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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-14 · 403 added, 352 removed, 36 unchanged (95% of the section changed)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management’s Discussion and Analysis

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VerifyMe, Inc.

the “Company,” “we” “us” or “our”) is a technology solutions provider specializing in

products to connect brands with consumers.

VerifyMe technologies give brand owners the ability to gather business intelligence while engaging

directly with their consumers.

VerifyMe technologies also provide brand protection and supply chain functions such as counterfeit prevention,

authentication, serialization, and track and trace features for labels, packaging and products.

We are a Nevada corporation formed in

We began to commercialize our covert luminescent pigment VerifyInk TM in 2018.

Prior to 2021 we completed the initial

development stage of our other current technologies and in 2021 we began to commercialize as a Brand Protection Solutions provider.

Our brand protection

technologies include consumer engagement capabilities, the custom printing of tamper proof secure labels, and utilization of invisible

and visible images printed with our proprietary special composition inks comprised of a rare earth mineral.

These inks are compatible

and printed with modern digital and standard printing systems such as digital, offset, flexographic, silkscreen, gravure, inkjet and toner-based

laser printers.

The inks can be used to print both static labels on standard printing systems and variable labels utilizing digital printing

systems that include variable images, serialized codes, dynamic bar codes and dynamic QR codes that allow brand owners to engage directly

with customers.

We have developed and patented a dual-code technology that we believe can connect digital NFTs to physical products.

have developed and patented a device that attaches to a smartphone that brand inspectors or law enforcement can use to read our invisible

ink codes into our cloud-based track and trace software that contains our patented verification technology along with algorithms that

analyze the label, package or product’s authenticity and diversion activity.

We also have a device that informs users that our proprietary

invisible ink is present, which can be used for authentication without the need for internet connectivity.

(“VerifyMe”) together

with its subsidiaries PeriShip Global, LLC (“PeriShip Global”) and Trust Codes Global Limited (“Trust Codes Global”),

(together the “Company,” “we,” “us,” or “our”), is a software driven predictive analytics

logistics provider of high-touch end-to-end logistics management, which represents most of our current revenue stream.

In addition, VerifyMe

technologies provide product traceability, brand protections services, and consumer engagement solutions.

Our operations are split into

two segments:

PeriShip Global Solutions and VerifyMe Solutions.

Through our PeriShip Global Solutions segment we provide a value-added

service for time and temperature sensitive parcel management driven by a proprietary software platform that provides predictive analytics

from key metrics such as flight-tracking, weather, and traffic, all delivered to customers via a secure portal.

The portal provides real-time

visibility into shipment transit and last-mile events, with dynamic dashboards.

All aspects of the of the shipping journey is managed

by a dedicated call center.

Using our proprietary logistics solution, 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.

our VerifyMe Solutions segment, our technologies provide unit level traceability, brand protection, and consumer engagement solutions

allowing brand owners to gather business intelligence, cross-sell products, monitor product diversion through the supply chain and build

brand loyalty through interaction utilizing our unique dynamic codes which are read by consumers with their smart phones.

Further information

regarding our business segments is discussed below:

PeriShip Global Solutions:

Global Solutions segment specializes in predictive analytics through its proprietary software platform 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 extended delivery times.

Utilizing predictive analytics from multiple data sources

including weather, traffic, flight data, 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 the 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.

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.

In addition, we provide proactive alerts to

address on-coming weather issues to make changes in scheduling to meet critical deadlines for shipments.

We offer post-delivery services

such as customized reporting for trend analysis, system performance reports, power outage maps, and other tailored reports.

PeriShip Global generates revenue from three business

service models.

Proactive Service – PeriShip Global clients pay us directly for carrier service coupled with

our proactive logistics assistance.

Direct Premium Service –PeriShip Global clients pay us directly for carrier service coupled with

our complete white-glove shipping monitoring and predictive analytics service.

This service includes the customer web portal access, weather

monitoring, temperature control, full call center support and last mile resolution.

Indirect Premium Service – Our carrier partner also offers a “white label” version

of our Premium Service to its customers and pays us a fixed contractual fee.

