Item 7. Management’s Discussion and Analysis
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.
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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.
Results of Operations
Comparison of the Years Ended December 31,
2023, and 2022
The following discussion analyzes our results
of operations for the years ended December 31, 2023, and 2022. The following information should be considered together with our financial
statements for such periods and the accompanying notes thereto.
Revenue
Years Ended
December 31,
2023
2022
(In thousands)
(In thousands)
Precision Logistics
$ 24,652
18,190
Authentication
661
1,386
Total Revenue
$ 25,313
$ 19,576
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Consolidated revenue for the year ended December 31,
2023, was $25,313 thousand, a 29% increase compared to $19,576 thousand, for the year ended December 31, 2022. The
increase in revenue primarily relates to the acquisition of the PeriShip Global business on April 22, 2022, which increased revenue by
$6,462 thousand for the twelve months ended December 31, 2023, partially offset by a $725 thousand decline in the Authentication revenue.
The Authentication segment maintained its existing client base but had reduced orders in the nutraceutical market in 2023.
Gross Profit
Years Ended
December 31,
2023
2022
(In thousands)
% of Revenue
(In thousands)
% of Revenue
Precision Logistics
8,475
34 %
5,505
30 %
Authentication
528
80 %
983
71 %
Total Gross Profit
$ 9,003
36 %
$ 6,488
33 %
Consolidated gross profit for the years ended
December 31, 2023, and 2022, was $9,003 thousand and $6,488 thousand, respectively. The resulting gross margin was 36% for the year ended
December 31, 2023, compared to 33% for the year ended December 31, 2022. The increase in our gross margin is due to the acquisition of
the PeriShip Global business acquired on April 22, 2022, which is included for the full twelve months of 2023. The Precision Logistics
segment had increased premium services revenue which has higher margins as well as process improvements to increase proactive services
margins. With the acquisition of Trust Codes in March 2023, providing custom software, our margins in the Authentication segment also
increased.
General and Administrative Expenses
General and administrative expenses were $10,586
thousand for the year ended December 31, 2023, compared to $8,428 thousand for the year ended December 31, 2022, an increase
of $2,158 thousand. The increase relates to the acquisition of the PeriShip Global business on April 22, 2022 included for the full
twelve months of 2023, the deal transaction costs related to the acquisition of the Trust Codes Global business of $278 thousand, operations
related to Trust Codes, as well as severance expense of approximately $590 thousand which has been paid in full by the end of January
2024, partially offset by costs related to the acquisition of the PeriShip Global business of $661 thousand in 2022 that did not recur
in 2023. Stock-based compensation was $1,509 thousand, including $121 thousand relating to severance in 2023, compared to $1,375 thousand
in 2022. Amortization and depreciation expense was $1,134 thousand and $770 thousand for the twelve months ended December 30, 2023, and
2022, respectively.
Research and Development
Research and development expenses increased by
$18 thousand to $107 thousand for the year ended December 31, 2023, from $89 thousand for the year ended December 31, 2022.
The increase was primarily related to research and development activities as a result of the acquisition of Trust Codes during the first
quarter of 2023.
Sales and Marketing
Sales and marketing expenses for the year ended
December 31, 2023, were $1,638 thousand compared to $1,718 thousand for the year ended December 31, 2022, a decrease of $80
thousand. The decrease is related to a reduction in employees and consultants in the Authentication segment partially offset by the
PeriShip Global business included for the full twelve months of 2023.
Net Loss
Our net loss for the year ended December 31, 2023,
was $3,390 thousand, compared to $14,398 thousand for the year ended December 31, 2022. The decreased loss was primarily due to the impairment
of the SPAC of $10,932 thousand during 2022. The resulting consolidated loss per diluted share for the year ended December 31, 2023, was
$0.35 compared to a consolidated loss per diluted share of $1.70 for the year ended December 31, 2022.
Liquidity and Capital Resources
Our operations provided $244 thousand of cash
during the year ended December 31, 2023, compared to $2,551 thousand cash used in operations during the year end December 31, 2022. The
increase in cash from operations is due to a favorable change in working capital accounts during 2023 compared to 2022 from our acquisition
of PeriShip Global in April of 2022.
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Net cash used in investing activities was $1,195
thousand for the year ended December 31, 2023, compared to $7,884 thousand for the year ended December 31, 2022. During the year
ended December 31, 2022, $7,500 thousand was used for the acquisition of the PeriShip Global business.
Net cash provided by financing activities for
the year ended December 31, 2023, was $634 thousand compared to $4,424 thousand for the year ended December 31, 2022, related to proceeds
from issuance of convertible debt in 2023 and debt and offerings of our common stock in 2022.
On December 8, 2023, we announced a new $0.5 million
share repurchase program to repurchase shares of the Company’s common stock through December 14, 2024, but may be modified, suspended
or discontinued at the discretion of the Board at any time. To date, no shares have been purchased under the program.
On August
25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory
notes for the aggregate principal amount of $1,100 thousand of which $475 thousand was purchased
by relating parties including certain members of management and the Board of Directors. The notes are subordinated unsecured obligations
of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears on February 25 and August 25 of each year,
beginning on February 25, 2024. The notes will mature on August 25, 2026, unless earlier converted or repurchased at a conversion price
of $1.15 per share of common stock. The Company may not redeem the notes prior to the maturity date. As of December 31, 2023, the amount
outstanding on the convertible debt was $1,100 thousand and included in Convertible Note, and Convertible Note – related party on
the accompanying Consolidated Balance Sheets. The Company has accrued interest expense of $31 thousand related to the convertible note
as of December 31, 2023.
