VerifyMe, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-39332 VERIFYME, INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 23-3023677 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 801 International Parkway , Fifth Floor Lake Mary , FL 32746 (Address of Principal Executive Offices) (Zip Code) ( 585 ) 736-9400 (Registrant’s Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal year, if Changed Since Last Report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which Registered Common Stock, par value $0.001 per share VRME The Nasdaq Capital Market Warrants to Purchase Common Stock VRMEW The Nasdaq Capital Market Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company x Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 10,499,541 shares of common stock outstanding at November 4, 2024. 2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements 4 Consolidated Balance Sheets (Unaudited) 4 Consolidated Statements of Operations (Unaudited) 6 Consolidated Statements of Comprehensive Loss (Unaudited) 7 Consolidated Statements of Cash Flows (Unaudited) 8 Consolidated Statements of Stockholders' Equity (Unaudited) 10 Notes to Consolidated Financial Statements (Unaudited) 12 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 30 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 38 ITEM 4. Controls and Procedures 38 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 39 ITEM 1A. Risk Factors 39 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 40 ITEM 3. Defaults Upon Senior Securities 40 ITEM 4. Mine Safety Disclosures 40 ITEM 5. Other Information 41 ITEM 6. Exhibits 41 SIGNATURES 42 3 Table of Contents PART I - FINANCIAL STATEMENTS ITEM 1. VerifyMe, Inc. Consolidated Balance Sheets (In thousands, except share data) As of September 30, 2024 December 31, 2023 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents including restricted cash $ 2,610 $ 3,095 Accounts receivable, net of allowance for credit loss reserve, $ 117 and $ 165 as of September 30, 2024 and December 31, 2023, respectively 1,200 3,017 Unbilled revenue 786 1,282 Prepaid expenses and other current assets 205 254 Inventory 19 38 TOTAL CURRENT ASSETS 4,820 7,686 PROPERTY AND EQUIPMENT, NET $ 159 $ 240 RIGHT OF USE ASSET 339 468 INTANGIBLE ASSETS, NET 5,523 6,927 GOODWILL 3,988 5,384 TOTAL ASSETS $ 14,829 $ 20,705 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Term note, current $ 500 $ 500 Accounts payable 1,622 3,310 Other accrued expense 455 988 Lease liability- current 166 170 Contingent liability- current 22 173 TOTAL CURRENT LIABILITIES 2,765 5,141 LONG-TERM LIABILITIES Contingent liability, non-current $ - $ 751 Long-term lease liability 184 307 Term note 500 875 Convertible Note – related party 450 475 Convertible Note 650 625 TOTAL LIABILITIES $ 4,549 $ 8,174 STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock, $ .001 par value, 37,564,767 shares authorized; 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively - - Series B Convertible Preferred Stock, $ .001 par value; 85 shares authorized; 0.85 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively - - 4 Table of Contents Common stock, $ 0.001 par value; 675,000,000 authorized; 10,715,065 and 10,453,315 issued, 10,444,698 and 10,123,964 shares outstanding as of September 30, 2024 and December 31, 2023, respectively 11 10 Additional paid in capital 95,991 95,031 Treasury stock at cost; 270,367 and 329,351 shares at September 30, 2024 and December 31, 2023, respectively ( 464 ) ( 659 ) Accumulated deficit ( 85,172 ) ( 81,849 ) Accumulated other comprehensive loss ( 86 ) ( 2 ) STOCKHOLDERS' EQUITY 10,280 12,531 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,829 $ 20,705 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Table of Contents VerifyMe, Inc. Consolidated Statements of Operations (Unaudited) (In thousands, except share data) Three Months Ended Nine Months Ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 NET REVENUE $ 5,435 $ 5,604 $ 16,546 $ 16,600 COST OF REVENUE (a) 3,540 3,558 10,301 11,447 GROSS PROFIT 1,895 2,046 6,245 5,153 OPERATING EXPENSES Segment management and Technology (a) 1,329 1,341 4,189 3,697 General and administrative (a) 778 1,178 2,780 3,393 Research and development 5 5 65 23 Sales and marketing (a) 401 377 999 1,403 Goodwill and Intangible asset impairment 2,252 - 2,265 34 Total Operating expenses 4,765 2,901 10,298 8,550 LOSS BEFORE OTHER INCOME (EXPENSE) ( 2,870 ) ( 855 ) ( 4,053 ) ( 3,397 ) OTHER (EXPENSE) INCOME Interest expenses, net ( 29 ) ( 39 ) ( 109 ) ( 127 ) Unrealized loss on equity investment - - - ( 2 ) Change in fair value of contingent consideration 475 ( 36 ) 839 136 Other expense, net - - - ( 2 ) TOTAL OTHER INCOME (EXPENSE), NET 446 ( 75 ) 730 5 NET LOSS $ ( 2,424 ) $ ( 930 ) $ ( 3,323 ) $ ( 3,392 ) LOSS PER SHARE BASIC ( 0.23 ) ( 0.09 ) ( 0.32 ) ( 0.35 ) DILUTED ( 0.23 ) ( 0.09 ) ( 0.32 ) ( 0.35 ) WEIGHTED AVERAGE COMMON SHARE OUTSTANDING BASIC 10,603,747 9,879,202 10,306,392 9,732,619 DILUTED 10,603,747 9,879,202 10,306,392 9,732,619 (a) Includes share-based compensation of $486 thousand and $1,183 thousand for the three and nine months ended September 30, 2024, respectively, and $498 thousand and $1,099 thousand for the three and nine months ended September 30, 2023, respectively. The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents VerifyMe, Inc. Consolidated Statements of Comprehensive Loss (Unaudited) (In thousands) Three Months Ended Nine Months Ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 NET LOSS $ ( 2,424 ) $ ( 930 ) $ ( 3,323 ) $ ( 3,392 ) Change in fair value of interest rate, Swap 2 3 7 4 Foreign currency translation adjustments ( 42 ) ( 28 ) ( 91 ) ( 76 ) Total Comprehensive Loss $ ( 2,464 ) $ ( 955 ) $ ( 3,407 ) $ ( 3,464 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 Table of Contents VerifyMe, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended September 30, 2024 September 30, 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 3,323 ) $ ( 3,392 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities : Allowance for bad debt 8 49 Stock based compensation 174 46 Unrealized loss on equity investment - 2 Change in fair value of contingent consideration ( 836 ) ( 136 ) Fair value of restricted stock awards and restricted stock units issued in exchange for services 1,009 1,053 Loss on disposal of equipment - 2 Goodwill and Intangible Impairment 2,261 34 Amortization and depreciation 905 835 Unrealized loss on foreign currency transactions ( 45 ) 16 Changes in operating assets and liabilities: Accounts receivable 1,806 3,015 Unbilled revenue 495 300 Inventory 19 38 Prepaid expenses and other current assets 55 51 Accounts payable, other accrued expenses and net change in operating leases ( 2,226 ) ( 2,512 ) Net cash provided by (used in) operating activities 302 ( 599 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of patents ( 12 ) ( 51 ) Leasehold improvements - ( 8 ) Purchase of office equipment ( 7 ) ( 24 ) Cash paid in business combination - ( 363 ) Deferred implementation costs - ( 58 ) Capitalized software costs ( 334 ) ( 576 ) Net cash used in investing activities ( 353 ) ( 1,080 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit - 800 Proceeds from convertible debt - 1,100 Proceeds from SPP Plan 21 80 Contingent consideration payments ( 36 ) - Tax withholding payments for employee stock-based compensation in exchange for shares surrendered ( 47 ) ( 18 ) Increase in treasury shares (share repurchase program) ( 1 ) ( 10 ) Repayment of debt and line of credit ( 375 ) ( 675 ) Net cash (used in) provided by financing activities ( 438 ) 1,277 Effect of exchange rate changes on cash 4 ( 2 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 485 ) ( 404 ) CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH- BEGINNING OF PERIOD 3,095 3,411 CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH- END OF PERIOD $ 2,610 $ 3,007 8 Table of Contents SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 160 $ 129 Income taxes $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Change in fair value of interest rate, swap $ 7 $ 4 The accompanying notes are an integral part of these unaudited consolidated financial statements. 