PeriShip Service Products:

Global Solutions 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 and

alerts 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.

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.

Call Center Service :

PeriShip Global has assembled a team of customer resolution specialists based

This human intervention service team resolves shipping problems on behalf of our customers.

The call center acts as a help

desk and monitors shipping to delivery for our customers.

Pre-Transit Service :

PeriShip Global helps 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 the shipment, and we utilize our extensive knowledge and research to provide our customers with packaging recommendations

to meet their unique needs.

Post-Delivery :

PeriShip Global provides 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 :

PeriShip Global has 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 minimize the changes of timely and safe transit of shipments.

Similarly, traffic and construction also create unpredictable delays

which our team works diligently to mitigate.

If delays or other issues occur the PeriShip team informs clients and works with them to

pro-actively resolve such shipment issues.

VerifyMe Solutions :

The VerifyMe Solutions

segment specializes in traceability to connect brands with consumers through their product.

Through VerifyMe technologies brand inspectors

can authenticate product with visible and invisible unique to product serialized codes.

Brand owners have the ability to gather business

intelligence while engaging directly with their consumers and can receive programmable alerts related to counterfeit products or if their

products are in unexpected geographical markets.

Consumers can authenticate products with their smart phone prior to usage and engage

with the brand in unique and innovative ways.

Engagement can come in many forms such as free giveaways, product specifications, seed to

table tracking, cross-selling of products, contests, videos, and recipes.

VerifyMe Products :

VerifyMe has a custom

suite of products that offer clients the brand protection security, anti-counterfeiting, protection from product diversion, consumer engagement

and a robust serialization, track and trace system.

These products are combined with “software as a service” or “SAAS”

which is stored in the cloud and accessed through the internet.

· VerifyMe Engage™ for consumer engagement

· VerifyMe Authenticate™ for product authentication

· VerifyMe Track & Trace™ for product supply chain control

· VerifyMe Online™ for on-line (web) brand monitoring

VerifyMe Engage™

services provide the ability for the brand owner to gather business intelligence and engage with the consumer using our authentication

test as the initial contact with the consumer.

For example, consumers can simply use their smart phone camera to scan our visible unique

codes and/or RFID/NFC chips included on products, labels and packages.

Once the consumer scans the code, an instant authenticity check

is made using algorithms stored in the cloud to determine the products authenticity on multiple factors.

This allows brands to understand

where their products are being scanned, whether they are legitimate, and form an immediate bridge for communication with the consumer.

After a product is authenticated, the brand owner can then engage with the consumer by, for example offering a gift or future discounts

providing marketing materials, videos, product information and specifications, contest entries or cross selling other products through

the consumer engagement software.

This service allows to the brand owner to gather real-time actionable information on their customer

To date, we have derived limited revenue from VerifyMe Engage customers in the cannabis industry.

VerifyMe Authenticate™

services provide an assortment of tools through our patented products allowing brand owners to instantly authenticate a product, label

or package as genuine and or determine if a product has been fraudulently diverted and where such diversion occurred in the supply chain.

Brand owners can use our cloud-based web portal to easily order many types of serialization codes for their products, labels and packages.

Once the codes are applied to their products, brand owners can then monitor, control and protect their products during the product’s

complete life cycle through the supply chain.

Our customers use our patented invisible ink, VerifyInk TM which is combined with

a proprietary reader to easily identify counterfeit products.

Product investigators may then use our patented VerifyAuthenticator TM

technology, a device used with a smartphone and the VerifyMe app, to authenticate and decode VerifyInk TM codes.

The user attaches

this device to their smartphone, which reveals the hidden VerifyInk TM images that are then sent to our web portal in the cloud

for authentication and data submission.

We also have another device that does not require use the of a smartphone, our VerifyChecker™

which is a handheld device that is tuned to authenticate the unique frequency of our VerifyInk TM invisible ink.

The VerifyChecker™

is designed for use by customers who desire instant authentication on items without the need for an internet connection.

