UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
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| (Exact Name of Registrant as Specified in Its Charter) |
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
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| (Address of Principal Executive Offices) | (Zip Code) | |
| (Registrant’s Telephone Number, Including Area Code) | ||
(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) |
Name of each exchange on which Registered |
| The Capital Market | ||
| The |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T §
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |
| x | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock outstanding at August 10, 2022.
| 2 |
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. | Financial Statements | 4 |
| Consolidated Balance Sheets (Unaudited) | 4 | |
| Consolidated Statements of Operations (Unaudited) | 5 | |
| Consolidated Statements of Cash Flows (Unaudited) | 6 | |
| Consolidated Statements of Stockholders' Equity (Unaudited) | 7 | |
| Notes to Consolidated Financial Statements (Unaudited) | 9 | |
| ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 24 |
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 32 |
| ITEM 4. | Controls and Procedures | 32 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 33 |
| ITEM 1A. | Risk Factors | 33 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38 |
| ITEM 3. | Defaults Upon Senior Securities | 38 |
| ITEM 4. | Mine Safety Disclosures | 38 |
| ITEM 5. | Other Information | 38 |
| ITEM 6. | Exhibits | 38 |
| SIGNATURES | 39 | |
| 3 |
FINANCIAL STATEMENTS
ITEM 1.
VerifyMe, Inc.
Consolidated
Balance Sheets
(In thousands, except share data)
| As of | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts Receivable, net of allowance for credit loss reserve, $ as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Unbilled revenue | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Short term Investments | ||||||||
| Inventory | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| INVESTMENTS | ||||||||
| Equity investment | $ | $ | ||||||
| PROPERTY AND EQUIPMENT, NET | ||||||||
| RIGHT OF USE ASSET | ||||||||
| INTANGIBLE ASSETS, NET | ||||||||
| GOODWILL | ||||||||
| OTHER ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Current portion of debt | $ | $ | ||||||
| Accounts payable | ||||||||
| Other accrued expenses | ||||||||
| Lease liability- current | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term portion of debt | $ | $ | ||||||
| Long-term lease liability | ||||||||
| Long term derivative liability | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Series A Convertible Preferred Stock, $ par value, shares | ||||||||
| authorized; shares issued and outstanding as of June 30, 2022 and | ||||||||
| shares issued and outstanding as of December 31, 2021 | ||||||||
| Series B Convertible Preferred Stock, $ par value; shares | ||||||||
| authorized; shares issued and outstanding as of June 30, 2022 and | ||||||||
| December 31, 2021, respectively | ||||||||
| Common stock, $ par value; authorized; and issued, and shares outstanding as of June 30, 2022 and December 31, 2021, respectively |
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| Additional paid in capital | ||||||||
| Treasury stock as cost; and shares at June 30, 2022 and December 31, 2021, respectively | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
VerifyMe, Inc.
Consolidated
Statements of Operations
(Unaudited)
(In thousands, except per share data)
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative (a) | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing (a) | ||||||||||||||||
| Total Operating expenses | ||||||||||||||||
| LOSS BEFORE OTHER EXPENSE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
Interest income (expenses), net | ( | ) | ( | ) | ||||||||||||
| Loss on equity investments | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Payroll Protection Program Debt Forgiveness | ||||||||||||||||
| TOTAL OTHER (EXPENSE) INCOME, NET | ( | ) | ( | ) | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER SHARE | ||||||||||||||||
| BASIC | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE COMMON SHARE OUTSTANDING | ||||||||||||||||
| BASIC | ||||||||||||||||
| DILUTED | ||||||||||||||||
| (a) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
VerifyMe, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
(In thousands)
| Six Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for bad debt | ||||||||
| Stock based compensation | ||||||||
| Fair value of options in exchange for services | ||||||||
| Fair value of restricted stock awards issued in exchange for services | ||||||||
| Fair value of restricted stock units issued in exchange for services | ||||||||
| Payroll Protection Program debt forgiveness | ( | ) | ||||||
| Fair value loss on equity investments | ||||||||
| Amortization and depreciation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Unbilled revenue | ( | ) | ||||||
| Due from related parties | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable, other accrued expenses and leases | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Due from related parties deposit and reimbursable expenses on investment | $ | $ | ( | ) | ||||
| Purchase of patents | ( | ) | ( | ) | ||||
| Purchase of equipment for lease | ( | ) | ||||||
| Purchase of equity investment | ( | ) | ||||||
| Acquisition of PeriShip | ( | ) | ||||||
| Deferred implementation costs | ( | ) | ||||||
| Capitalized software costs | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from public offering of securities | $ | $ | ||||||
| Repayment of note payable | ( | ) | ||||||
| Proceeds from Stock Purchase Plan | ||||||||
| Increase in treasury shares (share repurchase program) | ( | ) | ||||||
| Tax withholding payments for employee stock-based compensation in exchange for shares surrendered | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
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| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Initial recognition of right-of-use asset and lease liability during the period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
VerifyMe, Inc.
Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands, except share data)
| Series A | Series B | |||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | |||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Treasury | |||||||||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Additional | Stock | ||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-In | Number of | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards, net of shares withheld for employee tax | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | |||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | |||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Treasury | |||||||||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Additional | Stock | ||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-In | Number of | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards, net of shares withheld for employee tax | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| Restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock purchase plan | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in relation to private placement | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in relation to Acquisition | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
VerifyMe, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
| Series A | Series B | |||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | |||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Treasury | |||||||||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Additional | Stock | ||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-In | Number of | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Fair value of stock options | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards, net of shares withheld for employee tax | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in relation to public offering of securities | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Repurchase of Common Stock | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | ||||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Treasury | ||||||||||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Additional | Stock | |||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Paid-In | Number of | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards, net of shares withheld for employee tax | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock units | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock purchase plan | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued in relation to stock purchase plan | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued in relation to private placement | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in relation to Acquisition | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
VerifyMe, Inc.
Notes to the Consolidated Financial Statements (unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
VerifyMe, Inc. (“VerifyMe”)
was incorporated in the State of
VerifyMe is a technology solutions provider specializing in products to connect brands with consumers and, through our wholly owned subsidiary, PeriShip Global, LLC (”PeriShip Global”) provides brands with high-touch, end-to-end logistics management for their products. Our operations are split into two segments: VerifyMe Solutions and PeriShip Global Solutions. Through our VerifyMe Solutions segment our technologies give consumers the ability to authenticate products prior to use and brand owners the ability to connect to their consumers and gather business intelligence. VerifyMe technologies provide 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. Through our PeriShip Global Solutions segment we provide logistics management from a sophisticated IT platform with proprietary databases, package and flight-tracking software, weather, traffic, and flight status monitoring systems, as well as dynamic dashboards with real-time visibility into shipment transit and last-mile events which are managed by a call center. The Company’s activities are subject to significant risks and uncertainties. See the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and our other filings with the Securities and Exchange Commission (the “SEC”).
Reclassifications
Certain amounts presented for the three and six months ended June 30, 2021, reflect reclassifications made to conform to the presentation in our current reporting period.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements (the “Interim Statements”) include the accounts of VerifyMe and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The Interim Statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2022. The accompanying Interim Statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The interim results for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any future interim periods.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company has two reportable segments, namely, (i) VerifyMe Solutions and (ii) PeriShip Global Solutions. . See Note 13 Segment Reporting, for further discussion of the Company’s segment reporting structure.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, (“CECL”), which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance was to be effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The Company has elected to early adopt ASU 2016-13, as of January 1, 2022, and the impact has been disclosed on the face of the Consolidated Balance Sheets. The Company’s accounts receivable is currently the only financial instrument subject to the new CECL model. The Company has considered relevant internal and/or external information about past events, e.g., historical loss experience with similar assets, current conditions, and reasonable and supportable forecasts that affect the expected collectability of the reported amount of financial assets in determining the credit loss.
Fair Value of Financial Instruments
The Company’s financial instruments consist of accounts receivable, accounts payable, notes payable and accrued expenses, equity investments, and long-term derivative liabilities. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities. The Company believes the carrying amount of its notes payable approximate fair value based on rates and other terms currently available to the Company for similar debt instruments.
| 9 |
The Company follows FASB ASC 820, “Fair Value Measurements and Disclosures,” and applies it to all assets and liabilities that are being measured and reported on a fair value basis. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The level in the fair value within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2021 and June 30, 2022.
