10-Q 1 l42419010q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-31927

VERIFYME, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		23-3023677
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Clinton Square, 75 S. Clinton Ave, Suite 510 Rochester, NY		14604
(Address of Principal Executive Offices)		(Zip Code)

(585) 736-9400
(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	x

Emerging growth company	☐

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. ☐

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which

registered

None

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 104,143,611 shares of common stock outstanding at May 10, 2019.

PART I - FINANCIAL INFORMATION

ITEM 1.	Financial Statements	4
Balance Sheets (Unaudited)		4
Statements of Operations (Unaudited)		5
Statements of Cash Flows (Unaudited)		6
Statements of Stockholders’ Equity (Deficit) (Unaudited)		7
Notes to Financial Statements (Unaudited)		8
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	19
ITEM 4.	Controls and Procedures	19

PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	19
ITEM 1A.	Risk Factors	19
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
ITEM 3.	Defaults Upon Senior Securities	19
ITEM 4.	Mine Safety Disclosures	20
ITEM 5.	Other Information	20
ITEM 6.	Exhibits	20
SIGNATURES		21

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FINANCIAL STATEMENTS

ITEM 1.

VerifyMe, Inc.

Balance Sheets

	As of
	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,055,585		$	1,673,201
Accounts Receivable		28,262			30,373
Deposits on Equipment		163,090			-
Prepaid expenses and other current assets		29,981			25,781
Inventory		30,374			41,982
TOTAL CURRENT ASSETS		1,307,292			1,771,337

INTANGIBLE ASSETS
Patents and Trademarks, net of accumulated amortization of
$264,001 and $258,294 as of March 31, 2019 and December 31, 2018		227,777			209,049
Capitalized Software Costs		70,231			70,231
TOTAL ASSETS	$	1,605,300		$	2,050,617

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and other accrued expenses	$	377,786		$	411,211
Accrued Payroll		81,370			69,041
TOTAL CURRENT LIABILITIES		459,156			480,252

STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock, $.001 par value, 37,564,767 shares
authorized; 264,778 shares issued and outstanding as of March 31, 2019 and
304,778 shares issued and outstanding as of December 31, 2018		265			305

Series B Convertible Preferred Stock, $.001 par value; 85 shares
authorized; 0.85 shares issued and outstanding as of March 31, 2019 and 2018		-			-

Common stock of $.001 par value; 675,000,000 authorized; 103,993,706 and 102,553,706 issued, 103,643,166 and 102,203,166 shares outstanding as of March 31, 2019 and December 31, 2018		103,643			102,203

Additional paid in capital		60,932,481			60,844,796

Treasury stock as cost (350,540 shares at March 31, 2019 and December 31, 2018)		(113,389	)		(113,389	)

Accumulated deficit		(59,776,856	)		(59,263,550	)
STOCKHOLDERS' EQUITY		1,146,144			1,570,365

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,605,300		$	2,050,617

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

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VerifyMe, Inc.

Statements of Operations

(Unaudited)

	Three months ended
	March 31, 2019			March 31, 2018
NET REVENUE
Sales	$	46,454		$	-

COST OF SALES		14,767			-

GROSS PROFIT		31,687			-

OPERATING EXPENSES
General and administrative (a)		232,682			495,574
Legal and accounting		62,364			133,704
Payroll expenses (a)		104,789			92,051
Research and development		3,643			12,196
Sales and marketing (a)		143,143			8,042
Total Operating expenses		546,621			741,567

LOSS BEFORE OTHER INCOME (EXPENSE)		(514,934	)		(741,567	)

OTHER (EXPENSE) INCOME
Interest income (expenses), net		1,628			(791	)
Settlement agreement with shareholders		-			(779,000	)
Gain on accounts payable forgiveness		-			397,725
		1,628			(382,066	)
NET LOSS	$	(513,306	)	$	(1,123,633	)

LOSS PER SHARE
BASIC	$	(0.01	)	$	(0.01	)
DILUTED	$	(0.01	)	$	(0.01	)

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
BASIC		94,092,049			76,278,102
DILUTED		94,092,049			76,278,102

(a)

Includes share based compensation of $89,085 and $289,903 for the three months ended March 31, 2019 and 2018, respectively.

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

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VerifyMe, Inc.