It is perfect

for field investigators, CBP officials, or as validation in practice such as scanning event tickets at an entry gate.

The device functionality

was upgraded in September 2021 by adding wireless connectivity to a mobile phone enabling authentication attempts to be recorded in the

cloud with geo-location, inspector’s names, and time and date stamp.

To date, we have derived limited recurring revenues from two

global brand owners who use VerifyMe Authenticate.

VerifyMe Track &

Trace™ supply chain serialization, track and trace technology utilize overt dynamic codes (QR codes or other barcode symbology),

such as our VerifyCode™, which are tied to our cloud-based authentication and track and trace system.

This technology provides brand

owners business intelligence on counterfeiting and diversion using distribution channel scans throughout the supply chain coupled with

consumer scan data.

All this data is consolidated on a system that allows brands to customize rules and parameters and establish sophisticated

alert systems allowing brands to be proactive, rather than reactive, in thwarting illicit activity.

Invisible codes can be added using

VerifyInk TM to increase brand protection security and provide inspectors a means to authenticate counterfeit or diverted product

if the visible codes have been defaced or removed.

Using information from a smartphone, our VerifyCode TM technology, can

provide authentication and data submission information.

A customer or end-user can scan codes printed on labels and packaging and send

it to the cloud where our software can verify authenticity of the product, as well as track and trace the product from production through

To date, we have derived limited revenues from the use of this technology in the personal protective equipment industry and

in the cannabis industry.

VerifyMe® Online™ includes,

through our collaboration with a strategic partner, a brand clearance and protection leader, technologies and services that better enable

customers to effectively tackle counterfeit websites, domains and e-commerce platforms, and social media sites offering or promoting counterfeit

To date, we have not derived revenue from this technology.

To optimize our security

for our customers, we are seeking to add a blockchain architecture version to our brand protection platform which currently uses a centralized

cloud-based data architecture.

Our plan is to develop the ability to connect physical products to NFTs in the blockchain.

a patented dual-code technology that we believe will facilitate this process for clients requesting this service.

We are exploring opportunities

to gain the skillsets needed either through mergers and acquisitions or through strategic partnerships with blockchain specialists that

will help us create this product.

We believe that our brand

protection security technologies, coupled with our contract with HP Indigo, can be used to enable brand owners to securely prevent counterfeiting,

prevent product diversion and authenticate labels, packaging and products and alleviate the brand owner’s liability from counterfeit

products that physically harm consumers.

Our covert technologies give brand owners the ability to control, monitor and protect their products

In cases where the brand owner may be subject to liability brought forth by counterfeit products, our tools allow the brand

owner to prove whether the product causing an issue is authentic or counterfeit.

Combined with our customer engagement product lines,

we offer a unique and comprehensive brand protection and promotion solution that can be tailored to any brand’s specifications.

At present, our strategic

partner, HP Indigo has the ability, with their Indigo 6000 series, to print our technology on a variable basis.

HP Indigo has produced

flexible packaging pouch samples, shrink sleeves samples, and tax stamp samples with our covert VerifyInk TM .

In May 2019, we

entered into a strategic partnership with INX, the third largest producer of inks in North America allowing us to successfully print our

covert VerifyInk™ on garments, metal and plastic objects, and INX is now co-marketing the new security ink to its

global clients.

We are continuing to work with our partners and INX international to develop inkjet ink for various print head, drop on

demand and continuous inkjet, that can be used independently or mounted to printing presses and finishing equipment.

We have successfully

developed VerifyInk™ for drop on demand inkjet printing and are carrying on with the development of a continuous

inkjet solution.

The specially formulated inks will enable these printing presses to print our VerifyInk TM invisible ink technology,

which includes our variable VerifyCode™ serialization, track and trace technology.

We believe VerifyInk TM is particularly

well-suited to closed and controlled environments that want to verify transactions within a specific area, as well as labels, packaging,

textiles, plastics and metal products that need authentication.

In addition to packaging and labels, our brand

protection security printing technologies can be applied to authenticate important credentials such as tax stamps, driver’s licenses,

plastics, metal, apparel, election ballots, birth certificates, immigration documents, gaming, apparel, currency, event and transportation

tickets, passports, computer software, and credit cards.

