VerifyMe, Inc. 10-K

ITEM 1. BUSINESS. Overview VerifyMe, Inc. (“VerifyMe,” the “Company,” “we” “us” or “our”) is a technology solutions provider specializing in products to connect brands with consumers. VerifyMe technologies give brand owners the ability to gather business intelligence while engaging directly with their consumers. VerifyMe technologies also provide brand protection and supply chain functions such as counterfeit prevention, authentication, serialization, and track and trace features for labels, packaging and products. We are a Nevada corporation formed in 1999. We began to commercialize our covert luminescent pigment VerifyInk TM in 2018. Prior to 2021 we completed the initial development stage of our other current technologies and in 2021 we began to commercialize as a Brand Protection Solutions provider. Our brand protection technologies include consumer engagement capabilities, the custom printing of tamper proof secure labels, and utilization of invisible and visible images, printed with our proprietary special composition inks comprised of a rare earth mineral. These inks are compatible and printed with modern digital and standard printing systems such as digital, offset, flexographic, silkscreen, gravure, inkjet and toner-based laser printers. The inks can be used to print both static labels on standard printing systems and variable labels utilizing digital printing systems that include variable images, serialized codes, dynamic bar codes and dynamic QR codes that allow brand owners to engage directly with customers. We have developed and patented a dual-code technology that we believe can connect digital Non-Fungible Tokens (“NFTs”) to physical products. We have developed and patented a device that attaches to a smartphone that brand inspectors or law enforcement can use to read our invisible ink codes into our cloud-based track and trace software that contains our patented verification technology along with algorithms that analyze the label, package or product’s authenticity and diversion activity. We also have a device that informs users that our proprietary invisible ink is present, which can be used for authentication without the need for internet connectivity. Business Update Recent Developments To increase our global presence, we signed two new agreements to market and sell our products. On December 5, 2021, we signed a reseller agreement with Kimoha Entrepreneurs in the United Arab Emirates and on December 21, 2021, we signed a new Sales Consultant agreement with The AAB in South Africa. In September 2021, we received an initial order for 4 million brand protection labels from a new nutraceutical client. This was one of our largest sales to date after implementing a new sales and marketing plan in 2021. On July 6, 2021, we co-sponsored the initial public offering of G3 VRM Acquisition Corp, a special purpose acquisition company, or “SPAC,” through a contribution into G3 VRM Holdings LLC, or the “Sponsor Entity.” The closing of the IPO of 10,626,000 Units, including 626,000 Units pursuant to the partial exercise of the underwriter’s over-allotment, generated gross proceeds of $106,260,000. G3 VRM commenced trading on NASDAQ under the symbol “GGGVU” and is targeting businesses with enterprise values of approximately $250 million to $500 million within the technology and business services industry. VerifyMe, indirectly through the Sponsor Entity beneficially owns approximately 9.42% of the common stock of the SPAC. On June 4, 2021, VerifyMe was added to the Russell Microcap Index. Russell indexes are widely used by investment managers and institutional investors and as benchmarks for active investment strategies. Approximately $9 trillion in assets are benchmarked against Russell’s US indexes. In April 2021, VerifyMe launched a rebranding and messaging campaign to more fully market all of our products and services to include a new website and marketing materials. RainbowSecure TM was renamed to VerifyInk TM and when coupled with VerifyMe Authenticate™ and VerifyMe Track & Trace™ product lines, we believe it provides the only covert serialization and authentication solution on HP Indigo (a division of HP, Inc.) variable digital printing systems. Our patented smartphone authenticator device, VerifyAuthenticator TM is capable of fluorescing, decoding, and verifying invisible VerifyInk TM printed overt and covert codes in the field. This product allows investigators to authenticate product quickly and efficiently throughout the distribution chain, including warehouses, ports of entry, retail locations, and product purchased over the internet. 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 VerifyMe Authenticate™ and VerifyMe Track & Trace™ software through a cloud-based 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.” 2 Table of Contents In March 2021, we signed a sales agency agreement with an HP Indigo’s authorized channel partner in China. This partner is the only distributor authorized to sell and support HP Indigo products in China, and now has an exclusive agreement to sell our technology solutions for HP Indigo products in China. We also granted them a non-exclusive right to sell our other products in China. In February 2021, we received a purchase order for 2 million pre-printed anti-counterfeiting labels. The labels were utilized for track and trace and brand protection for 2 million boxes of surgical gloves, a personal protective equipment (“PPE”) necessity in fighting the ongoing Covid-19 pandemic. This purchase order for complete pre-printed tamper-evident labels with VerifyMe™ brand protection and consumer engagement solution was under our strategic partnership with Renavotio (OTC: RIII). This is a custom-designed tamper proof label containing multiple layered technologies embedded and printed by VerifyMe. In February 2021, we entered into a strategic partnership with INX International Ink Company (“INX”). INX will supply us with conventional and ink jet inks that incorporate our VerifyInk TM marking technology for resale to our customers. The inks are developed and ready for market for metal container decorating, dry offset printing, gravure shrink sleeves, and flexographic fabric printing. The inks developed, and expected to be developed, under the supply agreement are applicable to a broad range of uses, including aluminum beverage cans and bottles, labels and packaging for the cannabis industry, personal protective equipment, aerospace parts, motor vehicle parts, weapons and ammunition, silicon chips and medical equipment. In February 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. 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 the year ended December 31, 2021. 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 continued duration and spread of the outbreak, the effectiveness of vaccines against new variants, the availability of vaccines and vaccination rates, 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 an increase 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. After an approximate one-year COVD-19 related hiatus we begun attending sales conferences and other in-person sales initiatives in September 2021. Although we have been attending in-person sales events, such events are not at full capacity due to the ongoing pandemic. Since we have recently begun face to face sales presentations and trade shows we are experiencing a small increase in travel related costs versus the 12 months preceding September 2021. We expect these travel related costs to grow. VerifyMe has continued to be aggressive in regard to sales and marketing efforts as we have completed a new website which is generating new leads and we have expanded our sales force. We have also started our first social media advertising campaign. New leads are being generated due to these actions. 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 continued COVID-19 pandemic, our customers may still 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. Our Solutions VerifyMe has a custom suite of products, that offer clients the brand protection security, anti-counterfeiting, protection from product diversion, consumer engagement and a robust serialization, track and trace system. These products are combined with “software as a service” or “SAAS” which is stored in the cloud and accessed through the internet. · VerifyMe Engage™ for consumer engagement · VerifyMe Authenticate™ for product authentication · VerifyMe Track & Trace™ for product supply chain control · VerifyMe Online™ for on-line (web) brand monitoring 3 Table of Contents VerifyMe Engage™ services provide the ability for the brand owner to gather business intelligence and engage with the consumer using our authentication test as the initial contact with the consumer. For example, consumers can simply use their smart phone camera to scan our visible unique codes and/or RFID/NFC chips included on products, labels and packages. Once the consumer scans the code, an instant authenticity check is made using algorithms stored in the cloud to determine the products authenticity on multiple factors. This allows brands to understand where their products are being scanned, whether they are legitimate, and form an immediate bridge for communication with the consumer. After a product is authenticated, the brand owner can then engage with the consumer by, for example offering a gift or future discounts, providing marketing materials, videos, product information and specifications, contest entries or cross selling other products through the consumer engagement software. This service allows to the brand owner to gather real-time actionable information on their customer base. To date, we have derived limited revenue from VerifyMe Engage customers in the cannabis industry. VerifyMe Authenticate™ services provide an assortment of tools through our patented products allowing brand owners to instantly authenticate a product, label or package as genuine and or determine if a product has been fraudulently diverted and where such diversion occurred in the supply chain. Brand owners can use our cloud-based web portal to easily order many types of serialization codes for their products, labels and packages. Once the codes are applied to their products, brand owners can then monitor, control and protect their products during the product’s complete life cycle through the supply chain. Our customers use our patented invisible ink, VerifyInk TM which is combined with a proprietary reader to easily identify counterfeit products. Product investigators may then use our patented VerifyAuthenticator TM technology, a device used with a smartphone and the VerifyMe app, to authenticate and decode VerifyInk TM codes. The user attaches this device to their smartphone, which reveals the hidden VerifyInk TM images that are then sent to our web portal in the cloud for authentication and data submission. We also have another device that does not require use the of a smartphone, our VerifyChecker™ which is a handheld device that is tuned to authenticate the unique frequency of our VerifyInk TM invisible ink. The VerifyChecker™ is designed for use by customers who desire instant authentication on items without the need for an internet connection. It is perfect for field investigators, CBP officials, or as validation in practice such as scanning event tickets at an entry gate. The device functionality was upgraded in September 2021 by adding wireless connectivity to a mobile phone enabling authentication attempts to be recorded in the cloud with geo-location, inspector’s names, and time and date stamp. To date, we have derived limited recurring revenues from two global brand owners who use VerifyMe Authenticate. VerifyMe Track & Trace™ supply chain serialization, track and trace technology utilize overt dynamic codes (QR codes or other barcode symbology), such as our VerifyCode™, which is tied to our cloud-based authentication and track and trace system. This technology provides brand owners business intelligence on counterfeiting and diversion using distribution channel scans throughout the supply chain coupled with consumer scan data. All this data is consolidated on a system that allows brands to customize rules and parameters and establish sophisticated alert systems allowing brands to be proactive, rather than reactive, in thwarting illicit activity. Invisible codes can be added using VerifyInk TM to increase brand protection security and provide inspectors a means to authenticate counterfeit or diverted product if the visible codes have been defaced or removed. Using information from a smartphone, our VerifyCode TM technology, can provide authentication and data submission information. A customer or end-user can scan codes printed on labels and packaging and send it to the cloud where our software can verify authenticity of the product, as well as track and trace the product from production through delivery. To date, we have derived limited revenues from the use of this technology in the personal protective equipment industry and in the cannabis industry. VerifyMe® Online™ includes, through our collaboration with a strategic partner, a brand clearance and protection leader, technologies and services that better enable customers to effectively tackle counterfeit websites, domains and e-commerce platforms, and social media sites offering or promoting counterfeit products. To date, we have not derived revenue from this technology. To optimize our security for our customers, we are seeking to add a blockchain architecture version to our brand protection platform which currently uses a centralized cloud-based data architecture. Our plan is to develop the ability to connect physical products to NFTs in the blockchain. VerifyMe has a patented dual-code technology that we believe will facilitate this process for clients requesting this service. We are exploring opportunities to gain the skillsets needed either through mergers and acquisitions or through strategic partnerships with blockchain specialists that will help us create this product. Partnerships 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 that physically harm consumers. Our covert technologies give brand owners the ability to control, monitor and protect their products life cycle. In cases where the brand owner may be subject to liability brought forth by counterfeit products, our tools allow the brand owner to prove whether the product causing an issue is authentic or counterfeit. Combined with our customer engagement product lines, we offer a unique and comprehensive brand protection and promotion solution that can be tailored to any brand’s specifications. 4 Table of Contents At present, our strategic partner, HP Indigo has the ability, with their Indigo 6000 series, to print our technology on a variable basis. HP Indigo has produced flexible packaging pouch samples, shrink sleeves samples, and tax stamp samples with our covert VerifyInk TM . In May 2019, we entered into a strategic partnership with INX, the third largest producer of inks in North America allowing us to successfully print our covert VerifyInk™ on garments, metal and plastic objects, and INX is now co-marketing the new security ink to its global clients. We are continuing to work with our partners and INX international to develop inkjet ink for various print head, drop on demand and continuous inkjet, that can be used independently or mounted to printing presses and finishing equipment. We have successfully developed VerifyInk™ for drop on demand inkjet printing and are carrying on with the development of a continuous inkjet solution. The specially formulated inks will enable these printing presses to print our VerifyInk TM invisible ink technology, which includes our variable VerifyCode™ serialization, track and trace technology. We believe VerifyInk TM 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 that need authentication. In addition to packaging and labels, our brand protection security printing technologies can be applied to authenticate important credentials such as tax stamps, driver’s licenses, plastics, metal, apparel, election ballots, birth certificates, immigration documents, gaming, apparel, currency, event and transportation tickets, passports, computer software, and credit cards. We can track and trace from production to ultimate consumption when coupled with our proprietary brand protection software. The Opportunity We believe our brand protection products have applications in many areas. Currently, we are aggressively marketing opportunities in the following: · Consumer Products – Counterfeit items are a significant and growing problem with all kinds of consumer-packaged goods, especially in the luxury retail and apparel industries. We believe our technologies are particularly suited for the cosmetics, health and beauty and apparel industries. We give the consumer the ability to test a products authenticity instantly with a smartphone. We can protect brand owners from liability litigation, product diversion and lost financial sales with our consumer facing visible codes and unique ink pigments which can be incorporated in dyes and used by manufacturers in these industries to combat counterfeiting and piracy of actual physical goods. Our pigments expressed as inks can also be used on packaging, as well as to track products that have been lost in transit, whether misplaced or stolen. · Pharmaceuticals/nutraceuticals – We believe counterfeit prescription pharmaceuticals and nutraceuticals are a growing problem, widely recognized as a public health risk and a serious concern to public health officials, private companies, and consumers. Counterfeiting can apply to both branded and generic products and counterfeit pharmaceuticals may include products with the correct ingredients but fake packaging, with the wrong ingredients, without active ingredients or with insufficient active ingredients. The United States enacted legislation requiring the implementation of a comprehensive system designed to combat counterfeit, diluted or falsely labelled pharmaceuticals, referred to as serialization or electronic pedigree (e-Pedigree). Our consumer facing visible codes and unique pigments embedded in the ink of a unique serialized barcode can provide a layered security foundation for a customer solution in this market. We are seeking to expand our business in this market and believe that as additional pharmaceutical companies seek to comply with the legislation, we believe our products will provide attractive alternatives to address the need for product identifiers. · Food and Beverage – Counterfeit food threats are becoming more common as supply chains become more global and as imaging and manufacturing technology become more accessible. We believe our pigments and authentication tools can help in the battle against counterfeit foods and beverages. We are currently marketing our products in this market. In addition, in each of these markets, our SaaS software allows brand owners and consumers to track the products and will alert the consumer or brand owner of counterfeit or product diversion with 24-7 monitoring. As each product has a unique code, this allows consumers and brand owners to authenticate the product in real time and link directly to the brand owner’s website for additional product information, discounts, and more. Our Raw Material Suppliers Our security pigments are manufactured from naturally occurring inorganic rare earth materials. The manufacturing process includes both chemical and mechanical elements. In many cases, we produce pigments that are unique to a customer or product line. This uniqueness can be achieved through a variety of techniques, including custom formulation or combination of our proprietary pigments and/or incorporation of other specialized taggants. There are many manufacturers of these types of specialized pigments, and we intend to maintain multiple simultaneous relationships to ensure ample sources of supply. Accordingly, we are not dependent on any principal suppliers. 5 Table of Contents Manufacturing and Distribution We rely on third-party strategic partners to manufacture and distribute our VerifyInk TM products. We provide these strategic partners with pigment mixing instructions for the specific uses of each client based on their existing equipment and processes. We maintain policies and procedures to monitor, track and log access to and disposition of all pigment. Our customers are also required to agree to and implement these policies and procedures. In relation to our other products, such our hand held VerifyChecker™ and VerifyAuthenticator TM Smartphone Authenticator devices, as well as our VerifyLabel™ tamper-proof labels, we provide instructions for the design of these products and rely on our strategic partners for manufacturing and distribution. Our Intellectual Property Intellectual property is important to our business. Our current patent and trademark portfolios consist of eleven granted US patents and one granted European patent validated in four countries, seven pending US and foreign patent applications, six registered US trademarks, two EU trademark registrations, one Colombian trademark registration, one Australian trademark registration, one Japanese trademark registration, one Mexican trademark registration, one Singaporean trademark registration, two UK trademark registrations, and nineteen pending US and foreign trademark applications. We have attempted to achieve sufficient flexibility in our products and technologies to provide cost-effective solutions. We intend to generate revenues through our custom suite of products, providing consumer engagement, authentication, track and trace and web brand monitoring. We are developing the ability to link digital NFTs to physical products using our patented dual-code technology, as part of our authentication solutions. While some of our granted patents are commercially ready, we believe that others may have commercial application in the future but will require additional capital and/or a strategic partner in order to reach the potential markets. All of our patents are related to the inventions described above. Our registered patents expire between the years 2022 and 2039. The expiration date of a pending application that matures into a registration depends upon the issuance date and any adjustment under 35 U.S.C. 154(b). It is cost prohibitive to register patents in every country. We continue to develop new anti-counterfeiting technologies and we apply for patent protection for these technologies in countries with the most market potential and strong patent enforcement tools. When a new product or process is developed, we may seek to preserve the economic benefit of the product or process by applying for a patent in each jurisdiction in which the product or process is likely to be exploited. The issuance of a patent is considered prima facie evidence of validity. The granting of a patent does not prevent a third party from seeking a judicial determination that the patent is invalid. Such challenges to the validity of a patent are not uncommon and can be successful. There can be no assurance that a challenge will not be filed to one or more of our patents, if granted, and that if filed, such a challenge will not be successful. We have trademarked the VerifyMe TM brand in the United States and have registered and pending applications with respect to our brand internationally. However, our name and brand could be confused with brands that have similar names, including but not limited to Verified.Me, a service offered to Canadians by SecureKey Technologies Inc. We have a pending application for the VerifyMe name in Canada but can make no assurances regarding its approval. We are aware of names and marks similar to our service marks being used from time to time by other persons that could result in confusion and may diminish the value of our brands and adversely affect our business. See Item 1A “Risk Factors” for additional information regarding the risk of confusion of our name with other brands and other intellectual property risks. Research and Development Prior to 2019, we had been involved primarily in research and development since our inception. Through 2012, our research and development focused on pigment technologies. From 2012 through 2018, we allocated research and development efforts between digital and pigment technologies. Since 2019 our primary focus has shifted from research and development to commercialization of our products. Current research and development efforts are focused on expanding our technology into new areas of implementation and to develop unique customer applications. We spent approximately $51 thousand and $19 thousand during the years ended December 31, 2021, and 2020, respectively, on research and development. We are now researching the development of a complimentary blockchain version of our brand protection cloud-based platform into a de-centralized blockchain smart contract network such as Etherum, Cardano, VeChain, Solana, Polygon or other De-Fi blockchains to increase security and allow for the linking of digital NFTs to physical products. We are in early stages of scoping this Blockchain-as-a-Service ("BaaS") platform system that we would upgrade with our patented digital features. Our goal for the new platform will be to provide a comprehensive blockchain platform offering product lifecycle management, supply chain process control, data mining, consumer engagement, product certification, and process certification. We envision that this new blockchain network could be utilized by any sized business, to further enhance brand protection and value as well as to possibly enable us to expand into new business models. Traditional QR codes are an open-source technology and are being used in various financial scams and the loading of viruses into devices who scan the codes. VerifyMe is researching the development of a proprietary code that runs in a closed secure cloud-based environment that scammers and virus threats cannot compromise or penetrate. These proprietary codes are intended to replace QR codes for clients seeking additional security for their products. 6 Table of Contents Sales and Marketing Strategy The rise of e-commerce is a major opportunity for our products and technologies. Both brand owners and counterfeiters conduct a rapidly growing proportion of their trade online. E-commerce sites such as Amazon, Alibaba and, eBay and social media networks, including Facebook, Twitter and Instagram, have become major hubs for counterfeits. These e-commerce sites continue to outperform brick-and-mortar retail growth, and such performance has been accelerated by the significant travel restrictions, mandated closures and other effects of the COVID-19 pandemic. A virtual global marketplace provides multiple benefits for counterfeiters. We have identified the following factors that make it easier for counterfeiters to deceive customers about the authenticity of the products they are buying: · Product inspection occurs after payment and delivery; · Counterfeiters base themselves in jurisdictions where the laws on counterfeiting are less stringent; and · Product images on a website are often all the consumer has, to view and inspect prior to the sale. We view this is a major opportunity to address this growing problem. VerifyMe has developed two strategies to address the growing e-commerce counterfeiting issue. 1. VerifyLabel™ tamper proof labels. This new pre-printed product is sold to large and small brand owners who want to provide their customers with the ability to instantly authenticate their product upon receipt using their customers own smartphone camera. The brand owner works with us to design the label and its security features, and we manufacture the labels, through our strategic partnerships, and sell them to the brand owner to affix to their products for their customer to authenticate. As a side benefit the brand owner has the ability to engage with its customer and gather business intelligence about them. 2. VerifyMe Online™ is another new e-commerce product line that VerifyMe markets to brand owners. This product is a search tool that brand owners subscribe to which reports back to the brand owner any counterfeit websites and or counterfeit products that are found on the internet. VerifyMe provides reports to the brand owner and shuts down the counterfeiting sites and products by legal means. We believe standard optical security features such as holograms and Yellow UV Ink are still heavily used but are easily compromised and as a result have lost their effectiveness. Brand owners have advised us that counterfeiters are able to replicate or circumvent holograms and UV Ink technologies. We therefore recommend that holograms and UV Inks should only be used as decoys for more effective technologies such as VerifyInk™ Our product line has a standard optical feature known as VerifyInk TM Security Ink Taggant. The differentiator between our standard ink taggant feature and existing products is that our VerifyInk TM feature can be printed on digital presses making each label, package, or product completely unique with its own digital signature. In addition, our invisible code can be read into the cloud with a smartphone. This solution is invisible to the human eye, and each code is unique and stored in the cloud for each product, thereby preventing a counterfeiter from matching the codes to products that contain our VerifyInk TM feature. Our software also provides intelligent monitoring capabilities. For example, if a counterfeit is suspected or a product is not in the correct location (i.e. product diversion) the brand owner is alerted by our software. In conjunction with HP Indigo, we have modernized VerifyInk TM by creating unique signatures in the form of invisible codes that can be imbedded onto labels, packages and products that can be read with a smartphone into a supply chain management cloud-based software known as VerfiyMe™ brand authentication portal. We market directly with HP Indigo to owners of the 6000 series and HP Indigo 7900 series digital presses as well as the label and packaging printing industry, including both traditional and digital printers and users to address their clients’ needs for our covert serialization. We expect those printers to market and resell our technologies to both current and future brand owner clients. HP Indigo has trained their international digital press salesforce in various security printing technologies including our VerifyInk TM and visible brand protection technologies. HP Indigo’s salespeople have generated multiple leads on our behalf. In 2017, we entered into a five-year contract with HP to supply HP Indigo digital press ink canisters containing our VerifyInk TM pigment for use by HP Indigo digital press owners who print our security feature on labels and packages for their brand owners. Additionally, we enter into reseller agreements with print service providers. Pursuant to one of these agreements, a global label manufacturer began printing our technology in July 2018 and has major brand owners as clients which can utilize our technologies to protect their product labels and packaging from counterfeiting and product diversion. This label printer owns and operates printers and manufacturing equipment which can implement our technology. This reseller also has manufacturing facilities around the globe. In addition to the printing industry, we expect to market directly to all brand owners who utilize labels and packaging for their products. Brand owners can be licensed directly with us and direct their personal printer to print their labels and packaging with our printing technologies. The brand owner will therefore pay their royalties directly to us based on the number of labels and packages units to which their printer applied the technology. In 2019, we entered into a leasing agreement and purchase agreement with a major brand owner who is on the Forbes Top 50 Private Companies list. The brand owner began printing labels that include our product in the fourth quarter of 2019 and, in 2020, we received notice that this client plans to add additional products and three additional countries Japan, Vietnam and Taiwan. To date, we have derived limited revenue from this contract. 7 Table of Contents In lieu of building, training, and supporting a world-wide internal sales force, we have engaged with multiple strategic partners who have existing government and brand owner relationships in their particular geographical locations. These strategic partnerships include both paid and commissioned sales only contract arrangements. These strategic partners are located in the Middle East, Europe, United Kingdom, India, South Africa, United Arab Emirates, China and Pakistan. We plan to continue to build new strategic partnerships throughout the globe. We have also established a network of commission only paid consultants within the United States. These consultants mainly focus on brand owners, and they are not constricted geographically. We have also entered into commissioned sales contract arrangements with the global sales staff of our vendors, HP Indigo and S-One. We have a strategic partnership with S-One pursuant to which S-One provides us with global sales, distribution, shipping, help desk, warehousing and promotion support for our products and employs representatives on an as needs basis to promote our products. Under the terms of our agreement with S-One, S-One acts as a sales and marketing contractor for our printed products and services on a global basis to mainly print service providers (“PSP”) and assists us in fulfilling our obligations under our current and future reseller agreements with various global and domestic PSPs and brand owners. In addition, we have cross-selling agreements with some of our strategic partners. We plan for our sales and marketing strategy to include an outreach program and sales programs that tailor the product to the governmental body or merchant, as well as key partnerships with authorities and merchants whose products or audiences can be complementary to our own. In particular, we intend to focus on building relationships with key partners who can deliver our products to their existing and prospective customers in target markets, i.e., commercial printers/packagers, plastic card manufacturers and financial services intermediaries. We entered into an agreement with OWS Capital to market, promote and sell our security authentication technology solutions to the UAE government and companies located in the Middle East. HP Indigo’s Experience Centers located in Tel Aviv, Israel, Singapore, Barcelona, Spain and Alpharetta, Georgia have all been trained and outfitted with samples, including our VerifyChecker™ , and VerifyAuthenticator TM Smartphone Authenticators, to demonstrate the technology to customers who visit the centers. Customers can perform tests and receive hands on experience with our technologies. Due to the strong security background of our management team, we have undertaken a major overhaul of our website to position us as a “one stop shop” for brand protection technologies, and as an expert advisor to brand owners to consult with them on their brand protection issues. Our new website launched in mid-April 2021. In addition to the website, a new social media advertising program was launched to targeted customers. In addition to the website and social media expansion, we have recently signed on new salespeople from a large competitor to enhance our sales team and believe we are now well positioned to grow our revenue. Competition The market for protection from counterfeiting, diversion, theft and forgery is a mature industry dominated by a number of large, well-established companies, particularly in the area of traditional overt security technologies where repeating static produced images are commonly used. Security printing for currency production began in Europe over a century ago and has resulted in the establishment of old-line security printers which have branched out into brand and product protection as well. In North America, brand protection products, such as tamper-resistant packaging, security labels, and anti-theft devices are readily available and utilized on a widespread basis. In recent years, however, demand has increased for more sophisticated overt and covert security technologies with a strong desire for technologies that can provide variable images and data. Competitors can be segregated into the following groups: (I) security ink manufacturers who are generally well-established companies whose core business is manufacturing and selling printing inks; (ii) system integrators who have often evolved from other sectors in the printing industry, mainly security printing manufacturers, technology providers, or packaging and label manufacturers, and who typically offer a range of security solutions that enable them to provide a complete suite of solutions tailored to the customer’s specific needs and requirements; (iii) system consultancy groups who offer a range of technologies from several different providers and tailor specific solutions to end-users; (iv) traditional authentication technology providers which provide holograms and digital watermarking; (v) product diversion tracking providers which provide on-product and in-product tagging technologies; and (vi) traditional security printers whose core products are printing the world’s currencies. In general, we believe competition in our principal markets is primarily driven by product performance, features and liability; price; ease of implementation, technology effectiveness, digital instant verification; new laws and regulations; product innovation and timing of new product introductions; ability to develop, maintain and protect proprietary products and technologies; sales and distribution capabilities; technical support and service; brand loyalty; applications support; and breadth of product line. 8 Table of Contents In 2020, new blockchain as a service (“BAAS”) technology companies have surfaced. These are mainly early-stage development companies that have begun to enter the marketplace using de-centralized blockchain networks to authenticate and validate products as well as traditional supply chain management including serialization, track and trace and internet of things (“IoT”) connectivity using codes, near field communication and RFID chips. We believe that converting our brand protection cloud-based platform into a de-centralized blockchain network will allow us to compete in this space with the advantage of blending our physical technologies for an enhanced product offering. Amazon has become a competitor with their new “Project Zero” brand protection system utilizing their “Transparency” serialization product. Amazon’s product serialization service provides a unique code for every unit that is manufactured, and the brand puts these codes on its products as part of its manufacturing process, which Amazon scans and verifies. This differs from our covert luminescent pigment which is incorporated in the labeling process and our invisible covert serialization and authentication solution. Also, HP Indigo is selling a yellow ultraviolet ink and a color changing ink as a security product at inexpensive prices that directly competes with our products. There are a number of providers of inexpensive ultraviolet inks in the marketplace, however, we believe these inexpensive ultraviolet inks do not provide the level of security and safety that our products provide. New types of security competition are also increasing, such as retail website monitoring, brand investigations, RFID and near field communications products using low powered radio signals to connect to products. Competition is building in the consumer engagement market as more companies enter the space but are using mainly NFC technology imbedded into apparel. In addition to this technology, we have the ability to print labels on more applications including fabrics and metals. To compete effectively, we are seeking to establish key relationships with major digital solution equipment and distribution providers as we have done with HP Indigo. While leveraging these relationships, we still expect that we will need to expend significant resources in sales and marketing. Many of our competitors have substantially greater financial, human and other resources than we have. As a result, we may not have sufficient resources to develop and market our services to the market effectively. We expect competition with our products and services to continue and intensify in the future. Major Customers/Vendors During the year ended December 31, 2021, five customers accounted for 95% of total sales. During the year ended December 31, 2020, two customers accounted for 92% of total sales. Generally, a substantial percentage of the Company's sales has been made to a small number of customers and is typically on an open account basis. During the years ended December 31, 2021, and 2020, the Company purchased 100% of pigment from one vendor. Additionally, during the years ended December 31, 2021, and 2020, the Company purchased 100% of canisters from one vendor. As of December 31, 2021, three customers accounted for 91% of total accounts receivable. As of December 31, 2020, two customers accounted for 96% of total accounts receivable. Employees and External Sales Force As of March 7, 2022, we had seven full-time employees, one part-time employee, and several paid consultants. Because of the nature of our business, our employees and consultants can, and do, conduct their work for us remotely. In lieu of building, training and supporting a world-wide internal sales force, we have engaged with multiple strategic partners who have existing government and brand owner relationships in their particular geographical locations. These strategic partnerships include both paid and commissioned sales only contract arrangements. These strategic partners are located in the Middle East, Europe, United Kingdom, India, South Africa, United Arab Emirates, China and Pakistan. We plan to continue to build new strategic partnerships throughout the globe. We have also established a network of over a dozen commission-paid sales consultants within the United States. These consultants mainly focus on brand owners, and they are not constricted geographically. We have also entered into commissioned sales contract arrangements with the global sales staff of our vendors, HP Indigo and S-One. Available Information We make available free of charge on our website, www.verifyme.com, all materials that we file electronically with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC. We have not incorporated by reference into this Report the information included, or that can be accessed through, our website and you should not consider it to be part of this Report. 9 Table of Contents The SEC maintains an Internet website, www.sec.gov that contains reports, proxy and information statements and other information that we file electronically with the SEC.