Statements of Cash Flows

(Unaudited)

	Three months ended
	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(513,306	)	$	(1,123,633	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock based compensation		-			32,644
Fair value of options and warrants issued in exchange for services		123,711			205,969
Fair value of restricted stock and restricted stock units issued in exchange for services		(34,626	)		51,290
Gain on accounts payable forgiveness		-			(397,725	)
Share-based payment for settlement agreement with shareholders		-			279,000
Amortization and depreciation		5,707			5,034
Changes in operating assets and liabilities:
Accounts Receivable		2,111			-
Deposit on Equipment		(163,090	)		-
Inventory		11,608			(9,768	)
Prepaid expenses and other current assets		(4,200	)		(12,566	)
Accounts payable and accrued expenses		(21,096	)		(12,286	)
Net cash used in operating activities		(593,181	)		(982,041	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Patents		(24,435	)		(825	)
Net cash used in investing activities		(24,435	)		(825	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of warrants		-			1,476,489
Proceeds from sale of common stock		-			1,154,777
Net cash provided by financing activities		-			2,631,266

NET INCREASE IN CASH AND
CASH EQUIVALENTS		(617,616	)		1,648,400
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		1,673,201			693,001

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	1,055,585		$	2,341,401

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	-		$	-
Income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Series A Convertible Preferred Stock converted to common stock	$	800		$	400
Series B Convertible Preferred Stock converted to common stock	$	-		$	599
Cashless Exercise of Warrants	$	-		$	4,028
Common Stock and Warrants Issued for Common Stock Payable	$	-		$	122,478

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

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VerifyMe, Inc.

Statement of Stockholders' Equity (Deficit)

(Unaudited)

	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			Accumulated
	Shares			Amount			Shares			Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Stock			Deficit			Total
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	)
Conversion of Series A Convertible Preferred Stock		(20,000	)		(20	)		-			-		-		-		-		-		400,000		400		(380	)		-			-			-
Conversion of Series B Convertible Preferred Stock		-			-			(0.07	)		-		-		-		-		-		599,362		599		(599	)		-			-			-
Sale of common stock		-			-			-			-		-		-		-		-		16,513,311		16,513		1,138,264			-			-			1,154,777
Settlement Agreement		-			-			-			-		-		-		-		-		1,000,000		1,000		278,000			-			-			279,000
Conversion of notes payable		-			-			-			-		-		-		-		-		1,749,683		1,750		120,728			-			-			122,478
Exercise of Warrants		-			-			-			-		-		-		-		-		14,712,459		14,712		1,461,777			-			-			1,476,489
Cashless Exercise of Stock Options					-			-			-		-		-		-		-		4,027,778		4,028		(4,028	)		-			-			-
Fair value of stock option		-			-			-			-		-		-		-		-		-		-		205,969			-			-			205,969
Restricted Stock awards and Restricted Stock Units		-			-			-			-		-		-		-		-		300,000		300		50,990			-			-			51,290
Common stock and warrants issued for services		-			-			-			-		-		-		-		-		120,000		120		32,524									32,644
Net loss		-			-			-			-		-		-		-		-		-		-		-			-			(1,123,633	)		(1,123,633	)
Balance at March 31, 2018		304,778			305			0.85			-		-		-		-		-		92,945,925		92,944		59,481,371			(113,389	)		(57,454,721	)		2,006,510

	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			Accumulated
	Shares			Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Stock			Deficit			Total

Balance at December 31, 2018		304,778			305		0.85		-		-		-		-		-		102,203,166		102,203		60,844,796			(113,389	)		(59,263,550	)		1,570,365
Conversion of Series A Convertible Preferred Stock		(40,000	)		(40)		-		-		-		-		-		-		800,000		800		(760	)		-			-			-
Fair value of stock option		-			-		-		-		-		-		-		-		-		-		123,711			-			-			123,711
Restricted Stock awards		-			-		-		-		-		-		-		-		640,000		640		(35,266	)		-			-			(34,626	)
Net loss		-			-		-		-		-		-		-		-		-		-		-			-			(513,306	)		(513,306	)
Balance at March 31, 2019		264,778			265		0.85		-		-		-		-		-		103,643,166		103,643		60,932,481			(113,389	)		(59,776,856	)		1,146,144

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

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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 technology pioneer in the anti-counterfeiting industry. This broad market encompasses counterfeiting of physical and material goods and products, as well as counterfeiting of identity in digital transactions. The Company is able to deliver security solutions for identification and authentication of people, products and packaging in a variety of applications in the security field for physical transactions and owns digital patents which are in the same field. The products can be used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials, as well as comprehensive authentication security software to secure physical and logical access to facilities, computer networks, internet sites and mobile applications.