We can track and trace from production to ultimate consumption when coupled with

our proprietary brand protection software.

The COVID-19 pandemic

disrupted businesses and affected production and sales across a range of industries, as well as caused volatility in the financial markets,

which negatively impacted our results of operations for the year ended December 31, 2021.

The full extent of the impact of the COVID-19

pandemic on our customer demand, sales and financial performance will depend on certain developments, including, among other things, the

continued duration and spread of the outbreak, the effectiveness of vaccines against new variants, the availability of vaccines and vaccination

rates, and the impact on our customers and employees, all of which are uncertain and cannot be predicted.

Please see Item 1A, “Risk

Factors- Risks Relating to the COVID-19 Pandemic” in this Report for additional information regarding certain risks associated with

the pandemic.

The COVID-19 pandemic

has caused an increase in demand for safety products such as masks and gloves, COVID-19 test kits, medications and vaccines to treat the

virus, which we believe has further caused an increase in counterfeit products.

Our suite of technology solutions for global manufacturers,

distributors and sellers are designed to allow consumers to prove authenticity and we have proactively reached out to global manufacturers

who are seeking to provide their customers authenticity in their products.

We believe we have a dynamic management and sales team in place

with the ability to seamlessly work remotely to minimize any operational disruption.

After an approximate

one-year COVD-19 related hiatus we begun attending sales conferences and other in-person sales initiatives in September 2021.

we have been attending in-person sales events, such events are not at full capacity due to the ongoing pandemic.

Since we have recently

begun face to face sales presentations and trade shows we are experiencing a small increase in travel related costs versus the 12 months

preceding September 2021.

We expect these travel related costs to grow which should be offset by increased sales activity.

continued to be aggressive in regard to sales and marketing efforts as we have completed a new website which is generating new leads and

we have expanded our sales force.

We have also started our first social media advertising campaign.

New leads are being generated due

to these actions.

We continue to work with our sales representatives to look for alternative ways to communicate effectively and promote

sales both with our customers and potential customers.

Further, we anticipate

that as a result of the continued COVID-19 pandemic, our customers may still require that their programs be cancelled, delayed or reduced.

We will continue to work in partnership with our customers to continually assess any potential impacts and opportunities to mitigate risk.

SPAC Investment

On July 6, 2021, we co-sponsored

the initial public offering of G3 VRM Acquisition Corp, a special purpose acquisition company, or “SPAC,” through a contribution

into G3 VRM Holdings LLC, or the “Sponsor Entity.” The closing of the IPO of 10,626,000 Units, including 626,000 Units pursuant

to the partial exercise of the underwriter’s over-allotment, generated gross proceeds of $106,260,000.

G3 VRM commenced trading

on NASDAQ under the symbol “GGGVU” and is targeting businesses with enterprise values of approximately $250 million to $500

million within the technology and business services industry.

VerifyMe, indirectly through the Sponsor Entity beneficially owns approximately

9.42% of the common stock of the SPAC.

If the SPAC is unable

to complete its initial business combination within 12 months from the closing of the IPO (or 15 or 18 months from the closing of the

IPO, should we and the co-sponsor extend the period of time to consummate a business combination by depositing additional funds into the

trust account as described in more detail in IPO prospectus), our founder shares and private placement securities will be worthless.

if the SPAC is able to complete a business combination within the allotted time, if the combined company is unable to maintain adequate

results from operations, then our investment in the SPAC could lose value and may ultimately become worthless.

There can be no assurance

that the SPAC will complete a business combination within the allotted time or that any such business combination will be successful.

As of December 31, 2021, we have accounted for

the Sponsor Entity as an equity investment and have elected the fair value option resulting in a fair value gain of $8,371 thousand included

in Other Income (Expense), Net in the accompanying Statement of Operations.

We believe our sponsorship

of the SPAC will allow us to pursue an equity interest in larger companies and add value without diluting the equity interests of our

shareholders.

suite of products that offer clients traceability and consumer engagement.

