On June 30, 2017, the Company converted the remaining 1,537,500 Series C convertible preferred shares into 5,464,286 shares of the Company’s common stock.  In addition, the 3,087,500 outstanding warrants were converted into the Company’s common stock equivalent to two times the outstanding warrants or 6,175,000 shares.  The Company issued a total of 11,639,286 shares of the Company’s common stock relative to this transaction (See Note 6).

Series D Convertible Preferred Stock

On June 30, 2017, the Company converted the remaining 166,750 Series D convertible preferred shares into 476,429 shares of the Company’s common stock.  In addition, the 667,000 outstanding warrants were converted into the Company’s common stock equivalent to two times the outstanding warrants or 1,334,000 shares.  The Company issued a total of 1,810,429 shares of the Company’s common stock relative to this transaction (See Note 6).

 

NOTE 8 – STOCKHOLDERS’ EQUITY

On January 6, 2017, 13,000 shares of Series A Convertible Preferred Stock were converted into 260,000 shares of the Company’s Common Stock.

 

On April 14, 2017, 375,000 shares of the Company’s Series C were converted into 375,000 shares of the Company’s common stock.

             

On June 30, 2017, notes payable in the amount of $360,000 and converting at $390,000, were converted into 5,664,246 shares of the Company’s common stock and warrants to purchase 5,664,246 shares of the Company’s common stock (See Note 4).

        

On June 30, 2017, shareholders of Series C converted 1,537,500 shares of the Company’s common stock and warrants to purchase 3,087,500 shares of the Company’s common stock into 12,014,286 shares of common stock (See Notes 5, 6 and 7).

On June 30, 2017, shareholders of Series D converted 166,750 shares of the Company’s common stock and warrants to purchase 667,000 shares of the Company’s common stock into 1,810,429 shares of common stock (See Notes 5, 6 and 7).

On June 30, 2017, the Company sold 7,596,875 shares of the Company’s common stock and warrants to purchase 7,596,875 of the Company’s common stock for $531,250.  The Company recognized stock issuance costs of $15,128, which were recorded as a reduction to additional paid in capital.

On June 30, 2017, the Company converted $43,750 of Director’s fees payable into 625,625 shares of the Company’s common stock and warrants to purchase 625,625 shares of the Company’s common stock.

On June 30, 2017, the Company converted $26,250 of accounts payable to a consultant into 375,375 shares of the Company’s common stock and warrants to purchase 375,375 shares of the Company’s common stock at an exercise price of $0.15 and a term of five years.  In conjunction with this transaction, the consultant forfeited 450,000 options to purchase shares of the Company’s common stock and has agreed to convert $31,500 of consulting fees into 450,450 shares of the Company’s common stock and warrants to purchase 450,450 shares of the Company’s common stock at an exercise price of $0.15 in equal increments through December 31, 2017.

 

On June 30, 2017, the Company converted $10,750 of accounts payable to a consultant into 153,725 shares of the Company’s common stock and a warrant to purchase 153,725 shares of the Company’s common stock.

     

NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Derivative Liabilities

 

For purposes of determining whether certain instruments are derivatives for accounting treatment, the Company follows the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

 

 

Liabilities measured at fair value on a recurring basis are summarized as follows:

The Company has no assets that are measured at fair value on a recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis during the three months ended June 30, 2017.

 

As of June 30, 2017, some of the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings. These warrants did not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using the Black-Scholes option pricing model and the following assumptions:

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term of these warrants. The Company had no reason to believe future volatility over the expected remaining life of these warrants was likely to differ materially from historical volatility. The expected life was based on the remaining contractual term of the warrants. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the warrants.

 

NOTE 10 – STOCK OPTIONS

 

During 2013, the Board adopted a new omnibus incentive compensation plan that was ratified by the shareholders at the 2013 annual meeting, (the “2013 Plan”) which serves as the successor incentive compensation plan to the 2003 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.  As of June 30, 2017, under the 2013 Plan grants of restricted stock and options to purchase 19,280,147 shares of Common Stock have been issued and are unvested or unexercised, and 719,853 shares of Common Stock remain available for grants under the 2013 Plan.  

 

The 2013 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). The aggregate fair market value (determined at the time of the grant) of stock for which an employee may exercise 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 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.

