VerifyMe, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock, par value $0.001 per share, and warrants to purchase common stock are traded on The Nasdaq Capital Market under the trading symbols “VRME” and “VRMEW,” respectively. Common Shareholders As of March 19, 2021, we had approximately 1,450 shareholders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, this number is not indicative of the total number of shareholders represented by these shareholders of record. Dividends We have never declared or paid a cash dividend. At this time, we do not anticipate paying dividends in the foreseeable future. The declaration and payment of dividends is subject to the discretion of Board and will depend upon our earnings (if any), our financial condition, and our capital requirements. Nevada law permits a corporation to pay dividends out of earnings or surplus. Accordingly, we cannot pay dividends as a matter of law. Recent Sales of Unregistered Securities In October, the Company issued 1,087 shares of restricted common stock in relation to investor relation services. On October 12, 2020, pursuant to the 2020 Plan, the Company granted to each of the Company’s Chief Financial Officer, acting Chief Operating Officer, and Chief Technology Officer 5,000 restricted stock units that vested immediately and converted into shares of the Company’s common stock. In November 2020, the Company issued 1,087 shares of restricted common stock in relation to investor relation services. In December 2020, the Company issued 2,174 shares of restricted common stock in relation to investor relation services. These securities described above were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), as set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from registration was required. The recipients of the securities described in the transactions above acquired the securities for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof. Use of Proceeds On June 17, 2020, our Registration Statement on Form S-1 (File No. 333-234155), as amended (the “Registration Statement”) relating to an underwritten public offering of an aggregate of 2,173,913 units consisting of one share of the Company’s common stock and a warrant to purchase one share of common stock at an exercise price equal to $4.60 per share of common stock was declared effective by the SEC. The cash proceeds from the offering were $9,023 thousand, net of underwriting discounts and commissions of approximately $800 thousand and fees and expenses of approximately $450 thousand. There has been no material change in the expected use of the net proceeds from the offering, as described in our final prospectus filed with the SEC on June 19, 2020 pursuant to Rule 424(b)(4). As of December 31, 2020, this offering has terminated. ITEM 6. [RESERVED] ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Management’s Discussion and Analysis of Financial Condition and Results of Operation and other parts of this Report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this Report are based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. The following should be read in conjunction with our annual financial statements contained elsewhere in this Report. 21 Table of Contents Overview VerifyMe, Inc. (“VerifyMe,” the “Company,” “we” or “us”) is a technology solutions provider specializing in brand protection and supply chain functions such as counterfeit prevention, authentication, serialization, consumer engagement, track and trace features for labels, packaging and products. The Company was formed in Nevada on November 10, 1999. Until 2018, we were primarily engaged in the research and development of our technologies. We began to commercialize our covert luminescent pigment, RainbowSecure®, in 2018, and we also developed the patented VeriPAS™ software system in 2018 which covertly and overtly serializes products to remotely track a product’s “life cycle” for brand owners. We believe VeriPAS™ is the only invisible covert serialization and authentication solution deployed through variable digital printing on HP Indigo (a division of HP, Inc.) printing systems with a smartphone tracking and authentication system. VeriPAS™ is capable of fluorescing, decoding, and verifying invisible RainbowSecure® codes in the field – designed to allow investigators to quickly and efficiently authenticate product throughout the distribution chain, including warehouses, ports of entry, retail locations, and product purchased over the Internet for inspection and investigative actions. This technology is coupled with a secure cloud-based track and trace software engine which allows brands and investigators to monitor the complete supply chain from product origination to the end user utilizing geolocation mapping and intelligent programable alerts. Brand owners access the VeriPAS™ software through a web portal over the Internet. Brand owners can then set rules of engagement, gather rich business intelligence, establish marketing programs for customer engagement and control, monitor and protect their products’ “life cycle.” We have derived minimal revenue from our VeriPAS™ software system and have derived limited revenue from the sale of our RainbowSecure® technology. Our brand protection technologies involve the utilization of invisible and/or color changing inks, which are compatible and printed with modern digital and standard printing presses. The inks may be used with certain printing systems such as digital, offset, flexographic, silkscreen, gravure, inkjet and toner-based laser printers. The inks can be used to print both static and variable images utilizing digital printing presses and third-party digital inkjet systems which are attached to traditional printing presses. Our invisible ink can be used in fixed images, variable images or serialized codes, bar