These products are combined with “software as a service”

or “SAAS” which is stored in the cloud and accessed through the internet.

VerifyMe Engage™ for consumer engagement allowing the brand owner to gather business intelligence and engage with their customers

VerifyMe Authenticate™ using rare earth-based ink taggants for instant authentication of labels, packages and products

VerifyMe Track & Trace™ for unit level traceability and supply chain control

PeriShip Global and VerifyMe Synergies:

We believe that PeriShip

Global and our VerifyMe solutions have synergistic product centric technology platforms and combined have a compelling technology offering

for brand owners.

For example, currently PeriShip Global ships vaccines for major pharmaceutical companies.

With the addition of VerifyMe

technology, PeriShip Global can add unit level traceability and authentication to protect clients’ vaccines from product diversion

and sub-standard counterfeits.

In addition, VerifyMe’s consumer engagement solutions could give PeriShip Global food and beverage

clients the ability to gather rich business intelligence, turn “unknown consumers” into “known consumers” and

build customer loyalty with engagement functions like videos, discounts, contests, etc.

Global Opportunities

According to a 2023 report entitled, “Perishable

Goods Transportation Market in the US 2023-2027”, written by Infiniti research Limited, the Perishable Goods logistics market size

was $4.0 billion in 2022 and is estimated to be $4.3 billion in 2023 and is expected to grow to $5.9 billion by 2027.

That represents

a compound average market acceleration with a growth rate of approximately 8% per year.

This report is based on perishable product segments

including meat, poultry, seafood, dairy, fruits and vegetables, and bakery and confectionary.

PeriShip Global services all of these product

Currently 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 PeriShip Global’s

call center gives us a major competitive advantage against other third-party platforms that solely rely on the carrier’s data feeds.

PeriShip Global utilizes a variety of input sources beyond just the carrier’s data feed.

PeriShip Global’s 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 call 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.

PeriShip Global has two meteorologists on staff that track world-wide weather patterns to address predicted issues before they happen.

We believe the Pharmaceutical and healthcare industries represent the biggest areas of opportunity and we are focusing our PeriShip Global

sales emphasis on those industries.

In addition, we feel that combining VerifyMe’s solutions into the product offering for PeriShip

Global clientele, including food and beverage and healthcare industries, gives PeriShip Global a competitive advantage to generate revenue

by enhancing PeriShip Global’s clients’ ability to grow revenue, gain business intelligence and build brand loyalty.

The current global logistics industry worldwide

is facing an economic slowdown.

We believe this represents an opportunity for PeriShip Global since major global carriers are cutting

internal staff and are reducing research and development investments.

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 PeriShip Global 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 downturn, we believe several companies

will opt to outsource their logistics services to reduce their operational costs and maintain cash flows.

The outsourcing of supply chain

related and other logistics operations to service providers such as PeriShip Global which allows companies to improve the efficiency of

their businessed by focusing their resources on core competencies.

Opportunities

We believe VerifyMe’s products have applications

in many areas.

Currently, we are aggressively marketing opportunities in the following areas:

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.

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.

Results of Operations

Comparison of the Years Ended December 31,

2021, and 2020

of the Years Ended December 31, 2022, and 2021

The following discussion analyzes our results

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statements for such periods and the accompanying notes thereto.

Revenue for the year ended December 31, 2021,

Twelve Months Ended

(In thousands)

PeriShip Global Solutions

VerifyMe Solutions

Total Revenue

Consolidated revenue for the year ended December 31,

2022, was $19,576 thousand, a 2,158% increase compared to $867 thousand, for the year ended December 31, 2021.

The increase in revenue primarily

related to increased security printing with our authentication serialization technology for two large global brand owners, as well as

a new application of our technology, in the personal protective equipment space and new orders with two cannabis companies using our unique

smart phone readable codes which will allow them to connect directly with their customer base.

Gross profit for the years ended December 31,

2021, and 2020, was $599 thousand and $281 thousand, respectively.