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 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 months ended March 31, 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 patents.

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:

identify the contract with a customer;

identify the performance obligations in the contract;

determine the transaction price;

allocate the transaction price to performance obligations in the contract; and

recognize revenue as the performance obligation is satisfied.

During the three months ended March 31, 2019, the Company’s revenues were made up of revenue generated from printing labels with 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 months ended March 31, 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.

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For the three months ended March 31, 2019 there were approximately 54,373,000 anti-dilutive shares consisting of 19,614,000 shares issuable upon exercise of options, 22,241,000 shares issuable upon exercise of warrants and 12,518,000 shares issuable upon conversion of preferred stock. For the three months ended March 31, 2018 there were approximately 63,471,000 anti-dilutive shares consisting of 32,143,000 relating to warrants, 18,014,000 relating to options and 13,314,000 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 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 during the next six months, however the Company needs to raise additional funds in the future in order to remain operational until October 2019.

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 2018-7”), 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, 3 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 three months ended March 31, 2019 and 2018, the Company capitalized $24,435 and $825 of patent costs and trademarks. Amortization expense for patents and trademarks was $5,707 and $5,034 for the three months ended March 31, 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 $70,231 and $70,231 as of March 31, 2019 and December 31, 2018, respectively. The Company has not incurred a depreciation charge as the software was not available for use as of March 31, 2019.

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NOTE 3 – CONVERTIBLE PREFERRED STOCK

The Company has outstanding Series A Preferred Stock (the “Series A”) and Series B Preferred Stock (the “Series B”). As of March 31, 2019, there were 264,778 outstanding shares of Series A and 0.85 outstanding shares of Series B. Each share of Series A and B has limited voting rights, is entitled to participate with the common stock on liquidation and holders of Series A and B have beneficial ownership limitations.

Series A Convertible Preferred Stock

During the three months ended March 31, 2019, 40,000 shares of Series A were converted into 800,000 shares of the Company’s common stock.

During the three months ended March 31, 2018, 20,000 shares of Series A Convertible Preferred Stock were converted into 400,000 shares of the Company’s common Stock.

Series B Convertible Preferred Stock

During the three months ended March 31, 2018, 0.07 shares of Series B Convertible Preferred Stock were converted into 599,362 shares of the Company’s common Stock.

NOTE 4 – STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2019 and 2018 the Company expensed $0 and $8,376 relative to restricted stock units.

During the three months ended March 31, 2019, the Company granted a total of 960,000 restricted stock awards to four directors of the Company, for their services vesting quarterly over a one-year period. On February 27, 2019 three persons resigned as members of 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 the retired directors had received.

The Company expensed $48,182 and $42,914 in related to restricted stock awards for the three months ended March 31, 2019 and 2018, respectively. Additionally, the Company corrected the vesting schedule relating to restricted stock awards awarded to the Company’s attorney, resulting in a credit of $82,808 for the three months ended March 31, 2019.

NOTE 5 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS

During 2013, the Company adopted a new 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.

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

The Plan is administered by a committee of the Board (“Compensation Committee”) which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the Plan.

In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).

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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 three months ended March 31, 2019 and 2018, the Company expensed $123,711 and $205,969 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 three months ended March 31, 2019:


Risk Free Interest Rate		2.14	%
Expected Volatility		424.69	%
Expected Life (in years)		5.0
Dividend Yield		0	%
Weighted average estimated fair value of
options during the period	$	0.27

	Options Outstanding
				Weighted -
				Average		Aggregate
				Remaining		Intrinsic
		Weighted-		Contractual		Value
	Number of	Average		Term		(in 000’s)
	Shares	Exercise Price		(in years)		(1)
Balance as of December 31, 2018	18,613,529	$	0.14

Granted	1,000,000		0.20

Balance March 31, 2019	19,613,529	$	0.14

Exercisable at March 31, 2019	17,121,863	$	0.13		3.6	$	3,203

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for options that were in-the-money at each respective period.