9 Table of Contents VerifyMe, Inc. Consolidated Statements of Stockholders' Equity (Unaudited) (In thousands, except share data) Series A Convertible Series B Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Number of Number of Number of Paid-In Number of Accumulated Other Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Comprehensive Loss Deficit Total Balance at June 30, 2023 - - 0.85 - 9,842,765 10 94,111 347,668 ( 792 ) ( 50 ) ( 80,921 ) 12,358 Restricted stock awards, net of shares withheld for employee tax - - - - 14,000 - 170 - - - - 170 Restricted Stock Units, net of shares withheld for employee tax - - - - 65,967 - 308 - - - - 308 Common stock issued in relation to Stock Purchase Plan - - - - 12,802 - ( 26 ) ( 12,802 ) 44 - - 18 Accumulated Other Comprehensive Loss - - - - - - - - - ( 25 ) - ( 25 ) Net loss - - - - - - - - - - ( 930 ) ( 930 ) Balance at September 30, 2023 - - 0.85 - 9,935,534 10 94,563 334,866 ( 748 ) ( 75 ) ( 81,851 ) 11,899 Series A Convertible Series B Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Number of Number of Number of Paid-In Number of Accumulated Other Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Comprehensive Loss Deficit Total Balance at June 30, 2024 - - 0.85 - 10,384,968 11 95,504 270,367 ( 464 ) ( 46 ) ( 82,748 ) 12,257 Restricted stock awards - - - - - - 56 - - - - 56 Restricted Stock Units, net of shares withheld for employee tax - - - - - - 345 - - - - 345 Common stock issued for services - - - - 60,000 - 86 86 Accumulated Other Comprehensive Income - - - - - - - - - ( 40 ) - ( 40 ) Net loss - - - - - - - - - - ( 2,424 ) ( 2,424 ) Balance at September 30, 2024 - - 0.85 - 10,444,698 11 95,991 270,367 ( 464 ) ( 86 ) ( 85,172 ) 10,280 10 Table of Contents Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Accumulated Other Number of Number of Number of Paid-In Number of Comprehensive Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Loss Deficit Total Balance at December 31, 2022 - - 0.85 - 8,951,035 10 92,987 389,967 ( 949 ) ( 3 ) ( 78,459 ) 13,586 Restricted stock awards, net of shares withheld for employee tax - - - - 499,444 - 317 - - - - 317 Restricted stock units, net of shares withheld for employee tax - - - - 67,717 - 718 - - - - 718 Common stock issued in relation to Stock Purchase Plan - - - - 70,047 - ( 84 ) ( 61,302 ) 211 - - 127 Common stock issued in relation to Acquisition - - - - 353,492 - 625 - - - - 625 Repurchase of common stock - - - - ( 6,201 ) - - 6,201 ( 10 ) - - ( 10 ) Accumulated other comprehensive loss - - - - - - - - - ( 72 ) - ( 72 ) Net loss - - - - - - - - - ( 3,392 ) ( 3,392 ) Balance at September 30, 2023 - - 0.85 - 9,935,534 10 94,563 334,866 ( 748 ) ( 75 ) ( 81,851 ) 11,899 Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Accumulated Other Number of Number of Number of Paid-In Number of Comprehensive Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Loss Deficit Total Balance at December 31, 2023 - - 0.85 - 10,123,964 10 95,031 329,351 ( 659 ) ( 2 ) ( 81,849 ) 12,531 Restricted stock awards - - - - 140,000 1 331 - - - - 332 Restricted stock units, net of shares withheld for employee tax - - - - 39,845 - 505 ( 38,095 ) 125 - - 630 Common stock issued in relation to Stock Purchase Plan - - - - 21,889 - ( 46 ) ( 21,889 ) 71 - - 25 Common stock issued for services - - - - 120,000 - 170 - - - - 170 Repurchase of Common Stock - - - - ( 1,000 ) - - 1,000 ( 1 ) - - ( 1 ) Accumulated other comprehensive loss - - - - - - - - - ( 84 ) - ( 84 ) Net loss - - - - - - - - - ( 3,323 ) ( 3,323 ) Balance at September 30, 2024 - - 0.85 - 10,444,698 11 95,991 270,367 ( 464 ) ( 86 ) ( 85,172 ) 10,280 The accompanying notes are an integral part of these unaudited consolidated financial statements. 11 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements (unaudited) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business VerifyMe, Inc. (“VerifyMe”) was incorporated in the State of Nevada on November 10, 1999 . VerifyMe, together with its subsidiaries, including Trust Codes Global Limited (“Trust Codes Global”) and PeriShip Global LLC (“PeriShip 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, is a traceability and customer support services provider using specialized software and process technology. The Company operates a Precision Logistics Segment and an Authentication Segment to provide specialized logistics for time-and-temperature sensitive products, as well as item level traceability, anti-diversion and anti-counterfeit protection, brand protection and enhancement technology solutions. Through our Precision Logistics segment, we provide a value-added service for sensitive parcel management driven by a proprietary software platform that provides predictive analytics from key metrics such as pre-shipment weather analysis, flight-tracking, sort volumes, and traffic, delivered to customers via a secure portal. The portal provides real-time visibility into shipment transit and last-mile events which is supported by a service center. Through our Authentication segment our technologies enable brand owners to gather business intelligence through the supply chain, cross-sell products, detect counterfeit activities, monitor product diversion, and build brand loyalty utilizing our unique dynamic codes which are read by consumers with their smart phones. The significant majority of VerifyMe revenue is within the Precision Logistics Segment. 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. Reclassifications Certain amounts presented for the three and nine months ended September 30, 2023, reflect reclassifications made to conform to the presentation in our current reporting period. These reclassifications had no effect on the previously reported net loss. Basis of Presentation The accompanying unaudited interim consolidated financial statements (the “Interim Statements”) include the accounts of VerifyMe and its wholly owned subsidiaries PeriShip Global and Trust Codes Global. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The Interim Statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024. The accompanying Interim Statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The interim results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the year ending December 31, 2024, or for any future interim periods. Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statements of cash flows (dollars in thousands): Schedule of cash, cash equivalents and restricted cash As of September 30, 2024 December 31, 2023 Cash and cash equivalents $ 2,610 $ 3,032 Restricted cash - 63 Total cash and cash equivalents including restricted cash $ 2,610 $ 3,095 The Company classifies cash and cash equivalents that are restricted from operating use for the next twelve months as restricted cash. No cash was subject to restriction as of September 30, 2024. As of December 31, 2023, the Company held $ 63 thousand subject to restrictions. 12 Table of Contents 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) Precision Logistics and (ii) Authentication. See Note 11 - Segment Reporting, for further discussion of the Company’s segment reporting structure. Foreign Currency Translation The functional currency of our New Zealand operations is the local currency, New Zealand dollar (NZD). The translation of the foreign currency into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted average exchange rates prevailing during the year. The unrealized gains and losses resulting from such translation are included as a component of comprehensive income. Translation gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “General and administrative” on our Consolidated Statements of Operations. The foreign currency transaction gains for the three and nine months ended September 30, 2024, was $ 67 thousand and 21 thousand, respectively. The foreign currency transaction losses for the three and nine months ended September 30, 2023, were $ 16 thousand and $ 30 thousand, respectively. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): “ Improvements to Reportable Segment Disclosures ”, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic 280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate resources. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, applied retrospectively with early adoption permitted. The Company adopted the new standard beginning January 1, 2024. Note 11 – Segment Reporting has been updated to reflect the new disclosure requirements and certain amounts have been reclassified in the Consolidated Statement of Operations. There is no other impact of adoption of this standard on the Company’s consolidated financial statements and disclosures. Fair Value of Financial Instruments The Company’s financial instruments consist of accounts receivable, unbilled revenue, accounts payable, notes payable and accrued expenses, contingent consideration and long-term derivative assets or 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 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 Value Measurements and Disclosures,” and applies it to all assets and liabilities that are being measured and reported on a fair value basis. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs that are not corroborated by market data The level in the fair value within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. 13 Table of Contents 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 September 30, 2024, and December 31, 2023. Amounts in Thousands ('000) Schedule of fair value assets measured on recurring basis Derivative Asset Contingent Consideration (Level 2) (Level 3) Balance as of December 31, 2023 $ 4 $ ( 924 ) Change in fair value of Contingent Consideration - 839 Payments - 36 Currency - 27 Change in fair value to interest rate, SWAP, recognized in other comprehensive loss 7 - Balance at September 30, 2024 $ 11 $ ( 22 ) Revenue Recognition The Company accounts for revenues according to Accounting Standards Codification (“ASC”) Topic 606, “ Revenue from Contracts with Customers ” which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. 14 Table of Contents The Company applies the following five steps, separated by reportable segments, in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements. · identify the contract with a customer; · identify the performance obligations in the contract; · determine the transaction price; · allocate the transaction price to performance obligations in the contract; and · recognize revenue as the performance obligation is satisfied. For more detailed information about reportable segments, see Note 11 – Segment reporting. The Company generally considers completion of an agreement, or Statement of Work (“SOW”) and/or purchase order as a customer contract, provided collection is considered probable. Precision Logistics Our Precision Logistics segment consists of two service lines, Proactive and Premium. Under our Proactive service line, clients pay us directly for carrier service coupled with our Proactive logistics service. Terms typically range 7 days and no longer than 30 days. The Company has determined it is the principal and recognizes shipment fees in gross revenue. Under our Premium service line, we provide complete white-glove shipping monitoring and predictive analytics services. This service includes customer web portal access, weather monitoring, temperature control, full service center support and last mile resolution. Payment terms are typically 30-45 days. Under both service lines in our Precision Logistics segment, our performance obligation is met, and revenue is recognized when the packages are delivered. The transaction fees consist of fixed consideration made up of amounts contractually billed to the customer. There are no variable considerations in the transaction fee, in either service line. Authentication Our Authentication segment primarily consists of our brand protection service line which consists of a custom suite of products that offer clients traceability and brand solutions. Terms typically range between 30 and 90 days. Our performance obligation is met, and revenue is recognized, when our products are shipped or delivered depending on the specific agreement with the customer. The transaction fee is made up of fixed consideration based on the related purchase order or agreement. Warranties and other variable considerations are analyzed by the Company, in terms of historical warranties, current economic trends, and changes in customer demand, and have been determined to be insignificant in the three and nine months ended September 30, 2024. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assesses 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. 15 Table of Contents Basic and Diluted Net Loss per Share of Common Stock The Company follows FASB ASC 260, “ Earnings Per Share ,” when reporting earnings per share resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss for each of the periods presented, common stock equivalents, including preferred stock, stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same. For the three and nine months ended September 30, 2024, and 2023, there were shares potentially issuable, that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the periods presented. For the three and nine months ended September 30, 2024, there were approximately 8,256,000 anti-dilutive shares consisting of 2,305,000 unvested performance restricted stock units, restricted stock units, and restricted stock awards, 221,000 shares issuable upon exercise of stock options, 4,629,000 shares issuable upon exercise of warrants, 957,000 shares issuable upon conversion of convertible debt, and 144,000 shares issuable upon conversion of preferred stock. For the three and nine months ended September 30, 2023, there were approximately 8,385,000 anti-dilutive shares consisting of 2,348,000 unvested performance restricted stock units, restricted stock units, restricted stock awards and options under the stock purchase plan, 307,000 shares issuable upon exercise of stock options, 4,629,000 shares issuable upon exercise of warrants, 957,000 shares issuable upon conversion of convertible debt, and 144,000 shares issuable upon conversion of preferred stock. 16 Table of Contents Stock-Based Compensation We account for stock-based compensation under the provisions of FASB ASC 718, “ Compensation—Stock Compensation ”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock options on the date of grant using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line method. For performance restricted stock units with stock price appreciation targets (see Note 6 – 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 restricted stock unit’s contractual life based on the appropriate probability distributions (which are based on commonly applied Black Scholes inputs). The fair value was determined by taking the average of the grant date fair values under each Monte Carlo simulation trial. We recognize compensation expense on a straight-line basis over the performance period and there is no ongoing adjustment or reversal based on actual achievement during the period. We account for stock-based compensation awards to non-employees in accordance with ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, “ Equity – Equity-Based Payments to Non-Employees ”. All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments are recorded as an expense over the service period, as if we had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity-based payments will be re-measured, and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed. NOTE 2 – REVENUE Revenue by Category The following series of tables present our revenue disaggregated by various categories (dollars in thousands). Schedule of disaggregation of revenue Authentication Precision Logistics Consolidated Revenue Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30, 2024 2023 2024 2023 2024 2023 Proactive services $ - $ - $ 4,417 $ 4,038 $ 4,417 $ 4,038 Premium services - - 886 1,419 886 1,419 Brand protection services 132 147 - - 132 147 $ 132 $ 147 $ 5,303 $ 5,457 $ 5,435 $ 5,604 Authentication Precision Logistics Consolidated Revenue Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 2024 2023 Proactive services $ - $ - $ 12,587 $ 12,742 $ 12,587 $ 12,742 Premium services - - 3,574 3,343 3,574 3,343 Brand protection services 385 515 - - 385 515 $ 385 $ 515 $ 16,161 $ 16,085 $ 16,546 $ 16,600 17 Table of Contents 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 sheets. 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 twelve months. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the nine-month period ended September 30, 2024, were not materially impacted by any other factors. 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 September 30, 2024, we did not have any capitalized sales commissions. For all periods presented, contract liabilities were not significant. The following table provides information about contract assets from contracts with customers: Schedule of contract assets from contracts with customers Contract Asset September 30, In Thousands 2024 2023 Beginning balance, January 1 $ 1,282 $ 1,185 Contract asset additions 6,464 5,394 Reclassification to accounts receivable, billed to customers ( 6,960 ) ( 5,694 ) Ending balance (1) $ 786 $ 885 ______________ (1) Included within "Unbilled revenue" on the accompanying Consolidated Balance sheets. 