The resulting gross margin was 69.1% for the year ended December 31,

2021, compared to 81.9% for the year ended December 31, 2020.

The decrease in our gross profit margin relates to a shift in product mix,

with an increase in the use of our secure track and trace serialization technology and customer engagement products.

We believe our high

gross profit margins demonstrate our business model’s ability to generate profitable growth.

General and Administrative Expenses

increase in revenue primarily relates to the acquisition of the PeriShip Global business on April 22, 2022, which contributed $18,190

thousand for the twelve months ended December 31, 2022.

VerifyMe Solutions segment increased revenue by $519 thousand, a 60% increase,

primarily driven by growth in our agriculture segment.

Twelve Months Ended

(In thousands)

PeriShip Global Solutions

VerifyMe Solutions

Total Gross Profit

Consolidated gross profit for the years ended

December 31, 2022, and 2021, was $6,488 thousand and $599 thousand, respectively.

The resulting gross margin was 33% for the year ended

December 31, 2022, compared to 69% for the year ended December 31, 2021.

The decrease in our gross margin is due to the acquisition of

the PeriShip Global business which has significantly lower margins than the VerifyMe Solutions segment.

and Administrative Expenses

General and administrative expenses were $8,428

1 unchanged sentence

of $4,212 thousand.

The increase primarily related to increases in non-cash stock-based compensation of $550 thousand and an increase

of costs associated with exploratory costs related to our search of strategic partnerships, mergers and acquisitions of $180 thousand.

Legal and Accounting

Legal and accounting fees decreased to $362 thousand

for the year ended December 31, 2021, from $403 thousand for the year ended December 31, 2020.

The decrease relates to

savings in legal fees that were higher in 2020 related to our securities offerings.

Corporate Payroll Expenses

Payroll expenses increased to $859 thousand for

the year ended December 31, 2021, from $704 thousand for the year ended December 31, 2020, an increase of $155 thousand.

increase related to an increase in the executive compensation and an increase in the number of our employees.

Research and Development

The increase related to the acquisition of the PeriShip Global business, and primarily made up of salaries and

related expenses for approximately 35 employees in the IT and operations department.

and Development

Research and development expenses increased by

$38 thousand to $89 thousand for the year ended December 31, 2022, from $51 thousand for the year ended December 31, 2021.

increase is due to continued development costs associated with commercializing our product lines.

We plan to increase research and development

in future periods, particularly in the switch from a cloud-based centralized network to an Ethereum decentralized block-chain platform

for our supply chain monitoring, and authentication platform.

In 2021, we also developed the ability to read VerifyInk TM covert

codes at a distance in ambient light on any product.

Sales and Marketing

increase related to the acquisition of the PeriShip Global business and research and development related to their IT platform.

and Marketing

Sales and marketing expenses for the year ended

December 31, 2022, were $1,718 thousand compared to $1,163 thousand for the year ended December 31, 2021, an increase of $555

The increase primarily related to an expansion of our sales team and marketing outreach in 2021.

We expanded our sales

team to address growing domestic and international opportunities resulting in increased compensation expense of approximately $350 thousand

and $130 thousand for marketing programs.

Operating Loss

Operating loss for the year ended December 31,

2021, was $4,831 thousand, an increase of $1,263 thousand, compared to $3,568 thousand for the year ended December 31, 2020.

in loss primarily related to an increase in non-cash stock-based compensation of approximately $370 thousand, an increase in employee

headcount, increase in executive salaries, an increase relating to our sales and marketing outreach to meet our growing number of opportunities,

and increased costs associated with being a Nasdaq listed company.

Net Income (Loss)

Our net income for the year ended December 31,

2021, was $3,612, an increase of $9,514 thousand compared to $5,902 thousand net loss for the year ended December 31, 2020.

was primarily due to the fair value gain of $8,371 thousand on our equity investment in the SPAC during 2021 and the amortization

of debt discount related to our 2020 senior secured convertible debentures (the “2020 Debentures”) included in interest expense,

and loss on extinguishment of debt related to our 2019 senior secured convertible debentures (the “2019 Debentures”) in 2020 .