 

On January 31, 2017, the Company issued options to purchase 225,000 shares of Common Stock at an exercise price of $0.09 per share, with a term of five years, to a consultant, which vest over three months. The fair value of options issued was $19,727. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 197.7%, risk-free interest rate of 1.90% and expected option life of five years. The options were revalued on February 28, 2017 and March 31, 2017 and it was determined that there was an increase in the value of the options of $2,307, which will be expensed over the remaining term of the options.  These options were cancelled on June 30, 2017.

 

On February 6, 2017, the Company issued options to purchase 250,000 shares of Common Stock at an exercise price of $0.068 per share and options to purchase 250,000 shares of Common Stock at an exercise price of $0.25, with a term of five years, to a consultant, which vest immediately. The fair value of options issued was $32,508. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 198.0%, risk-free interest rate of 1.86% and expected option life of five years. The options were expensed immediately.

On April 30, 2017, the Company issued options to purchase 225,000 shares of Common Stock at an exercise price of $0.064 per share, with a term of five years, to a consultant, which vest over three months. The fair value of options issued was $14,011. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 196.2%, risk-free interest rate of 1.84% and expected option life of five years. The options were revalued during the three months ended June 30, 2017 and the Company expensed $3,986 relative to these options during the three and six months ended June 30, 2017.  All of the options were forfeited as part of renegotiating the agreement, whereby the Company was to pay the consultant $5,250 per month for 11 months in return for forfeiting the options.  Additionally, the consultant has agreed to forgive the associated accounts payable and reinvest the proceeds he would have received in return for 825,825 shares of the Company’s common stock and warrants to purchase 825,825 shares of the Company’s common stock.  As of June 30, 2017, the consultant had earned $26,250 of the total $57,750 consulting fees and converted the earned portion into 375,375 shares of the Company’s common stock and warrants to purchase 375,375 shares of the Company’s common stock.  The remaining $31,500 of consulting fees will be converted into common stock and warrants when the consulting fees are earned (See Note 8).

On June 12, 2017, the Company issued options to purchase 5 million shares of Common Stock at an exercise price of $0.07 per share, with a term of five years, to a consultant, 3 million which vest immediately and the remainder over two years. The fair value of options issued was $242,112. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 196.7%, risk-free interest rate of 1.71% and expected option life of five years. The unvested options were revalued as of June 30, 2017, which resulted in an increase in value of $39,521 and as the consulting agreement had no stated term, the $281,633 fair value was expensed immediately.

    

On June 29, 2017, the Company issued options to purchase 10 million shares of Common Stock at an exercise price of $0.07 per share, with a term of five years, to the Chairman of the Board of Directors which vest immediately. The fair value of options issued was $583,340. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 197.9%, risk-free interest rate of 1.85% and expected option life of five years. The options are being expensed over the term of the consulting agreement which is three years.

 

On June 30, 2017, the Company converted $10,750 of accounts payable to a consultant into 153,725 shares of the Company’s common stock and a warrant to purchase 153,725 shares of the Company’s common stock.

    

For the three and six months ended June 30, 2017, the Company expensed $284,373 and $335,970 with respect to the options.  For the three and six months ended June 30, 2016, the Company expensed $427,223 and $763,050 with respect to the options.

 

The following table summarizes the activities for our stock options for the six months ended June 30, 2017:

The following table summarizes the activities for the Company’s unvested stock options for the six months ended June 30, 2017:

 

As of June 30, 2017 there was $583,340 of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average period of 3 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from the Company’s expectations. The difference between the stock options exercisable at June 30, 2017 and the stock options exercisable and expected to vest relates to management’s estimate of options expected to vest in the future.

 

The following table summarizes the activities for our warrants for the six months ended June 30, 2017:

All warrants were vested on the date of grant.

 

For the three and six months ended June 30, 2017, the Company expensed $204,516 relative to the warrants issued as warrant discounts.  For the three and six months ended June 30, 2016, the Company expensed $49,885 relative to the warrants.

  

NOTE 11 – OPERATING LEASES

 

For the three and six months ended June 30, 2017, total rent expense under leases amounted to $3,000 and $6,000.  For the three and six months ended June 30, 2016, total rent expense under leases amounted to $1,500 and $11,835.  As of June 30, 2017, the Company was not obligated under any non-cancelable operating lease arrangements.

 

NOTE 12 – RELATED PARTIES

 

As of June 30, 2017, the Company owed the CEO $2,467, and the Company owed the CFO $20,419 for services rendered.  All of these amounts are included in accounts payable.