18 Table of Contents NOTE 3 – BUSINESS COMBINATIONS Trust Codes Global Limited On March 1, 2023, we acquired, through Trust Codes Global, the business and certain assets of Trust Codes Limited (“Trust Codes”), specializing in brand protection, anti-counterfeiting, and consumer engagement technology with an expertise in the food and agriculture industry. Trust Codes Global uses unique QR codes or IoT, coupled with GS1 standards to deliver cloud-based brand protection based on a unique per-item digital identity to protect brand and product authenticity, increase data visualization of a product through the end-to-end supply chain, and creates a data-drive engine to inform and educate consumers of the product. The Company accounted for the transaction as an acquisition of a business under ASC 805 – Business Combination. The purchase price was approximately $ 1.0 million which consisted of $ 0.36 million in cash paid at closing and 353,492 shares of common stock of the Company, representing $ 0.65 million in stock consideration. In addition, the purchase agreement requires consideration contingent upon the achievement of earnings targets during a five-year period subsequent to the closing of the acquisition. The earn-out consideration is estimated at $ 1.1 million at the acquisition date, however the maximum amount of the payment is unlimited. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the Company. All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The Company incurred $ 278 thousand in relation to acquisition related costs which have been included in General and administrative in the nine months ended September 30, 2023, in the accompanying Consolidated Statements of Operations. Trust Codes Global is included in the Authentication segment and the results of its operations have been included in the consolidated financial statements beginning March 1, 2023. The pro-forma financial information for Trust Codes is immaterial to our results of operations and impractical to provide. The following table summarizes the purchase price allocation for the acquisition (dollars in thousands). Schedule of business acquisitions Cash $ 363 Fair value of contingent consideration 1,125 Stock (issuance of 353,492 shares of common stock) (a) 625 Total purchase price $ 2,113 Amortization Period Purchase price allocation: Prepaid expenses $ 25 Property and Equipment, net 18 ROU Asset 171 Developed Technology 485 8 years Trade Names/Trademarks 148 18 years Customer Relationships 68 10 years Goodwill 1,383 Accounts payable and other accrued expenses ( 14 ) Current lease liability ( 63 ) Long term lease liability ( 108 ) $ 2,113 (a) Stock issued was calculated based on the 15-day volume-weighted average price (“VWAP”) through February 28, 2023, calculated at $1.8388. Contingent Consideration ASC Topic 805 requires that contingent consideration to be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities using an appropriate valuation methodology, typically either an income-based approach or a simulation model, such as the Monte Carlo model, depending on the structure of the contingent consideration arrangement. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates and changes in the timing and amount of revenue and/or earnings projections. 19 Table of Contents As of September 30, 2024, contingent consideration presented as current liability totaled $ 22 thousand. As of September 30, 2024, we had no long term contingent consideration related to the acquisition of Trust Codes on the consolidated balance sheets. On May 15, 2024, a payment of $ 36 thousand was paid for contingent consideration. NOTE 4 – INTANGIBLE ASSETS AND GOODWILL 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. Goodwill 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. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. 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 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. On September 24, 2024, Paul Ryan, Executive Vice President, Authentication Segment, notified us of his resignation effective December 24, 2024. On October 4, 2024, we placed Mr. Ryan on garden leave, meaning he remains employed by us but is only working for us upon request. During the quarter, we have identified concerns relating to the commercial viability of this segment and we are evaluating a number of strategic alternatives for our Authentication segment. As a result, the Company made revisions to our internal forecasts and concluded that in accordance with ASC 350 a triggering event occurred indicating that potential impairment exists, which required the Company to conduct an interim test of the fair value of the goodwill for the Authentication segment. We performed a quantitative goodwill impairment test and determined the fair value of our reporting units using a combination of an equity approach and a market approach, employing a guideline public company approach. The results of our goodwill impairment test indicated that the carrying value of the Authentication reporting unit exceeded its estimated fair value. As a result, the Company recorded a goodwill impairment charge of $1,351 thousand during the three and nine months ended September 30, 2024, within goodwill and intangible asset impairment on the consolidated statement of operations. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present. 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. Changes in the carrying amount of goodwill by reportable business segment for the nine months ended September 30, 2024, were as follows (in thousands): Schedule of goodwill by reportable business segment Authentication Precision Logistics Total Net book value at January 1, 2024 $ 1,396 $ 3,988 $ 5,384 2024 Activity Goodwill impairment charge ( 1,351 ) - ( 1,351 ) Foreign currency translation ( 45 ) - ( 45 ) Net book value at September 30, 2024 $ - $ 3,988 $ 3,988 20 Table of Contents 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. Except for goodwill, we do not have any intangible assets with indefinite useful lives. The revisions to our internal forecasts resulted in an interim triggering event for the three months ending September 30, 2024, indicating the carrying value of our long-lived assets including patents and trademarks, customer relationships, and developed technology may not be recoverable. Accordingly, the Company performed an interim impairment test and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value to the net undiscounted cashflow expected to be generated. The analysis indicated that certain intangible assets were impaired. The Company further concluded as of September 30, 2024 the carrying value exceeded its estimated fair value, which resulted in an impairment charge. The Company recorded an intangible impairment charge of $ 901 and $ 914 thousand during the three and nine months ended September 30, 2024 respectively, within goodwill and intangible asset impairment on the consolidated statement of operations. 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 September 30, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (Years) Patents and Trademarks $ 1,112 $ ( 209 ) $ 903 11 Customer Relationships 1,839 ( 449 ) 1,390 8 Developed Technology 3,143 ( 1,280 ) 1,863 4 Internally Used Software 1,247 ( 138 ) 1,109 6 Non-Compete Agreement 191 ( 93 ) 98 3 Deferred Implementation 198 ( 38 ) 160 9 Total Intangible Assets $ 7,730 $ ( 2,207 ) $ 5,523 December 31, 2023 Patents and Trademarks $ 2,002 $ ( 564 ) $ 1,438 13 Capitalized Software 161 ( 109 ) 52 2 Customer Relationships 1,908 ( 317 ) 1,591 9 Developed Technology 3,632 ( 938 ) 2,694 5 Internally Used Software 914 ( 62 ) 852 6 Non-Compete Agreement 191 ( 65 ) 126 3 Deferred Implementation 198 ( 24 ) 174 9 Total Intangible Assets $ 9,006 $ ( 2,079 ) $ 6,927 Amortization expense for intangible assets was $ 277 thousand and $ 266 thousand for the three months ended September 30, 2024, and 2023, respectively, and $ 817 thousand and $ 761 thousand for the nine months ended September 30, 2024, and 2023, respectively. During the nine months ended September 30, 2024, the Company impaired certain assets by $ 914 thousand, to bring the gross carrying amount related to these assets to zero as a result of the impairment analysis of long lived assets under ASC 360. Patents and Trademarks As of September 30, 2024, our current patent and trademark portfolios consist of nine granted U.S. patents and two granted European patents (one validated in four countries of France, Germany, United Kingdom, and Italy and one validated in three countries of France, Germany and United Kingdom), two pending U.S. and foreign patent applications, twenty-three registered U.S. 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, seven NZ trademark registration, one OAPI (African Intellectual Property Organization) trademark registration, and one pending US and one foreign trademark application in Nigeria. The Company abandoned one patent during the nine months ended September 30, 2024. 21 Table of Contents The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows (in thousands): Schedule of future amortization expense Fiscal Year ending December 31, 2024 (three months remaining) $ 257 2025 1,023 2026 1,023 2027 996 2028 622 Thereafter 1,602 Total $ 5,523 NOTE 5 – STOCKHOLDERS’ EQUITY The Company expensed $ 56 thousand and $ 331 thousand related to restricted stock awards for the three and nine months ended September 30, 2024, respectively. The Company expensed $ 177 thousand and $ 325 thousand related to restricted stock awards for the three and nine months ended September 30, 2023, respectively. The Company expensed $ 345 thousand and $ 678 thousand related to restricted stock units for the three and nine months ended September 30, 2024, and $ 316 thousand and $ 728 thousand related to restricted stock units for the three and nine months ended September 30, 2023. During the nine months ended September 30, 2024, the Company issued 1,750 shares of common stock upon vesting of restricted stock units, and 38,095 shares of common stock from treasury shares, net of common stock withheld for taxes. On March 31, 2024, the Company issued 30,000 of restricted common stock, vesting immediately, with a value of $ 42 thousand, for consulting services. On June 30, 2024, the Company issued an additional 30,000 of restricted common stock, vesting immediately, with a value of $ 42 thousand, for consulting services. On September 30, 2024, the Company issued an additional 60,000 of restricted common stock, vesting immediately, with a value of $ 86 thousand, for consulting services. Non-Qualified Stock Purchase Plan On June 10, 2021, the stockholders of the Company approved a non-qualified stock purchase plan (the “2021 Plan”). The 2021 Plan provides eligible participants, including employees, directors and consultants of the Company, the opportunity to purchase shares of the Company’s common stock thereby increasing their interest in the Company’s continued success. The maximum number of common stock reserved and available for issuance under the 2021 Plan is 500,000 shares. The purchase price of shares of common stock acquired pursuant to the exercise of an option will be the lesser of 85% of the fair market value of a share (a) on the enrollment date, and (b) on the exercise date. The 2021 Plan is not intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). The Company applied FASB ASC 718, “ Compensation-Stock Compensation ” and estimated the fair value using the Black-Scholes model, as the 2021 Plan is considered compensatory. In relation to the 2021 Plan the Company expensed $ 0 and $ 4 thousand for the three and nine months ended September 30, 2024, respectively. During the nine months ended September 30, 2024, the Company received $ 21 thousand in proceeds related to the 2021 Plan. The Company has currently suspended new offering periods under the 2021 Plan. Shares Held in Treasury As of September 30, 2024, and December 31, 2023, the Company had 270,367 and 329,351 shares, respectively, held in treasury with a value of approximately $ 464 thousand and $ 659 thousand, respectively. On February 29, 2024, seven participants exercised their option under the Company’s non-qualified stock purchase plan, and as a result, 21,889 shares were issued from treasury, with an exercise price of $ 0.97 per share. Shares Repurchase Program In December 2023, the Company’s Board of Directors approved a new share repurchase program to allow the Company to spend up to $ 0.5 million to repurchase shares of its common stock so long as the price per share does not exceed $1.00 until December 14, 2024. During the nine months ended September 30, 2024, the Company repurchased 1,000 shares of common stock for $ 1 thousand under the Company’s current program. 22 Table of Contents NOTE 6 – 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”) 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. 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. On March 28, 2022, the Company’s Board of Directors adopted the First Amendment to the 2020 Plan, subject to stockholder approval, which increased the shares authorized for potential issuance under the 2020 Plan to 2,069,100 shares of common stock and extended the term of the 2020 Plan to June 9, 2032. On June 9, 2022, the Company’s stockholders approved the First Amendment to the 2020 Plan. On April 17, 2023, the Company’s Board of Directors adopted the Second Amendment to the 2020 Plan, subject to stockholder approval, which increased the shares authorized for potential issuance under the 2020 Plan to 3,069,100 shares of common stock and extended the term of the 2020 Plan to June 6, 2033. On June 6, 2023, the Company’s stockholders approved the Second Amendment to the 2020 Plan. On March 18, 2024, the Company’s Board of Directors adopted the Third Amendment to the 2020 Plan, subject to stockholder approval, which increased the shares authorized for potential issuance under the 2020 Plan to 4,069,100 shares of common stock and extended the term of the 2020 Plan to June 4, 2034. On June 4, 2024, the Company’s stockholders approved the Third Amendment to the 2020 Plan. The 2020 Plan, as amended, 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). 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. The 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. 23 Table of Contents Stock Options The following table summarizes the activities for the Company’s stock options as of September 30, 2024: Schedule of stock options Options Outstanding Weighted - Average Remaining Aggregate Weighted- Contractual Intrinsic Number of Average Term Value Shares Exercise Price (in years) (in thousands) (1) Balance as of December 31, 2023 301,471 $ 4.56 Granted - - Forfeited/Cancelled/Expired ( 80,471 ) $ 7.27 Balance as of September 30, 2024 221,000 $ 3.57 Exercisable as of September 30, 2024 221,000 $ 3.57 0.7 $ - (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for options that were in-the-money at each respective period. 24 Table of Contents As of September 30, 2024, the Company had no unvested stock options. During the nine months ended September 30, 2024, and 2023, the Company expensed $ 0 thousand, with respect to options. As of September 30, 2024, there was $ 0 unrecognized compensation cost related to outstanding stock options. Restricted Stock Awards and Restricted Stock Units The following table summarizes the unvested restricted stock awards as of September 30, 2024: Schedule of unvested restricted stock awards Weighted - Average Number of Grant Award Shares Date Fair Value Unvested at December 31, 2023 416,669 1.44 Granted 140,000 1.60 Vested ( 416,669 ) 1.44 Balance at September 30, 2024 140,000 $ 1.60 As of September 30, 2024, total unrecognized share-based compensation cost related to unvested restricted stock awards is $ 152 thousand, which is expected to be recognized over a weighted-average period of less than one year. The following table summarizes the unvested time-based restricted stock units as of September 30, 2024: Schedule of unvested restricted stock units Weighted - Average Number of Grant Unit Shares Date Fair Value Unvested at December 31, 2023 371,253 1.32 Granted 88,011 1.46 Vested ( 70,527 ) 1.33 Forfeited ( 25,334 ) 1.23 Balance at September 30, 2024 363,403 $ 1.35 As of September 30, 2024, total unrecognized share-based compensation cost related to unvested time-based restricted stock units was $ 198 thousand, which is expected to be recognized over a weighted-average period of less than one year. 25 Table of Contents The following table summarizes the unvested performance based restricted stock units as of September 30, 2024: Schedule of unvested performance restricted stock units Weighted - Average Number of Number of Unit Shares Unit Shares Unvested at December 31, 2023 1,438,760 1.51 Granted 555,000 1.08 Forfeited/Cancelled ( 192,100 ) 1.78 Balance at September 30, 2024 1,801,660 $ 1.35 For restricted stock units 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 restricted stock unit’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. As of September 30, 2024, total unrecognized share-based compensation cost related to unvested performance based restricted stock units was $ 960 thousand, which is expected to be recognized over a weighted-average period of 1.2 years. Warrants The following table summarizes the activities for the Company’s warrants as of September 30, 2024: Schedule of warrants outstanding Number of Warrant Shares Weighted- Average Exercise Price Weighted - Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) (1) Balance as of December 31, 2023 4,628,586 $ 4.13 Granted - - Expired - - Balance as of September 30, 2024 4,628,586 $ 4.13 1.5 Exercisable as of September 30, 2024 4,628,586 $ 4.13 1.5 $ - (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $1.43 for our common stock on September 30, 2024. NOTE 7— DEBT PeriShip Global is a party to a 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 which was scheduled to expire in September 2024. On August 14, 2024, the Company signed a waiver and amendment which provided a waiver for a certain event of default and extended the line of credit to September 30, 2025. 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 VerifyMe and secured by the assets of PeriShip Global and VerifyMe. 26 Table of Contents 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 September 30, 2024. As of September 30, 2024, our short-term debt outstanding under the Term Note was $ 0.5 million and total long-term debt outstanding under the Term Note was $ 0.5 million. During the nine months ended September 30, 2024, the Company made a repayment of $ 375 thousand towards the principal of the outstanding Term Note. As of September 30, 2024, $ 0 was outstanding on the RLOC. 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 asset and liability associated with the interest rate swap are not significant as of September 30, 2024, and as of December 31, 2023, respectively. Convertible Debt On August 25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory notes for the aggregate principal amount of $ 1,100 thousand of which $ 475 thousand was purchased by related parties including certain members of management and the Board of Directors. As of September 30, 2024, $ 450 thousand is held by related parties after one member of management left the Company. The notes are subordinated unsecured obligations of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears on February 25 and August 25 of each year, beginning on February 25, 2024. The notes will mature on August 25, 2026, unless earlier converted or repurchased at a conversion price of $1.15 per share of common stock. The Company may not redeem the notes prior to the maturity date. For the nine months ended September 30, 2024, interest expense related to the convertible debt was $ 66 thousand. As of September 30, 2024, the principal amount outstanding on the convertible debt was $ 1,100 thousand and is included in Convertible debt and Convertible debt-related party on the accompanying Consolidated Balance Sheets. NOTE 8— INCOME TAXES There are no taxes payable as of September 30, 2024, or December 31, 2023. 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 recognized in the nine months ending September 30, 2024, due to the uncertainty surrounding the realizability of the benefit. Utilization of the net operating losses (NOL) carryforwards may be subject to a substantial annual limitation as required by Section 382 of the IRC, due to ownership changes 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 accordance with FASB ASC 740 “ Income Taxes ”, valuation allowances are provided against deferred tax assets, if based on the weight of available evidence, some or all, of the deferred tax assets may or will not be realized. The Company did not utilize any NOL deductions for the nine months ended September 30, 2024. NOTE 9– 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 leases include 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. 27 Table of Contents 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 purposes. 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 as incurred. We have operating leases for office facilities. We do not have any finance leases. Lease expenses are 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 Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Operating lease cost $ 50 $ 47 $ 145 $ 132 Short-term lease cost 4 5 13 23 Total lease costs $ 54 $ 52 $ 158 $ 155 Supplemental information related to leases was as follows (dollars in thousands): Schedule of supplemental information related to leases September 30, 2024 December 31, 2023 Operating Lease right-of-use asset $ 339 $ 468 Current portion of operating lease liabilities $ 166 $ 170 Non-current portion of operating lease liabilities 184 307 Total operating lease liabilities $ 350 $ 477 Cash paid for amounts included in the measurement of operating lease liabilities $ 144 $ 177 Right-of-use assets obtained in exchange for operating lease liabilities $ - $ - Weighted-average remaining lease term for operating leases (years) 2.3 Weighted average discount rate for operating leases 6.4 % The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our consolidated balance sheets as of September 30, 2024 (in thousands): Schedule of operating lease liabilities maturities Year ending December 31, 2024 (three months remaining) $ 48 2025 196 2026 139 2027 45 Total future lease payments 428 Less: imputed interest ( 78 ) Present value of future lease payments 350 Less: current portion of lease liabilities ( 166 ) Long-term lease liabilities $ 184 NOTE 10– CONCENTRATIONS For the three months ended September 30, 2024, one customer represented 14 % of revenues and one customer represented 23 % of revenues for the three months ended September 30, 2023. For the nine months ended September 30, 2024, one customer represented 19 % of revenues and one customer represented 18 % of revenues for the nine months ended September 30, 2023. As of September 30, 2024, two customers made up 38 % of accounts receivable. 28 Table of Contents During the three and nine months ended September 30, 2024, one vendor accounted for 99 % of transportation cost, in our Precision Logistics segment. NOTE 11 – SEGMENT REPORTING As of September 30, 2024, we operated through two reportable business segments: (i) Precision Logistics and (ii) Authentication. Precision Logistics: This segment 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, as well as dynamic dashboards with real-time visibility into shipment transit and last-mile events that are managed by a service center we provide our clients an end-to-end vertical approach for their most critical service delivery needs. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries. Authentication: 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. Our Authentication segment also provides brand protection and supply chain functions such as counterfeit prevention. We do not allocate the following items to the segments: general & administrative expenses, research and development and other income (expense). 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 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue: Precision Logistics $ 5,303 $ 5,457 $ 16,161 $ 16,085 Authentication 132 147 385 515 Total Revenue $ 5,435 $ 5,604 $ 16,546 $ 16,600 Gross Profit: Precision Logistics $ 1,777 $ 1,909 $ 5,903 $ 4,748 Authentication 118 137 342 405 Total Gross Profit 1,895 2,046 6,245 5,153 Segment Management and Technology - Precision Logistics 1,013 1,029 3,259 2,895 Segment Management and Technology - Authentication 316 312 930 802 Sales and marketing - Precision Logistics 262 181 599 733 Sales and marketing - Authentication 139 196 400 670 General and administrative 778 1,178 2,780 3,393 Research and development 5 5 65 23 Goodwill and Intangible asset impairment 2,252 - 2,265 34 LOSS BEFORE OTHER INCOME (EXPENSE) ( 2,870 ) ( 855 ) ( 4,053 ) ( 3,397 ) OTHER INCOME (EXPENSE) 446 ( 75 ) 730 5 NET LOSS $ ( 2,424 ) $ ( 930 ) $ ( 3,323 ) $ ( 3,392 ) NOTE 12 – SUBSEQUENT EVENTS On November 4, 2024, the Company issued 54,843 shares of common stock upon vesting of 69,667 restricted stock units, net of 14,824 withheld for taxes related to a stock grant on November 2, 2022. On November 8, 2024, the Board of Directors approved closing the Trust Codes Global business by the end of November 2024, unless the Company can find a purchaser for the Trust Codes Global business prior to the end of November 2024. 29 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and notes. Cautionary Note Regarding Forward-Looking Statements This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “intended,” “plan,” “could,” “target,” “potential,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. Our actual results and financial condition may differ materially from those expressed or implied in such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and our other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements in this report are made only as of the date hereof or as indicated and represent our views as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise, except as required by law. Overview VerifyMe, Inc. (“VerifyMe”) together with its subsidiaries, including Trust Codes Global Limited (“Trust Codes Global”) and PeriShip Global, LLC (“PeriShip Global”), (together the “Company,” “we,” “us,” or “our”), is a traceability and customer support services provider using specialized software and process technology. The company operates a Precision Logistics Segment and an Authentication Segment to provide specialized logistics for time-and-temperature sensitive products, as well as item level traceability, anti-diversion and anti-counterfeit protection, brand protection and enhancement technology solutions. Through our Precision Logistics segment, we provide a value-added service for sensitive parcel management driven by a proprietary software platform that provides predictive analytics from key metrics such as pre-shipment weather analysis, flight-tracking, sort volumes, and traffic, delivered to customers via a secure portal. The portal provides real-time visibility into shipment transit and last-mile events which is supported by a service center. Through our Authentication segment our technologies enable brand owners to gather business intelligence through the supply chain, cross-sell products, detect counterfeit activities, monitor product diversion, and build brand loyalty utilizing our unique dynamic codes which are read by consumers with their smart phones. Further information regarding our business segments is discussed below: Precision Logistics: The Precision Logistics segment specializes in predictive analytics for optimizing delivery of time and temperature sensitive perishable products. We manage complex industry-specific shipping logistic processes that require critical time, temperature control and handling to prevent spoilage and extreme delivery times and brand impairment. Utilizing predictive analytics from multiple data sources including flight-tracking, weather, traffic, major carrier feeds, and time of day data, we provide our clients an end-to-end vertical approach for their most critical service delivery needs. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, as well as delivering last-mile resolution for key markets, including the perishable healthcare and food industries. Through our proprietary PeriTrack ® customer dashboard, we provide an integrated tool that gives our customers an in-depth look at their shipping activities and allows them access to critical information in support of the specific needs of the supply chain stakeholders. We offer post-delivery services such as customized reporting for trend analysis, system performance reports, power outage maps, and other tailored reports. Precision Logistics generates revenue from two business service models. · ProActive Service – clients pay us directly for carrier service coupled with our proactive logistics assistance. · Premium Service – clients pay us directly or through our carrier partner for our complete white-glove shipping monitoring and predictive analytics service. This service includes customer web portal access, weather monitoring, temperature control, full-service center support and last mile resolution. 30 Table of Contents Products: The Precision Logistics segment includes the following bundled services as part of our service offerings to our customers: · PeriTrack ® : Our proprietary PeriTrack® customer dashboard was developed utilizing our extensive logistics operational knowledge. This integrated web portal tool gives our customers an in-depth look at their shipping activities based on real-time data. The PeriTrack® dashboard was designed to provide critical information in support of the specific needs of supply chain stakeholders and gives our customer resolution specialists a 360° view of shipping activity. PeriTrack® features tools tailored for shippers of perishable goods, which includes the In-Transit Shipment Tracker. This tool provides details on the unique shipper’s in-transit shipments, with the ability to select and analyze data on individual shipments. · Service Center : We have assembled a team of customer resolution specialists based in the U.S. This service team resolves shipping problems on behalf of our customers. The service center acts as a help desk and monitors shipping to delivery for our customers. · Pre-Transit Service : We help clients prepare their products for shipments by advising clients on packaging requirements for various types of perishable products. Each product type requires its own particular packaging to protect it during shipment, and we utilize our extensive knowledge and research to provide our customers with packaging recommendations to meet their unique needs. · Post-Delivery : We provide customized reporting for trend analysis, system performance reports, power outage maps, and many other reports to help our customers improve their processes and customer service outcomes. · Weather/Traffic Service : We have full-time meteorologists on staff to monitor weather. A package may experience a variety of weather conditions between the origin and destination, and our team actively monitors these conditions to maximize the number of timely and safely transmitted shipments. Similarly, traffic and construction also create unpredictable delays which our team works diligently to mitigate. If delays or other issues occur, we inform clients and work with them to proactively resolve such shipment issues. Authentication : The Authentication segment specializes in traceability to connect brands with consumers through their product. This is critical in the current landscape of increased regulations, as well as increased counterfeit activity and product diversion. The ability to detect fraud or abnormal behavior while tracing an item’s journey from production through to the consumer’s hands provides consumers and brands the assurance they require. VerifyMe has custom software, patented technologies, and a cloud environment that combines machine learning and data science to meet the needs of consumers and brands. In addition, the personalized consumer experience with the brand creates a connection that increases brand perception and loyalty. Products : We have a custom suite of products that offer clients traceability and brand solutions. These products are combined with “software as a service” or “SaaS” which is stored in the cloud and accessed through the internet. · VerifyMe Authenticate™ using rare earth-based ink taggants for instant authentication of labels, packaging and products · VerifyMe Track & Trace™ for unit level traceability and supply chain control Opportunities Precision Logistics: Traditionally, most shipping businesses utilize the carrier’s data platform for tracking which generally informs the shipping enterprise, and their customers, when a package is in transit, when a package has been delivered, and some level of detail of the path which a package traveled. We believe taking the data feeds from a carrier and adding real-time visibility with predictive analytics and the human intervention factor of our service center gives us a competitive advantage against other third-party platforms that solely rely on the carrier’s data feeds. We utilize a variety of input sources beyond the carrier’s data feed. Our proprietary “Predictive Analytics” technology is fed real-time meteorology data, traffic and road construction data, and power grid information to help predict issues before they happen. If an alert is created the shipper and our service center will work to address the issue and save the perishable product from spoiling, saving the shipper significant costs and reducing the need to replace products that are no longer viable. We have meteorologists on staff that track world-wide weather patterns to address predicted issues before they happen. We believe the company has two significant areas of opportunity. First, our services are specifically designed to address the needs of small and medium size agriculture, food and beverage companies. Second, the pharmaceutical and healthcare industries represent significant opportunities due to the enhanced tracking and customer service associated with distribution of these products. We are focusing our sales emphasis on those industries. 