The resulting net income per diluted share for the twelve months ended December 31, 2021, was $0.49 per diluted share, compared to $1.48

loss per diluted share for the twelve months ended December 31, 2020.

The increase is related to the acquisition of the PeriShip Global business, primarily consisting of salaries and related

expenses for four employees.

Income (Loss)

Our net loss for the year ended December 31, 2022,

was $14,398 thousand, compared to net income of $3,612 thousand for the year ended December 31, 2021.

The decrease was primarily due to

the impairment of the SPAC of $10,932 thousand during 2022 compared to an unrealized gain on the SPAC of $8,371 in 2021, partially offset

by a gain on extinguishment of debt of $326 thousand and the changes discussed above for the acquisition of the PeriShip Global business.

The resulting consolidated loss per diluted share for the year ended December 31, 2022, was $1.70 compared to a consolidated income per

diluted share of $0.49 for the year ended December 31, 2021.

Liquidity and Capital Resources

Our operations used $2,551 thousand of cash during

the year ended December 31, 2021, compared to $2,281 thousand during the year end December 31, 2020, relating primarily to an increase

in employee headcount, an expansion of our sales team and marketing outreach efforts.

the year ended December 31, 2022, compared to $3,254 thousand during the year end December 31, 2021.

The decrease in cash used from operations

is due to a net change in non-cash addbacks to net income and the acquisition of PeriShip Global, which generates cash, that occurred

during the year ended December 31, 2022.

Net cash used in investing activities was $7,884

thousand for the year ended December 31, 2022, compared to $2,851 thousand for the year ended December 31, 2021.

The increase relates

primarily to our investment in the SPAC of $2,593 thousand.

Net cash provided by financing activities decreased

by $2,504 thousand to $7,588 thousand for the year ended December 31, 2021, from $10,092 thousand for the year ended December 31, 2020.

February 12, 2021, as part of our public offering of an aggregate 1,750,000 shares of common stock, we generated aggregate gross proceeds

of $9.3 million and net proceeds of $8.4 million, less underwriting discounts and commissions and other offering expenses, including the

partial exercise of the over-allotment option resulting in gross proceeds of $530 thousand.

In the first quarter of 2020, we raised $1,992

thousand in gross proceeds from the 2020 Debentures for net proceeds of $1,747 thousand.

In the second quarter of 2020, as part of our

public offering, we raised approximately $10,000 thousand in gross proceeds and received net proceeds of $9,023 thousand, including the

exercise of the over-allotment option resulting in gross proceeds of approximately $232 thousand.

Absent any acquisitions, we believe that our cash

and cash equivalents will fund our operations through 2025.

In November 2020, we announced a share repurchase

program to spend up to $1.5 million to repurchase shares of our common stock until August 16, 2021.

On August 12, 2021, this program was

extended to expire on August 16, 2022.

All other terms and conditions remained the same.

To date, 216,945 shares have been purchased for

a total of $725 thousand and a remaining $775 may be purchased under the program.

While we expect revenues

to increase, we expect continued negative cash flows as we incur increased costs associated with expanding our business.

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, future revenue, and through the issuance of debt

During the year

ended December 31, 2022, $7,500 thousand was used for the acquisition of the PeriShip Global business.

The use of cash in 2021 relates

primarily to the acquisition of sponsor units in the SPAC of $2,593 thousand.

Net cash provided by financing activities for

the year ended December 31, 2022, was $4,424 thousand compared to $7,588 thousand for the year ended December 31, 2021, related to proceeds

from debt and offerings of our common stock in 2022 and 2021.

On April 12, 2022, we entered into a Securities

Purchase Agreement (the “Securities Purchase Agreement”) with the selling stockholder and certain directors, providing for

the issuance and sale to purchasers therein of an aggregate of 880,208 shares of our common stock, pre-funded warrants to purchase up

to 675,000 shares of our common stock, and warrants to purchase up to 1,555,208 shares of our common stock, for gross proceeds to us of

approximately $5.0 million and net proceeds of $4.6 million.

