VerifyMe Inc

Previous wording

This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “intended,” “should,” “plan,” “could,” “target,” “potential,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.

Current wording

This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “intended,” “plan,” “could,” “target,” “potential,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.

Previous wording

Precision Logistics has a direct partnership with a major global carrier company and has data feeds directly from the carrier into our proprietary logistics optimization software which provides shippers much more detailed information and predictive analytics on their shipment versus a standard shipping code look up which is provided by the carrier. In addition to relying on this strategic partner for shipping services we have a service agreement pursuant to which this strategic partner resells our services to its customers under a “white label” arrangement. Under this arrangement we provide our logistics services to our strategic partner’s customers in exchange for a pre-negotiated service fee per shipment. Our strategic partner has begun to provide its own service offerings to its customers and while we will continue to offer our premium services, we expect a reduction in business for this service offering over time. This does not affect our proactive services, and we expect to see growth under that service offering as we focus on providing proactive services to customers directly.

Current wording

Precision Logistics has a direct partnership with a major global carrier company and has data feeds directly from the carrier into our proprietary logistics optimization software which provides shippers much more detailed information and predictive analytics on their shipment versus a standard shipping code look up which is provided by the carrier. In addition to relying on this strategic partner for shipping services we have a service agreement pursuant to which this strategic partner resells our services to its customers under a “white label” arrangement. Under this arrangement we provide our logistics services to our strategic partner’s customers in exchange for a pre-negotiated service fee per shipment. Our strategic partner has begun to provide its own service offerings to its customers and while we will continue to offer our Premium services, we expect our partner will prefer to offer their solution to customers as the primary recommendation and our solution will be offered as a secondary solution. This does not affect our proactive services, and we expect to see growth under that service offering as we focus on providing proactive services to customers directly.

Previous wording

We have seen a softening in demand for some services related to high-end perishable items and cannabis products which seem to be impacted by reduced discretionary spending by U.S. consumers. While a recession, whether global or more localized to the U.S., may decrease the demand for our services that are more discretionary in nature, we believe that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service providers. We are working with this major global carrier to address their small and medium-sized business clients, which we believe is an underserved market and presents considerable growth opportunities for our Precision Logistics segment. However, we can provide no assurances that a decline in discretionary consumer spending will not have a negative impact on our revenues and results of operations.

Current wording

We have seen a softening in demand for some services related to high-end perishable items which seem to be impacted by reduced discretionary spending by U.S. consumers. While a recession, whether global or more localized to the U.S., may decrease the demand for our services that are more discretionary in nature, we believe that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service providers. We are working with this major global carrier to address their small and medium-sized business clients, which we believe is an underserved market and presents growth opportunities for our Precision Logistics segment. However, we can provide no assurances that a decline in discretionary consumer spending will not have a negative impact on our revenues and results of operations.

Previous wording

Research and development expenses were $5 thousand and $10 thousand for the three months ended June 30, 2024, and 2023, respectively.

Current wording

Research and development expenses were $5 thousand for the three months ended September 30, 2024, and 2023.

Previous wording

Interest expense, net was $42 thousand for the three months ended June 30, 2024, compared to $46 thousand for the three months ended June 30, 2023.

Current wording

Interest expense, net was $29 thousand for the three months ended September 30, 2024, compared to $39 thousand for the three months ended September 30, 2023.

Previous wording

Consolidated net loss for the three months ended June 30, 2024, and 2023 was $346 thousand and $882 thousand, respectively. The decreased loss was primarily related to an increase in gross profit. The resulting consolidated loss per share for the three months ended June 30, 2024, and three months ended June 30, 2023, was $0.03 and $0.09 per diluted share, respectively.** **

Current wording

Consolidated net loss for the three months ended September 30, 2024, and 2023 was $2,424 thousand and $930 thousand, respectively. The decreased loss was primarily related to the goodwill and intangible asset impairment noted above partially offset by a gain in contingent consideration of $475 thousand. The resulting consolidated loss per share for the three months ended September 30, 2024, and three months ended September 30, 2023, was $0.23 and $0.09 per diluted share, respectively.** **

Previous wording

The following discussion analyzes our results of operations for the six months ended June 30, 2024, and 2023.

Current wording

The following discussion analyzes our results of operations for the nine months ended September 30, 2024, and 2023.

Previous wording

Gross profit for the three months ended June 30, 2024, was $2,090 thousand, compared to $1,586 thousand for the three months ended June 30, 2023. The resulting gross margin was 39% for the three months ended June 30, 2024, compared to 30% for the three months ended June 30, 2023. The gross profit increase relates to the increased premium services revenue which has higher margins as well as process improvements to increase proactive services margins in the Precision Logistics segment.

Current wording

Gross profit for the nine months ended September 30, 2024, was $6,245 thousand, compared to $5,153 thousand for the nine months ended September 30, 2023. The resulting gross margin was 38% for the nine months ended September 30, 2024, compared to 31% for the nine months ended September 30, 2023. The gross profit increase relates to the increased Premium services revenue which has higher margins as well as process improvements to increase Proactive services margins in the Precision Logistics segment.