| Amounts in Thousands ('000) | ||||||||||||
| Short Term Investment | Equity Investment | Derivative Liability | ||||||||||
| (Level 1) | (Level 3) | (Level 3) | ||||||||||
| Balance as of December 31, 2021 | $ | ( | ) | |||||||||
| Realized loss on fair value recognized in other (expense)/income | - | ( | ) | - | ||||||||
| Unrealized gain on fair value recognized in other (expense)/income | - | - | ||||||||||
| Realized gain on fair value recognized in share based compensation | - | - | ||||||||||
| Balance at June 30, 2022 | $ | $ | - | $ | - | |||||||
Variable Interest Entity
The Company has determined that G3 VRM Acquisition Corp. (NASDAQ: GGGVU) (the “SPAC”, see Note 2 – Equity Investments), a Delaware corporation and special purpose acquisition company, was a variable interest entity (“VIE”) in which the Company had a variable interest but is not the primary beneficiary. Making the determination as to whether a VIE should be consolidated requires judgement in assessing if the Company is the primary beneficiary. To make this determination, the Company evaluated its power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the SPAC. The Company concluded that it was not the primary beneficiary of the VIE and as such, did not consolidate the SPAC. The Company reassess its evaluation of whether an entity is a VIE and if it continues to be a VIE, whether the Company is the primary beneficiary of the VIE, on an ongoing basis based on the current facts and circumstances surrounding the entity. The SPAC was unable to complete its initial business combination within 12 months from the closing of the IPO, and the Company has made the decision not to fund the extension and did not deposit additional funds into the trust account. As a result, the SPAC has dissolved, and liquidated according to its charter. The SPAC redeemed 100% of the public shares for cash, the rights have expired worthless, and after provisions are made for dissolution of the SPAC it is anticipated that the founder shares and the private placement securities will be worthless.
Equity Investments
When the Company does not have a controlling financial interest in an entity but can exert influence over the entity’s operations and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under applicable generally accepted accounting policies. The Company has elected the fair value option for its equity investment in the SPAC (see Note 2 – Equity Investments) and its equity security under short term investment on the balance sheets, as it has determined the fair value best reflects the economic performance of the equity investment. Changes in unrecognized gains or losses of the fair value of the equity investments are included in Loss on equity investments on the accompanying Consolidated Statements of Operations.
| 10 |
Revenue Recognition
The Company accounts for revenues according to Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| o | identify the contract with a customer; |
| o | identify the performance obligations in the contract; |
| o | determine the transaction price; |
| o | allocate the transaction price to performance obligations in the contract; and |
| o | recognize revenue as the performance obligation is satisfied. |
During the three and six months ended June 30, 2022, the Company’s revenues primarily consisted of revenue related to our shipping logistics services generated by our subsidiary PeriShip Global.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, the Company tests goodwill for impairment on an annual basis, 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. 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.
Business Combinations
The Company applies the provisions of Accounting Standard Codification (“ASC”) Topic 805, Business Combinations, in the accounting for business acquisitions. ASC 805 requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately apply preliminary value to assets acquired and liabilities assumed at the acquisition date, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments in the current period, rather than a revision to a prior period. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations. Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets where applicable. Although the Company believes the assumptions and estimates made have been reasonable and appropriate, they are based in part on information obtained from management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results.
The Company follows Financial Accounting Standards Board (“FASB”) ASC 260, “Earnings Per Share,” when reporting earnings per share resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss for each of the periods presented, common stock equivalents, including preferred stock, stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.
For each of the three and six months ended June 30, 2022, and 2021, there were shares potentially issuable, that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the periods presented. For the three and six months ended June 30, 2022, there were approximately anti-dilutive shares consisting of unvested restricted stock units and options under the stock purchase plan, shares issuable upon exercise of stock options, shares issuable upon exercise of warrants, shares issuable upon exercise of pre-funded warrants, and shares issuable upon conversion of preferred stock. For the three and six months ended June 30, 2021, there were approximately anti-dilutive shares consisting of shares issuable upon exercise of stock options, shares issuable upon exercise of warrants, shares issuable upon conversion of preferred stock.
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We account for stock-based compensation under the provisions of FASB ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. For performance restricted stock units with stock price appreciation targets (see Note 7 – Stock Options, Restricted Stock and Warrants), 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.
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.
NOTE 2 – EQUITY INVESTMENTS
On February 26, 2021, the Company formed VMEA Holdings Inc. (the “Sponsor Entity”), a Delaware corporation that was the founder of the “SPAC” that was being co-sponsored by the Company. The SPAC was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On April 12, 2021, the Sponsor Entity converted
to a Delaware limited liability company, changed its name to “G3 VRM Holdings LLC” and a co-sponsor was added as a member
of the Sponsor Entity resulting in an equity interest of