The following table summarizes the activities for the Company’s unvested stock options for the three months ended March 31, 2019:

	Unvested Options
				Weighted -
				Average
				Grant
	Number of Unvested			Date Exercise Price
	Options
Balance December 31, 2018		2,016,666		$	0.18

Granted		1,000,000			0.20

Vested		(525,000	)		0.21

Balance March 31, 2019		2,491,666		$	0.18

During the three months ended March 31, 2019, the Company amended the Consulting Agreement held with its Chief Operating Officer and granted him 1,000,000 stock options with an exercise price of $0.195 vesting annually in equal increments over a two-year period.

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VerifyMe, Inc.

Notes to the Financial Statements

The following table summarizes the activities for the Company’s warrants for the three months ended March 31, 2019:

	Warrants Outstanding
	Number of Shares		Weighted- Average Exercise Price		Weighted - Average Remaining Contractual Term in years)		Aggregate Intrinsic Value (in 000's) (1)

Balance, December 31, 2018		22,240,833	$	0.31

Granted		-		-

Balance, March 31, 2019		22,240,833	$	0.31		3.5

Exercisable at March 31, 2019		22,240,833	$	0.31		3.5	$	3,387

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.29 for our common stock on March 31, 2019.

NOTE 6 – CONCENTRATIONS

Revenue

For the three months ended March 31, 2019, one customer represented 100% of revenues.

Accounts Receivable

As of March 31, 2019, two customers represented 100% of accounts receivable.

NOTE 7 – SUBSEQUENT EVENTS

In April 2019, 20,000 shares of Series A were converted into 400,000 shares of the Company’s common stock.

In April 2019, a former member of the Board exercised 100,445 warrants with an exercise price of $0.15 and a total of 100,445 shares of common stock were issued for gross proceeds of $15,067.

In May 2019, the Company appointed Chris Gardner to its Board. On May 10, 2019, the Company granted Mr. Gardner the option of receiving 240,000 shares of restricted stock or 240,000 restricted stock units, either of which shall vest over a one year period in equal quarterly increments from May 8, 2019, subject to continued service as a director of the Company on each applicable vesting date.

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

Overview

VerifyMe, Inc. (the “Company” or “VerifyMe”) is a technology pioneer in the brand protection/anti-counterfeiting industry. For the last three years the Company has been engaged in researching, developing, and monetizing products in the brand protection, authentication, serialization, track and trace and anti-counterfeiting industries. This broad market encompasses identifying and preventing counterfeiting of physical and material goods and products, prevent product diversion, enable brand owners to monitor, control and protect their products life cycle, as well as authenticating people in digital transactions. We have the ability to deliver security solutions for identification and authentication of people and products in a variety of applications in the security fields of authentication, counterfeit prevention and product diversion. Our products can be used to print, secure and covertly serialize labels and packaging for brand owners, manage and issue secure credentials including national identifications, passports, driver licenses and access control credentials, as well as comprehensive authentication security software to securely process digital financial transactions, provide secure physical and logical access to facilities, computer networks, internet sites and mobile applications.

Brand owners, government agencies, professional associations, and others all share in the challenge of responding to counterfeit goods and product protection issues. Counterfeit goods span across multiple industries including currency, passports, ID cards, pharmaceuticals, apparel, accessories, music, software, food, beverages, tobacco, automobile and airplane parts, consumer goods, toys and electronics. Described by the U.S. Federal Bureau of Investigation, “counterfeiting” has been labeled as the crime of the twenty-first century. According to the "Global Brand Counterfeiting Report, 2018" written by “Research and Markets” the amount of total counterfeiting globally has reached to $1.2 Trillion USD.

We believe that the physical and digital technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from counterfeit identification to employee or customer monitoring. Potential applications of our technologies are available in different types of products and industries—e.g., gaming, apparel, tobacco, cosmetics, pharmaceuticals, event and transportation tickets, driver’s licenses, insurance cards, passports, computer software, and credit cards. We generate sales through re-seller agreements of our technology or through direct sales of our technology.

