Item 1. Business
ITEM 1. BUSINESS.
Overview
VerifyMe, Inc. (“VerifyMe”) together
with its subsidiaries, including PeriShip Global, LLC (“PeriShip Global”) and Trust Codes Global Limited (“Trust Codes
Global”), (together the “Company,” “we,” “us,” or “our”), is a traceability and
customer support services provider using specialized software and process technology. The company operates a Precision Logistics Segment
and an Authentication Segment to provide specialized logistics for time-and-temperature sensitive products, as well as item level
traceability, anti-diversion and anti-counterfeit protection, brand protection and enhancement technology solutions. Through our Precision
Logistics segment, we provide a value-added service for sensitive parcel management driven by a proprietary software platform that provides
predictive analytics from key metrics such as pre-shipment weather analysis, flight-tracking, sort volumes, and traffic, delivered to
customers via a secure portal. The portal provides real-time visibility into shipment transit and last-mile events which is supported
by a service center. Through our Authentication segment our technologies enable brand owners to gather business intelligence through the
supply chain, cross-sell products, detect counterfeit activities, monitor product diversion, and build brand loyalty utilizing our unique
dynamic codes which are read by consumers with their smart phones. Further information regarding our business segments is discussed below:
Precision Logistics: The Precision Logistics
(formerly PeriShip Global Solutions) segment specializes in predictive analytics for optimizing delivery of time and temperature sensitive
perishable products. We manage complex industry-specific shipping logistic processes that require critical time, temperature control and
handling to prevent spoilage and extreme delivery times and brand impairment. Utilizing predictive analytics from multiple data sources
including flight-tracking, weather, traffic, major carrier feeds, and time of day data, we provide our clients an end-to-end vertical
approach for their most critical service delivery needs. Using our proprietary IT platform, we provide real-time information and analysis
to mitigate supply chain flow interruption, as well as delivering last-mile resolution for key markets, including the perishable healthcare
and food industries.
Through our proprietary PeriTrack ® customer
dashboard, we provide an integrated tool that gives our customers an in-depth look at their shipping activities and allows them access
to critical information in support of the specific needs of the supply chain stakeholders. We offer post-delivery services such as customized
reporting for trend analysis, system performance reports, power outage maps, and other tailored reports.
Precision Logistics generates revenue from two
business service models.
· ProActive Service – clients pay us directly for carrier service coupled with our proactive
logistics assistance.
· Premium Service – clients pay us directly or through our carrier partner for our complete
white-glove shipping monitoring and predictive analytics service. This service includes customer web portal access, weather monitoring,
temperature control, full service center support and last mile resolution.
Products: The Precision Logistics segment
includes the following bundled services as part of our service offerings to our customers:
· PeriTrack ® : Our proprietary PeriTrack® customer dashboard was developed utilizing our
extensive logistics operational knowledge. This integrated web portal tool gives our customers an in-depth look at their shipping activities
based on real-time data. The PeriTrack® dashboard was designed to provide critical information in support of the specific needs of
supply chain stakeholders and gives our customer resolution specialists a 360° view of shipping activity. PeriTrack® features
tools tailored for shippers of perishable goods, which includes the In-Transit Shipment Tracker. This tool provides details on the unique
shipper’s in-transit shipments, with the ability to select and analyze data on individual shipments.
· Service Center : We have assembled a team of customer resolution specialists based in the U.S. This
service team resolves shipping problems on behalf of our customers. The service center acts as a help desk and monitors shipping to delivery
for our customers.
· Pre-Transit Service : We help clients prepare their products for shipments by advising clients on
packaging requirements for various types of perishable products. Each product type requires its own particular packaging to protect it
during shipment, and we utilize our extensive knowledge and research to provide our customers with packaging recommendations to meet their
unique needs.
· Post-Delivery : We provide customized reporting for trend analysis, system performance reports,
power outage maps, and many other reports to help our customers improve their processes and customer service outcomes.
· Weather/Traffic Service : We have full-time meteorologists on staff to monitor weather. A package
may experience a variety of weather conditions between the origin and destination, and our team actively monitors these conditions to
maximize the number of timely and safely transmitted shipments. Similarly, traffic and construction also create unpredictable delays which
our team works diligently to mitigate. If delays or other issues occur, we inform clients and work with them to proactively resolve such
shipment issues.
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Authentication : The Authentication (formerly
VerifyMe Solutions) segment specializes in traceability to connect brands with consumers through their product. This is critical in the
current landscape of increased regulations, as well as increased counterfeit activity and product diversion. The ability to detect fraud
or abnormal behavior while tracing an item’s journey from production through to the consumer’s hands provides consumers and
brands the assurance they require. VerifyMe has custom software, patented technologies, and a cloud environment that combines machine
learning and data science to meet the needs of consumers and brands. In addition, the personalized consumer experience with the brand
creates a connection that increases brand perception and loyalty.
Products : We have a custom suite of products
that offer clients traceability and brand solutions. 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 brand enhancement allowing the brand owner to gather business intelligence and engage with customers
· VerifyMe Authenticate™ using rare earth-based ink taggants for instant authentication of labels, packaging and products
· VerifyMe Track & Trace™ for unit level traceability and supply chain control
Opportunities
Precision Logistics: Traditionally,
most shipping businesses utilize the carrier’s data platform for tracking which generally informs the shipping enterprise, and their
customers, when a package is in transit, when a package has been delivered, and some level of detail of the path which a package traveled.
We believe taking the data feeds from a carrier and adding real-time visibility with predictive analytics and the human intervention factor
of our service center gives us a competitive advantage against other third-party platforms that solely rely on the carrier’s data
feeds. We utilize a variety of input sources beyond the carrier’s data feed. Our proprietary “Predictive Analytics”
technology is fed real-time meteorology data, traffic and road construction data, and power grid information to help predict issues before
they happen. If an alert is created the shipper and our service center will work to address the issue and save the perishable product
from spoiling, saving the shipper significant costs and reducing the need to replace products that are no longer viable. We have meteorologists
on staff that track world-wide weather patterns to address predicted issues before they happen. We believe the company has two significant
areas of opportunity. First, our services are specifically designed to address the needs of small and medium size agriculture, food and
beverage companies. Second, the pharmaceutical and healthcare industries represent significant opportunities due to the enhanced tracking
and customer service associated with distribution of these products. We are focusing our sales emphasis on those industries. In addition,
we believe that combining our authentication solutions into the product offering for Precision Logistics clientele, gives our Precision
Logistics segment a competitive advantage to generate revenue by enhancing clients’ ability to grow revenue, gain business intelligence
and build brand loyalty.
The U.S. logistics industry is facing an economic
slowdown. We believe this represents an opportunity since major global carriers are cutting internal staff. These carriers are looking
for lower cost alternatives to service their customers as well as partners that can help the carrier increase revenues. To maintain their
credibility in the market, these carriers will need to ensure they meet their customers’ demands for time and temperature sensitive
shipments, while maintaining their overheads. We believe outsourcing this function to our Precision Logistics segment provides the ideal
solution for all parties involved.
Building logistics infrastructure is a capital-intensive
process as the investment is locked in for a considerably long period. Due to the current economic environment, and our cost competitive
offering, we believe companies will opt to outsource their precision logistics services to reduce their operational costs. The outsourcing
of supply chain related and other logistics operations to service providers such as ours allows companies to improve the efficiency of
their businesses by focusing their resources on core competencies.
Authentication: We believe the products
in our Authentication segment have applications in many areas. Currently, we are aggressively marketing opportunities in the following
areas:
· Agriculture, Food and Beverage – Food safety is becoming more common as supply chains become more
global and as imaging and manufacturing technology become more accessible. Food traceability, sustainability and carbon neutral production
is becoming a significant consideration for brand and governments. We believe our unit level traceability and authentication solutions
can help brands tell their story about sustainability and battle against tainted or substandard foods and beverages.
· 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, our products will provide attractive alternatives to address the need for product identifiers.
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· Consumer Products – We believe our technology solutions are particularly suited for the cosmetics,
health and beauty and apparel industries. We give the consumer the ability to test a product’s 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.
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 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.
Synergies : We believe that Precision Logistics
and Authentication segments have synergistic product centric technology platforms and combined have a compelling technology offering for
brand owners. For example, currently our Precision Logistics segment ships vaccines for major pharmaceutical companies. With the addition
of our Authentication technology, we can add unit level traceability and authentication to protect clients’ vaccines from product
diversion and sub-standard counterfeits. In addition, our Authentication segment brand enhancement solutions could give the Precision
Logistics food and beverage clients the ability to gather rich business intelligence and build customer loyalty with engagement functions
like videos, discounts, contests, recipes, etc.
Partnerships:
Precision Logistics has a direct partnership with
a major global carrier company. This partnership includes the ability for both companies to white label each partner’s services.
In addition, Precision Logistics has data feeds directly from the carrier into our proprietary logistics optimization software which provides
shippers much more detailed information and predictive analytics on their shipment versus a standard shipping code look up which is provided
by the carrier.
Our Authentication segment has a contract with
HP Indigo, and a strategic partnership with INX, the third largest producer of inks in North America. We believe these partnerships can
be used to enable brand owners to securely prevent counterfeiting, prevent product diversion and authenticate labels, packaging and products
alleviating liability from counterfeit products that harm consumers.
Current Economic Environment
In response to market conditions and lower demand
some carriers have implemented strategies to address a potential global recession. In April 2023, the major carrier that PeriShip Global
partners with laid out steps it was taking to slash $4 billion in permanent costs by the end of its 2025 fiscal year in response to these
market conditions and lower demand. In June 2023, the major carrier stated that due to ongoing demand its plans to ground 29 more aircraft
in its fiscal year that started in June 2024. In mid-December 2023, the carrier forecasted a low single digit percentage decline in revenue
year over year for 2024.
We have seen a softening in demand for some services
related to high-end perishable items and cannabis products which seem to be impacted by reduced discretionary spending by U.S. consumers.
While a recession, whether global or more localized to the U.S., may decrease the demand for our services that are more discretionary
in nature, we believe that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service
providers. We are working with this major global carrier to address their small and medium-sized business clients, which we believe is
an underserved market and presents considerable growth opportunities for our Precision Logistics segment. However, we can provide no assurances
that a decline in discretionary consumer spending will not have a negative impact on our revenues and results of operations.
Business Combinations
On March 1, 2023, we acquired, through Trust Codes
Global, the business and certain assets of Trust Codes, a company specializing in brand protection,
anti-counterfeiting and consumer engagement technology with an expertise in the food and agriculture industry. Trust Codes Global uses
unique QR codes or IoT, coupled with GS1 standards to deliver cloud-based brand protection based on a unique per-item digital identity
to protect brand and product authenticity, increase data visualization of a product through the end-to-end supply chain and creates a
data driven engine to inform and educate consumers of the product. The purchase price was approximately $1.0 million which consisted of
approximately $0.36 million in cash paid at closing, and 353,492 shares of restricted common stock of the Company, representing $0.65
million in stock consideration. In addition, the purchase agreement requires consideration contingent upon the achievement of earnings
targets during a five-year period subsequent to the closing of the acquisition. The earn-out consideration estimated at $1.1 million at
the acquisition date, however the maximum amount of the payment is unlimited. Trust Codes Global is included in the Authentication segment
and the results of its operations are included in the consolidated financial statement beginning March 1, 2023.
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On April 22, 2022, we acquired, through PeriShip
Global, the business and certain assets of PeriShip, LLC, a value-added service provider for time and temperature sensitive parcel management.
PeriShip Global provides shipping logistics services utilizing proprietary predictive analytics software and supporting service center
services. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption,
delivering last-mile resolution for key markets, including the perishable healthcare and food industries. The purchase price was $10.5
million which consisted of $7.5 million in cash paid at closing, a promissory note of $2.0 million with a fixed interest rate of
6% per annum on the unpaid principal balance, to be paid in three installments on the sixth, fifteenth, and eighteenth month anniversaries
of the closing, and 305,473 shares of restricted common stock of the Company, representing $1.0 million in stock consideration. We expect
that all of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired PeriShip Global business
is included in the Precision Logistics segment and the results of its operations have been included in the consolidated financial statements
beginning April 22, 2022.
Seasonality
We experience seasonal fluctuations
in our net revenues from sales in our Precision Logistics segment. Revenues from sales are generally higher in the fourth quarter than
in other quarters due to increased holiday shipments. The seasonality of our business may cause fluctuations in our quarterly operating
results.
Our Intellectual Property
Intellectual property is important to our business. As
of December 31, 2023, our current patent and trademark portfolios consist of nine granted U.S. patents and two granted European patents,
one validated in four countries (France, Germany, United Kingdom, and Italy), and the second patent validated in three countries (France,
Germany, and United Kingdom), three pending U.S. and foreign patent applications, twenty-six registered U.S. trademarks (of which nineteen
are in the name of VerifyMe, Inc., and seven trademarks were acquired through our wholly owned subsidiary, PeriShip Global), 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, seven NZ trademark registration (of which
six are in the name of Trust Codes Limited and/or Trust Codes Global Limited), one OAPI (African Intellectual Property Organization) trademark
registration (in the name of Trust Codes Global Limited), and two pending US and foreign trademark applications. The Company abandoned
two patents during the year ended December 31, 2023.
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 2024 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).
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It is cost prohibitive to register patents in
every country. We continue to develop new 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 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
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 $107 thousand and $89 thousand during the years ended December 31, 2023, and 2022, respectively, on research and
development.
Research in our Precision
Logistics segment is currently focused on developing:
· the ability to print labels utilizing our own label printing software rather than relying on a carrier’s
print engine;
· the imbedding of machine learning into our proprietary IT portal to expand and improve our predictive
analytics capabilities; and
· creating revenue from our weather analytics.
Research in our Authentication
segment is currently focused on developing new innovative solutions, and enhancement of our existing solutions to counterfeiting and
traceability so that we continue to expand what we believe is our long-term competitive advantage:
· Novel new algorithms to combat counterfeit methods more effectively, including expanding the use of machine
learning techniques to better identify counterfeit behaviors;
· Improvement and enhancement of our smart production systems integration suite and its connection with
critical expert partners;
· New methods to verify and validate customers who onboard, including using deep learning models to validate
both identity and claims;
· Further development of our web app augmented reality/mixed reality capability, leveraging our unique technology
in this area which we acquired with Trust Codes; and
· New methods to detect and validate VerifyInk™ on customer packing to help expand the market for
the VerifyInk™ product, and in line with our dual factor related patents.
VerifyMe continues to
monitor the market for state-of-the-art innovation and may either develop, partner to deploy or seek to acquire new technologies, products
and services in the future, if we believe it would provide a competitive market advantage and could be successfully monetized.
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Sales and Marketing
Strategy
Business development and sales resources are aligned
to support existing customer accounts and new customer development. We use social media channels, such as LinkedIn, Facebook and Twitter
as a means of marketing our services. By staying in contact and engaging with customers, we are able to identify possible needs and look
for opportunities to expand the services we are providing. We are currently revising and optimizing our websites to improve customer engagement
and SEO. We believe many of the clients of PeriShip Global will benefit from the legacy VerifyMe business consumer engagement and food
safety technologies. We will also continue to participate in trade show attendance which had declined during the height of the COVID pandemic.
In lieu of building, training, and supporting
a world-wide internal sales force, we continue to have strategic partners who have existing relationships in their particular geographical
locations. For our Authentication segment, these strategic partners have relationships with government and brands and include both paid
and commissioned sales only contract arrangements.
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Competition
PeriShip Global has developed its own software
portal with predictive analytics for weather, traffic, power grids, and data feeds it receives from one of the world’s largest logistics
carriers. There are other companies that operate a similar business model, however most of these companies specialize in a particular
field such as healthcare or non-perishable building materials. PeriShip Global is operating in all of the perishable segments. In addition,
the major carriers such as FedEx, UPS and DHL all have internal operations servicing the critical time, temperature, and cold storage
shipping segment, however we believe with the economic downturn, major carriers are seeking to outsource perishable shipping services
rather than invest additional funds to provide internal support.
The market for protection from diversion, theft
and forgery is a highly fragmented industry that includes smaller companies as well as a number of large, well-established companies.
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.
Amazon has an anti-counterfeit service with their
“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. Our traceability and authentication solutions are interoperable with Amazon’s
Transparency solutions. While Amazon’s customers could use our solution when using Amazon, they would not be required to in order
to use Amazon’s Transparency solutions. However, Amazon’s solution must be used within the Amazon ecosystem. 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.
Some 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, 2023, one customer
represented 17% of revenues and one customer represented 13% of revenues for the year ended December 31, 2022.
As of December 31, 2023, three customers made
up 47% of accounts receivable. As of December 31, 2022, two customers accounted for 23% of total accounts receivable.
During the year ended December 31, 2023, and December
31, 2022, one vendor accounted for 99% of transportation costs, in our Precision Logistics segment.
Employees and External
Sales Force
As of December 31, 2023, we employed approximately
fifty persons and eight consultants. Of these employees, approximately forty were employed in our Precision Logistics operations and 10
were employed by our Authentication operations. Because of the nature of our business, many of our employees and consultants can, and
do, conduct their work for us remotely.
We have also entered
into commissioned sales contract arrangement with our strategic partner, HP Indigo.
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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.
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.