Previous wording

Segment management and technology expenses increased by $504 thousand to $2,860 thousand for the six months ended June 30, 2024, compared to $2,356 thousand for the six months ended June 30, 2023. The increase relates primarily to the acquisition of Trust Codes Global in March 2023, lower capitalized labor costs and severance expense of $129 thousand. Amortization and depreciation expense of $599 thousand for the six months ended June 30, 2024 compared to $540 thousand for the six months ended June 2023.

Current wording

Segment management and technology expenses increased by $492 thousand to $4,189 thousand for the nine months ended September 30, 2024, compared to $3,697 thousand for the nine months ended September 30, 2023. The increase relates primarily to the acquisition of Trust Codes Global in March 2023, lower capitalized labor costs and severance expense of $129 thousand. Amortization and depreciation expense of $905 thousand for the nine months ended September 30, 2024, compared to $835 thousand for the nine months ended September 2023.

Previous wording

General and administrative expenses decreased by $234 thousand to $2,015 thousand for the six months ended June 30, 2024, compared to $2,249 thousand for the six months ended June 30, 2023. The decrease relates primarily to the deal costs related to the acquisition of the Trust Codes Global business of $278 thousand, as well as severance expense in 2023, partially offset by an increase in stock-based compensation for the six months ended June 30, 2024.

Current wording

General and administrative expenses decreased by $613 thousand to $2,780 thousand for the nine months ended September 30, 2024, compared to $3,393 thousand for the nine months ended September 30, 2023. The decrease relates primarily to the deal costs related to the acquisition of the Trust Codes Global business of $278 thousand, as well as severance expense in 2023.

Previous wording

Research and development expenses were $60 thousand and $18 thousand for the six months ended June 30, 2024, and 2023, respectively.

Current wording

Research and development expenses were $65 thousand and $23 thousand for the nine months ended September 30, 2024, and 2023, respectively primarily due to additional projects in the Authentication segment.

Previous wording

Sales and marketing expenses decreased by $317 thousand to $210 thousand for the three months ended June 30, 2024, compared to $527 thousand for the three months ended June 30, 2023. The decrease is primarily related to a reduction in employees and consultants in the Authentication segment, a reduction in stock compensation in Precision Logistics, partially offset by an increase in employees in Precision Logistics.

Current wording

Sales and marketing expenses decreased by $404 thousand to $999 thousand for the nine months ended September 30, 2024, compared to $1,403 thousand for the nine months ended September 30, 2023. The decrease is primarily related to a reduction in employees and consultants in the Authentication segment, a reduction in stock compensation in Precision Logistics, partially offset by an increase in employees in Precision Logistics.

Previous wording

Interest expense was $80 thousand for the six months ended June 30, 2024, compared to interest expense of $88 thousand for the six months ended June 30, 2023.

Current wording

Interest expense was $109 thousand for the nine months ended September 30, 2024, compared to interest expense of $127 thousand for the nine months ended September 30, 2023.

Previous wording

Consolidated net loss for the six months ended June 30, 2024, and 2023 was $899 thousand and $2,462 thousand, respectively. The decreased loss was primarily related to an improvement in gross profit and a gain relating to the change in the fair value of the contingent consideration related to the acquisition of Trust Codes Global. The resulting consolidated loss per share for the six months ended June 30, 2024, and six months ended June 30, 2023, was $0.09 and $0.26 per diluted share, respectively.

Current wording

Consolidated net loss for the nine months ended September 30, 2024, and 2023 was $3,323 thousand and $3,392 thousand, respectively. The decreased loss was primarily related to an improvement in gross profit and a gain relating to the change in the fair value of the contingent consideration related to the acquisition of Trust Codes Global, offset by the goodwill and intangible asset impairment charge in 2024. The resulting consolidated loss per share for the nine months ended September 30, 2024, and nine months ended September 30, 2023, was $0.32 and $0.35 per diluted share, respectively.

Previous wording

Cash provided by operating activities was $312 thousand during the six months ended June 30, 2024, compared to cash used by operating activities of $463 thousand during the comparable period in 2023. The increase in cash is primarily due to the decreased net loss and non-cash add backs to net loss.

Current wording

Cash provided by operating activities was $302 thousand during the nine months ended September 30, 2024, compared to cash used by operating activities of $599 thousand during the comparable period in 2023. The increase in cash is primarily due to the non-cash add backs to net loss.

Previous wording

Cash used in investing activities was $191 thousand during the six months ended June 30, 2024, compared to $858 thousand during the six months ended June 30, 2023. The decrease in spending in investing activities related to a decrease in capitalized software costs and a decrease in acquisition costs. The acquisition of the Trust Codes Global business was in March 2023.