On September 22, 2022, we entered into the PNC
Facility with PNC Bank, National Association. The PNC Facility includes a $1 million RLOC. The RLOC has no scheduled payments of principal
until maturity, and bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments. The PNC
Facility also includes a four-year Term Note for $2 million which matures in September of 2026 and requires equal quarterly payments of
principal and interest. The Term Note incurs interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%. The RLOC and
Term Note are guaranteed by the Company and secured by the assets of PeriShip and the Company.
The PNC Facility includes a number of affirmative
and restrictive covenants applicable to PeriShip, including, among others, a financial covenant to maintain a fixed charge coverage ratio
of at least 1.10 to 1.00 at the end of each fiscal year, affirmative covenants regarding delivery of financial statements, payment of
taxes, and establishing primary depository accounts with PNC Bank, and restrictive covenants regarding dispositions of property, acquisitions,
incurrence of additional indebtedness or liens, investments and transactions with affiliates. PeriShip is also restricted from paying
dividends or making other distributions or payments on its capital stock if an event of default (as defined in the PNC Facility) has occurred
or would occur upon such declaration of dividend. On November 3, 2023, we entered into a waiver and amendment to loan documents and received
a waiver for certain events of default. We also entered into an amended and restated loan agreement with PNC effective October 31,
2023, which provided amendments to a number of affirmative and restrictive covenants applicable to PeriShip Global and extended the RLOC
to September 30, 2024.
We were in compliance with all affirmative and
restrictive covenants under the PNC Facility at December 31, 2023.
Effective October 17, 2022, we entered into an
interest rate swap agreement, with a notional amount of $1,958 thousand, effectively fixing the interest rate on our outstanding debt
at 7.602%.
Of the proceeds of $2.0 million, we used $1.8
million to settle debt outstanding issued in connection with the PeriShip Global acquisition, including the redemption of 61,000 shares
of our common stock. As of December 31, 2023, our short-term debt outstanding under the Term Note was $0.5 million and total long-term
debt outstanding under the Term Note was $0.9 million.
We believe that our cash and cash equivalents,
together with the proceeds from the convertible note, from debt issued and RLOC, will fund our operations for the next 12 months including
expected capital expenditures.
We expect to grow our business organically and
through key acquisitions that will help accelerate the growth of our business. We expect to continue to fund our operations primarily
through utilization of our current financial resources and future revenue and may issue additional debt or equity.
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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 have identified that the estimates used in the valuation of the assets of the
PeriShip acquisition, and the Trust Codes acquisition are critical and require significant judgment. We believe estimates and assumptions
related to these 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
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 at a point in time of delivery of the service. Over 95% of our revenue is derived from logistics management for time and
temperature sensitive packages with the remaining from our traceability solutions. Our terms vary based on the solutions we offer and
are examined on a case-by-case basis. For licensing of our VerifyInk TM technology we depend on the integrity of our clients’
reporting. Determining whether products and services in agreements with non-standard terms are distinct performance obligations that should
be accounted for separately or combined to one unit of accounting may require significant judgement.
The timing of revenue recognition, billings and
cash collections results in billed accounts receivable, and unbilled revenue when billings occur after the end of the month (contract
assets) on the consolidated balance sheets. Amounts charged to our clients become billable when the performance obligation has been met
at a point in time. Unbilled amounts will generally be billed and collected within 30 days but typically no longer than 60 days. These
assets are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in
the contract assets have not significantly increased as of December 31, 2023, due to the business combination. No other factors materially
impacted the balances.
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Business Combinations
Accounting for business combinations requires
management to make significant estimates and assumptions to determine the fair values of assets acquired and liabilities assumed at the
acquisition date. Although we believe the assumptions and estimates we have made in relation to the acquisition of the PeriShip business
are appropriate, they are based, in part, on historical experience and information obtained from management of the acquired companies
and are inherently uncertain. Critical estimates in valuing certain acquired intangible assets include, but are not limited to, future
expected cash flows including revenue growth rate assumptions from product sales, customer contracts and acquired technologies, estimated
royalty rates used in valuing technology related intangible assets, and discount rates. The discount rates used to discount expected future
cash flows to present value are typically derived from a weighted-average cost of capital (“WACC”) analysis and adjusted to
reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions,
estimates or actual results.
We allocate the fair value of the purchase price
of our acquisitions to the tangible assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair
values at acquisition date. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible
assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable,
but our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which
will not exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill. After the conclusion of the measurement period or final determination of the fair value of the purchase
price of our acquisitions, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.
Acquisition-related expenses are recognized separately
from the business combination and are expensed as incurred.
Goodwill
We have recorded goodwill as part of our acquisition
of the PeriShip business and Trust Codes business, which represents the excess of purchase price over the fair value of net assets acquired
in the business combinations. Pursuant to ASC 350, the Company will test goodwill for impairment on an annual basis in the fourth
quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors
to determine whether it was necessary to perform the quantitative goodwill impairment test. The assessment considers factors
such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and our share price. An entity is
not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it
is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which could trigger an
impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other
entity specific events and sustained decrease in share price. For our annual goodwill impairment test as of December 31, 2023, we performed
a qualitative assessment as permitted by ASU 2017-04 for our reporting units and determined that it was more likely than not that the
fair value exceeded their respective carrying value.
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 an expense over the requisite service periods using the
straight-line method.
For RSUs with stock price appreciation targets,
we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future
price paths over the RSU’s contractual life based on the appropriate probability distributions (which are based on commonly applied
Black Scholes inputs). The fair value was determined by taking the average of the grant date fair values under each Monte Carlo simulation
trial. We recognize compensation expense on a straight-line basis over the performance period and there is no ongoing adjustment or reversal
based on actual achievement during the period.
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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.
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.
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.