Our physical technologies involve the utilization of invisible and color changing inks, which are compatible with today’s printing presses. The inks may be used with certain printing systems such as offset, flexographic, silkscreen, gravure, and laser. Based upon our experience, we believe that the ink technologies may be incorporated into existing manufacturing processes. We believe that some of our patents may have non-security applications, and we are attempting to commercialize these opportunities.

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 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 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 systems that introduce learning capabilities into our solutions to improve the ease of use and flexibility.

We believe that our physical technologies 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.

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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 products 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:

Knowing the life cycle of a product or prescription drug, from where it is manufactured, who is repackaging it, who is distributing, when it is prescribed and when it is sold

Meeting accurate regulatory and compliance requirement questions such as “What, Where, When and Who”

Locating prescription drug batches and precisely where they are distributed

Enabling the option to recall a particular batch or entire batches which are reported as having a product/batch failure or having not met standards

Identify if the prescribed drug is counterfeit, stolen, contaminated etc.

Know about the multi-container packaging item level details

Track and trace works in the following ways:

Generate and apply unique serialization number for manufactured drugs.

Capture unique serialization number and store in centralized database (distributed or non-distributed).

Update serialization data in EPCIS centralized database.

Wholesalers, Repackagers and Pharmacies can have the ability to validate the serialization when they perform transactions.

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

Our physical and digital 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. 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 decade, 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. In 2018 we received notice that patents involving this technology have been approved in various European nations.

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 have been approved in various European nations.

VeriPAS^tmTechnology 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. The company is speaking with other Serialization, track and trace software providers and expects to add alternatives to clients beyond the Micro Focus GPAS system.

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Authentication tools have been developed which we can sell to customers in conjunction with pigments and are tuned to authenticate the unique frequency of each batch. This will allow for customers to instantly authenticate items with a customized beeper which will only positively identify a product bearing their unique anti-counterfeit solution. This 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 audible beeping device when placed on a label, product or package containing the RainbowSecure™ technology.

Results of Operations

Comparison of the Three Months Ended March 31, 2019 and 2018

The following discussion analyzes our results of operations for the three months ended March 31, 2019 and 2018. The following information should be considered together with our financial statements for such period and the accompanying notes thereto.

Revenue

We generated revenue of $46,454 for the three months ended March 31, 2019. This compares to $0 revenue in the three months ended March 31, 2018. The revenue relates to an order for the printing of labels with our authentication serialization technology for a large global brand owner.

General and Administrative Expenses

General and administrative expenses decreased by $262,892 to $232,682 for the three months ended March 31, 2019 from $495,574 for the three months ended March 31, 2018. The decrease resulted primarily to a decrease in non-cash charges related to restricted stock awards and stock options.

Legal and Accounting

Legal and accounting fees decreased by $71,340 to $62,364 for the three months ended March 31, 2019 from $133,704 for the three months ended March 31, 2018.

Payroll Expenses

Payroll expenses were $104,789 for the three months ended March 31, 2019, an increase of $12,738 from $92,051 for the three months ended March 31, 2018.

Research and Development

Research and development expenses were $3,643 and $12,196 for the three months ended March 31, 2019 and 2018, respectively.

Sales and Marketing

Sales and marketing expenses were $143,143 and $8,042 for the three months ended March 31, 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.

Net Loss

Our net loss decreased to $513,306 for the three months ended March 31, 2019 from $1,123,633 for the three months ended March 31, 2018. The loss decreased primarily due to the settlement agreement with shareholders which was made in the three months ended March 31, 2018 resulting in a loss $779,000 offset by our gain on accounts payable forgiveness of $397,725.

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Non-GAAP – Financial Measures

The following discussion and analysis includes both financial measures in accordance with GAAP, as well as a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of VerifyMe nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.

Our management uses and relies on Adjusted EBITDA, which is a non-GAAP financial measure. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measure in planning, forecasting and analyzing future periods. Our management uses this non-GAAP financial measure in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. Our management recognizes that the non-GAAP financial measure has inherent limitations because of the described excluded items.

The Company defines Adjusted EBITDA as earnings (or loss) from operations before the items in the table below including non-recurring charges. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.

We have included a reconciliation of our non-GAAP financial measure to the most comparable financial measure calculated in accordance with GAAP. We believe that providing the non-GAAP financial measure, together with the reconciliation to GAAP, helps investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.