Current wording

Cash used in investing activities was $353 thousand during the nine months ended September 30, 2024, compared to $1,080 thousand during the nine months ended September 30, 2023. The decrease in spending in investing activities related to a decrease in capitalized software costs and a decrease in acquisition costs. The acquisition of the Trust Codes Global business was in March 2023.

Previous wording

Cash used in financing activities during the six months ended June 30, 2024, was $313 thousand compared to cash provided by financing activities during the six months ended June 30, 2023 of $608 thousand. The decrease relates mainly to the proceeds from the line of credit of $800 thousand that occurred in the six months ended June 30, 2023.

Current wording

Cash used in financing activities during the nine months ended September 30, 2024, was $438 thousand compared to cash provided by financing activities during the nine months ended September 30, 2023, of $1,277 thousand. The decrease relates mainly to the proceeds from the line of credit of $800 thousand and convertible debt of $1,100 thousand that occurred in the nine months ended September 30, 2023.

Previous wording

On August 25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory notes for the aggregate principal amount of $1,100 thousandof which $475 thousand waspurchased by relating parties including certain members of management and the Board of Directors. The notes are subordinated unsecured obligations of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears on February 25 and August 25 of each year, beginning on February 25, 2024. The notes will mature on August 25, 2026 unless earlier converted or repurchased at a conversion price of $1.15 per share of common stock. The Company may not redeem the notes prior to the maturity date. As of June 30, 2024 the amount outstanding on the convertible debt was $1,100 thousand and included in Convertible Note, and Convertible Note – related party on the accompanying Consolidated Balance Sheets. The Company has accrued interest expense of $31 thousand as of June 30, 2024.

Current wording

On August 25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory notes for the aggregate principal amount of $1,100 thousandof which $475 thousand waspurchased by relating parties including certain members of management and the Board of Directors. As of September 30, 2024, $450 thousand is held by related parties after one member of management left the Company. The notes are subordinated unsecured obligations of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears on February 25 and August 25 of each year, beginning on February 25, 2024. The notes will mature on August 25, 2026 unless earlier converted or repurchased at a conversion price of $1.15 per share of common stock. The Company may not redeem the notes prior to the maturity date. As of September 30, 2024, the amount outstanding on the convertible debt was $1,100 thousand and included in Convertible Note, and Convertible Note – related party on the accompanying Consolidated Balance Sheets. The Company has accrued interest expense of $9 thousand as of September 30, 2024.

Previous wording

On September 22, 2022, PeriShip Global became a party to the PNC Facility with PNC Bank, National Association. The PNC Facility includes a $1 million RLOC with a term of one-year, which was extended to December 14, 2023. We also entered into an amended and restated loan agreement with PNC effective October 31, 2023, which provided amendments to a number of affirmative and restrictive covenants applicable to PeriShip Global and extended the RLOC to September 30, 2024. The RLOC has no scheduled payments of principal until maturity, and bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments. As of June 30, 2024, we had no borrowings under the RLOC.

Current wording

On September 22, 2022, PeriShip Global became a party to the PNC Facility with PNC Bank, National Association. The PNC Facility includes a $1 million RLOC with a term of one-year, which was extended to December 14, 2023. We also entered into an amended and restated loan agreement with PNC effective October 31, 2023, which provided amendments to a number of affirmative and restrictive covenants applicable to PeriShip Global and extended the RLOC to September 30, 2024. We entered into a waiver and amendment on August 14, 2024 which provided a waiver for a certain event of default and extended the RLOC to September 30, 2025. The RLOC has no scheduled payments of principal until maturity, and bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments. As of September 30, 2024, we had no borrowings under the RLOC.

Previous wording

Of the proceeds of $2.0 million from the Term note, we used $1.8 million to settle debt outstanding issued in connection with the PeriShip Global acquisition, including the redemption of 61,000 shares of our common stock. As of June 30, 2024, our short-term debt outstanding under the Term note was $0.5 million and total long-term debt outstanding under the Term note was $0.6 million.

Current wording

Of the proceeds of $2.0 million from the Term Note, we used $1.8 million to settle debt outstanding issued in connection with the PeriShip Global acquisition, including the redemption of 61,000 shares of our common stock. As of September 30, 2024, our short-term debt outstanding under the Term Note was $0.5 million and total long-term debt outstanding under the Term Note was $0.5 million.

Previous wording

In December 2023, the Company’s Board of Directors approved a new share repurchase program to allow the Company to spend up to $0.5 million to repurchase shares of its common stock so long as the price per share does not exceed $1.00 until December 14, 2024. During the six months ended June 30, 2024, the Company repurchased 1,000 shares of common stock for $1 thousand under the Company’s current program.

Current wording

In December 2023, the Company’s Board of Directors approved a new share repurchase program to allow the Company to spend up to $0.5 million to repurchase shares of its common stock so long as the price per share does not exceed $1.00 until December 14, 2024. During the nine months ended September 30, 2024, the Company repurchased 1,000 shares of common stock for $1 thousand under the Company’s current program.