 

NOTE 13 – SUBSEQUENT EVENTS

 

In July 2017, the Company sold 2,431,000 shares of the Company’s common stock and issued a warrant to purchase 2,431,000 shares of the Company’s common stock for $170,000.

  

In August 2017, the Company sold 715,000 shares of the Company’s common stock and issued a warrant to purchase 715,000 shares of the Company’s common stock for $50,000.

 

 

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

 

Overview

 

VerifyMe 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. We can deliver security solutions for identification and authentication of people, products and packaging in a variety of applications in the security field for both digital and physical transactions. Our products can be used to manage and issue secure credentials, including national identifications, passports, driver licenses and access control credentials. In addition, the Company has begun developing comprehensive authentication security software to secure physical and logical access to facilities, computer networks, internet sites and mobile applications. When the Company has sufficient working capital, management intends to devote resources resolving certain functionality issues which presently affect this technology.

 

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

 

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

 

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 from 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 as the crime of the twenty-first century, product counterfeiting accounts for an estimated 2.5% of global trade or $461 billion and wreaks dire global health, safety and economic consequences on individuals, corporations, government and society.

 

We believe that the physical 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, fragrances,  pharmaceuticals, event and transportation tickets, driver’s licenses, insurance cards, passports, computer software, and credit cards. We generate sales through licenses of our technology or through direct sales of our technology.

 

Our physical technologies involve the utilization of invisible and/or color shifting/changing inks, which are compatible with today’s printing machines. 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 will involve the utilization of multiple authentication mechanisms, some of which we own and some of which we license.  These mechanisms may include biometric factors, knowledge factors, possession factors and location factors.   

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2017 and 2016

 

The following discussion analyzes our results of operations for the three months ended June 30, 2017 and 2016. The following information should be considered together with our condensed financial statements for such period and the accompanying notes thereto.

 

 

We have not generated significant revenue since our inception. For the three months ended June 30, 2017 and 2016, we generated revenues of $0.  For the three months ended June 30, 2017 and 2016, we had a net loss of $508,509 and net income of $1,593,386. 

 

 

General and administrative expenses increased $395,059 to $482,384 for the three months ended June 30, 2017 from $87,325 for the three months ended June 30, 2016. The increase resulted primarily from an increase in consulting expenses. During the quarter ended June 30, 2017, we focused on eliminating toxic convertible preferred stock, raising capital and restarting our business under new management.

 

Legal and accounting fees decreased $35,420 to $82,162 for the three months ended June 30, 2017 from $117,582 for the three months ended June 30, 2016. The decrease in legal and accounting fees between the periods was primarily a result of the costs associated with the Registration Statement on Form S-1 in the second quarter of 2016, which were not incurred during the 2017 period. Our legal fees were high in the most recent quarter as a result of the complexities stemming from our Series C and Series D Convertible Preferred Stock and negotiations to eliminate them.

 

Payroll expenses were $20,252 for the three months ended June 30, 2017, a decrease of $663,485 from $683,737 for the three months ended June 30, 2016.  The decrease is the result of the three officers leaving the Company in 2016, during 2016. Going forward we expect payroll expenses to increase.

 

Research and development expenses were $8,641 and $167,846 for the three months ended June 30, 2017 and 2016, a decrease of $159,205.  The decrease is a result of cost containment procedures and research and development programs being reduced to a minimum.

 

 

Sales and marketing expenses for the three months ended June 30, 2017 were $0 as compared to $146,443 for the three months ended June 30, 2016. The decrease relates to cost containment procedures associated with travel and minimal marketing activities. 

 

 

During the three months ended June 30, 2017, the Company incurred interest expense of $145,772 as compared to $1,000 for the three months ended June 30, 2016, an increase of $144,772. The increase in interest expense was a result of the Company resorting to debt to fund its operations during the fourth quarter of 2016 and the first half of 2017.

 

 

 

During the three months ended June 30, 2017, the Company reported an unrealized gain on the market value of warrants of $130,000 as compared to a gain of 1,589,524 for the three months ended June 30, 2016, a decrease in the gain of $1,459,524. The change primarily resulted from the valuation of warrants associated with the Investment Agreement entered into on December 31, 2012 with VerifyMe, Inc. – Texas (“VFM”) and the Subscription Agreement entered into on January 31, 2013 with VFM.  The value of these warrants has decreased less substantially during the three months ended June 30, 2017 than during the three months ended June 30, 2016.

 

 

During the three months ended June 30, 2017, the Company reported an unrealized gain of $100,702 for the change in the fair value of the embedded derivative liability as compared to a gain of $1,202,000 for the three months ended June 30, 2016.  This change is related to an increase in the value of the beneficial conversion option related to the 0% Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C”), issued in February 2016 and the Series A Preferred Stock issued in conjunction with the Subscription Agreement entered into on January 31, 2013 with VFM.  The decrease in the embedded derivative liability is due to the decrease in the trading price of the Company’s Common Stock.

 

Comparison of the Six Months Ended June 30, 2017 and 2016

 

The following discussion analyzes our results of operations for the six months ended June 30, 2017 and 2016. The following information should be considered together with our condensed financial statements for such period and the accompanying notes thereto.

 

 

We have not generated significant revenue since our inception. For the six months ended June 30, 2017 and 2016, we generated revenues of $0.  For the six months ended June 30, 2017 and 2016, we had a net loss of $813,096 and net income of $77,052. 

 

 

General and administrative expenses increased $423,748 to $628,831 for the six months ended June 30, 2017 from $205,083 for the six months ended June 30, 2016. The increase resulted primarily from an increase in consulting expenses. During the six months ended June 30, 2017, we focused on eliminating toxic convertible preferred stock, raising capital and restarting our business under new management.

 

Legal and accounting fees decreased $141,721 to $91,206 for the six months ended June 30, 2017 from $232,927 for the six months ended June 30, 2016. The decrease in legal and accounting fees between the periods was primarily a result of the costs associated costs associated with the Registration Statement on Form S-1 in the first half of 2016, which were not incurred during the 2017 period. Our legal fees were high during the six months ended June 30, 2017 as a result of the complexities stemming from our Series C and D Convertible Preferred Stock and negotiations to eliminate them.

 

Payroll expenses were $43,062 for the six months ended June 30, 2017, a decrease of $1,268,598 from $1,311,660 for the six months ended June 30, 2016.  The decrease is the result of the three officers leaving the Company during 2016. Going forward we expect payroll expenses to increase.

 

Research and development expenses were $17,310 and $257,181 for the six months ended June 30, 2017 and 2016, a decrease of $239,871.  The decrease is a result of cost containment procedures and research and development programs being reduced to a minimum.

 

 

 

Sales and marketing expenses for the six months ended June 30, 2017 were $1,535 as compared to $211,774 for the six months ended June 30, 2016, a decrease of $210,239. The decrease relates to cost containment procedures associated with travel and minimal marketing activities. 

 

 

During the six months ended June 30, 2017, the Company incurred interest expense of $212,316 as compared to $2,000 for the six months ended June 30, 2016, an increase of $210,316. The increase in interest expense was a result of the Company resorting to debt to fund its operations during the fourth quarter of 2016 and the first half of 2017.

 

 

During the six months ended June 30, 2017, the Company reported an unrealized gain on the market value of warrants of $101,744 as compared to a gain of 3,320,457 for the six months ended June 30, 2016, a decrease in the gain of $3,218,713. The change primarily resulted from the valuation of warrants associated with the Investment Agreement entered into on December 31, 2012 with VerifyMe, Inc. – Texas (“VFM”) and the Subscription Agreement entered into on January 31, 2013 with VFM.  The value of these warrants has decreased less substantially during the three months ended June 30, 2017 than during the three months ended June 30, 2016. 

 

During the six months ended June 30, 2017, the Company reported an unrealized gain of $79,420 for the change in the fair value of the embedded derivative liability as compared to a gain of $739,000 for the six months ended June 30, 2016.  This change is related to an increase in the value of the beneficial conversion option related to the 0% Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C”), issued in February 2016 and the Series A Preferred Stock issued in conjunction with the Subscription Agreement entered into on January 31, 2013 with VFM.  The decrease in the embedded derivative liability is due to the decrease in the trading price of the Company’s Common Stock.

 

 

During the six months ended June 30, 2016, upon the issuance of the Series C, the associated warrants were valued and that value exceeded the amount that was received by the Company for the Series C, in the amount of $1,767,575, fair value, and was expensed.

      

Liquidity and Capital Resources

Net cash used in operating activities increased $723,693 to $(281,449) for the six months ended June 30, 2017 as compared to $(1,005,142) for the six months ended June 30, 2016.  The increase resulted primarily from operational changes discussed previously as well as a reduction in option and warrant expenses and accretion of discounts on notes payable.

Net cash provided by financing activities decreased by $420,378 to $797,122 for the six months ended June 30, 2017 from $1,217,500 for the six months ended June 30, 2016.  Cash provided by financing activities during the six months ended June 30, 2016, consisted primarily of our Series C Preferred Stock offerings which raised $1,217,500, net of offering costs, while we only raised bridge loans of $281,000 during the six months ended June 30, 2017. 

 

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 August 14, 2017 we had cash resources of approximately $600,000. If we are unsuccessful in either borrowing raising additional funds, we will not be able to fully implement our operating and marketing plans and we may cease operations.

 

 

Cautionary Note Regarding Forward-Looking Statements

 

Off-Balance Sheet Arrangements

 

As of the six months ended June 30, 2017, we do not have any off-balance sheet arrangements.

 

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.

 

 

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.

 

 

In accordance with FASB ASC 605, “Revenue Recognition”, we recognize revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales, consisting mainly of pigments and penlights, upon shipment to the customer. Royalty revenue is recognized upon receipt of notification from a customer that the Company’s product has been used in the customer’s production process.

  

 

License fee revenue is recognized on a straight-line basis over the term of the license agreement.

 

Recently Issued Accounting Pronouncements

 

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

 

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 six months ended June 30, 2017, 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 June 30, 2017, 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.

 

 

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not required.

 

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

 

On April 13, 2017, the Company issued notes payable in the principal amount of $10,000 in exchange for a loan bearing 10% annual interest maturing June 30, 2017.

On April 26, 2017, the Company issued a secured promissory note (the “Note”) in the principal amount of $30,000 in exchange for a loan bearing 10% annual interest maturing October 31, 2017. The Note is secured by a first lien on all assets of the Company in accordance with a security agreement entered into in connection with the Note. In the event the Company completes a financing of at least $750,000 prior to maturity of the Note, the principal of the Note will automatically convert into a number of shares of common stock of the Company equivalent to an investment of $60,000 under the terms of such financing. In the event of such a conversion or a voluntary prepayment by the Company, the Company will also pay six months of interest payments on the $30,000 principal of the Note.

In May 2017, the Company issued notes payable in the principal amount of $60,000 in exchange for a loan bearing 10% annual interest maturing June 30, 2017.

In June 2017, the Company issued notes payable in the principal amount of $36,000 in exchange for a loan bearing 10% annual interest maturing June 30, 2017.

On June 30, 2017, notes payable in the amount of $360,000 were converted into 5,637,157 shares of the Company’s common stock and warrants to purchase 5,637,157 shares of the Company’s common stock (See Note 4).

On June 30, 2017, shareholders of Series C converted 1,537,500 shares of the Company’s common stock and warrants to purchase 6,175,000 shares of the Company’s common stock into 12,014,286 shares of common stock (See Notes 5, 6 and 7).

On June 30, 2017, shareholders of Series D converted 166,750 shares of the Company’s common stock and warrants to purchase 1,334,000 shares of the Company’s common stock into 1,810,429 shares of common stock (See Notes 5, 6 and 7).

On June 30, 2017, the Company sold 7,596,875 shares of the Company’s common stock for $516,122, net of stock issuance costs of $15,128.

On June 30, 2017, the Company converted $43,750 of Director’s fees payable into 625,625 shares of the Company’s common stock.

On June 30, 2017, the Company converted $68,500 of accounts payable to a consultant into 979,550 shares of the Company’s common stock and warrants to purchase 979,550 shares of the Company’s common stock at an exercise price of $0.15 and a term of five years.  In conjunction with this transaction, the consultant forfeited 450,000 options to purchase shares of the Company’s common stock and will also convert $31,500 of consulting fees into 450,450 shares of the Company’s common stock and warrants to purchase 450,450 shares of the Company’s common stock in equal increments through December 31, 2017.

 

 

All of the above securities were issued and sold to accredited investors in reliance upon the exemption from registration contained in Section 4(a)(2) and/or Section 3(a)(9) of the Securities Act of 1933 (the “Act”) and Rule 506 promulgated thereunder.

 

 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

  

ITEM 6. EXHIBITS

 

———————

 

**	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.

 

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

 

 

 

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.

 

 

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