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Item 9A. Controls and Procedures

2023-03-28 compared with 2022-03-14 · 1205 added, 1024 removed, 532 unchanged (81% of the section changed)

CONTROLS AND PROCEDURES.

AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

Regarding the Effectiveness of Disclosure Controls and Procedures

Our principal

executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange

Act of 1934, as amended, (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange

Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s

rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer

to allow timely decisions regarding required disclosure.

Based on this evaluation, our principal executive officer and our principal financial

officer concluded that our disclosure controls and procedures were not effective as of such date as the result of the material

weaknesses in our internal control over financial reporting identified in this Report .

Our disclosure controls and procedures are designed

to ensure information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934,

as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the

SEC’s rules and forms.

The Company’s Chief Executive Officer, our principal executive officer, and Chief Financial Officer,

our principal financial officer, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls

and procedures as of the year ended December 31, 2022.

Based on that evaluation, the Company’s Chief Executive Officer and Chief

Financial Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective to ensure that

information we are required to disclose in reports that we file or submit under the Exchange Act is:

(i) recorded, processed, summarized

and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management,

including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control

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December 31, 2022, using criteria established in Internal Control — Integrated Framework (2013) issued by the Committee

of Sponsoring Organizations of the Treadway Commission.

Our management has concluded that our internal control over financial reporting

was not effective as of December 31, 2021, based on a finding of a material weakness related to a lack of segregation of duties.

Remediation Plan to Address the Material

Weakness in Internal Control over Financial Reporting.

A material weakness is a deficiency, or a combination

of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement

of our annual or interim financial statements will not be prevented or detected on a timely basis.

As a result of the material weaknesses identified

above, our internal control over financial reporting was not effective as of December 31, 2021.

Management has been implementing

measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are

designed, implemented, and operating effectively.

To date, the Company has hired a Senior VP of Finance, and a Financial Controller.

have designed key internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act and have implemented

policies and procedures in accordance with our established controls.

The Company believes

that these actions will remediate the material weakness.

We are committed to continuing to improve our internal control processes and

will continue to review, optimize and enhance our financial reporting controls and procedures.

The material weakness will not be considered

remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing,

that these controls are operating effectively.

The Company expects that the remediation of this material weakness will be completed prior

to the end of fiscal year 2022.

To address the material weaknesses identified,

management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present,

in all material respects, our financial position, results of operations and cash flows for the periods presented.

Accordingly, we believe

that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations

and cash flows for the periods presented.

of Sponsoring Organizations of the Treadway Commission (“COSO”).

Our management has concluded that our internal controls over

financial reporting was effective as of December 31, 2022

(b) Changes in Internal Control over Financial

2022 Remediation Activities

During the fiscal year ended December 31, 2022,

we implemented remediation actions to address a material weakness due to a lack of segregation of duties identified in our annual report

on Form 10-K for our fiscal year ended December 31, 2021.

Specifically, we defined key controls in accordance with the five components

and seventeen principles of the COSO 2013 Framework.

In addition to the VP of Finance and Financial Controller hired in 2021, we hired

an HR Manager in September 2022 to further enhance our segregation of duties controls.

Through our control testing of the applicable controls

over a sufficient period of time during the year ended December 31, 2022, management has concluded that these controls are operating effectively

and that as of December 31, 2022, we no longer have a material weakness due to a lack of segregation of duties.

Except as set forth above,

there were no other changes in internal control over financial reporting during the fiscal year ended December 31, 2022, that materially

affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On April 22, 2022, we acquired, through PeriShip

Global, the business and certain assets of PeriShip, LLC, a value-added service provider for time and temperature sensitive parcel management.

For additional information regarding the acquisition, refer to Note 4 to the Audited Consolidated Financial Statements appended to this

Report and incorporated by reference into Item 8 in this Annual Report on Form 10-K and Management’s Discussion and Analysis of

Financial Condition and Results of Operations included in Item 7 in this Annual Report on Form 10-K.

Based on the recent completion of

this acquisition and, pursuant to the Securities and Exchange Commission’s guidance that an assessment of a recently acquired business

may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment

of the effectiveness of internal control over financial reporting as of December 31, 2022 does not include PeriShip Global.

include PeriShip Global within the timeframe set forth by the SEC’s guidance.

Auditor’s Report on Internal Control

Over Financial Reporting

This Report does not include an attestation report of our independent

registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation

by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s

report in this Report.

Changes in Internal Control Over Financial

Other than the remediation efforts noted above,

there were no other changes in our internal control over financial reporting identified in connection with this evaluation that occurred

during the period covered by this Report, that materially affected, or are reasonably likely to materially affect, our internal control

over financial reporting.

OTHER INFORMATION.

DISCLOSURE REGARDING FOREIGN

JURISDICTIONS THAT PREVENT INSPECTIONS.

This Report does not include an attestation report

of our independent registered public accounting firm regarding internal control over financial reporting.

Management’s report was

not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide

only management’s report in this Report.

REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not Applicable.

DIRECTORS, EXECUTIVE

OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information

6 unchanged sentences

The information

required by this Item 11 is incorporated herein by reference from our proxy statement for our 2022 annual meeting for stockholders under

required by this Item 11 is incorporated herein by reference from our proxy statement for our 2023 annual meeting of stockholders under

the headings “Executive Compensation” and “Director Compensation,” which proxy statement will be filed within

120 days after the December 31, 2022, fiscal year end.

SECURITY OWNERSHIP

OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Except for the information regarding securities

authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item 12 is incorporated

herein by reference from our proxy statement for our 2022 annual meeting for stockholders under the heading “Security Ownership

of Management and Certain Beneficial Owners,” which proxy statement will be filed within 120 days after the December 31, 2021, fiscal

herein by reference from our proxy statement for our 2023 annual meeting of stockholders under the heading “Security Ownership of

Management and Certain Beneficial Owners,” which proxy statement will be filed within 120 days after the December 31, 2022, fiscal

The following table summarizes the number of shares

21 unchanged sentences

security holders

1,292,225 (3)

Equity compensation

1 unchanged sentence

by security holders

(1) Represents shares of common stock issuable upon exercise of stock options granted under the 2017 Equity

Incentive Plan (the “2017 Plan”) and the 2013 Omnibus Equity Compensation Plan, as amended (the “2013 Plan”)

Represents the weighted-average exercise price of outstanding stock options.

2 unchanged sentences

Plan (the “2020 Plan”) or 2013 Plan, which do not have an exercise price.

(3) Includes 789,230 shares remaining available for issuance under the 2020 Plan and 26,050 shares remaining

for issuance under the 2013 Plan.

(4) Includes individual grants to employees and consultants for services rendered to the Company which were

not made under the Company’s existing equity incentive plans.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

Represents shares of common stock issuable upon exercise of stock options granted under the 2017 Equity Incentive

Plan (the “2017 Plan”) and the 2013 Omnibus Equity Compensation Plan, as amended (the “2013 Plan”)

Includes 877,511 shares remaining available for issuance under the 2020 Plan and 44,770 shares remaining for

issuance under the 2013 Plan and 369,944 shares remaining available for issuance under the 2021 Plan.

Includes individual grants to employees and consultants for services rendered to the Company which were not

made under the Company’s existing equity incentive plans.

CERTAIN RELATIONSHIPS AND RELATED

TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated

herein by reference from our proxy statement for our 2022 annual meeting for stockholders under the heading “Certain Relationships

herein by reference from our proxy statement for our 2023 annual meeting of stockholders under the heading “Certain Relationships

and Related Person Transactions,” which proxy statement will be filed within 120 days after the December 31, 2022, fiscal year end.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PRINCIPAL ACCOUNTANT

FEES AND SERVICES

The information required by this Item 14 is incorporated

herein by reference from our proxy statement for our 2022 annual meeting for stockholders under the numbered proposal with the heading

herein by reference from our proxy statement for our 2023 annual meeting of stockholders under the numbered proposal with the heading

“Ratification of the Appointment of our Independent Registered Public Accounting Firm,” which proxy statement will be filed

2 unchanged sentences

STATEMENT SCHEDULES.

Certificate of Amendment to Amended and Restated Articles of Incorporation (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 22, 2020)

Second Amended Certificate of Designation for Series A Convertible Preferred Stock (incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 18, 2015)

Certificate of Designation for Series B Convertible Preferred Stock (incorporated herein by reference from Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on June 18, 2015)

Certificate of Withdrawal of Certificate of Designation for Series C and Series D Convertible Preferred Stock (incorporated herein by reference from Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018)

Amended and Restated Bylaws of VerifyMe, Inc., as amended through July 24, 2020 (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 29, 2020)

Form of Warrant for the Purchase of Common Stock (incorporated herein by reference from Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017)

Form of Warrant for the Purchase of Shares of Common Stock (incorporated herein by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 3, 2020)

Form of Common Stock Purchase Warrant (incorporated herein by reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-1/A (File No.

of Amendment to Amended and Restated Articles of Incorporation (incorporated herein by reference from Exhibit 3.1 to the Company’s

Current Report on Form 8-K filed on June 22, 2020)

Amended Certificate of Designation for Series A Convertible Preferred Stock (incorporated herein by reference from Exhibit 3.2 to the

Company’s Current Report on Form 8-K filed on June 18, 2015)

of Designation for Series B Convertible Preferred Stock (incorporated herein by reference from Exhibit 3.3 to the Company’s Current

Report on Form 8-K filed on June 18, 2015)

of Withdrawal of Certificate of Designation for Series C and Series D Convertible Preferred Stock (incorporated herein by reference from

Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018)

and Restated Bylaws of VerifyMe, Inc., as amended through July 24, 2020 (incorporated herein by reference from Exhibit 3.1 to the Company’s

Current Report on Form 8-K filed on July 29, 2020)

of Warrant for the Purchase of Shares of Common Stock (incorporated herein by reference from Exhibit 4.2 to the Company’s Current

Report on Form 8-K filed on March 3, 2020)

of Common Stock Purchase Warrant (incorporated herein by reference from Exhibit 4.3 to the Company’s Registration Statement on Form

S-1/A (File No.

333-234155) filed on May 22, 2020)

Form of Warrant for the Purchase of Shares of Common Stock (incorporated herein by reference from Exhibit 4.6 to the Company’s Registration Statement on Form S-1/A (File No.

of Warrant for the Purchase of Shares of Common Stock (incorporated herein by reference from Exhibit 4.6 to the Company’s Registration

Statement on Form S-1/A (File No.

333-234155) filed on June 2, 2020)

Warrant Agent Agreement dated June 22, 2020 between the Company and West Coast Stock Transfer, Inc.

(incorporated herein by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 22, 2020)

Form of Representative’s Warrant (incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 22, 2020)

Agent Agreement dated June 22, 2020 between the Company and West Coast Stock Transfer, Inc.

(incorporated herein by reference from Exhibit

4.2 to the Company’s Current Report on Form 8-K filed on June 22, 2020)

of Representative’s Warrant (incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K

filed on June 22, 2020)

of Pre-Funded Warrant (incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April

of Common Warrant (incorporated herein by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April

Description of Securities

Form of Indemnification Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2021)

Employment Agreement with Patrick White, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K file on February 22, 2022)

Employment Agreement with Margaret Gezerlis, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K file on February 22, 2022)

Independent Contractor Consulting Agreement, dated April 15, 2021, with Norman Gardner (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021)

Employment Agreement with Keith Goldstein, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K file on February 22, 2022)

Employment Agreement with Nancy Meyers, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K file on February 22, 2022)

LaserLock Technologies, Inc.

2013 Omnibus Equity Compensation Plan (incorporated herein by reference from the Company’s Definitive Proxy Statement filed on November 19, 2013)

of Indemnification Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed

on February 18, 2021)

Agreement with Patrick White, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current

Report on Form 8-K file on February 22, 2022)

Agreement with Margaret Gezerlis, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current

Report on Form 8-K file on February 22, 2022)

Agreement with Keith Goldstein, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current

Report on Form 8-K file on February 22, 2022)

Agreement with Nancy Meyers, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current

Report on Form 8-K file on February 22, 2022)

Agreement between PeriShip Global, LLC and Curt Kole, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.5 to the

Company’s Current Report on Form 8-K filed on April 26, 2022)

Agreement between PeriShip Global, LLC and Fred Volk III, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.6 to

the Company’s Current Report on Form 8-K filed on April 26, 2022)

Agreement between PeriShip Global, LLC and Jack Wang, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.7 to the

Company’s Current Report on Form 8-K filed on April 26, 2022)

Technologies, Inc.

2013 Omnibus Equity Compensation Plan (incorporated herein by reference from the Company’s Definitive Proxy Statement

filed on November 19, 2013)

Equity Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November

Amendment to the 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 29, 2019)

2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File No.

to the 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K

filed on April 29, 2019)

Equity Incentive Plan (incorporated herein by reference from Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File

333-249520) filed on October 16, 2020)

Non-Qualified Stock Option Agreement dated August 2017 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No.

2021 Stock Purchase Plan (incorporated herein by reference from Appendix A to the Company’s Definitive Proxy Statement on Schedule

14A filed on April 28, 2021)

Non-Qualified

Stock Option Agreement dated August 2017 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.14 to

the Company’s Registration Statement on Form S-1 (File No.

333-234155) filed on October 10, 2019)

Non-Qualified Stock Option Agreement dated April 17, 2018 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No.

Non-Qualified

Stock Option Agreement dated April 17, 2018 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.13

to the Company’s Registration Statement on Form S-1 (File No.

333-234155) filed on October 10, 2019)

Amendment to Non-Qualified Stock Option Agreement dated April 16, 2020 to that Non-Qualified Stock Option Agreement dated August 2017 and that Non-Qualified Stock Option Agreement dated April 17, 2018 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No.

to Non-Qualified Stock Option Agreement dated April 16, 2020 to that Non-Qualified Stock Option Agreement dated August 2017 and that Non-Qualified

Stock Option Agreement dated April 17, 2018 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.12

to the Company’s Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Incentive Stock Option Agreement dated August 14, 2019 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No.

333-234155) filed on October 10, 2019)

Incentive Stock Option Agreement dated March 11, 2019 between the Company and Margaret Gezerlis (incorporated herein by reference from Exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No.

Stock Option Agreement dated August 14, 2019 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.15

to the Company’s Registration Statement on Form S-1 (File No.

333-234155) filed on October 10, 2019)

Incentive Stock Option Agreement dated January 7, 2020 between the Company and Margaret Gezerlis (incorporated herein by reference from Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Non-Qualified Stock Option Agreement dated January 2018 between the Company and Norman Gardner (incorporated herein by reference from Exhibit 10.17 to the Company’s Registration Statement on Form S-1 (File No.

Stock Option Agreement dated March 11, 2019 between the Company and Margaret Gezerlis (incorporated herein by reference from Exhibit 10.16

to the Company’s Registration Statement on Form S-1 (File No.

333-234155) filed on October 10, 2019)

Amendment to Non-Qualified Stock Option Agreement dated April 16, 2020 to that Non-Qualified Stock Option Agreement dated January 2018 between the Company and Norman Gardner (incorporated herein by reference from Exhibit 10.17 to the Company’s Registration Statement on Form S-1 (File No.

Stock Option Agreement dated January 7, 2020 between the Company and Margaret Gezerlis (incorporated herein by reference from Exhibit

10.15 to the Company’s Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Form of Restricted Stock Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)

Restricted Stock Agreement dated April 16, 2020 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (File No.

of Restricted Stock Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q

for the quarter ended June 30, 2018)

Stock Agreement dated April 16, 2020 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.19 to the

Company’s Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Form of Director Non-Qualified Stock Option Agreement (immediate vesting) (incorporated herein by reference from Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (File No.

of Director Non-Qualified Stock Option Agreement (immediate vesting) (incorporated herein by reference from Exhibit 10.20 to the Company’s

Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Form of Director Non-Qualified Stock Option Agreement (quarterly vesting) (incorporated herein by reference from Exhibit 10.21 to the Company’s Registration Statement on Form S-1 (File No.

of Director Non-Qualified Stock Option Agreement (quarterly vesting) (incorporated herein by reference from Exhibit 10.21 to the Company’s

Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Form of Restricted Stock Agreement pursuant to the 2013 Omnibus Equity Compensation Plan (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020)

Form of Restricted Stock Agreement pursuant to the 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020)

Form of Restricted Stock Unit Agreement (immediate vesting) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020)

of Restricted Stock Agreement pursuant to the 2013 Omnibus Equity Compensation Plan (incorporated herein by reference from Exhibit 10.4

to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020)

of Restricted Stock Agreement pursuant to the 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.5 to the Company’s

Quarterly Report on Form 10-Q for the quarter ended September 30, 2020)

of Restricted Stock Unit Agreement (immediate vesting) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from

Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020)

of Restricted Stock Award Agreement (Employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit

10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

Form of Restricted Stock Award Agreement (Non-employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

Form of Restricted Stock Unit Award Agreement (Employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

Form of Restricted Stock Unit Award Agreement (Non-employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

Form of Senior Secured Convertible Debenture (incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 3, 2020)

Securities Purchase Agreement dated February 26, 2020 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 3, 2020)

Security Agreement dated February 26, 2020 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 3, 2020)

Letter Agreement dated February 28, 2020 between the Company and Bruce Evans (incorporated herein by reference from Exhibit 10.25 to the Company’s Registration Statement on Form S-1 (File No.

333-237950) filed on May 1, 2020)

Agreement dated as of June 15, 2020 (incorporated herein by reference from Exhibit 10.28 to the Company’s Registration Statement on Form S-1 (File No.

of Restricted Stock Award Agreement (Non-employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from

Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

of Restricted Stock Unit Award Agreement (Employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from

Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

of Restricted Stock Unit Award Agreement (Non-employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference

from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021)

of Restricted Stock Unit Award Agreement (Subsidiary Employees) (incorporated herein by reference from Exhibit 10.8 to the Company’s

Current Report on Form 8-K filed on April 26, 2022)

dated as of June 15, 2020 (incorporated herein by reference from Exhibit 10.28 to the Company’s Registration Statement on Form S-1

333-234155) filed on June 15, 2020)

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

of Securities Purchase Agreement, dated April 12, 2022 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current

Report on Form 8-K filed on April 18, 2022)

of Registration Rights Agreement, dated April 12, 2022 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current

Report on Form 8-K filed on April 18, 2022)

of Lock-Up Agreement, dated April 12, 2022 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on

Form 8-K filed on April 18, 2022)

Purchase Agreement, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on

Form 8-K filed on April 26, 2022)

Note payable by PeriShip Global, LLC to PeriShip, LLC, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.2 to the

Company’s Current Report on Form 8-K filed on April 26, 2022)

dated April 22, 2022 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April

Services Agreement, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on

Form 8-K filed on April 26, 2022)

Agreement between PeriShip Global and Mordo, LLC, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.9 to the Company’s

Current Report on Form 8-K filed on April 26, 2022)

Guarantee between VerifyMe, Inc.

and Mordo, LLC, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.10 to the Company’s

Current Report on Form 8-K filed on April 26, 2022)

Services Agreement between PeriShip Global (as successor to PeriShip, LLC) and FedEx Corporate Services, Inc.

dated June 1, 2019 (incorporated

herein by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2022)

of FedEx Transportation Services Agreement Pricing Agreement between PeriShip Global (as successor to PeriShip, LLC) and Federal Express

Corporation, et al (incorporated herein by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed on August

to Professional Services Agreement with FedEx Corporate Services, Inc.

dated August 25, 2022 (incorporated herein by reference to Exhibit

10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2022)

Agreement between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference

from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

Note between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference

from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

Line of Credit Note between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein

by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

and Suretyship Agreement between VerifyMe, Inc., and PNC Bank, National Association, effective September 15, 2022 (incorporated herein

by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

Agreement between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference

from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

Agreement between VerifyMe, Inc.

and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from

Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 27, 2022)

Purchase Agreement, effective February 28, 2023 (incorporated herein by reference3 from Exhibit 10.1 to the Company’s Current Report

on Form 8-K filed on March 2, 2023)

Subsidiaries of VerifyMe, Inc.

Certification of Principal Executive Officer

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer

and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document

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XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File

* Filed or furnished herewith, as applicable

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VerifyMe, Inc.

/s/ Patrick White

Patrick White

Chief Executive Officer and Director

/s/ Scott Greenberg

Scott Greenberg

Interim Chief Executive Officer and Executive Chairman

March 28, 2023

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on the dates indicated:

/s/ Patrick White

Chief Executive Officer and Director

/s/ Scott Greenberg

Interim Chief Executive Officer,Executive Chairman and Director

March 28, 2023

Patrick White

Scott Greenberg

( Principal Executive Officer )

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Principal Accounting Officer)

/s/ Scott Greenberg

Chairman of the Board

March 14, 2022

Scott Greenberg

/s/ Chris Gardner

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Arthur Laffer

/s/ Adam Stedham

March 28, 2023

FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(PCAOB ID 206 )

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENTS OF CASH FLOWS

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

NOTES TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 206 )

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED COMPREHENSIVE INCOME(LOSS)

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Shareholders and Board of Directors of

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balance sheets of VerifyMe, Inc.

( the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements

of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred

to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years

then ended, in conformity with accounting principles generally accepted in the United States of America.

and its subsidiary (collectively, the “Company”) as of December 31, 2022 and 2021, and the

related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the years then

ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their

operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States

Basis for Opinion

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Critical Audit Matters

The critical audit matters communicated below are matters

arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements,

taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit

matters or on the accounts or disclosures to which they relate.

Determination of the Fair Value of the Equity

Investment and Derivative Liability

As disclosed in Notes 2 and 12 to the

financial statements, as of December 31, 2021, the Company accounts for its equity investment in the G3 VRM Acquisition Corp.

under the fair value option.

The Company’s investment in the SPAC was $10,964 thousand as of December 31, 2021.

The Company also

granted two directors restricted stock units in the SPAC (“SPAC RSUs”), vesting upon the initial business combination of the

SPAC, subject to continuous service to the Company through the vesting date.

The Company accounts for the SPAC RSUs under ASC 815 –

Derivatives and Hedging, with $71 thousand expense included in stock-based compensation for the year ended December 31, 2021.

In determining

the fair value of the Company’s equity investment in the SPAC and derivative liability associated with the SPAC RSUs under Monte-Carlo

simulation, management has made various judgments, estimates and assumptions, some of which are classified in Level 3 of the fair value

The principal considerations for our determination that performing procedures relating to the fair value of the equity investment

and derivative liability is a critical audit matter included:

(i) significant judgment by management when determining the fair value of

the equity investment and derivative liability;

(ii) a high degree of auditor judgment, subjectivity and effort in performing procedures

to evaluate management’s assessment of significant inputs and assumptions;

and (iii) the audit effort involved the use of professionals

with specialized skill and knowledge.

Addressing the matter involved performing

procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures

(i) testing management’s process for developing the fair value estimates;

(ii) evaluating the appropriateness of Monte-Carlo

(iii) testing the completeness and accuracy of underlying data used in the fair value measurement;

(iv) evaluating whether

the judgments and assumptions used by management were reasonable considering the consistency with external market and industry data;

(v) engaging auditor’s specialist to assist in evaluating the reasonableness of the significant inputs and assumptions used by management.

Critical audit matters are matters arising from the current

period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex

We determined that there are no critical audit matters.

/s/ MaloneBailey, LLP

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VerifyMe, Inc.

Balance Sheets

(In thousands, except share data)

December 31, 2021

December 31, 2020

Consolidated Balance

(In thousands, except

CURRENT ASSETS

Cash and cash equivalents

Accounts Receivable

Cash and cash equivalents, including restricted

Accounts receivable, net of allowance for credit loss

reserve, $ 37

as of December 31, 2022 and December 31, 2021, respectively

Unbilled revenue

Prepaid expenses and other current assets

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Equity Investment

PROPERTY AND EQUIPMENT

Equipment for lease, net of accumulated amortization of

$ 102 and $ 50 as of December 31, 2021 and December 31, 2020, respectively

Office Equipment, net of accumulated amortization of

$ 1 and $ 0 as of December 31, 2021 and December 31, 2020, respectively

INTANGIBLE ASSETS

Patents and Trademarks, net of accumulated amortization of

$ 354 and $ 320 as of December 31, 2021 and December 31, 2020, respectively

Capitalized Software Costs, net of accumulated amortization of

$ 50 and $ 20 as of December 31, 2021 and December 31, 2020, respectively

PROPERTY AND EQUIPMENT, NET

RIGHT OF USE ASSET

INTANGIBLE ASSETS, NET

DEFERRED IMPLEMENTATION COSTS

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable and other accrued expenses

Current portion of debt

Accounts payable

Other accrued expense

Lease liability- current

TOTAL CURRENT LIABILITIES

LONG-TERM LIABILITIES

Long-term lease liability

Long-term derivative liability

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STOCKHOLDERS' EQUITY

Series A Convertible Preferred Stock, $ .001 par value, 37,564,767 shares

0 shares issued and outstanding as of December 31, 2021 and

Series A Convertible Preferred Stock, $ .001

par value, 37,564,767

shares authorized;

shares issued and outstanding as of December 31, 2022;

Series B Convertible Preferred Stock, $ .001 par value;

0.85 shares issued and outstanding as of December 31, 2021 and

December 31, 2020, respectively

Common stock, $ .001 par value;

675,000,000 authorized;

0 shares issued and outstanding

as of December 31, 2021

Series B Convertible Preferred Stock, $ .001

shares authorized;

shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

Common stock, $ 0.001

and 7,420,633 issued,

7,196,677 and 5,596,877 shares outstanding as of December 31, 2021 and December 31, 2020,

and 7,196,677

shares outstanding as of December 31, 2022 and December 31, 2021, respectively

Additional paid in capital

Treasury stock as cost;

223,956 and 7,011 shares at December 31, 2021 and December 31,

2020, respectively

shares at December 31, 2022 and December 31, 2021, respectively

Accumulated deficit

Accumulated other comprehensive loss

STOCKHOLDERS' EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of

these financial statements.

The accompanying

notes are an integral part of these consolidated financial statements.

VerifyMe, Inc.

Statements of Operations

Consolidated Statements of Operations

(In thousands, except per share data)

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December 31, 2021

COST OF SALES

COST OF REVENUE

OPERATING EXPENSES

General and administrative (a)

Legal and accounting

Corporate Payroll expenses (a)

Research and development

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Total operating expenses

LOSS BEFORE OTHER (EXPENSE), NET

OTHER INCOME (EXPENSE), NET

LOSS BEFORE OTHER INCOME (EXPENSE)

OTHER INCOME (EXPENSE)

Interest income (expenses), net

Fair value gain on equity investment

Loss on extinguishment of debt

Loss on equity investment

Unrealized gain on equity investment

Other income, net

Gain on extinguishment of debt

Payroll protection program debt forgiveness

TOTAL OTHER INCOME (EXPENSE), NET

NET INCOME/(LOSS)

NET (LOSS)/ INCOME

EARNINGS / (LOSS) PER SHARE

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING

(a) Includes share-based compensation of $ 1,716 for the year ended December 31, 2021, and $ 1,345 for the year ended December 31, 2020.

(a) Includes share-based compensation of $1,468 thousand for the year ended December 31, 2022, and $1,716 thousand for the year ended

December 31, 2021.

The accompanying notes are an integral part of

these financial statements.

these consolidated financial statements.

VerifyMe, Inc.

Statements of Cash Flows

Consolidated Statements of Comprehensive Income/(Loss)

(In thousands)

Twelve Months Ended

December 31, 2022

December 31, 2021

NET (LOSS)/INCOME

Change in fair value of interest rate, swap

TOTAL COMPREHENSIVE (LOSS)/INCOME

The accompanying notes are an integral part of

these consolidated financial statements.

VerifyMe, Inc.

Consolidated Statements

of Cash Flows

(In thousands)

December 31, 2022

December 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in

operating activities:

Net (Loss) Income

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Allowance for bad debt

Stock based compensation

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Payroll Protection Program Debt Forgiveness

Fair value of warrants in exchange for services

Fair value gain on equity investment

Loss on Extinguishment of Debt

Amortization of debt discount

Common stock issued for interest expense

Loss on equity investment

Unrealized gain on equity investment

Gain on extinguishment of debt

Amortization and depreciation

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Accounts receivable

Unbilled revenue

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Accounts payable, other accrued expenses and net change in operating leases

Net cash used in operating activities

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Purchase of office equipment

Acquisition of PeriShip

Equity received from SPAC Equity Investment

Deferred implementation costs

Capitalized software costs

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Proceeds from issuance of notes payable

Repayments of notes payable

Repayment of bridge financing and early redemption fee

Proceeds from convertible debt, net of costs

Tax withholding payments for employee stock-based compensation

in exchange for shares surrendered

Repurchase Shares

Proceeds from exercise of pre-funded warrant

Proceeds from SPP Plan

Tax withholding payments for employee stock-based compensation in exchange for shares surrendered

Increase in treasury shares (share repurchase program)

Repayment of Debt

Net cash provided by financing activities

NET INCREASE IN CASH AND

CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS - END OF PERIOD

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH – BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH - END OF PERIOD

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for:

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND

FINANCING ACTIVITIES

Common Stock issued in relation to conversion of 2020 Debentures and warrant

Relative fair value of common stock issued in connection with 2020 Debentures

Relative fair value of warrants issued in connection with 2020 Debentures

Beneficial conversion feature in connection with 2020 Debentures

Common stock issued to settle accrued payroll

Reclass on deposit for equipment held for lease

The accompanying notes are an integral part of

these financial statements.

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Initial recognition of right-of-use asset and lease liability during the period

Change in fair value of interest rate, swap

The accompanying

notes are an integral part of these consolidated financial statements.

VerifyMe, Inc.

Statements of Stockholders' Equity (Deficit)

(In thousands, except share data)

Consolidated Statements

of Stockholders' Equity

(In thousands, except

Balance at December 31, 2020

Fair value of stock options

Restricted stock awards

Restricted stock awards, net of

shares withheld

for employee tax

Restricted Stock Units

Fair value of warrants issued for services

Stock Purchase Plan

Common stock issued for services

Common stock issued in connection with 2020 Debentures

Beneficial conversion feature in connection with 2020

Warrants issued in connection with 2020 Debentures

Common Stock in relation to conversion of 2020 Debentures

interest expense and cancellation of warrants

Common stock issued in relation to public offering

of securities

Cancellation of Common Stock

Common stock issued in relation

offering of securities

Repurchase of Common Stock

Balance at December 31, 2021

Comprehensive

Balance at December 31, 2021

Fair value of stock options

Restricted stock awards, net of shares withheld for

Restricted stock awards, net of

shares withheld

for employee tax

Restricted Stock Units

Stock Purchase Plan

Common stock issued in relation

Purchase Plan

Common stock issued in relation to private placement

Common stock issued for services

Common stock issued in relation to public offering

Common stock issued in relation

Repurchase of Common Stock

Exercise of Pre-funded Warrants

Accumulated other comprehensive

Balance at December 31, 2022

The accompanying notes are an integral part of

these financial statements.

The accompanying

notes are an integral part of these consolidated financial statements.

VerifyMe, Inc.

Notes to the Financial Statements

Notes to the Consolidated Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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VerifyMe, Inc.

the “Company,” “we,” “us,” or “our”) was incorporated in the State of Nevada on November 10,

The Company is based in Rochester, New York and its common stock, par value $ 0.001 per share, and warrants to purchase common stock

are traded on The Nasdaq Capital Market (“Nasdaq”) under the trading symbols “VRME” and “VRMEW,” respectively.

The Company 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 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.

The Company’s

activities are subject to significant risks and uncertainties, including its ability to successfully commercialize its technologies and

the need to further develop the Company’s intellectual property.

Reverse Stock Split

On June 17, 2020, the Company filed a Certificate

of Amendment to the Company’s Amended and Restated Articles of Incorporation, as amended, with the Nevada Secretary of State to

effect a 50-to-1 reverse stock split of the Company’s issued and outstanding common stock and treasury stock, effective on June

18, 2020 (the “Reverse Stock Split”).

The Reverse Stock Split did not affect the total number of shares of common stock or

preferred stock that the Company is authorized to issue.

The accompanying financial statements

and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

(“VerifyMe”) was incorporated

in the State of Nevada on November 10, 1999.

VerifyMe, together with its subsidiaries, including PeriShip Global LLC (“PeriShip

Global”) and Trust Codes Global Limited (“Trust Codes Global”), (together the “Company,” “we,”

“us,” or “our”) is based in Lake Mary, Florida and its common stock, par value $ 0.001 per share, and warrants

to purchase common stock are traded on The Nasdaq Capital Market (“Nasdaq”) under the trading symbols “VRME” and

“VRMEW,” respectively.

VerifyMe, through PeriShip Global, is a software

driven predictive analytics logistics provider of high-touch, end-to-end logistics management, which represents most of our current revenue

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, which includes Trust Codes Global.

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.

Through 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.

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.

Basis of Presentation

The accompanying financial

statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying consolidated

financial statements include the accounts of VerifyMe and its wholly owned subsidiary PeriShip Global.

All significant intercompany balances

and transactions have been eliminated upon consolidation.

The consolidated financial statements are presented in accordance with accounting

principles generally accepted in the United States of America (“GAAP”).

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 by which to allocate resources and assess performance.

The Company has two reportable segments,

namely, (i) PeriShip Global Solutions and (ii) VerifyMe Solutions.

See Note 16 Segment Reporting, for further discussion of the Company’s

segment reporting structure.

Use of Estimates

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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.

guidance was to be effective for reporting periods beginning after December 15, 2022, with early adoption permitted.

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

The Company’s accounts receivable is currently the only financial instrument subject to the new CECL model.

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.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

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.

of accounts receivable, unbilled revenue, accounts payable, notes payable and accrued expenses, equity investments, and long-term derivative

The carrying value of accounts receivable, unbilled revenue, accounts payable and accrued expenses approximate their fair

value because of their short maturities.

The Company believes the carrying amount of its notes payable approximates fair value based

on rates and other terms currently available to the Company for similar debt instruments.

The Company follows FASB ASC 820, “Fair

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value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

VerifyMe, Inc.

Notes to the Financial Statements

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, 2022 and December 31, 2021.

Amounts in Thousands ('000)

Schedule of fair value assets measured on recurring basis

Short Term Investment

Equity Investment

Derivative Liability

Balance as of December 31, 2021

Realized loss on fair value recognized in other (expense)/income

Distribution from Sponsor Entity

Unrealized gain on fair value recognized in other (expense)/income

Realized gain on fair value recognized in share-based compensation

Change in fair value to interest rate, SWAP, recognized in other comprehensive loss

Balance at December 31, 2022

Variable Interest Entity

The Company has determined that G3 VRM Acquisition

Corp., (the “SPAC”, see Note 2 – Equity Investment), is a variable interest entity (“VIE”) in which the

Company has 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 is not the primary

beneficiary of the VIE and as such, does 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 Company determined that G3 VRM Acquisition

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 was 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 impacted 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

The Company concluded that it was not the primary beneficiary of the VIE and as such, did not consolidate the SPAC.

reassessed 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 Sponsor Entity made the decision not to fund the extension

and did not deposit additional funds into the trust account.

As a result, the SPAC was dissolved, and liquidated according to its charter.

The SPAC redeemed 100% of the public shares for cash, the rights have expired worthless, and the founder shares and the private placement

securities have become worthless.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

Equity Investments

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accepted accounting policies.

The Company has elected the fair value option for its equity investment in the SPAC (see Note 2 –

Equity Investment) 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 investment are included in Other Income (Expense), Net on the accompanying Statement of

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 unrealized gain on equity investment include unrealized gain of the fair

value of the equity investments and loss on equity investment includes realized loss on equity investments on the accompanying Consolidated

Statements of Operations.

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 in the fourth quarter, or between annual tests, in certain circumstances.

Under authoritative guidance, the Company

first assessed qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment test.

The assessment considers factors such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and

our share price.

An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative

assessment, that it is more likely than not that its fair value is less than its carrying amount.

Events or changes in circumstances which

could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance,

other entity specific events and sustained decrease in share price.

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.

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.

Basic and Diluted Net Loss per Share of Common Stock

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.

Cash and Cash Equivalents

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paper with original maturities of 90 days or less to be cash or cash equivalents.

As of December 31, 2022, the Company held $ 63 thousand

subject to restrictions.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

Accounts Receivable

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to make payments, such allowances may be required.

The Company recognized $ 0 and $ 0 for allowance for doubtful accounts as of December

The Company recognized $ 37 thousand and $ 0 for allowance for credit losses as of December

31, 2022, and 2021, respectively.

4 unchanged sentences

At times, the Company’s deposits may exceed Federal Deposit Insurance Corporation (FDIC)

coverage limits.

The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.

coverage limits which are currently set at $ 250,000 per depositor.

The Company has not experienced any losses from maintaining cash accounts

in excess of federally insured limits.

Inventory principally consists of canisters and

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Costs incurred in connection with the development

of software related to our proprietary digital products are accounted for in accordance with the Financial Accounting Standards Board

(“FASB”) Accounting Standards Codification ("ASC") 985 “Costs of Software to Be Sold, Leased or Marketed.”

Costs incurred prior to the establishment of technological feasibility are charged to research and development expense.

Software development

costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market.

Amortization of capitalized software development costs begins once the product is available to the market which started in January 2020.

Capitalized software development costs are amortized over the estimated life of the related product, generally five years, using the straight-line

The Company will evaluate its software assets for impairment whenever events or change in circumstances indicate that the carrying

amount of such assets may not be recoverable.

VerifyMe, Inc.

Notes to the Financial Statements

of software related to our proprietary proactive end-to-end logistics management products are accounted for in accordance with the Financial

Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 “Hosting Arrangements

and Internally Used Software.” Costs incurred prior to the establishment of technological feasibility are charged to research and

development expense.

Software development costs are capitalized after a product is determined to be technologically feasible and is in

the process of being developed for market.

Amortization of capitalized software development costs begins once the product is available

to the market.

Capitalized software development costs are amortized over the estimated life of the related product, generally six years,

using the straight-line method.

The Company will evaluate its software assets for impairment whenever events or change in circumstances

indicate that the carrying amount of such assets may not be recoverable.

Long-Lived Assets

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by the amount by which the carrying amount of the asset exceeds the fair value of the assets.

Related Parties

Related parties, which can be a corporation or

individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise

significant influence over the other party in making financial and operational decisions.

Companies are also considered to be related

if they are subject to common control or common significant influence.

During the year ended December 31, 2021, and December 31, 2020,

the Company did not incur any charges related to related parties.

During 2020, four directors and an entity in which one officer of the

Company is a majority owner, participated in our 2020 Debenture offering, and two directors purchased securities in the Company’s

June 2020 underwritten public offering, see Note 6 – Convertible Debt and Note 9 – Stockholder’s Equity, respectively.

Derivative Instruments

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value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability.

The change in fair value is recorded in the Statement of Operations as a component of other income or expense.

Upon conversion or exercise

of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to

The change in fair value is recorded in the Consolidated Statement of Operations as a component of other income or expense.

Upon conversion

or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

In circumstances where the embedded conversion

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The Company accounts for revenues according to

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.

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

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· identify the performance obligations in the contract;

VerifyMe, Inc.

Notes to the Financial Statements

· determine the transaction price;

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· recognize revenue as the performance obligation is satisfied.

During the year ended December 31, 2020, the Company’s

revenues were primarily generated from our VerifyInk TM .

During the year 2021 we expanded our product solutions and increased

our sales to include printing labels with the Company’s technology.

During the year ended December 31, 2022, over

90% of the Company’s revenues primarily consisted of revenue related to our logistics management for time and temperature sensitive

packages generated by our subsidiary PeriShip Global.

During the year ended December 31, 2021, the Company’s revenue primarily consisted

of VerifyInk TM and labels with our VerifyMe traceability solutions.

The Company follows FASB ASC 740, “Income

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the period plus or minus the change during the period in deferred tax assets and liabilities.

Tax years from 2017 through 2020 remain

subject to examination by major tax jurisdictions.

Tax years from 2003 remain subject to examination

by major tax jurisdictions due the carryforward of unutilized NOLs.

Stock-Based Compensation

The Company accounts 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.

Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model.

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.

The Company accounts for stock-based compensation

awards to non-employees in accordance with ASU No.

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.

We recognize forfeitures as they occur with a reduction in compensation expense in the period of forfeiture.

performance restricted stock units with stock price appreciation targets (see Note 10 – 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

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.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

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.

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

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of the equity instruments issued.

Non-employee equity-based payments are recorded as an expense over the service period, as if the Company

had paid cash for the services.

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,

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Advertising costs are expensed as incurred.

costs were $ 51 thousand and $ 3 thousand for the years ended December 31, 2021, and 2020, respectively, and are included in Sales and Marketing

on the Statement of Operations.

costs were $ 60 thousand and $ 51 thousand for the years ended December 31, 2022, and 2021, respectively, and are included in Sales and

Marketing on the Consolidated Statements of Operations.

Research and Development Costs

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of basic and diluted earnings per share.

NOTE 2 – EQUITY INVESTMENT

Because the Company reported a net loss for the year ended December 31, 2022, 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.

NOTE 2 – EQUITY INVESTMENTS

On February 26, 2021, the Company formed VMEA

Holdings Inc.

(the “Sponsor Entity”), a Delaware corporation and wholly owned subsidiary of the Company, that owns G3 VRM

Acquisition Corp.

GGGVU) (the “SPAC”), a Delaware corporation and special purpose acquisition company 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.

While it may pursue an initial business combination target

in any business, industry or geographical location, it intends to focus its search on target businesses with enterprise values of approximately

$250 million to $500 million within the technology and business services industry.

VerifyMe, Inc.

Notes to the Financial Statements

(the “Sponsor Entity”), a Delaware corporation that was the founder of G3 VRM Acquisition Corp.

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

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option, generating gross proceeds of $106,260 thousand.

Each Unit consists of one share of SPAC common stock, $0.0001 par value, and one

right to receive one-tenth (1/10) of a share of SPAC common stock upon the consummation of an initial business combination.

Each Unit consisted of one share of SPAC common stock, $0.0001 par value, and

one right to receive one-tenth (1/10) of a share of SPAC common stock upon the consummation of an initial business combination.

Simultaneously

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Of this amount, the Company

is the indirect beneficial owner of 229,228 Units purchased by the Sponsor Entity for a total of $ 2,581 thousand.

was the indirect beneficial owner of 229,228 Units purchased by the Sponsor Entity for a total of $ 2,581 thousand.

Upon consummation of

the IPO, VerifyMe, as co-sponsor, indirectly through the Sponsor Entity, beneficially owns approximately 9.42 % of the outstanding shares

of the SPAC, which shares are subject to forfeiture upon certain conditions and restrictions on transfer.

As a result of ceasing

to have a controlling financial interest in the Sponsor Entity on April 12, 2021, the Company accounted for the Sponsor Entity as an equity

investment and has elected the fair value option resulting in a fair value gain of $ 8,371 thousand for the year ended December 31, 2021,

included in Fair value gain on equity investment, in the accompanying Statement of Operations.

The fair value of the equity investment

is classified as Level 3 in the fair value hierarchy as the calculation is dependent upon company specific adjustments to the observable

trading price of the SPAC’s public units and shares, and related risk of forfeiture should no business combination occur.

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 the Company 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), the SPAC will redeem 100% of the public shares for cash, the rights

will expire worthless, and the founder shares and the private placement securities will be worthless.

Even 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.

The following table presents summary financial

information of the Sponsor Entity.

Such summary information has been provided herein based upon the individual significance of the equity

investment to the financial information of the Company .

Amounts in Thousands ('000)

Current Assets

Non-current assets

Current Liabilities

Non-current liabilities

Stockholders' Equity

Amounts in Thousands ('000)

Year Ended December,

Operating Loss

the IPO, VerifyMe, as co-sponsor, indirectly through the Sponsor Entity, beneficially owned approximately 9.42 % of the outstanding shares

of the SPAC, which shares were subject to forfeiture upon certain conditions and restrictions on transfer.

As a result of ceasing to have a controlling financial

interest in the Sponsor Entity on April 12, 2021, the Company accounted for the Sponsor Entity as an equity investment and has elected

the fair value option.

VerifyMe, Inc.

Notes to the Financial Statements

NOTE 3 – PROPERTY AND EQUIPMENT

Equipment for Lease

During the years ended

December 31, 2021, and 2020, the Company capitalized $ 45 thousand and $ 73 thousand (including a $ 51 thousand deposit made in fiscal year

2019), respectively, in connection with the certification and production of the VerifyChecker™ and the VerifyAuthenticator TM

The Company depreciates equipment for lease over its useful life of five years .

expense for equipment for lease for the years ended December 31, 2021, and 2020, was $ 52 thousand and $ 50 thousand, respectively, and

is included in general and administrative expense in the accompanying Statements of Operations.

Office Equipment

During the year ended

December 31, 2021, and 2020, the Company capitalized $ 12 thousand and $ 0 thousand respectively, in office equipment.

The Company depreciates

the office equipment over its useful life of three years .

The depreciation expense for office equipment for

the years ended December 31, 2021, and 2020, was $ 1 thousand and $ 0 , respectively, and is included in general and administrative

expense in the accompanying Statement of Operations

NOTE 4 – INTANGIBLE ASSETS

Notes to the Consolidated Financial Statements

The SPAC was unable to complete its initial business

combination within 12 months from the closing of the IPO and the Sponsor Entity decided not to fund the extension and did not deposit

additional funds into the trust account.

As a result, the SPAC was dissolved and liquidated in accordance with its charter.

The SPAC redeemed

100% of the public shares for cash on July 19, 2022, the rights expired worthless, and the founder shares and private placement securities

became worthless.

The SPAC was dissolved on July 29, 2022, and no distributions were made to the Sponsors.

In December 2022, it was determined

that the costs to dissolve the SPAC were ultimately less than the remaining assets of the SPAC and the SPAC made a distribution to the

Company of $32 thousand.

The fair value of the equity investment was $ 0

million as of December 31, 2022 and $ 11.0 million as of December 31, 2021.

The fair value of the equity investment was classified as Level

3 in the fair value hierarchy as the calculation was dependent upon company specific adjustments to the observable trading price of the

SPAC’s public units and shares, and related risk of forfeiture should no business combination occur.

The Company recognized a loss

on equity investments of $ 10,932 thousand for the year ended December 31, 2022, included in the Loss on equity investments in the accompanying

Consolidated Statements of Operations.

In December 2021, the Company acquired 8,841 shares

of 10 % Cumulative Convertible Series D Preferred Stock at a price of $ 10.00 per share as payment for a customer’s outstanding AR

balance of $88,410.

This instrument is considered an equity security within the scope of Topic 321 since the issuing entity has the option

but no contractual obligation to redeem the preferred stock, and the Company can convert the preferred shares to common stock.

year ended December 31, 2022, a fair value gain of $ 12 thousand, was recognized and included in Loss on equity investments, in the accompanying

Consolidated Statements of Operations.

The fair value of the equity investment was $ 100 thousand as of December 31, 2022, and $ 88 thousand

as of December 31, 2021, and included in Prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets.

fair value of the equity investment is classified as Level 1 in the fair value hierarchy as the calculation is dependent upon the quoted

market price of the entity.

NOTE 3 – REVENUE

Revenue by Category

The following table presents our revenue disaggregated by various categories

(dollars in thousands).

Schedule of disaggregation of revenue

PeriShip Global

Proactive services

Premium services

Brand protection services

Contract Balances

The timing of revenue recognition, billings and

cash collections results in unbilled revenue (contract assets) and deferred revenue (contract liabilities) on the consolidated balance

Amounts charged to our clients become billable according to the contract terms, which usually consider the delivery completion.

Unbilled amounts will generally be billed and collected within 30 days but typically no longer than 60 days.

When we advance

bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the 30 days.

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

Changes in the contract asset and liability balances during the year ended December 31, 2022, were not materially impacted by any other

Applying the practical expedient in ASC Topic

606, we recognize the incremental costs of obtaining contracts (i.e.

sales commissions) as an expense when incurred if the amortization

period of the assets that we otherwise would have recognized is one year or less.

As of December 31, 2022, we did not have any capitalized

sales commissions.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

NOTE 4 – BUSINESS COMBINATION

On April 22, 2022, we acquired, through PeriShip

Global, the business and certain assets of PeriShip, LLC (“PeriShip”), a value-added service provider for time and temperature

sensitive parcel management.

PeriShip Global provides shipping logistics services utilizing proprietary predictive analytics software

and supporting call center services.

Using our proprietary software platform, we provide real-time information and analysis to mitigate

supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries.

The purchase price was $ 10.5 million which consisted of $ 7.5 million in cash paid at closing, a promissory note of $ 2.0 million

with a fixed interest rate of 6 % per annum on the unpaid principal balance, to be paid in three installments on the sixth, fifteenth,

and eighteenth month anniversaries of the closing, and 305,473 shares of common stock of the Company, representing $1.0 million in stock

consideration.

The goodwill recognized is due to the expected synergies from combining the operations of the acquire with the Company.

All of the goodwill recorded for financial statement purposes is deductible for tax purposes.

The acquired PeriShip business is included

in the PeriShip Global Solutions segment and the results of its operations have been included in the consolidated financial statements

beginning April 22, 2022.

On September 22, 2022, the Company entered into

an agreement with the owner of PeriShip, LLC to resolve certain disputes among the parties, reduce the principal and interest on the promissory

note, repay the amended promissory note in full, and repurchased 61,000 shares of the Company’s common stock (see Note 9).

accounted for the agreement in accordance with Topic 250, through earnings, with the full amount included as a Gain on extinguishment

of debt on the accompanying Consolidated Statements of Operations for a total of $ 326 thousand, for the year ended December 31, 2022.

The following table summarizes the purchase price

allocation for the acquisition (dollars in thousands).

Schedule of business acquisitions

Promissory note

Stock (issuance of 305,473 shares of common stock) (1)

Total purchase price

Purchase price allocation:

Accounts receivable, net

Prepaid expenses

Developed Technology

Trade Names/Trademarks

Customer Relationships

Non-Compete Agreement

Property and Equipment, net

Accounts payable and other accrued expenses

(1) Stock issued was calculated based on the 15 days prior to April

22, 2022, volume-weighted average price (“VWAP”) calculated at $3.2736.

Unaudited Pro forma Financial Information

The following unaudited proforma financial information

presents the combined results of operations of the Company and gives effect to the acquisition discussed above for the years ended December

31, 2022, and 2021, as if the acquisition had occurred as of the beginning of the first period presented instead of on April 22, 2022.

The pro forma financial information is presented

for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition

had been completed on January 1, 2021, nor does it purport to project the results of operations of the combined company in future periods.

The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company during the

periods presented.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

The below table summarizes proforma financial

information for the Company, and the acquired PeriShip business, assuming the acquisition date of PeriShip occurred on January 1, 2021

(dollars in thousands):

Schedule of financial information

Net Income (loss)

NOTE 5 – INTANGIBLE ASSETS AND GOODWILL

Goodwill represents costs in excess of values

assigned to the underlying net assets of acquired businesses.

Intangible assets acquired are recorded at estimated fair value.

is deemed to have an indefinite life and is not amortized but is tested for impairment annually, and at any time when events suggest an

impairment more likely than not has occurred.

We test goodwill at the reporting unit level.

ASC Topic 350, Intangibles - Goodwill

and Other (ASC Topic 350), permits an entity to first assess qualitative factors to determine whether it is more likely than

not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform

a quantitative goodwill impairment test.

Under ASC Topic 350, an entity is not required to perform a quantitative goodwill

impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount.

unit is an operating segment, or one level below an operating segment, as defined by U.S.

Determining the fair value of a reporting unit

is judgmental in nature and involves the use of significant estimates and assumptions.

These estimates and assumptions include revenue

growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market

conditions and determination of appropriate market comparables.

We base our fair value estimates on assumptions we believe to be reasonable

but that are unpredictable and inherently uncertain.

Actual future results may differ from those estimates.

The timing and frequency of

our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment.

We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are

Each of our two reportable segments represents

an operating segment under ASC Topic 280, Segment Reporting .

We test our goodwill at the reporting unit level, or one level

below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other .

We determined that we have two reporting

units for purposes of goodwill impairment testing, which represent our two reportable business segments, as discussed below.

For the year ended December 31, 2021, there were

no goodwill activities.

Changes in the carrying amount of goodwill by reportable business segment for the year ended December

31, 2022, were as follows (in thousands):

Schedule of goodwill by reportable business segment

PeriShip Global

Net book value at

January 1, 2022

2022 Activity

Net book value at

December 31, 2022

Intangible Assets Subject to Amortization

Our intangible assets include amounts recognized

in connection with patents and trademarks, capitalized software and acquisitions, including customer relationships, tradenames, developed

technology and non-compete agreements.

Intangible assets are initially valued at fair market value using generally accepted valuation

methods appropriate for the type of intangible asset.

Amortization is recognized on a straight-line basis over the estimated useful life

of the intangible assets.

Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise.

for goodwill, we do not have any intangible assets with indefinite useful lives.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

Intangible assets with finite lives are

subject to amortization over their estimated useful lives.

The primary assets included in this category and their respective

balances were as follows (in thousands):

Schedule of intangible assets subject to amortization

December 31, 2022

Gross Carrying

Patents and Trademarks

As of December

31, 2021, the current patent and trademark portfolios consist of eleven granted U.S.

patents and one granted European patent

validated in four countries (France, Germany, United Kingdom, and Italy), seven pending U.S.

and foreign patent applications, six registered

trademarks, two EU trademark registrations, one Colombian trademark registration, one Australian trademark registration, one Japanese

trademark registration, one Mexican trademark registration, one Singaporean trademark registration, two UK trademark registrations, and

nineteen pending US and foreign trademark applications.

Our issued patents expire between the years 2022 and 2039 .

Costs associated with

the prosecution and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives

of the patents which were determined to be 17 to 19 years.

During the year ended December 31, 2021,

and 2020, the Company capitalized $ 95 thousand and $ 103 thousand, respectively, of patent and trademarks costs.

Amortization expense for

patents and trademarks was $ 34 thousand and $ 28 thousand for the year ended December 31, 2021, and 2020, respectively, and included in

general and administrative expense in the accompanying Statement of Operations.

Capitalized Software

Costs incurred in connection with the development

of software related to our proprietary digital products are accounted for in accordance with FASB ASC 985 “Costs of Software

to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research

and development expense.

Software development costs are capitalized after a product is determined to be technologically feasible and is

in the process of being developed for market.

Amortization of capitalized software costs begins once the product is available to the market.

Capitalized software costs are amortized over the estimated life of the related product, generally five years, using the straight-line

The Company will evaluate its software assets for impairment whenever events or changes in circumstances indicate that the carrying

amount of such assets may not be recoverable.

The Company capitalized $ 106 thousand and $ 0 for the year

ended December 31, 2021, and 2020, respectively .

Amortization expense for capitalized

software was $ 30 thousand and $ 20 thousand for the year ended December 31, 2021, and 2020, respectively, and included in general

and administrative expense in the accompanying Statements of Operations.

Customer Relationships

Developed Technology

Internally Used Software

Non-Compete Agreement

December 31, 2021

Patents and Trademarks

Capitalized Software

Amortization expense for intangible assets was

$ 657 thousand and $ 64 thousand for the year ended December 31, 2022, and 2021, respectively.

Patents and Trademarks

As of December 31, 2022, the current patent and

trademark portfolios consist of eleven granted U.S.

patents and one granted European patent validated in four countries (France,

Germany, United Kingdom, and Italy), six pending U.S.

and foreign patent applications, fifteen registered U.S.

trademarks (of which seven

trademarks were acquired through our wholly owned subsidiary, PeriShip Global), two EU trademark registrations, one Colombian trademark

registration, one Australian trademark registration, one Japanese trademark registration, one Mexican trademark registration, one Singaporean

trademark registration, two UK trademark registrations, and twenty-one pending US and foreign trademark applications.

The Company expects to record amortization expense

of intangible assets over the next 5 years and thereafter as follows (in thousands):

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Fiscal Year ending December 31,

As of December 31, 2022, our intangible assets

with definite lives had a weighted average remaining useful life of 8.4 years.

We have no amortizable intangible assets with indefinite

useful lives.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

NOTE 6 – INCOME TAXES

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Increase (decrease) in valuation allowance

Change in State tax rate

Income tax expense

VerifyMe, Inc.

Notes to the Financial Statements

The decrease in the Company's net valuation allowance was due to the

unrealized gain in our equity investment (see Note 2 – Equity Investment).

The decrease in the Company's net valuation allowance was due primarily

to a realized loss in our equity investment (See Note 2-Equity Investment), and to net operating losses which will expire unutilized due

to limitations resulting from application of Section 382 of the Internal Revenue Code of 1986, as amended (“IRC”).

Deferred income taxes reflect the net tax effects

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Schedule of deferred tax assets and liabilities

Net operating loss

Share based compensation

Reserves and accruals

Unrealized Gain on Equity Investment

Net operating loss carryforwards

Restricted Stock (RSA’s, RSU’s)

Stock Options

Stock Purchase Plan (SPP)

Acquisition Transaction Costs

Capitalized Research and Development

Unrealized Gain on Investment

Dividend Income

Gross deferred tax assets

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Net deferred tax assets / (liabilities)

The Company completed a study to identify

any limitations under Internal Revenue Code of 1986, as amended (“IRC”) Section 382 and determined that as of December

31, 2021, the Company had federal and state net operating loss carry forwards of $ 20.1

million and $ 17.4

million , respectively that may be offset against future taxable income.

Some of the federal tax carry forwards will expire at

various dates through 2037.

Generally, these can be carried forward and applied against future taxable income at the tax rate

applicable at that time.

We are currently using an effective income tax rate of 21% for our projected available net operating loss

carry-forward.

No tax benefit has been reported in the December 31, 2021, due to the uncertainty surrounding the realizability of

Utilization of the net operating losses (NOL)

carryforwards may be subject to a substantial annual limitation due to ownership change limitations that could occur in the future, as

required by Section 382 of the IRC, as well as similar state provisions.

These ownership changes may limit the amount of NOL carryforwards

that can be utilized annually to offset future taxable income.

In general, an “ownership change” as defined by Section 382

of the IRC results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than

50 percentage points of the outstanding stock of a company by certain stockholders .

carryforwards may be subject to a substantial annual limitation as required by Section 382 of the IRC, due to ownership change of the

company that could occur in the future, as well as similar state provisions.

In general, an “ownership change” as defined

by Section 382 results from a transaction or series of transactions over a three-year period resulting in an ownership change of more

than 50 percentage points of the outstanding stock of a company by certain stockholders.

These ownership changes may limit the amount

of NOL carryforwards that can be utilized annually to offset future taxable income.

In 2022, the Company completed the IRC Section

382 analysis, and determined that an ownership change occurred sufficient to impose additional limitations on the use of NOL carryforwards.

For the year ended December 31, 2022, Federal and state NOLs of $ 23.1 million and $ 0 , respectively, will expire unutilized due to the

limitations of Section 382, leaving Federal and state NOL carryforwards of $24.4 million and $13.1 million, respectively that may be offset

against future taxable income.

Some of the Federal and state tax NOL carryforwards will expire at various dates through 2037.

these can be carried forward and applied against future taxable income at the tax rate applicable at that time.

We are currently using

an effective income tax rate of 26.6 % for our projected available net operating loss carry-forward.

No tax benefit has been reported in

the December 31, 2022, due to the uncertainty surrounding the realizability of the benefit.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

In accordance with FASB

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The Company had no accrual for interest and penalties on the balance

sheets and has not recognized interest and/or penalties in the Statements of Operations loss for the years ended December 31, 2021, and

sheets and has no t recognized interest and/or penalties in the Statements of Operations for the years ended December 31, 2022, and 2021.

The Company is subject to taxation in the United States and various

state jurisdictions.

The Company’s tax years from inception are subject to examination by the United States and state taxing authorities

The Company’s tax years from 2003 are subject to examination by the United States and state taxing authorities

due to the carryforward of unutilized NOLs.

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2022, or December 31, 2021.

VerifyMe, Inc.

Notes to the Financial Statements

NOTE 6- CONVERTIBLE DEBT

On March 6, 2020, the Company completed the offering

of $ 1,992 thousand of senior secured convertible debentures (the “2020 Debentures”) and raised $ 1,992 thousand in gross proceeds

from the sale of the 2020 Debentures and 2020 Warrants (defined below).

Of this amount, $ 330 thousand was received from four directors

and an entity in which one officer of the Company is a majority owner and co-manager.

The Company received $1,747 thousand after deducting

direct transaction costs.

The Company used $750 thousand of the net proceeds to redeem the existing 2019 Debentures prior to maturity,

with a face value of $ 600 thousand and an early redemption fee of $150 thousand.

The 2020 Debentures were due eighteen months following

issuance as follows;

$ 932 thousand on August 26, 2021, $ 910 thousand on August 28, 2021, and $ 150 thousand on September 6, 2021.

The Company’s capital structure after the

closing had no outstanding variably priced convertible instruments on its Balance Sheets.

The 2020 Debentures were secured by a blanket

lien on all assets of the Company until such time the 2020 Debentures were paid in full or converted in full.

The 2020 Debentures were automatically convertible

into shares of the Company’s common stock upon the earliest to occur of (i) the commencement of trading of the common stock on the

Nasdaq, New York Stock Exchange or NYSE American (an “Uplist”) at the Uplist Conversion Price (defined below);

any time the minimum bid price of the common stock exceeded $25.00 per share for twenty (20) consecutive trading days and the average

trading volume during the 10 trading days prior to the conversion was at least 2,000 shares and the shares were registered under an effective

registration statement or the shares were salable under Rule 144 (“Rule 144”) of the Securities Act of 1933, as amended.

“Uplist Conversion Price” was the lesser of $4.00 or a 30% discount to the public offering price a share of common stock was

offered to the public in a securities offering resulting in the listing of the common stock on the Nasdaq, New York Stock Exchange or

NYSE American.

The 2020 Debentures were convertible, at any time,

at the option of the holder, into shares of common stock, at a fixed conversion price equal to $4.00 per share.

The embedded conversion feature was not determined

to be a derivative that required bifurcation pursuant to FASB ASC 815, “Derivatives and Hedging” (“ASC 815”) but

was determined to be a beneficial conversion feature that required recognition within equity on the commitment date.

The beneficial conversion

feature was recognized at its intrinsic value on the commitment date, limited to the proceeds allocated to the convertible debt.

the Company recorded $ 650 thousand within additional paid-in-capital on the Balance Sheets for the beneficial conversion feature identified.

The debt discount arising from recognition of the beneficial conversion feature was amortized as interest expense over the term of the

convertible debt.

In connection with the issuance of the

2020 Debentures, the Company also issued warrants (“2020 Warrants”) to purchase 498,000 shares of common stock.

2020 Warrant had a three-year (3) term and was immediately exercisable at an exercise price of $ 7.50 per share.

If at any time

after six months following the issuance date and prior to the expiration date the Company failed to maintain an effective registration

statement (the “Registration Statement”) with the SEC covering the resale of the shares of common stock underlying

the 2020 Warrants, the 2020 Warrants could have been exercised by means of a “cashless exercise,” until such time

as there was an effective Registration Statement.

Each 2020 Warrant contained customary adjustment provisions in the event of

a stock split, reverse stock split or recapitalization.

2020 Warrants for 82,500 shares were issued to four directors and an entity

in which one officer of the Company is a majority owner.

The 2020 Warrants were determined to meet equity classification pursuant

to FASB ASC 480, “Distinguish by Liabilities from Equity” and ASC 815.

As such, the relative fair value of the 2020

Warrants was recorded as additional paid in capital on the Balance Sheets, which was determined to be $ 1,063 thousand, on the

issuance date.

The debt discount arising from recognition of the 2020 Warrants was amortized as interest expense over the term

of the convertible debt.

On June 22, 2020, the Company cancelled the 2020

Warrants for twenty-three of the twenty-five warrant holders and issued to the holders of the cancelled 2020 Warrants an aggregate of

179,200 shares of common stock.

Of this amount, 33,000 shares of common stock were issued to four directors and an entity in which one

officer of the Company is a majority owner and co-manager.

2020 Warrants to purchase an aggregate of 81,700 shares of common stock at

an exercise price of $4.59 per share remain outstanding.

Also, on such date, the 2020 Debentures were automatically converted into an

aggregate of 637,513 shares of common stock and warrants to purchase 573,479 shares of common stock.

Of this amount, 105,567 shares of

common stock and warrants to purchase 105,567 shares of common stock were issued to four directors and an entity in which one officer

of the Company is a majority owner and co-manager.

See Note 10 – Stock Options, Restricted Stock and Warrants.

In connection with the 2020 Debentures, the Company

entered into an agreement with a non-exclusive financial advisor and placement agent for a term of twelve months commencing in January

Upon execution of the agreement, the Company issued 5,000 fully vested restricted shares of the Company’s common stock and

recorded $33 thousand included in general and administrative expense in the accompanying Statements of Operations.

On March 6, 2020, in

connection with this agreement a cash compensation of $ 153 thousand was made by the Company and an additional 12,285 shares of the Company’s

common stock were issued.

These amounts were included in the debt discount for the 2020 Debentures noted above.

On April 22, 2022, the Company issued a $ 2.0 million

unsecured promissory note through our subsidiary PeriShip Global as part of the acquisition of the PeriShip business.

The note had a fixed

interest rate of 6 % per annum on the unpaid principal balance, to be paid in three installments on the sixth, fifteenth, and eighteenth

month anniversaries of the closing.

On September 22, 2022, the Company entered into an agreement with the note holder whereby the Company

repaid the outstanding principal balance and accrued interest outstanding on the note and redeemed 61,000 shares of its common stock from

the holder of the note, for a total of $1.8 million, at which point the guarantee agreement entered into by the Company in connection

therewith was automatically terminated and has no further effect.

The Company accounted for the early extinguishment

of debt in accordance with ASC 405-20 - Extinguishment of Liabilities , and recognized a gain included in Gain on extinguishment

of debt on the accompanying Consolidated Statements of Operations of $ 326 thousand for the year ended December 31, 2022.

Contemporaneously, the Company entered into a

new debt facility with PNC Bank, National Association (the “PNC Facility”).

The PNC Facility includes a $1 million revolving

line of credit (the “RLOC”) with a term of one-year, expiring in September 2023.

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 (the “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 Global and the Company.

The PNC Facility includes a number of affirmative

and restrictive covenants applicable to PeriShip Global, 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 Global 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.

PeriShip Global was in compliance with all affirmative and restrictive

covenants under the PNC Facility at December 31, 2022.

Effective October 17, 2022, the Company entered

into an interest rate swap agreement, with a notional amount of $ 1,958 thousand, effectively fixing the interest rate on the Company’s

outstanding debt at 7.602 % .

The Company has designated the intertest rate swap, expiring September 2026, as a cash flow hedge and have

applied hedge accounting.

The fair value of the derivative liability associated with the interest rate swap was $3 thousand as of December

31, 2022, and is included in Long-term Derivative Liability on the Consolidated Balance Sheets.

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.

No amounts were drawn on the RLOC as of December

VerifyMe, Inc.

Notes to the Financial Statements

In February 2020, the Company entered into an

agreement with a non-exclusive financial advisor and placement agent terminating the later of April 30, 2020, or upon closing a successful

private placement.

The agreement automatically extended for periods of thirty days until terminated in writing.

The Company agreed to

pay 10% of the gross proceeds raised by the financial advisor and placement agent and agreed to issue an amount of restricted shares equal

to 4% of the total securities sold in the private placement divided by the last reported closing price of the stock on the closing date

of the private placement.

On March 6, 2020, in connection with this agreement cash compensation of $ 25 thousand was paid by the Company

and 1,923 shares of the Company’s common stock were issued.

These amounts were included in the debt discount for the 2020 Debentures

The Company recorded a total of $ 1,992 thousand

debt discount upon the closing of the 2020 Debentures, including the $ 650 thousand intrinsic value of the beneficial conversion option,

$ 34 thousand relative fair value of the common stock issued to the placement agents, $ 245 thousand of direct transaction costs incurred

and $ 1,063 thousand related to the 2020 Warrants.

The debt discount was amortized to interest expense over the term of the loan.

On June 22, 2020, upon the Company’s consummation

of the public offering (See Note 9 – Stockholders’ Equity) and the Company’s commencement of trading on Nasdaq, the

2020 Debentures were automatically converted at $3.22, the QPI Discounted Price.

As a result, the unamortized debt discount was fully

amortized and included in interest expense in the accompanying Statements of Operations.

Amortization of the debt discount associated

with the 2020 Debentures was $ 1,992 thousand for the year ended December 31, 2020 and was included in interest expense in the accompanying

Statements of Operations.

On January 30, 2020, the Company issued an unsecured

promissory note payable to a stockholder of the Company with a face value of $ 75 thousand and an interest rate of 10 % per annum payable

in full on March 30, 2020, subject to the Company’s right to extend payment until May 29, 2020.

On February 28, 2020, the holder

of the $ 75 thousand promissory note which was to become due in March 2020 purchased $ 80 thousand of the 2020 Debentures and 2020 Warrants,

which was paid by exchanging the promissory note and paying an additional $ 5 thousand .

This is included

in the $ 1,992 thousand gross proceeds raised.

Interest expense in relation to the unsecured promissory

note of $ 1 thousand was recorded for the year ended December 31, 2020.

The Company did not issue any

convertible debt during the year ended December 31, 2021.

As of December 31, 2021, the Company has no outstanding balance under convertible

NOTE 7 – TERM NOTE

Notes to the Consolidated Financial Statements

2020, the Company entered into a paycheck protection program term note for $ 72 thousand (the “SBA Loan”) with PNC Bank, N.A.

2 unchanged sentences

Small Business Administration.

The SBA Loan is scheduled to mature

on May 17, 2022 , bears interest at a rate of 1.00 % per annum and is subject to the terms and conditions applicable to loans administered

The SBA Loan was scheduled to mature

on May 17, 2022 , and bore interest at a rate of 1.00 % per annum and is subject to the terms and conditions applicable to loans administered

Small Business Administration under the CARES Act.

Pursuant to the CARES Act and the PPP, all or a portion of the principal

amount of the SBA Loan is subject to forgiveness so long as, over the eight-week period following the receipt of the SBA Loan, the Company

used those proceeds for payroll costs, payment on rent obligations, utility costs, and costs of certain employee benefits as per Section

1106 of the CARES Act.

As of December 31, 2020, the amount outstanding on the SBA Loan was $ 72 thousand classified as Long-Term Liabilities

and included in the accompanying Balance Sheets.

Company applied for and was notified in June 2021 that $69 thousand in eligible payroll expenditures as described in the CARES Act, has

been forgiven.

Loan forgiveness is reflected in Other Income (Expense), Net in the accompanying Statements of Operations.

The forgiveness

recognized during the year ended December 31, 2021, included principal of $ 69 thousand, and interest payable of $ 1 thousand.

The remaining

loan balance of $ 3 thousand was paid in full in June 2021.

– CONVERTIBLE PREFERRED STOCK

Loan forgiveness is reflected in Other Income (Expense), Net in the accompanying Consolidated Statements of Operations.

The forgiveness recognized during the year ended December 31, 2021, included principal of $ 69 thousand, and interest payable of $ 1 thousand.

The remaining loan balance of $ 3 thousand was paid in full in June 2021.

NOTE 8 – CONVERTIBLE PREFERRED

The Company is authorized to issue Series A Convertible

8 unchanged sentences

The Company expensed $ 239 thousand and $ 784 thousand

related to restricted stock units for the years ended December 31, 2021, and December 31, 2020, respectively.

VerifyMe, Inc.

Notes to the Financial Statements

The Company expensed $ 784 thousand and $ 461 thousand

related to restricted stock awards for the years ended December 31, 2022, and December 31, 2021, respectively.

year ended December 31 , 2021, the Company issued 9,774 shares of restricted common stock

in relation to investor relation services with a stock-based compensation expense of $ 39 thousand.

On September 17, 2021, the Company

approved restricted stock units for three non-employee directors for an aggregate of 63,000 restricted stock units with a fair value of

$ 217 thousand.

One-third of the units vested upon approval, one-third vest on September 17, 2022, and the remaining one-third vest on

September 17, 2023, subject to the non-employee director’s continued service on the Board of Directors.

The vested shares will be

issued to each Director following their separation from service with the Company.

January 1, 2021, the Company approved restricted stock units or restricted stock awards, for each non-employee director, with a grant

date fair value equal to $ 100 thousand.

If the non-employee director serves as a Board committee chair or Lead Independent director, he

will also receive and an additional award of restricted stock units or restricted stock award with a grant date fair value equal to $ 25

These awards will vest in full on the earlier of the one-year anniversary of the date of grant subject to the non-employee director’s

continued service on the Board of Directors and become payable upon separation of the non-employee director’s service as a director.

In January 2021, a total of 145,010 restricted stock units were issued to five non-employee

directors for a fair value of $625 thousand, vesting one year from the date of issuance.

In August 2021, upon vesting of the restricted

stock awards held by our Chief Executive Officer, the Company withheld and retired 18,720 shares of common stock in order to satisfy his

payroll tax withholding obligations.

On April 16, 2021, upon vesting of the restricted

stock awards held by our Chief Executive Officer, the Company withheld and retired 12,843 shares of common stock in order to satisfy his

payroll tax withholding obligations.

Effective April 15, 2021, Norman Gardner, our

former Chairman of the board of directors retired from the board of directors.

Gardner was awarded 69,284 shares of restricted stock

for a fair value of $ 300 thousand, half of which vest immediately and the balance vesting in equal installments on June 30, 2022, and

June 30, 2023, pursuant to a two-year independent contractor consulting agreement with the Company.

Gardner agreed to cancel options

to purchase 8,300 shares that were scheduled to expire on December 21, 2026.

Additionally, the Company accelerated the vesting of 40,000

restricted shares held by Mr.

Gardner that were scheduled to vest in August 2021.

The payments and vesting of restricted stock awards

were accelerated upon Mr.

Gardner’s death pursuant to the agreement.

On April 15, 2021, the board of directors granted

the Company’s Chief Financial Officer, an award of 5,000 shares of restricted stock with a fair value equal to $ 21 thousand, half

of which vested on April 15, 2021, and half of which vests on April 15, 2022.

The Company withheld and retired 750 shares of common stock

in order to satisfy her U.S.

payroll tax withholding obligations.

In April 2021, the Company granted an employee

an award of 5,000 shares of restricted stock with a fair value of $ 21 thousand, vesting annually over a two-year period from the date

Effective March 1, 2021,

the Company amended and restated the Consulting Agreement it has with its Chief Operating Officer.

The amended and restated agreement

provides among other things, an annual fee of $214,400, a commission of 2% on all gross sales above $500 thousand, the issuance of 10,000

restricted stock awards and the extension of the expiration date for options previously granted to him to the five-year anniversary of

the agreement’s effective date.

As a result, 80,000 options previously granted to the Company’s Chief Operating Officer now

expire on March 1, 2026.

T he Company applied FASB ASC 718, “Compensation—Stock Compensation,”

modification accounting and expensed a change in fair value of $ 75 thousand.

On February 9, 2021,

the Company entered into an underwriting agreement with Maxim Group LLC (“Maxim”), as the representative of several underwriters

pursuant to which the Company agreed to issue and sell to the underwriters in an underwritten public offering an aggregate of 1,650,000

shares of common stock of the Company at a public offering price of $5.30 per share, less underwriting discounts and commissions.

public offering closed on February 12, 2021, resulting in gross proceeds of $ 8.7 million and net proceeds of $ 8.1 million , less underwriting

discounts and commissions and other offering expenses.

In connection with the

public offering that closed on February 12, 2021, the Company granted Maxim a 45-day option to purchase up to 247,500 shares of common

stock to cover over-allotments, if any.

On February 19, 2021, Maxim partially exercised its over-allotment option to purchase 100,000

shares of common stock for gross proceeds of $530 thousand and net proceeds of $493 thousand, less underwriting discounts and commissions.

total net proceeds from the public offering including partial exercise of the overallotment option, were $8,447 thousand.

VerifyMe, Inc.

Notes to the Financial Statements

October 12, 2020, pursuant to the 2020 Plan (See Note 10 – Stock Options, Restricted Stock and Warrants), the Company granted to

each of the Company’s Chief Financial Officer, acting Chief Operating Officer, and Chief Technology Officer 5,000 restricted stock

units that vested immediately and converted into shares of the Company’s common stock, with a total fair value of $53 thousand.

On August 5, 2020, the Company issued restricted

stock awards for an aggregate of 230,000 shares of restricted common stock to the Company’s directors in consideration of their

years of service to the Company that vest in full one-year from the date of grant, subject to the respective director’s continued

service as member of the Board of Directors on the vesting date.

During the years ended December 31, 2021, and 2020, $514 thousand and

$351 thousand, respectively, was expensed related to these services.

On June 17, 2020, the

Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, as representative of the

underwriters (the “Representative”), for an underwritten public offering (the “Offering”)

of an aggregate of 2,173,913 Units consisting of one share (each a “Share” and collectively, the “Shares”)

of the Company’s common stock, and a warrant to purchase one share of Common Stock (each a “Warrant” and collectively,

the “Warrants”) at an exercise price equal to $ 4.60 per share of Common Stock.

The public offering price was $4.60 per Unit

and the underwriters agreed to purchase 2,173,913 Units at an 8.0% discount to the public offering price.

The Company granted the Representative

a 45-day option to purchase up to 326,087 Shares and/or Warrants for 326,087 shares of Common Stock to cover over-allotments, if any.

The Offering closed on June 22, 2020, resulting in gross proceeds of $ 10.0 million , before deducting underwriting discounts and commissions

and other offering expenses.

Also, on June 22, 2020, the Representative partially exercised its over-allotment option to purchase 50,000

Shares and 325,987 Warrants for gross proceeds of $233 thousand.

The net proceeds in relation to the Offering and including the over-allotment

option were $9,023 thousand.

Additionally, the Company issued 30,000 shares of common stock for consulting services related to the Offering,

with a fair value of $125 thousand accounted for in Additional Paid in Capital and included in the accompanying Statement of Balance Sheets.

Additionally, the Company issued 888 shares of common stock, with a fair value of $ 4 thousand, to its non-exclusive financial advisor

and placement agent as commission for units purchased by an investor in the Offering.

Of the 2,173,913 Units purchased in the Offering,

17,800 Units were purchased by two directors of the Company.

Pursuant to the Underwriting Agreement, the Company

agreed to issue to the Representative, as a portion of the underwriting compensation payable to the Representative, warrants to purchase

up to a total of 173,913 shares of Common Stock (the “Representative’s Warrants”).

The Representative’s warrants

are exercisable at $ 5.06 per share, are initially exercisable 180 days after the effective date of the Offering and have a term of three

years from their initial exercise date.

In connection to the closing of the Offering and

the related automatic conversion of the 2020 Debentures (as defined below) the Company issued 637,513 shares of common stock related to

the principal amount outstanding of $1,992 thousand and interest expense of $61 thousand and issued 179,200 shares of common stock related

to the cancellation of the 2020 Warrants.

In May 2020, the Company rescinded and cancelled

an aggregate of 19,401 shares of common stock that the Company had approved for issuance but were not yet issued and outstanding shares.

On April 16, 2020, the Company granted its Chief

Executive Officer, Patrick White, a restricted stock award of 37,500 restricted shares of the Company’s common stock in lieu of

$ 150 thousand in deferred salary.

Of this amount, $119 thousand was accrued in prior years, and the remaining amount was expensed in payroll

expenses included in the accompanying Statement of Operations.

The restricted stock award vests in full one-year from the date of grant,

subject to Mr.

White’s continued services as an officer and employee of the Company on the vesting date.

On March 6, 2020, the Company completed the offering

of senior secured convertible debentures (the “2020 Debentures”) and warrants and raised $ 1,992 thousand in gross proceeds

from the sale of the 2020 Debentures and warrants.

In connection to the 2020 Debentures, the Company issued 19,208 restricted shares of

common stock during the year ended December 31, 2020.

The Company expensed $ 1,084 thousand and $ 696

thousand related to restricted stock units for the years ended December 31, 2022, and December 31, 2021, respectively.

During the year ended December 31, 2022, and 2021,

the Company issued 30,000 and 9,774 shares of common stock in relation to services with a stock-based compensation expense of $ 96 thousand

and $ 39 thousand, respectively.

On August 11, 2022, we received an exercise notice

to exercise 675,000 pre-funded warrants with an exercise price of $ 0.001 per share.

Upon receipt of $ 675 the Company issued 675,000 shares

of its common stock.

On April 22, 2022, 305,473 shares of common stock

were issued in relation to the acquisition of the PeriShip business, see Note 4 – Business Combinations, for details.

15, 2022, the Company withheld and retired 750 shares of common stock in order to satisfy U.S.

payroll tax withholding obligations on

restricted stock awards held by our Chief Financial Officer.

On April 12, 2022, we entered into a Securities

Purchase Agreement (the “Securities Purchase Agreement”) with a 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 is exercisable immediately and shall terminate when fully exercised

and has an exercise price of $0.001 per share.

The pre-funded warrant was exercised in full on August 11, 2022.

The warrants will be 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.

Both the pre-funded

warrants and warrants contain price adjustment provisions which may, under certain circumstances, reduce the applicable exercise price.

The transaction closed on April 14, 2022.

On March 29, 2022, the Company withheld and retired

8,870 shares of common stock in order to satisfy U.S.

payroll tax withholding obligations on restricted stock awards held by our Chief

Executive Officer.

Non-Qualified Stock Purchase Plan

12 unchanged sentences

as the plan is considered compensatory.

During the year ended December 31, 2021, $40 thousand has been expensed in relation to the non-qualified

stock purchase plan.

In relation to the non-qualified stock purchase plan the Company expensed $ 122 thousand and $ 40

thousand for the years ended December 31, 2022 and December 31, 2021, respectively.

VerifyMe, Inc.

Notes to the Financial Statements

Notes to the Consolidated Financial Statements

Shares Held in Treasury

2 unchanged sentences

respectively.

On February 28, 2022, five participants exercised

their option under the Company’s non-qualified stock purchase plan, and as a result, 25,000 shares were issued from treasury with

a purchase price of $ 2.69 per share.

On August 31, 2022, four participants exercised

their option under the Company’s non-qualified stock purchase plan, and as a result, 28,895 shares were issued from treasury with

a purchase price of $ 1.20 per share.

On September 22, 2022, the Company paid $1.8 million

of the $2.0 million principal amount promissory note issued to the seller in connection with the PeriShip acquisition, inclusive of the

Company redeeming 61,000 shares of its common stock from the seller, pursuant to an agreement with the seller, see Note 4.

Shares Repurchase Program

In November 2020, the Company’s Board of

1 unchanged sentence

August 12, 2021, the Company’s Board of Directors extended the share repurchase program to expire on August 16, 2022.

terms and conditions remained the same.

During the year ended December 31, 2021, the Company repurchased 216,945 shares of common

stock at an average price of $3.34 for approximately $725 thousand pursuant to the Share Repurchase Plan.

As of December 31, 2021, $775 thousand may be used to repurchase shares under the program.

July 1, 2022, the Company’s Board of Directors terminated the existing share repurchase program and approved a new share repurchase

program to replace the existing program due to expire on August 16, 2022, to allow the Company to spend up to $ 1.5 million to repurchase

shares of its common stock, so long as the price does not exceed $5.00 until July 1, 2023.

During year ended December 31, 2022, the Company

repurchased 158,906 shares of common stock under the Company’s current program.

NOTE 10– STOCK

OPTIONS, RESTRICTED STOCK AND WARRANTS

During 2013, the Company

adopted the 2013 Omnibus Equity Compensation Plan (the “2013 Plan”).

Under the 2013 Plan, the Company is authorized to grant

awards of stock options, restricted stock, restricted stock units and other stock-based awards up to an aggregate of 400,000 shares of

common stock.

The 2013 Plan is intended to permit certain stock options granted to employees under the 2013 Plan to qualify

as incentive stock options.

All options granted under the 2013 Plan, which are not intended to qualify as incentive stock options

are deemed to be non-qualified stock options.

On November 14, 2017,

the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”)

that covered the potential issuance of 260,000 shares of common stock.

The 2017 Plan provided that directors, officers, employees, and

consultants of the Company were eligible to receive equity incentives under the 2017 Plan at the discretion of the Board or the Board’s

Compensation Committee.

On August 10, 2020, the

Company’s Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), subject to stockholder approval,

which authorizes the potential issuance of up to 1,069,110 shares of common stock.

On September 30, 2020, the Company’s stockholders

approved the 2020 Plan, and upon such approval the 2020 Plan became effective and the 2017 Plan was terminated.

Shares of common stock

underlying existing awards under the 2017 Plan may become available for issuance pursuant to the terms of the 2020 Plan under certain

circumstances.

Employees and non-employee directors of the Company or its affiliates, and other individuals who perform services for the

Company or any of its affiliates, are eligible to receive awards under the 2020 Plan at the discretion of the Board of Directors or the

Board’s Compensation Committee.

The 2020 Plan is administered

by the Compensation Committee which determines the persons to whom awards will be granted, the number of awards to be granted and the

specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.

In connection with incentive

stock options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of

the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).

aggregate fair market value (determined at the time of the grant) of stock with respect to which incentive stock options are exercisable

for the first time by any individual during any calendar year (under all plans of the Company and its affiliates) shall not exceed $100

thousand, and the options in excess of $100 thousand shall be deemed to be non-qualified stock options, including prices, duration, transferability

and limitations on exercise.

The maximum number of shares of common stock that may be issued under the 2020 Plan pursuant to incentive

stock options may not exceed, in the aggregate, 1,000,000 .

The Company has issued

non-qualified stock options pursuant to contractual agreements with non-employees.

Options granted under the agreements are expensed

when the related service or product is provided.

Determining the appropriate fair value of stock-based

awards requires the input of subjective assumptions.

The Company uses the Black-Scholes option pricing model to value its stock option

The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties

and judgements.

Non-Qualified Stock

The following table presents the weighted-average

assumptions used to estimate the fair value of the stock options granted during the years ended December 31, 2020.

No options were granted

Schedule of weighted-average assumptions

Risk Free Interest Rate

Expected Volatility

Expected Life (in years)

Dividend Yield

Weighted average estimated fair value of options during the period

During 2013, the Company adopted the 2013 Omnibus

Equity Compensation Plan (the “2013 Plan”).

Under the 2013 Plan, the Company is authorized to grant awards of stock options,

restricted stock, restricted stock units and other stock-based awards up to an aggregate of 400,000 shares of common stock.

2013 Plan is intended to permit certain stock options granted to employees under the 2013 Plan to qualify as incentive stock options.

options granted under the 2013 Plan, which are not intended to qualify as incentive stock options are deemed to be non-qualified stock

On November 14, 2017, the Executive Committee

of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”) which covered the potential

issuance of 260,000 shares of common stock.

The 2017 Plan provided that directors, officers, employees, and consultants of the Company

were eligible to receive equity incentives under the 2017 Plan at the discretion of the Board or the Board’s Compensation Committee.

On August 10, 2020, the Company’s Board

of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), subject to stockholder approval, which authorizes the

potential issuance of up to 1,069,110 shares of common stock.

On September 30, 2020, the Company’s stockholders approved the 2020

Plan, and upon such approval the 2020 Plan became effective and the 2017 Plan was terminated.

Shares of common stock underlying existing

awards under the 2017 Plan may become available for issuance pursuant to the terms of the 2020 Plan under certain circumstances.

and non-employee directors of the Company or its affiliates, and other individuals who perform services for the Company or any of its

affiliates, are eligible to receive awards under the 2020 Plan at the discretion of the Board of Directors or the Board’s Compensation

The 2020 Plan is administered by the Compensation

Committee which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each

grant, including the vesting thereof, subject to the provisions of the plan.

VerifyMe, Inc.

Notes to the Financial Statements

The following table summarizes

the activities for the Company’s stock options for the year ended December 31, 2021, and 2020:

Schedule of stock option activity

Notes to the Consolidated Financial Statements

In connection with incentive stock options, the

exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110%

of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).

The aggregate fair market

value (determined at the time of the grant) of stock with respect to which incentive stock options are exercisable for the first time

by any individual during any calendar year (under all plans of the Company and its affiliates) shall not exceed $100 thousand, and the

options in excess of $100 thousand shall be deemed to be non-qualified stock options, including prices, duration, transferability and

limitations on exercise.

The maximum number of shares of common stock that may be issued under the 2020 Plan pursuant to incentive stock

options may not exceed, in the aggregate, 1,000,000 .

The Company has issued non-qualified stock options

pursuant to contractual agreements with non-employees.

Options granted under the agreements are expensed when the related service

or product is provided.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions.

Company uses the Black-Scholes option pricing model to value its stock option awards.

The assumptions used in calculating the fair

value represent management’s best estimates and involve inherent uncertainties and judgements.

Stock Options

Schedule of stock options

Options Outstanding

4 unchanged sentences

Balance as of December 31, 2021

Exercisable as of December 31, 2021

Forfeited/Cancelled/Expired

3 unchanged sentences

awards and the quoted price of the Company’s common stock for options that were in-the-money at each respective period.

As of December

31, 2021, and 2020, the aggregate intrinsic value of options exercised under the Company’s stock option plans was $ 47 thousand and

$ 97 thousand, respectively.

As of December 31, 2022, and 2021, the Company had no unvested stock

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

The following table summarizes the activities for the Company’s

unvested stock options for the year ended December 31, 2022, and 2021:

Schedule of summary for the activities of unvested stock options

Schedule of Unvested Options

Unvested Options

1 unchanged sentence

Date Exercise Price

Balance December 31, 2019

Balance December 31, 2020

Balance December 31, 2021

VerifyMe, Inc.

Notes to the Financial Statements

For the years ended December 31, 2021, and 2020,

the Company expensed $ 85 thousand and $ 704 thousand, respectively, related to stock options.

For the year ended December 31, 2021, $75

thousand relates to the extension of the expiration date for options previously granted (see Note 9 – Stockholder’s Equity)

and $10 thousand for options granted in 2019 to our Chief Operating Officer.

As of December 31, 2021,

there was $0 unrecognized compensation cost related to outstanding stock options.

As of December 31, 2020, there was $10 thousand unrecognized

compensation cost related to outstanding stock options expected to vest over the weighted average of 0.1 years.

On April 15, 2021, Norman

Gardner agreed to cancel options to purchase 8,300 shares that expire on December 21, 2026 , in connection with his retirement agreement.

Effective January 2020, the Company awarded its

Chief Financial Officer incentive stock options exercisable for 4,000 shares of common stock with an exercise price of $ 3.505 vesting

quarterly over a one-year period and expiring on January 7, 2025, with a fair value of $ 14 thousand.

Effective January 2020, the Company awarded four

directors non-qualified stock options exercisable for 40,000 shares in the aggregate, for services rendered to the Company in 2019 with

an exercise price of $ 3.505 vesting immediately and expiring on January 7, 2025 , with a fair value of $ 137 thousand.

Effective January 2020, the Company awarded five

of its directors non-qualified stock options exercisable for 50,000 shares in the aggregate, for services to be rendered to the Company

in 2020 with an exercise price of $ 3.505 vesting quarterly over a one-year period and expiring on January 7, 2025 , with a fair value of

$ 171 thousand.

On April 16, 2020, the Company approved a three-year

extension of the expiration date for certain options previously granted to Patrick White, the Company’s Chief Executive Officer

and to Norman Gardner, the Company’s former Chairman.

As a result, 140,000 options previously granted to Mr.

White now expire on

August 15, 2025, and 90,000 options previously granted to Mr.

Gardner now expire on June 28, 2025.

All other terms with respect to the

option grants remain the same.

The Company applied FASB ASC 718, “Compensation—Stock Compensation,” modification accounting

and calculated a change in fair value of $154 thousand.

On April 16, 2020, the Company awarded a director

non-qualified stock options for 3,000 shares of common stock for services rendered to the Company with an exercise price of $ 4.025 vesting

immediately and expiring on April 16, 2025 , with a fair value of $ 12 thousand.

On May 27, 2020, the Company awarded two directors

non-qualified stock options for an aggregate of 8,000 shares of common stock for services rendered to the Company with an exercise price

of $ 5.295 vesting immediately and expiring on May 27, 2025 , with a fair value of $ 41 thousand.

In August 2020, the Company issued options to

purchase of 28,000 shares of common stock, that expire eighteen months from the date of grant and have an exercise price of $4.60, for

services performed by two sales consultants, with a fair value of $96 thousand.

In August 2019, the Company entered into an amendment

(the “Amendment”) to the Employment Agreement, dated August 15, 2017, with Patrick White, the Chief Executive Officer of the

Company (the “Employment Agreement”), which Employment Agreement automatically renewed on July 16, 2019, effective on August

Pursuant to the Amendment, the term was reduced to one year and Mr.

White agreed to defer receipt of sums due him to improve

the Company’s liquidity.

White was due to receive $100 thousand on August 15, 2019, representing deferred salary (the “Deferral

Amount”) that he had previously agreed to defer over the two years of the initial term of his Employment Agreement.

In the Amendment,

White agreed to extend receipt of the Deferral Amount until August 15, 2020.

In addition, he agreed to continue deferring 25% of his

base salary over the one-year term until August 15, 2020.

In connection with entering into the Amendment, the Company granted Mr.

10,000 five-year fully vested incentive stock options under the Company’s 2017 Plan exercisable at $7.00 per share.

VerifyMe, Inc.

Notes to the Financial Statements

Balance at December 31, 2020

Balance at December 31, 2021

Balance at December 31, 2022

During the year ended December 31, 2022, and 2021,

the Company expensed $ 0 thousand and $ 85 thousand with respect to options.

As of December 31, 2022, and 2021, there was $ 0

unrecognized compensation cost related to outstanding stock options.

Restricted Stock Awards and Restricted Stock

1 unchanged sentence

stock awards as of December 31, 2022 and 2021:

Schedule of unvested restricted

Restricted Stock Awards

Schedule of unvested restricted stock awards

Unvested Restricted Stock Awards

Date Fair Value

Unvested at December 31, 2019

Unvested at December 31, 2020

Balance December 31, 2021

As of December 31, 2021, total unrecognized share-based

compensation cost related to unvested restricted stock awards was $ 115 thousand, which is expected to be recognized over a weighted-average

period of 0.9 years.

As of December 31, 2020, total unrecognized stock-based compensation cost related to unvested restricted stock awards

was $ 634 thousand, expected to be recognized over a weighted-average period of approximately 0.7 years.

Balance at December 31, 2020

Balance at December 31, 2021

Balance at December 31, 2022

As of December 31, 2022, and 2021, total unrecognized

share-based compensation cost related to unvested restricted stock awards was $ 2 thousand and $ 115 thousand respectively, which is expected

to be recognized over a weighted-average period of 0.02 years as of December 31, 2022.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

The following table summarizes the unvested restricted

stock units as of December 31, 2022 and 2021:

Schedule of unvested restricted

Restricted Stock Units

Schedule of unvested restricted stock units

Unvested Restricted Stock Units

Date Fair Value

1 unchanged sentence

Unvested at December 31, 2021

Balance December 31, 2021

Balance at December 31, 2022

As of December 31, 2022, and 2021, total unrecognized

share-based compensation cost related to unvested restricted stock units was $ 284 thousand and $ 146 thousand respectively, which is expected

to be recognized over a weighted-average period of 1.02 years as of December 31, 2022.

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 of each grant 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 derived service period and there is no ongoing

adjustment or reversal based on actual achievement during the period.

The following table summarizes the unvested performance

restricted stock units as of December 31, 2022.

There were no performance restricted stock units prior to the year 2022.:

Schedule of unvested performance restricted stock units

Unvested Performance Restricted Stock Units

Date Fair Value

Unvested at December 31, 2021

Balance at December 31, 2022

As of December 31, 2022, total unrecognized share-based

1 unchanged sentence

period of 2.23 years.

As of December 31, 2020, total unrecognized stock-based compensation cost related to unvested restricted stock units

VerifyMe, Inc.

Notes to the Financial Statements

Notes to the Consolidated Financial Statements

The following table summarizes the activities

for the Company’s warrants for the years ended December 31, 2021, and 2020:

Schedule of warrant activity

for the Company’s warrants for the year ended December 31, 2022 and 2021:

Schedule of warrants outstanding

Warrants Outstanding (Excluding Pre-Funded Warrants)

Warrant Shares

(in thousands) (1)

Balance as of December 31, 2019

Cancelled/Forfeited

Balance as of December 31, 2020

Balance as of December 31, 2021

Exercisable as of December 31, 2021

Balance at December 31, 2020

Balance at December 31, 2021

Balance at December 31, 2022

Exercisable at December 31, 2022

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying

warrants and the closing stock price of $1.16 for our common stock on December 31, 2022.

All warrants were vested on the date of grant.

No warrants were granted during the year ended

December 31, 2021.

The Company issued three -year 2020 Warrants to

purchase 498,000 shares of common stock to the purchasers of the 2020 Debentures (see Note 6 – Convertible Debt).

The 2020 Warrants

have an exercise price of $ 7.50 per share and may be exercised cashlessly if the Company fails to maintain an effective registration statement

at any time beginning six months after issuance.

Of this amount, 2020 Warrants to purchase 82,500 shares were issued to four directors

and an entity in which one officer of the Company is a majority owner and co-manager.

On June 22, 2020, 2020 Warrants to purchase 448,000

shares of common stock were cancelled (including 2020 Warrants for 82,500 shares that had been issued to four directors and an entity

in which one officer of the Company is a majority owner and co-manager) and warrants to purchase 573,479 shares of common stock were issued

upon closing of the Offering and conversion of the 2020 Debentures, with an exercise price of $ 4.60 and an expiration term of five years.

Of this amount, warrants to purchase 105,567 of shares of common stock were issued to four directors and an entity in which one officer

of the Company is a majority owner and co-manager.

As a result of the Offering, the per share exercise

price for the outstanding but unexercised 2020 Warrants to purchase shares of common stock related to the two warrant holders who did

not cancel their 2020 Warrants, has been adjusted from $7.50 to $4.59 and the number of shares of common stock underlying the outstanding

but unexercised 2020 Warrants increased from an aggregate of 50,000 to 81,700 shares of common stock.

On May 27, 2020, the Company awarded four non-employees

warrants to purchase an aggregate of 11,000 shares of common stock for services rendered to the Company with an exercise price of $ 5.295

vesting immediately and expiring on May 27, 2023 , with a fair value of $ 54 thousand.

On June 18, 2020, in connection with the Offering,

the Representative provided a partial exercise notice of the over-allotment option to purchase 50,000 additional shares of common stock

and additional warrants to purchase 325,987 shares of common stock.

For the year ended December 31, 2022, and 2021,

the Company granted 34,942 warrants and 0 warrants to warrant holders pursuant to anti-dilution provisions, 1,555,208 warrants

and 0 warrants in conjunction with the Securities Purchase Agreement, respectively (see Note 9 – Stockholders’ Equity).

the fair value of the warrants granted would have had a net zero impact to equity (increasing additional paid in capital and offering

costs for the same amount), the Company did not break out or complete a separate valuation of the warrants granted in association with

either capital raise.

Pre-funded Warrants

On April 14, 2022, in connection with our Securities

Purchase Agreement (see Note 9 – Stockholders’ Equity), the Company issued 675,000 pre-funded warrants to purchase

up to an aggregate of 675,000 shares of common stock at a purchase price of $3.214 per pre-funded warrant, which represented

the per share public offering price for the common stock less the $0.001 per share exercise price for each pre-funded warrant.

In August 2022, 675,000 pre-funded warrants with an exercise price of $ 0.001 per share were exercised, and 675,000 shares of the Company’s

common stock were issued.

No pre-funded warrants are outstanding as of December 31, 2022.

VerifyMe, Inc.

Notes to the Financial Statements

On June 22, 2020, in connection with the Offering,

the Company issued warrants to purchase 2,499,900 shares of common stock, with a five -year term and an exercise price of $ 4.60 , including

the additional warrants pursuant to the over-allotment option exercise noted above.

In connection with the Offering, on June 22, 2020,

the Company issued warrants to the Representative to purchase up to a total of 173,913 shares of common stock.

The Representative’s

Warrants are exercisable during the three-year period commencing 180 days from June 22, 2020.

The Representative’s Warrants are

exercisable at a per share price equal to $ 5.06 per share with a fair value of $ 523 thousand netted in additional paid in capital included

in the accompanying Balance Sheets.

For the years ended December 31, 2021, and 2020,

the Company expensed $0 and $51 thousand, respectively, related to warrants.

Notes to the Consolidated Financial Statements

NOTE 11— EARNINGS (LOSS) PER SHARE

9 unchanged sentences

of basic and diluted earnings/(loss) per share (in thousands, except share and per share data):

Schedule of basic and diluted earnings/(loss) per share

Years Ended December 31,

Net Income/(Loss)

Weighted average shares of common

stock – basic

Weighted average shares of common stock – basic

Effect of dilutive securities

5 unchanged sentences

stock – diluted

Net Earnings (Loss) per share

(Loss)/Earnings per share

VerifyMe, Inc.

Notes to the Financial Statements

Notes to the Consolidated Financial Statements

The following table represents the weighted average

number of anti-dilutive instruments excluded from the computation of diluted earnings/(loss) per share:

Anti-dilutive instruments excluded from

computation of diluted net income per share:

number of anti-dilutive instruments excluded from the computation of diluted (loss)/earnings per share:

Schedule of anti-dilutiv e earnings per

Anti-dilutive instruments excluded from computation of diluted net income/(loss) per share:

Preferred Stock

Stock Options

Stock purchase plan

Restricted Stock Units and Restricted Stock Awards

NOTE 12— LONG TERM DERIVATIVE LIABILITY

On September 17, 2021, the Company granted two

directors restricted stock units (“SPAC RSUs”) with respect to the common stock, $ 0.0001 par value per share,

of G3 VRM Acquisition Corp.

The SPAC RSUs vest upon the initial business combination of the SPAC (see Note 2 – Equity Investment)

On April 7, 2022, the Company granted two directors

11,250 restricted stock units each (“SPAC RSUs”) with respect to the common stock, $0.0001 par value per share, of G3 VRM

Acquisition Corp.

The SPAC RSUs were to vest upon the initial business combination of the SPAC (see Note 2 – Equity Investments)

subject to continuous service to the Company through the vesting date.

Each vested SPAC RSU represents the right to receive the value

of one share of stock in G3 VRM Acquisition Corp., which will be paid to the director as soon as practicable after the fifteen-month anniversary

of the vesting date.

The grant date fair value of the SPAC RSUs for each director was $ 98 thousand.

The fair value of the equity instrument

is classified as Level 3 in the fair value hierarchy as the calculation is dependent upon company specific adjustments to the observable

trading price of the SPAC’s public shares, and related risk of forfeiture should no business combination occur.

As the underlying

awards are not the Company’s stock but an unrelated, publicly traded entity’s shares, the Company accounts for the awards

under ASC 815 – Derivatives and Hedging, with the expense included in stock-based compensation under General and Administrative

expenses in the accompanying Statement of Operations through the vesting date, and as a change in fair value in other income (expense)

in the accompanying Statement of Operations after the vesting date, but before the settlement date.

For the year ended December 31, 2021,

the Company has expensed $ 71 thousand in relation to these awards.

NOTE 13 – OPERATING LEASES

For both years ended

December 31, 2021, and 2020, total rent expense under leases amounted to $ 14 thousand.

The current lease is for a period less than

a year and falls outside of the scope of Lease (Topic 842).

As of December 31, 2021, and 2020, the Company was not obligated under

any non-cancelable operating leases.

NOTE 14 – MAJOR CUSTOMERS/VENDORS

During the year ended December 31, 2021, five

customers accounted for 95% of total sales.

During the year ended December 31, 2020, two customers accounted for 92% of total

Generally, a substantial percentage of the Company's sales has been made to a small number of customers and is typically on an

open account basis.

During the years ended December 31, 2021, and

2020, the Company purchased 100% of pigment from one vendor.

Additionally, during the years ended December 31, 2021, and 2020, the Company

purchased 100% of canisters from one vendor.

As of December 31, 2021, three customers accounted for 91 % of total

accounts receivable.

As of December 31, 2020, two customers accounted for 96 % of total accounts receivable.

Each vested SPAC RSU represented the right to receive the value

of one share of stock in G3 VRM Acquisition Corp., which would have been paid to the director as soon as practicable after the fifteen-month

anniversary of the vesting date.

On September 17, 2021, the Company granted two

directors SPAC RSUs with respect to the common stock, $ 0.0001 par value per share, of G3 VRM Acquisition Corp.

The SPAC RSUs were to vest

upon the initial business combination of the SPAC (see Note 2 – Equity Investments) subject to continuous service to the Company

through the vesting date.

Each vested SPAC RSU represented the right to receive the value of one share of stock in G3 VRM Acquisition

Corp., which was to be paid to the director as soon as practicable after the fifteen-month anniversary of the vesting date.

date fair value of the SPAC RSUs for each director was $ 98 thousand.

As the underlying awards were not the Company’s stock but an

unrelated, publicly traded entity’s shares, the Company accounted for the awards under ASC 815 – Derivatives and Hedging,

with the expense included in stock-based compensation under General and Administrative expenses in the accompanying Consolidated Statements

of Operations.

In June 2022, the Sponsor Entity decided not to

fund the extension for the time that the SPAC had to complete its initial business combination.

As a result, the SPAC was dissolved and

liquidated in accordance with its charter and under ASC 815, and the derivative instrument was terminated.

As a result, the SPAC RSUs

were forfeited.

For the year ended December 31, 2022, the Company has recorded the effect of termination to reduce the fair value and

recorded a credit to share-based compensation expense of $71 thousand in relation to these awards.

The fair value of the derivative liability

was $ 0 as of December 31, 2022, and $ 71 thousand as of December 31, 2021.

Effective October 17, 2022, the Company entered

into an interest rate swap agreement (see Note 7 – Debt for details).

The fair value of the derivative liability associated with

the interest rate swap was $3 thousand as of December 31, 2022, and $0 as of December 31, 2021.

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

NOTE 13 – EMPLOYEE BENEFIT PLAN

We offer the VRME Retirement Savings Plan (the “Plan”)

to our employees.

Eligible employees can elect to participate in the Plan, as soon as administratively feasible after enrollment.

Plan permits pre-tax contributions to the Plan by participants pursuant to Section 401(k) of the Internal Revenue Code (IRC).

matching contributions at our discretion.

In 2022 and 2021 we contributed a value of approximately $ 103 thousand and $ 10 thousand respectively

and is recognized as compensation expense in the consolidated statements of operations for matching contributions to the Plan.

NOTE 14 – LEASES

The Company accounts for its leases under Accounting

Standard Codification (“ASC”) Topic 842, Leases.

The Company determines at its inception whether an arrangement that provides

us control over the use of an asset is a lease.

We recognize at lease commencement a right-of-use (ROU) asset and lease liability based

on the present value of the future lease payments over the lease term.

We have elected not to recognize a ROU asset and lease liability

for leases with terms of 12 months or less.

Our current long-term lease includes an option to extend the term of the lease prior to the

end of the initial term.

It is not reasonably certain that we will exercise the option and have not included the impact of the option

in the lease term for purposes of determining total future lease payments.

As our lease agreement does not explicitly state the discount

rate implicit in the lease, we use our promissory note borrowing rate to calculate the present value of future payments.

In addition to the base rent, real estate leases

typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting

For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset

and lease liability.

For all other types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed

We have operating leases for office facilities.

We do not have any finance leases.

Lease expense is included in General & Administrative

Expenses on the accompanying Consolidated Statements of Operations.

The components of lease expense were as follows (in thousands):

Schedule of components of lease expense

Years ended December 31,

Operating lease cost

Short-term lease cost

Total lease costs

Supplemental information related to leases was

as follows (dollars in thousands):

Schedule of supplemental information related to leases

December 31, 2022

December 31, 2021

Operating Lease right-of-use asset

Current portion of operating lease liabilities

Non-current portion of operating lease liabilities

Total operating lease liabilities

Cash paid for amounts included in the measurement of operating lease liabilities

Right-of-use assets obtained in exchange for operating lease liabilities

Weighted-average remaining lease term for operating leases (years)

Weighted average discount rate for operating leases

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

The following is a reconciliation of future undiscounted

cash flows to the operating lease liabilities on our consolidated balance sheets as of December 31, 2022 (in thousands):

Schedule of operating lease liabilities maturities

Year ended December 31,

Total future lease payments

imputed interest

Present value of future lease payments

current portion of lease liabilities

Long-term lease liabilities

NOTE 15 – CONCENTRATIONS

During the year ended December 31, 2022, one customer

represented 13 % of revenues and five customers represented 95 % of revenues for the year ended December 31, 2021.

As of December 31, 2022, two customers made up

23 % of accounts receivable.

As of December 31, 2021, three customers accounted for 91 % of total accounts receivable.

During the year ended December 31, 2022, one vendor accounted for 99 %

of transportation costs, in our PeriShip Global Solutions segment.

NOTE 16 – SEGMENT REPORTING

As of December 31, 2022, we operated through two reportable business

(i) PeriShip Global Solutions and (ii) VerifyMe Solutions.

PeriShip Global Solutions:

offers a value-added service provider for time and temperature sensitive parcel management.

Through 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 that are managed by a call center Using

our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile

resolution for key markets, including the perishable healthcare and food industries.

VerifyMe Solutions .

This segment specializes

in solutions that connect brands with consumers through their products.

Consumers can authenticate products with their smart phone prior

to usage, and brand owners have the ability to gather business intelligence while engaging directly with their consumers.

Solutions also provide brand protection and supply chain functions such as counterfeit prevention.

We do not allocate the following items to the segments:

administrative expenses, research and development expense, sales and marketing expenses, and other income (expense).

VerifyMe, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth the revenue and operating results attributable

to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated

loss before income tax expense (in thousands):

Schedule of segment reporting information

PeriShip Global Solutions

VerifyMe Solutions

Total Revenue

PeriShip Global Solutions

VerifyMe Solutions

Total Gross Profit

General and administrative

Research and development

Sales and marketing

LOSS BEFORE OTHER (EXPENSE) INCOME

OTHER (EXPENSE) INCOME

NET (LOSS) INCOME

Additional information relating to our business

segments is as follows (in thousands):

Identifiable assets:

PeriShip Global Solutions

VerifyMe Solutions

NOTE 17 – SUBSEQUENT EVENTS

January 1, 2022, the Company approved restricted stock units or restricted stock awards, for each non-employee director, with

a grant date fair value equal to $ 125

If the non-employee director serves as a Board committee chair or

Lead Independent director, he will also receive an additional award of restricted stock units or restricted stock award with a

grant date fair value equal to $ 25

These awards will vest in full on the earlier of the one-year anniversary

of the date of grant subject to the non-employee director’s continued service on the Board of Directors and become payable upon separation of the non-employee director’s service as a director.

In January 2022,

a total of 157,232

restricted stock units were issued to four non-employee directors for a fair

value of $ 500

thousand, and 39,308 restricted stock awards were issued to one non-employee

director for a fair value of $ 125 thousand, vesting one year from the date of issuance.

On March 1, 2023, the

Company entered into an Asset Purchase Agreement (the “APA”) effective as of February

28, 2023 (the “Effective Date”) by and among the Company, Trust Codes Global, Trust Codes Limited, a New Zealand limited liability

company that specializes in unique item level codes for brand protection, data intelligence and consumer engagement technology

with an expertise in the food and agriculture industry (“Trust Codes” or “Seller”)

and Signum Holdings Limited (“Seller’s Parent”).

Pursuant to the terms of the APA Trust Codes Global agreed to purchase

from Trust Codes and Trust Codes agreed to sell to Trust Codes Global substantially all of the assets of Trust Codes and certain specified

liabilities (the “Transaction”).

The Transaction closed simultaneously with the execution of the APA on March

1 , 2023 (the “Closing”).

total consideration paid to the Seller at Closing in connection with the Transaction was approximately $ 1,000,000 , which consisted of

approximately $ 350,000 in cash (the “Cash Consideration”);

and the issuance of 353,492 shares of restricted common stock of

the Company at $ 1.84 per share (the “Stock Consideration”) (representing $ 650,000 in Stock Consideration).

The total consideration

due under the Transaction is subject to certain post-Closing adjustments, which shall be accounted for in the first cash earnout payment,

discussed below, if applicable.

VerifyMe, Inc.

Notes to the Financial Statements

16, 2022, the Company, as part of the development and implementation of the Company’s strategic initiatives, entered into employment

agreements with its Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Technology Officer and Senior VP

of Finance and Investor Relations, each with effect as of February 15, 2022.

In accordance with the employment agreements, the Compensation

Committee of the Board approved grants of restricted stock units to each of the executives with a grant date value as of February 16,

2022 equal to their respective base salary multiplied by their respective annual equity award eligibility percentage ranging from 50%

On February 28, 2022, five participants exercised

Notes to the Consolidated Financial Statements

the APA, during the five-year period ending on the fifth anniversary of the Effective Date, Trust Codes Global shall pay the Seller quarterly

cash earnout payments equal to 18% of the gross margin earned on existing customers and the Company shall issue to the Seller annual equity

earnout payments of restricted shares of the Company’s common stock equal to 20% of gross margin earned on new customers during

the applicable 12 month period divided by the VWAP for the 30-day period ending on the last day of the 12-month period, inclusive.

If the value of equity earnout shares issued exceeds $3.1 million at any time during the earnout period, then any subsequent amount of

equity earnout shall be reduced to 10% of gross margin earned on new customers received during the applicable 12-month period.

circumstance Trust Codes Global may pay cash in lieu of the Company issuing restricted common stock for the equity earnout.

The APA is structured

to comply with the shareholder approval requirements of the Nasdaq listing rules and contains a blocker provision which prevents the Seller

from receiving any equity earnout shares should such earnout shares, in connection with the Stock Consideration, cause the Seller to beneficially

own more than 19.99% of the voting securities of the Company.

The APA contains customary confidentiality

and indemnification provisions and customary representations, warranties and covenants by the parties for transactions of this type and

also contains a five-year non-compete and non-solicitation provision applicable to the Seller, Seller’s Parent, and each of their

affiliates, in favor of the Company and Trust Codes Global.

On February 28, 2023, fourteen participants exercised

their option under the Company’s non-qualified stock purchase plan, and as a result, 57,245 shares were issued with an exercise

price of $ 1.19 .

Effective March 15, 2023, the Company’s Chief Executive Officer, Patrick White, resigned as an officer and director of the

Scott Greenberg, the Company’s executive chairman of the Board, was appointed as Interim Chief Executive Officer.

connection with his resignation, Mr.

White will receive payments totaling $159 thousand.

In addition the Company awarded him 111,364

restricted stock units, with a grant date value equal to 70% of his annual base salary, each

such unit representing the contingent right to receive one share of the Company’s common stock, par value $0.001 per share,

subject to the terms of the Company’s 2020 Plan.

These restricted stock units, except as otherwise provided in the award

agreement, vest within three years in equal tranches provided the Company’s stock price exceeds $2.75 and $3.75

per share for twenty consecutive trading days.

In connection with the grant of the restricted stock units Mr.

White forfeited his

outstanding award of restricted stock units granted pursuant to a Restricted Stock Unit Award Agreement dated February 26, 2022.

In connection with his appointment

as Interim Chief Executive Officer, Mr.

was awarded 56,819 restricted stock units, with a grant date value equal to $ 100,000 , each such unit representing the contingent right

to receive one share of the Common Stock, subject to the terms of the 2020 Plan.

These restricted stock units, except as otherwise provided

in the award agreement, vest within three years in equal tranches provided the Company’s stock price exceeds $2.75 and $3.75

per share for twenty consecutive trading days.

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 9A. Controls and Procedures