The pre-funded warrant was exercisable immediately and terminated when fully

exercised and had an exercise price of $0.001 per share.

The pre-funded warrant was fully exercised in August 2022, with an exercise price

of $0.001, and as a resulted, 675,000 shares of our common stock were issued.

The warrants are exercisable for a period of five years

commencing six months from the date of issuance and have an exercise price of $3.215 per share.

The warrants contain price adjustment

provisions which may, under certain circumstances, reduce the applicable exercise price.

The transaction closed on April 14, 2022.

On September 22, 2022, we entered into the PNC

Facility with PNC Bank, National Association.

The PNC Facility includes a $1 million RLOC with a term of one-year, expiring in September

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.

We were in compliance with all affirmative and restrictive covenants under the PNC Facility

at December 31, 2022.

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

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, 2022, our short-term debt outstanding under the Term Note was $0.5 million and total long-term

debt outstanding under the Term Note was $1.4 million.

We believe that our cash and cash equivalents,

together with the net proceeds from the April 12, 2022, offering and proceeds from debt issued, will fund our operations for the next

In June 2022, we announced a new $1.5 million

share repurchase program to repurchase shares of the Company’s common stock commencing July 1, 2022, for a period of 12 months.

This new repurchase program replaces our existing share repurchase program that was due to expire in August 2022 and is now terminated.

To date, 158,906 shares have been purchased for a total of $215 thousand and a remaining $1,285 thousand may be purchased under the program.

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.

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 believe estimates and assumptions related to these

critical 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.

Variable Interest

We determined that we

have a variable interest in a VIE through our indirect ownership of the SPAC.

As such, we used judgment to determine whether we are the

primary beneficiary of the VIE and would need to consolidate as a result.

To make this determination, we evaluated our 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.

We concluded that we are not the primary beneficiary, and

as such account for it as an equity investment.

The facts and circumstances surrounding our determination of whether the SPAC is a VIE

and the entity that is the primary beneficiary are analyzed on an ongoing basis based on the current facts and circumstances surrounding

the entity, including at every reporting period.

Equity Investments

We have accounted for

our beneficial ownership in the SPAC as an equity investment as we have determined that we exert a significant influence in the entity’s

operations and accounting policies.

Furthermore, we have elected the fair value option under applicable US GAAP as we believe the fair

value best reflects the economic performance of the equity investment.

We perform a qualitative assessment at each reporting date to determine

if there was a change in fair value.

The assessment considers factors such as, but not limited to, discussions with management, data showing

other companies in the industry, plus adjustment to reflect company circumstances.

Derivative Liability

We have accounted for our two directors restricted

stock units in the SPAC (“SPAC RSUs”) as a long-term derivative liability as the underlying awards are not the Company’s

stock but an unrelated, publicly traded entity’s shares.

We perform an assessment at each reporting date to determine if there was

a change in fair value using a Monte Carlo Simulation.

The assessment considers factors such as, but not limited to, discussions with

management, data showing other companies in the industry, plus adjustment to reflect company circumstances.

Revenue Recognition

Our revenue transactions

include sales of our ink canisters, software, licensing, pre-printed labels, integrated solutions and leasing of our equipment.

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.

Our terms vary based on the solutions we offer and are examined on a case-by-case

For licensing of our VerifyInk TM technology we depend on the integrity of our clients’ reporting.

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

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.

We account for stock-based

compensation awards to non-employees in accordance with ASU No.

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 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.

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 90% 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’

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.

assets are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

the contract assets increased significantly as of December 31, 2022, compared to December 31, 2021, due to the business combination.

No other factors materially impacted the balances.

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.

We have recorded goodwill as part of our acquisition

of the PeriShip 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

For our annual goodwill impairment test as of December 31, 2022, we performed a qualitative assessment as permitted by ASU 2017-04

for our reporting unit PeriShip Global and determined that it was more likely than not that the fair value exceeded their respective carrying

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.

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.

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

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):

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

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

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

1 unchanged sentence

discussed in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK.

Not applicable for smaller reporting companies.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis