, 2019 and 2018, the Company expensed $249,788 and $226,188, respectively, with respect to options.

The following table presents the weighted-average assumptions used to estimate the fair value of the stock options granted during the six months ended June 30, 2019:

The following table summarizes the activities for the Company’s unvested stock options for the six months ended June 30, 2019:

During the six months ended June 30, 2019, the Company amended the Consulting Agreement it has with its Chief Operating Officer and granted him options to purchase 1,000,000 shares of common stock with an exercise price of $0.195 that vest annually in equal increments over a two-year period.  

The following table summarizes the activities for the Company’s warrants for the six months ended June 30, 2019:

During the six months ended June 30, 2019, the Company recorded 85,255 warrants related to past issuances.

In May 2019, a former director made a cashless exercise of 200,000 warrants, whereby the warrant holder disposed of 128,226 shares of common stock to the Company as part of this exercise, amounting to an issuance of 71,774 shares of common stock.

NOTE 6 – CONCENTRATIONS

Revenue

For the three and six months ended June 30, 2019, three customers represented 100% of revenues.

Accounts Receivable

As of June 30, 2019, two customers represented 100% of accounts receivable.

NOTE 7 – SUBSEQUENT EVENTS

In July 2019, the Company granted 33,333 shares of restricted common stock in relation to investor relation services.

In August 2019, the Company granted 200,000 shares of restricted common stock in relation to consulting services. 

In August 2019, the Company granted 400,000 shares of restricted common stock in relation to consulting services.

In August 2019, the Company entered into an amendment (the “Amendment”) to the Employment Agreement, dated August 15, 2017, with Patrick White, the Chief Executive Officer of the Company (the “Employment Agreement”), which Employment Agreement automatically renewed on July 16, 2019, effective on August 15, 2019. Pursuant to the Amendment, the term was reduced to one year and Mr. White agreed to defer receipt of sums due him to improve the Company’s liquidity. Mr. White was due to receive $100,000 on August 15, 2019 representing deferred salary (the “Deferral Amount”) that he had previously agreed to defer over the two years of the initial term of his Employment Agreement. In the Amendment, Mr. White agreed to extend receipt of the Deferral Amount until August 15, 2020. In addition, he agreed to continue deferring 25% of his base salary over the one-year term until August 15, 2020. In connection with entering into the Amendment, the Company granted Mr. White 500,000 five-year fully vested incentive stock options under the Company’s 2017 Equity Incentive Plan exercisable at $0.14 per share.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

VerifyMe, Inc. (“VerifyMe,” the “Company,” “we” or “us”) is a developmental stage technology solutions provider specializing in brand protection functions such as counterfeit prevention, authentication, serialization, track and trace features for labels, packaging and products. We deliver security solutions for identification and authentication of packaging, labels and products in a variety of applications. Leveraging our covert luminescent pigment, RainbowSecure®, which we began commercializing in 2018, we also developed the patent pending VeriPAS™ software system in 2018, which covertly and overtly serializes products to track a products “life cycle” for brand owners. We believe VeriPAS™ is the only invisible covert serialization and authentication solution deployed through variable digital printing on HP Indigo printing systems with a smartphone tracking and authentication system. VeriPAS™ is capable of fluorescing, decoding, and verifying invisible RainbowSecure® codes in the field – allowing investigators to quickly and efficiently authenticate product throughout the distribution chain, including warehouses, ports of entry, retail locations, and product purchased over the internet for inspection and investigative actions. This technology is coupled with a secure cloud based track and trace software engine which allows brands and investigators to see where products originate and where they are deployed with geo location mapping and intelligent programmable alerts. Brand owners access the VeriPAS™ software over the internet. Brand owners can then set rules of engagement, establish marketing programs for customer engagement and control, and monitor and protect their products “life cycle.” We have not yet derived any revenue from our VeriPAS™ software system and have derived minimal revenue from the sale of our RainbowSecure® technology.

Our brand protection technologies involve the utilization of invisible and color changing inks, which are compatible with today’s printing presses. In 2017, we signed a five-year contract with the Indigo Division of HP Inc. (“HP Indigo”) to print this technology on packages and labels on their 6000 series digital presses. In 2019, we entered into a strategic partnership with INX International Ink Company, the third largest producer of inks in North America, to co-develop inkjet inks to be used for inkjet printing in combination with high speed, high volume label and packaging printing presses. In addition, the inks may be used with certain printing systems such as offset, flexographic, silkscreen, gravure, and toner based laser printers. Based upon our experience, we believe that the ink technologies may be incorporated into existing manufacturing processes. Further, we believe that some of our patents may have non-security applications, and we are attempting to commercialize these opportunities.

We believe that our brand protection will play a role in the supply chain management process. Our invisible ink can be used as a unique identifier in a digital serialization application.

Serialization or unique identification helps brand owners identify who manufactured the product, which wholesaler has sold the product to retailers or hospitals and other pertinent information concerning the product’s supply chain.  The implementation of serialization and track and trace provides the ability to track and trace the lifecycle of products in the system end-to-end.  Our invisible ink is applied during the printing process of product labels and packaging and can be used as a unique invisible serialization identifying number or code on labels and packaging.   The invisibleness of our ink acts as an additional layer of security since the ink needs to be revealed with special equipment.

A track and trace system improves security by:

Track and trace works in the following ways:

Each time a transaction for serialized drugs is carried out, the transaction drug history is updated in the e-pedigree system.

Our technologies include the following products:

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. In 2017, we 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, we signed a contract with Micro Focus International PLC (“Micro Focus”) to use RainbowSecure® in their Global Product Authentication, Track and Trace system (software).

In May 2019, we entered into a strategic partnership with INX International Ink Company, the third largest producer of inks in North America, to co-develop inkjet inks to be used for inkjet printing in combination with high speed, high volume label and packaging printing presses. 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. This technology is commercialized and is currently in use in the public domain. We have derived minimal revenue from the sale of our RainbowSecure® technology.

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. Based on our discussions with other serialization, track and trace software providers, we expect to add alternatives to clients beyond the Micro Focus Global Protected Authentication System (“GPAS”). This technology is currently being co-marketed with RainbowSecure® and our Smart Phone Authenticator product. Several clients are in the testing stage with this product. To date, we have not derived revenue from this technology.

SecureLight® technology was developed as a result of our investment in new proprietary color changing inks that could penetrate broader markets. During the past decade, we have refined our technology and its applications, and now have what we believe to be the easiest, most cost effective and efficient authentication technology 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 technology can also be used to protect apparel, pharmaceuticals, and virtually any other physical product, such as fabrics, plastics, ceramics and metal. In 2018, we received notice that patents involving this technology were approved in various European nations. We are attempting to commercialize this 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. In 2018, we received notice that patents involving this technology were approved in various European nations. SecureLight+® has been successfully deployed in one country’s drivers’ licenses and another country’s voter registration card program. We have begun to commercialize this product. 

Smart Phone Authenticator™ technology is a piece of hardware with a built in lighting system and software that scans invisible RainbowSecure® codes. Product investigators attach their smart phone to this device which then reveals the hidden RainbowSecure® images on the smart phone screen which are then sent to the VeriPAS^TM software in the cloud for authentication and data submission. These devices have been commercialized and are being leased to customers. Leases are typically one year in length.

VerifyMe Beeper technology is an authentication tool which we are marketing to customers in conjunction with our RainbowSecure® ink pigment. Authentication is provided in the form of an LED indicator, a camera device which reveals the hidden serialization numbers and codes on a viewing screen and an audible beeping device when placed on a label, product or package containing the RainbowSecure® technology. The hand held beeping device is tuned to authenticate the unique frequency of our RainbowSecure® invisible ink and will broadcast a beeping sound to confirm the authenticity when placed on products, labels and packaging containing our RainbowSecure® ink technology. The VerifyMe Beeper is designed for use by customers who desire instant authentication on items, such as event tickets at an entry gate. Our customized beeper will only positively identify a product bearing our unique anti-counterfeit solution. This technology is being commercialized and leased to customers.

Our digital technologies involve the utilization of multiple authentication mechanisms, some of which we own and some of which we license. 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 factors include devices that the user has in their possession such as a smartphone, smart watch, and other wearable computing devices. The location factors geo-locate 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 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 also have systems that introduce learning capabilities into our solutions to improve the ease of use and flexibility. We are continuing to develop and market this technology but it has not yet been commercialized.

Results of Operations

Comparison of the three months ended June 30, 2019 and 2018

The following discussion analyzes our results of operations for the three months ended June 30, 2019 and 2018.

Revenue

We generated revenue of $40,479 for the three months ended June 30, 2019 compared to $6,799 for the three months ended June 30, 2018. The revenue primarily related to security printing with our authentication serialization technology for a large global brand owner. For the three months ended June 30, 2019, three customers represented 100% of revenues.

General and Administrative Expenses

General and administrative expenses decreased by $107,565 to $418,195 for the three months ended June 30, 2019 from $525,760 for the three months ended June 30, 2018. The decrease resulted primarily from a decrease in non-cash charges related to restricted stock awards and stock options of approximately $40,000 while the remaining positive impact was a result of continued efficiencies within the Company.

Legal and Accounting

Legal and accounting fees decreased by $95,435 to $68,335 for the three months ended June 30, 2019 from $163,770 for the three months ended June 30, 2018. The decrease related primarily to a decrease in attorney fees.

Payroll Expenses

Payroll expenses were $101,786 for the three months ended June 30, 2019, an increase of $1,983 from $99,803 for the three months ended June 30, 2018.  The increase relates to non-cash stock-based compensation.

Research and Development

Research and development expenses were $2,608 and $16,233 for the three months ended June 30, 2019 and 2018, respectively. The decline is primarily due to investments in developing our VeriPAS^TM Mobile Authenticator technology in 2018 while in the three months ended June 30, 2019, our products are nearly completely developed.

Sales and Marketing

Sales and marketing expenses were $109,158 and $25 for the three months ended June 30, 2019 and 2018, respectively. The increase in sales and marketing expenses related to the hiring of our VP of Global Business Development and our increased participation in trade shows.

Net Loss

Our net loss decreased by $129,539 to $665,656 for the three months ended June 30, 2019 from $795,195 for the three months ended June 30, 2018. The decrease primarily related to a decrease in non-cash share-based compensation which amounted to $89,085.

Comparison of the Six Months Ended June 30, 2019 and 2018

The following discussion analyzes our results of operations for the six months ended June 30, 2019 and 2018.

Revenue

We generated revenue of $86,933 for the six months ended June 30, 2019 compared to $6,799 for the six months ended June 30, 2018. The revenue primarily related to security printing with our authentication serialization technology for a large global brand owner. For the six months ended June 30, 2019, three customers represented 100% of revenues.

General and Administrative Expenses

General and administrative expenses decreased by $370,457 to $650,877 for the six months ended June 30, 2019 from $1,021,334 for the six months ended June 30, 2018. The decrease resulted primarily from a decrease in non-cash charges related to restricted stock awards and stock options of approximately $300,000 while the remaining variance was due to efficiencies within the Company.

Legal and Accounting

Legal and accounting fees decreased by $166,775 to $130,699 for the six months ended June 30, 2019 from $297,474 for the six months ended June 30, 2018. The decrease related primarily to a decrease in legal fees.

Payroll Expenses

Payroll expenses were $206,575 for the six months ended June 30, 2019, an increase of $14,721 from $191,854 for the six months ended June 30, 2018. The increase relates to non-cash stock-based compensation.

Research and Development

Research and development expenses were $6,251 and $28,429 for the six months ended June 30, 2019 and 2018, respectively. The decline is primarily due to investments in developing our VeriPAS^TM Mobile Authenticator technology in 2018 , while in the six month period ended June 30, 2019, our products are nearly completely developed.

Sales and Marketing

Sales and marketing expenses were $252,301 and $8,067 for the six months ended June 30, 2019 and 2018, respectively. The increase in sales and marketing relates to the hiring of our VP of Global Business Development and our increased participation in trade shows.

Settlement agreement with shareholders

In the first half of 2018 we made a strategic decision to end a future revenue sharing program resulting in settlement expenses of $779,000 with certain of our shareholders (the “Settlement Agreement”).

Net Loss

Our net loss decreased by $739,866 to $1,178,962 for the six months ended June 30, 2019, from $1,918,828 for the six months ended June 30, 2018. The decrease related primarily to the Settlement Agreement with shareholders which occurred in the six months ended March 31, 2018 resulting in a total expense of $779,000.

Liquidity and Capital Resources

Our operations used $1,013,238 of cash during the six months ended June 30, 2019 compared to $1,623,303 during the comparable period in 2018, primarily due to a $500,000 payment made related to the Settlement Agreement during the six months ended June 30, 2018.

Cash used in investing activities was $74,770 during the six months ended June 30, 2019 compared to $825 during the six months ended June 30, 2018, which was attributed primarily to software costs related to our products during the six months ended June 30, 2019.

Cash provided by financing activities during the six months ended June 30, 2019, was nil compared to $3,247,428 during the six months ended June 30, 2018.  During the six months ended June 30, 2018, we sold common stock for gross proceeds of $1,154,211.  Additionally, we raised $2,093,217 from the exercise of warrants during the six months ended June 30, 2018.

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 offerings of our securities. As of August 9, 2019, we had cash resources of approximately $450,000, a decrease from our December 31, 2018 cash balance, primarily due to the manufacturing and deployment of authenticators and beepers which account for $0.2 million of the spend. Our existing cash resources are not sufficient to sustain our operations during the next 12 months unless we have a material increase in revenue and collections of any revenue. Management's plans include efforts to increase sales of our products and raising additional capital through incurrence of debt and the sale of equity securities. Our primary focus is to raise capital through the sale of indebtedness. As of the date of this Report, we have no commitments from any investors. We cannot assure you that we will be able to meet our working capital needs. Further, if we are able to raise capital, it will likely be through the issuance of convertible debt. Any such financing may be very dilutive and otherwise have unfavorable terms. We estimate that we have sufficient cash to support our operations through the third quarter of 2019. We cannot assure you that we will be successful in raising additional capital.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future success of our products and our liquidity.

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.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include our ability to close sales leads, begin meaningful marketing of our products, begin generating material revenue from our products and business relationships, our ability to close a bridge financing and factors which affect the capital markets in general and microcap companies in particular. Further information on our risk factors is contained in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2018. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.

Revenue Recognition