codes or QR codes. We have developed a product which attaches to a smartphone that reads our invisible ink codes into sophisticated cloud-based track and trace software. We also have a product that informs users that our invisible ink is present for authentication. Based upon our experience, we believe that the ink technologies may be incorporated into most existing manufacturing processes. In the areas of authentication and serialization of physical goods, we offer clients the following brand protection security and anti-counterfeit technologies: · RainbowSecure® · VeriPAS™ supply chain serialization, track and trace technology · VeriPAS™ Smartphone Authenticator · VerifyMe Beeper · VerifyMe® Web™ RainbowSecure® technology was our first technology to be patented. It combines an invisible ink with a proprietary tuned laser to enable counterfeit products to be exposed. In 2017, we signed a five-year contract with Indigo Division of HP Inc. (“HP Indigo”) to print this technology on packages and labels on their 6000 series presses. Our technology has been tested and approved by HP Indigo 6000 series presses and more recently was qualified on HP Indigo’s 6900 series presses. In addition, we successfully trialed production on their 7900 press series used for sheet-fed products like folded cartons and plastic cards. HP Indigo informed us that other press models will be qualified once clients formally request in writing the need for qualification for current unqualified models. In addition, HP Indigo is producing sample secure government products such as tax stamp samples for governments with our RainbowSecure® invisible ink technology. HP Indigo has showcased these samples at various global government and print service providers trade shows. Customers can use a handheld beeping device, our VerifyMe Beepers, tuned to authenticate the unique frequency of our RainbowSecure® invisible ink, to broadcast a beeping sound to confirm the authenticity when placed on products, labels and packaging containing our RainbowSecure® ink. VerifyMe Beepers are being commercialized and leased to customers, typically for one year. In December 2017, we signed a contract with Micro Focus to use RainbowSecure® in their Global Product Authentication Service (GPAS). The technology also features a unique double layer of security which remains entirely covert at all times and provides licensees with additional protection. Under the contract with Micro Focus, we have a re-seller agreement where we sell the combined Micro Focus GPAS with our RainbowSecure® identifier under our own trademarked name, VeriPAS™. In May 2019, we entered into a strategic partnership with INX, the third largest producer of inks in North America, to co-develop inkjet inks to be used for inkjet printing in combination with high speed, high volume label and packaging printing presses. In 2020, INX, in conjunction with Print Craft Inc., successfully-tested an appeal garment containing our RainbowSecure® ink. This secured garment survived the 50 wash and dry cycle test. Sales and marketing efforts for this new VerifyMe secure apparel technology are commencing in 2021 in conjunction with INX and Print Craft Inc. In February 2021, INX completed the development of a version of our RainbowSecure® security ink for metal objects and INX is now co-marketing the new security ink to its global clients. The specially formulated inks will enable these printing presses to print our RainbowSecure® invisible ink technology, which includes our variable VeriPAS™ serialization, track and trace technology. We believe RainbowSecure® is particularly well-suited to closed and controlled environments that want to verify transactions within a specific area, as well as labels, packaging, textiles, plastics and metal products which need authentication. We have derived limited revenue from the sale of our RainbowSecure® technology. 22 Table of Contents VeriPAS™ supply chain serialization, track and trace technology combines the covert identifier of RainbowSecure® with the Micro Focus GPAS which provides brand owners geographical business intelligence on counterfeiting as well as the ability to authenticate labels, packaging and products. Using information from a smartphone screen, our VeriPAS TM technology, can provide authentication and data submission information. A customer or end-user can scan information from a product label or QR code and send it to the cloud where our VeriPAS TM software can verify authenticity of the product, as well as track and trace the product from production through delivery. Certain clients are in the testing stage with this product. Revenue for this product was received for the first time in 2020 and a reorder was received in the first quarter of 2021. To date, we have recognized minimal revenue from this technology. VeriPAS ™ Smartphone Authenticator technology is a piece of hardware with a built-in lighting system and software that scans invisible RainbowSecure® codes. Product investigators attach their smartphone to this device which then reveals the hidden RainbowSecure® images on the smartphone screen which are then sent to the VeriPAS TM software in the cloud for authentication and data submission. These devices have been commercialized and are being leased to customers. Leases are typically one year in length and are auto-renewable. A Forbes Top 50 Company added additional leases in 2020 for its international brand inspector team. Revenue from this product is at an initial stage and minimal at this time. VerifyMe Beeper technology is an authentication tool which we are marketing to customers in conjunction with our RainbowSecure® ink pigment. The VerifyMe Beeper is a handheld beeping device is tuned to authenticate the unique frequency of our RainbowSecure® invisible ink and will broadcast a beeping sound to confirm the authenticity when placed on products, labels and packaging containing our RainbowSecure® ink. The VerifyMe Beeper is designed for use by customers who desire instant authentication on items, such as event tickets at an entry gate. Our customized beeper will only positively identify a product bearing our unique anti-counterfeit solution. This technology is being commercialized and leased to customers, typically for one year auto-renewable terms. We are in the process of upgrading the functionality of this device so that it connects to a mobile phone via Bluetooth allowing authentication attempts to be recorded in the cloud by geo-location with time and date stamp. We expect to be able to commercialize this update by the end of the Q1 2021. VerifyMe® as Authentic® labels are dual-purpose pre-printed labels with a visible serialized QR code for consumer scanning purposes, and an invisible serialized IR code for inspector scanning, authentication and tracking purposes. This label can be either a standard label or designed with tamper evident features. It was developed to provide covert brand protection for e-commerce retailers to enable consumer product authentication, promotion, engagement and education through the visible serialized QR code. This technology has been successfully launched with tamper evident features and is being used in the cannabis sector, without the covert IR component. VerifyMe® Web TM includes, through our collaboration with Corsearch, a brand clearance and protection leader, technologies and services that better enable customers to effectively tackle counterfeit websites, domains and e-commerce platforms offering counterfeit products. To date, we have not derived revenue from this technology. We believe that our brand protection security technologies, coupled with our contract with HP Indigo, can be used to enable brand owners to securely prevent counterfeiting, prevent product diversion and authenticate labels, packaging and products and alleviate the brand owner’s liability from counterfeit products which physically harm consumers. Our covert technologies give brand owners the ability to control, monitor and protect their products life cycle. Also, our technologies allow brand owners to prove whether the product causing an issue is authentic or counterfeit. Our digital technologies are contained in a web portal known as VeriPAS™. VeriPAS™ is built on the Micro Focus centralized cloud- based GPAS platform. Utilizing Micro Focus’s software team, we have embedded our patented invisible code system into the GPAS platform that allows inspectors to utilize our smartphone attachment to read unique invisible, serial codes, barcodes, NFC, RFID and QR codes for every label, package and or product into the VeriPAS™ cloud-based software portal. GPS locations of the scans of inspectors and end users are captured for the brand owner to monitor. In addition, this software is integrated with “iot”, NFC, RFID, SAP enterprise systems. In addition, we have the ability to broadcast Bluetooth signals from our handheld light sensor device when our RainbowSecure® Ink is found on a product or label. This signal then triggers a GPS location to be recorded in the cloud-based VeriPAS™ software application. Together, the handheld light sensor device and the smartphone attachment authenticator provide the brand owner the ability to monitor their inspector team activities thru the VeriPAS™ web portal. Another feature of our digital technologies is the ability for the brand owner to gather rich business intelligence and engage with the consumer using our authentication test as the initial contact with the consumer. For example, consumers can simply scan a visible unique code generated by the VeriPAS™ web portal that is printed on labels and packages using their smartphone camera. Once the consumer scans the code, an instant authenticity check is made using algorithms stored in the cloud to determine the products authenticity on a multiple of factors. Once this test is completed, the brand owner can then engage with the consumer by providing marketing materials, videos, discount coupons, product specifications, or cross sell other products with this consumer engagement software we provide to the brand owner in the cloud-based VeriPAS™ software. 23 Table of Contents COVID-19 Pandemic The COVID-19 pandemic disrupted businesses and affected production and sales across a range of industries, as well as caused volatility in the financial markets, which negatively impacted our results of operations for 2020, and could further negatively impact our sales and results of operations. The full extent of the impact of the COVID-19 pandemic on our customer demand, sales and financial performance will depend on certain developments, including, among other things, the duration and spread of the outbreak, the effectiveness of vaccines, and the impact on our customers and employees, all of which are uncertain and cannot be predicted. Please see Item 1A, “Risk Factors- Risks Relating to the COVID-19 Pandemic” in this Report for additional information regarding certain risks associated with the pandemic. The COVID-19 pandemic has caused a major spike in demand for safety products such as masks and gloves, COVID-19 test kits, medications and vaccines to treat the virus, which we believe has further caused an increase in counterfeit products. Our suite of technology solutions for global manufacturers, distributors and sellers are designed to allow consumers to prove authenticity and we have proactively reached out to global manufacturers who are seeking to provide their customers authenticity in their products. We believe we have a dynamic management and sales team in place with the ability to seamlessly work remotely to minimize any operational disruption. In connection with the COVID-19 pandemic, sales conferences and other in-person sales events have been curtailed. This has resulted in a reduction of our sales-related transportation costs and limited our in-person sales efforts. However, during these challenging times, we have expanded our sales and marketing team and made changes to our social media branding strategy. We continue to work with our sales representatives to look for alternative ways to communicate effectively and promote sales both with our customers and potential customers. Further, we anticipate that as a result of the COVID-19 pandemic, our customers may require that their programs be cancelled, delayed or reduced. We will continue to work in partnership with our customers to continually assess any potential impacts and opportunities to mitigate risk. Results of Operations Comparison of the Years Ended December 31, 2020 and 2019 The following discussion analyzes our results of operations for the years ended December 31, 2020 and 2019. The following information should be considered together with our financial statements for such periods and the accompanying notes thereto. Revenue Revenue for the year ended December 31, 2020 was $343 thousand, a 40% increase compared to $245 thousand, for the year ended December 31, 2019. The increase in revenue primarily related to an increase in security printing with our authentication serialization technology for two large global brand owners. Gross profit Gross profit for the years ended December 31, 2020 and 2019, was $281 thousand and $200 thousand, respectively. The resulting gross margin was 81.9% for the year ended December 31, 2020, compared to 81.6% for the year ended December 31, 2019. This was a result of more efficient usage of our RainbowSecure® invisible ink. We believe our high gross profit margins demonstrate our business model’s ability to generate profitable growth. General and Administrative Expenses General and administrative expenses were $2,151 thousand for the year ended December 31, 2020 compared to $1,359 thousand for the year ended December 31, 2019, an increase of $792 thousand. The increase related primary to non-cash stock-based compensation expense, public company related costs, including investor relations and filing fees associated with our Nasdaq listing, and an increase in amortization and depreciation. 24 Table of Contents Legal and Accounting Legal and accounting fees increased to $324 thousand for the year ended December 31, 2020 from $246 thousand for the year ended December 31, 2019. The increase related primarily to an increase in legal fees due to our securities offerings, more contract related work and other projects. Payroll Expenses Payroll expenses increased to $704 thousand for the year ended December 31, 2020 from $469 thousand for the year ended December 31, 2019, an increase of $235 thousand. The increase was primarily the result of higher non-cash charges related to stock-based compensation of approximately $131 thousand and an increase in the salaries of our Chief Executive Officer and Chief Financial Officer. Research and Development Research and development expenses increased by $14 thousand to $19 thousand for the year ended December 31, 2020 from $5 thousand for the year ended December 31, 2019. We plan to increase research and development in future periods, particularly in the switch from a cloud-based centralized network for VeriPAS™ to an Ethereum decentralized block-chain platform for our supply chain monitoring, and authentication platform. Sales and Marketing Sales and marketing expenses for the year ended December 31, 2020 were $651 thousand compared to $553 thousand for the year ended December 31, 2019, an increase of $98 thousand. The increase is related to an expansion of our sales and marketing team which increased costs by approximately $150 thousand, charges related to our social media and branding of approximately $150 thousand, offset by lower share-based compensation costs of $135 thousand and lower costs due to a decrease in trade shows primarily as a result of the COVID-19 pandemic. We expect that travel related expenses will increase in 2021 and beyond, to the extent the COVID-19 pandemic subsides and in-person sales and marketing events resume. Operating Loss Operating loss for the year ended December 31, 2020 was $3,568 thousand, an increase of $1,136 thousand, compared to $2,432 thousand for the year ended December 31, 2019. The increase primarily related to an increase in public company related costs, including costs associated with our Nasdaq listing, an expansion of our sales and marketing department, and an increase in non-cash stock-based compensation that was partially offset by increases in revenue. Net Loss Our net loss increased $3,395 thousand to $5,902 thousand for the year ended December 31, 2020, from $2,507 thousand for the year ended December 31, 2019. The increase was primarily due to amortization of debt discount related to our 2020 senior secured convertible debentures (the “2020 Debentures”) included in interest expense, and loss on extinguishment of debt related to our 2019 senior secured convertible debentures (the “2019 Debentures”). The resulting loss per share for the year ended December 31, 2020 was $1.48 per share, compared to $1.17 per share for the year ended December 31, 2019. Liquidity and Capital Resources Net cash used in operating activities increased by $702 thousand to $2,281 thousand for the year ended December 31, 2020 compared to $1,579 thousand for the year ended December 31, 2019. The increase resulted primarily in increases due to salaries, increased legal fees, increased public related costs, an expansion of our sales and marketing team, and the initiation of our social branding and marketing campaign. Net cash used in investing activities was $125 thousand for the year ended December 31, 2020, compared to $302 thousand for the year ended December 31, 2019. The decrease in investing activities related to lower capitalized software costs and equipment held for lease, offset by an increase in expenses related to patents. Net cash provided by financing activities increased by $9,631 thousand to $10,092 thousand for the year ended December 31, 2020 from $461 thousand for the year ended December 31, 2019. During the year ended December 31, 2020, we redeemed the convertible debt issued to two investors in September 2019 for a total of $750 thousand. In the first quarter of 2020, we raised $1,992 thousand in gross proceeds from the 2020 Debentures for net proceeds of $1,747 thousand. In the second quarter of 2020, as part of our public offering, we raised approximately $10,000,000 in gross proceeds and received net proceeds of $9,023 thousand, including the exercise of the over-allotment option resulting in gross proceeds of approximately $232 thousand. 25 Table of Contents On May 17, 2020, we entered into a paycheck protection program term note for $72 thousand (the “SBA Loan”) with PNC Bank, N.A. under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) pursuant to the Paycheck Protection Program (the “PPP”), which is administered by the U.S. Small Business Administration. The SBA Loan is scheduled to mature on May 17, 2022, bears interest at a rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. Pursuant to the CARES Act and the PPP, all or a portion of the principal amount of the SBA Loan is subject to forgiveness so long as, over the eight-week period following the receipt by the Company of the proceeds of the SBA Loan, the Company uses those proceeds for payroll costs, payment on rent obligations, utility costs, and costs of certain employee benefits as per Section 1106 of the CARES Act. As of December 31, 2020, the amount outstanding on the SBA Loan was $72 thousand classified as Long-Term Liabilities and included in the accompanying Balance Sheets. In November 2020, we announced a share repurchase program to spend up to $1.5 million to repurchase shares of our common stock over the next nine months. To date, no shares have been purchased but the Company reserves the right to make purchases at any time under the terms set out in this program. The accompanying financial statements and notes have been prepared assuming we will continue as a going concern. During the year ended December 31, 2019 we suffered from recurring losses from operations and negative cash flows from operations, resulting in substantial doubt about our ability to continue as a going concern and a need for, among other things, capital resources. As of December 31, 2019, we had cash of $253 thousand and disclosed that our ability to continue as a going concern was predicated on our ability to raise capital and to sustain adequate working capital to finance our operations. During the year ended December 31, 2020, we raised working capital to finance our operations sufficient to mitigate any substantial doubt about our ability to continue as a going concern which is more fully described in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements. On February 12, 2021, as part of our public offering of an aggregate 1,750,000 shares of common stock, we generated aggregate gross proceeds of $9.2 million and net proceeds of $8.5 million, less underwriting discounts and commissions and other offering expenses, including the partial exercise of the over-allotment option resulting in gross proceeds of $530 thousand. We believe that our cash and cash equivalents, together with the net proceeds from this offering, will fund our operations through 2025. While we expect revenues to increase, we expect continued negative cash flows as we incur increased costs associated with expanding our business. We expect to continue to fund our operations primarily through utilization of our current financial resources, future revenue, and through the issuance of debt or equity. Critical Accounting Policies and Estimates 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 believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial position, results of operations or cash flows. Revenue Recognition Our revenue transactions include sales of our canisters, software, licensing, pre-printed labels, integrated solutions and leasing of our equipment. We recognize revenue based on the principals established in ASC Topic 606, “Revenue from Contracts with Customers.” Revenue recognition is made when our performance obligation is satisfied. Our terms vary based on the solutions we offer and are examined on a case by case basis. For licensing of our RainbowSecure® technology we depend on the integrity of our clients’ reporting. 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 model. The assumptions used in the Black-Scholes option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. 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 ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. 26 Table of Contents 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. Non-employee equity-based payments are recorded as an expense over the service period, as if we had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity-based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed. Recently Adopted Accounting Pronouncements Recently adopted accounting pronouncements are discussed in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements. 27 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable for smaller reporting companies. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements required to be filed pursuant to this Item 8 are appended to this Report beginning on page F-1 located immediately after the signature page and incorporated by reference in this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.