VerifyMe(VRME) - 2018 Q4 - Annual Report

Financial Performance - For the year ended December 31, 2018, the company generated revenues of $74,844, compared to $0 for the year ended December 31, 2017[192]. - The net loss for the year ended December 31, 2018, was $2,932,462, a decrease of $452,878 from a net loss of $3,385,340 for the year ended December 31, 2017[192]. - The total Adjusted EBITDA (Non-GAAP) for the year ended December 31, 2018, was $(1,310,960), compared to $(1,323,748) for the year ended December 31, 2017[209]. Expenses - Research and development expenses increased to $187,655 for the year ended December 31, 2018, from $128,044 for the year ended December 31, 2017, an increase of $59,611[197]. - Sales and marketing expenses rose significantly to $135,290 for the year ended December 31, 2018, compared to $3,800 for the year ended December 31, 2017, an increase of $131,490[198]. - The company incurred a net loss of $2,932,462 for the year ended December 31, 2018, and expects to continue incurring substantial expenditures to develop and market its services[226]. Cash Flow - Net cash used in operating activities increased by $1,440,796 to $2,376,714 for the year ended December 31, 2018, compared to $935,918 for the year ended December 31, 2017[210]. - Net cash provided by financing activities increased by $1,856,724 to $3,465,649 for the year ended December 31, 2018, from $1,608,925 for the year ended December 31, 2017[212]. - The company plans to raise additional capital through increased sales of products and the sale of common shares to continue as a going concern[214]. Market and Competition - Revenue in 2018 was nominal, and the company relies on a limited number of customers for its revenue, making it vulnerable to the loss of any significant customer[237]. - The company faces significant competition in the anti-counterfeiting industry from larger firms with greater financial resources and more advanced technology offerings[229]. - The company signed a five-year contract with HP Indigo to print RainbowSecure™ technology, which is crucial for its future growth and market presence[238]. Management and Operations - The company’s success is heavily dependent on the continued service of its CEO, Patrick White, and the potential loss of his services could harm business prospects[233]. - The company has a small management team focused on sales, which limits its business development resources and ability to grow revenue[234]. - The company may need to expand its management team to effectively manage growth, as its current staffing is limited[236]. Intellectual Property and Legal Risks - The company’s ability to protect its intellectual property rights is critical, but the costs associated with this protection may be prohibitively high[239]. - The company may face substantial legal fees and management distraction from potential litigation related to intellectual property rights[242]. - Evolving data privacy regulations may require significant modifications to the company's products, potentially harming business operations[243]. Financial Reporting and Compliance - The company has identified material weaknesses in internal control over financial reporting since December 31, 2016, and has not yet fully remediated these issues, which could lead to SEC investigations and lawsuits[250]. - The company anticipates continued increases in legal, accounting, and financial compliance costs due to the requirements of the Sarbanes-Oxley Act[246]. Stock and Shareholder Concerns - The common stock is currently classified as "penny stock," trading below $5.00 per share, which limits broker-dealers' ability to solicit purchases and adversely affects liquidity[252]. - The issuance of additional securities to raise capital is expected, which could lead to significant dilution for existing shareholders[261]. - The company has experienced limited trading volume and price fluctuations, which could adversely impact the value of its common stock[257]. - Regulatory changes and public disclosures regarding financing could negatively affect the company's stock price and shareholder confidence[255]. - The absence of research coverage may hinder the company's ability to attract new investors when additional capital is needed[262].