The following table presents a reconciliation of Adjusted EBITDA to net loss allocable to common shareholders, a Non-GAAP financial measure:

	Three Month Ended March 31,
	2019			2018

Net loss	$	(513,306	)	$	(1,123,633	)

Interest expense (income), net		(1,628	)		791
Amortization and depreciation		5,707			5,034
Total EBITDA (Non-GAAP)		(509,227	)		(1,117,808	)

Adjustments:

Stock based compensation		-			32,644
Fair value of options and warrants issued in exchange for services		123,711			205,969
Fair value of restricted stock and restricted stock units issued in exchange for services		(34,626	)		51,290
Common stock and warrants issued for services		-			-
Share-based payment for settlement agreement with shareholders		-			279,000
Cash payment for settlement agreement with shareholders		-			500,000

Total Adjusted EBITDA (Non-GAAP)	$	(420,142	)	$	(48,905	)

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Liquidity and Capital Resources

Our operations used $593,181 of cash during the three months ended March 31, 2019 compared to $982,041during the comparable period in 2018 due to a $500,000 payment made related to the Settlement Agreement and due to changes in operations occurring in the first half of 2018 offset by an increase in research and development charges made in 2019 related to the development of our digital and physical technologies.

Cash used in investing activities was $24,435 during the three months ended March 31, 2019 compared to $825 during three months ended March 31, 2018. Cash used in investing activities primarily related to the purchase of patents.

Cash provided by financing activities during the three months ended March 31, 2019, was nil compared to $2,631,266 during the three months ended March 31, 2018. During the three months ended March 31, 2018, the Company sold common stock for gross proceeds of $1,154,777. Additionally, the Company raised $1,476,489 from the exercise of warrants.

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 May 10, 2019, we had cash resources of approximately $926,000, 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 material increase in revenue and collections of any revenue. We estimate that we have sufficient cash to support our operations until October 2019. We cannot assure you that we will obtain any necessary financing.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements including statements regarding our product development and capabilities, generation and collection of revenue and 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 to close sales leads, begin meaningful marketing of our products, begin generating material revenue from our products and business relationships 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

We account 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.

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We apply 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:

identify the contract with a customer;

identify the performance obligations in the contract;

determine the transaction price;

allocate the transaction price to performance obligations in the contract; and

recognize revenue as the performance obligation is satisfied.

Stock-based Compensation

We account for stock-based compensation under the provisions of FASB ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

We account for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees”. Under FASB ASC 505-50, we determine the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid in capital in stockholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each period.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 of the notes to financial statements contained in this report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures. Our disclosure controls and procedures are designed to ensure information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of three months ended March 31, 2019, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2019, our disclosure controls and procedures were ineffective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not required.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In April 2019, the Company issued 400,000 shares of common stock upon conversion of 20,000 shares of Series A Convertible Preferred Stock.

In April 2019, the Company issued 100,445 shares of common stock upon exercise of 100,445 warrants by a former member of the Board.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6: EXHIBITS

EXHIBIT INDEX

		Incorporated by Reference			Filed or Furnished
Exhibit #	Exhibit Description	Form	Date	Number	Herewith
3.1	Articles of Incorporation, as amended	10-Q	August 19, 2015	3.1
3.2	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
4.3	Certificate of Withdrawal of Certificate of Designation for Series C and D Convertible Preferred Stock	10-Q	May 15, 2018	4.5
10.1	Form of Consulting Agreement for Margaret Gezerlis*	10-Q	November 14, 2018	10.1
10.2	Amendment to the 2017 Equity Incentive Plan	8-K	April 29, 2019	10.1

31.1	Certification of Principal Executive Officer (302)	Filed
31.2	Certification of Principal Financial Officer (302)	Filed
32.1	Certification of Principal Executive and Principal Financial Officer (906)	Furnished**
101.INS	XBRL Instance Document	Filed
101.SCH	XBRL Taxonomy Extension Schema Document	Filed
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed

Management contract or compensatory plan or arrangement.

This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

+ 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 supplementally to the Securities and Exchange Commission staff upon request.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	VERIFYME, INC.

Date: May 15, 2019	By: /S/ Patrick White

	Patrick White

	Chief Executive Officer



Date: May 15, 2019	By/S/ Margaret Gezerlis

	Margaret Gezerlis

	Chief Financial Officer