31 Table of Contents Building logistics infrastructure is a capital-intensive process as the investment is locked in for a considerably long period. Due to the current economic environment, and our cost competitive offering, we believe companies may opt to outsource their precision logistics services to reduce their operational costs. The outsourcing of supply chain related and other logistics operations to service providers such as ours allows companies to improve the efficiency of their businesses by focusing their resources on core competencies. We believe outsourcing this function to our Precision Logistics segment provides the ideal solution for all parties involved. Authentication: On September 24, 2024, Paul Ryan, Executive Vice President, Authentication Segment, notified us of his resignation effective December 24, 2024. On October 4, 2024, we placed Mr. Ryan on garden leave, meaning he remains employed by us but is only working for us upon request. On November 8, 2024, our Board of Directors approved closing the Trust Codes Global business by the end of November 2024 unless we can find a purchaser for the Trust Codes Global business prior to the end of November 2024. We made this decision in order to deploy the cash generated by our Precision Logistics segment to pursue potential acquisitions to fund growth and further invest in our Precision Logistics segment. Partnerships: Precision Logistics has a direct partnership with a major global carrier company and has data feeds directly from the carrier into our proprietary logistics optimization software which provides shippers much more detailed information and predictive analytics on their shipment versus a standard shipping code look up which is provided by the carrier. In addition to relying on this strategic partner for shipping services we have a service agreement pursuant to which this strategic partner resells our services to its customers under a “white label” arrangement. Under this arrangement we provide our logistics services to our strategic partner’s customers in exchange for a pre-negotiated service fee per shipment. Our strategic partner has begun to provide its own service offerings to its customers and while we will continue to offer our Premium services, we expect our partner will prefer to offer their solution to customers as the primary recommendation and our solution will be offered as a secondary solution. This does not affect our proactive services, and we expect to see growth under that service offering as we focus on providing proactive services to customers directly. Our Authentication segment has a contract with HP Indigo, and a strategic partnership with INX, the third largest producer of inks in North America. We believe these partnerships can be used to enable brand owners to securely prevent counterfeiting, prevent product diversion and authenticate labels, packaging and products alleviating liability from counterfeit products that harm consumers. Current Economic Environment In response to market conditions and lower demand some carriers have implemented strategies to address a potential global recession. In April 2023, the major carrier that PeriShip Global partners with laid out steps it was taking to slash $4 billion in permanent costs by the end of its 2025 fiscal year in response to these market conditions and lower demand. In June 2023, the major carrier stated that due to ongoing demand, it plans to ground 29 more aircraft in its fiscal year that started in June 2024. In mid-December 2023, the carrier forecasted a low single digit percentage decline in revenue year over year for 2024. We have seen a softening in demand for some services related to high-end perishable items which seem to be impacted by reduced discretionary spending by U.S. consumers. While a recession, whether global or more localized to the U.S., may decrease the demand for our services that are more discretionary in nature, we believe that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service providers. We are working with this major global carrier to address their small and medium-sized business clients, which we believe is an underserved market and presents growth opportunities for our Precision Logistics segment. However, we can provide no assurances that a decline in discretionary consumer spending will not have a negative impact on our revenues and results of operations. Seasonality We experience seasonal fluctuations in our net revenues from sales in our Precision Logistics segment. Revenues from sales are generally higher in the fourth quarter than in other quarters due to increased holiday shipments. The seasonality of our business may cause fluctuations in our quarterly operating results. Results of Operations Comparison of the three months ended September 30, 2024, and 2023 The following discussion analyzes our results of operations for the three months ended September 30, 2024, and 2023. Revenue Three Months Ended September 30, 2024 2023 Precision Logistics $ 5,303 $ 5,457 Authentication 132 147 Total Revenue $ 5,435 $ 5,604 32 Table of Contents Consolidated revenue decreased by $169 thousand during the third quarter of 2024 compared to the third quarter of 2023. T he growth in the Authentication segment has not materialized, and while the growth in the Precision Logistics segment Proactive services increased, this was more than offset by the previously disclosed discontinued contract with one customer in our Premium services . The Proactive services revenue grew 9% in Q3 2024 compared to Q3 2023. The Precision Logistics segment accounted for 98% of the revenue for the quarter. Gross Profit Three Months Ended September 30, 2024 2023 % of Revenue % of Revenue Precision Logistics $ 1,777 34 % $ 1,909 35 % Authentication 118 89 % 137 94 % Total Gross Profit $ 1,895 35 % $ 2,046 37 % Gross profit for the three months ended September 30, 2024, was $1,895 thousand, compared to $2,046 thousand for the three months ended September 30, 2023. The resulting gross margin was 35% for the three months ended September 30, 2024, compared to 37% for the three months ended September 30, 2023. The decrease in gross margin was principally due to the discontinued contract in Premium services in the Precision Logistics segment which has higher margins. The Proactive services revenue gross margin percentage improved in Q3 2024 compared to Q3, 2023. Segment Management and Technology Segment management and technology expenses decreased by $12 thousand to $1,329 thousand for the three months ended September 30, 2024, compared to $1,341 thousand for the three months ended September 30, 2023. The decrease relates primarily to a reduction in salaries with reduction in management. Amortization and depreciation expense was $306 thousand for the three months ended September 30, 2024, compared to $295 thousand for the three months ended September 30, 2023. General and Administrative Expenses General and administrative expenses decreased by $400 thousand to $778 thousand for the three months ended September 30, 2024, compared to $1,178 for the three months ended September 30, 2023. The decrease primarily relates to the $247 thousand severance expense in 2023 that did not recur in 2024. Stock compensation expense was $334 thousand for the three months ended September 30, 2024, compared to $452 thousand for the three months ended September 30, 2023, primarily due to reduction in Director compensation. Research and Development Research and development expenses were $5 thousand for the three months ended September 30, 2024, and 2023. Sales and Marketing Sales and marketing expenses increased by $24 thousand to $401 thousand for the three months ended September 30, 2024, compared to $377 thousand for the three months ended September 30, 2023. The increase is primarily related to increased salaries and marketing expenses in the Precision Logistics segment, partially offset by a reduction in salaries and travel in the Authentication segment. Goodwill and Intangible Asset Impairment As a result of a long-lived asset and goodwill asset impairment assessments performed in the third quarter of 2024, an intangible asset impairment charge of $901 thousand and a goodwill impairment charge of $1,351 thousand was recorded for the three months ended September 30, 2024, which represents the amount by which the net carrying value in the Authentication segment exceeded the fair value of the segment, primary due to changes to the forecasted cashflows of the segment. Interest Expense, net Interest expense, net was $29 thousand for the three months ended September 30, 2024, compared to $39 thousand for the three months ended September 30, 2023. Net Loss Consolidated net loss for the three months ended September 30, 2024, and 2023 was $2,424 thousand and $930 thousand, respectively. The decreased loss was primarily related to the goodwill and intangible asset impairment noted above partially offset by a gain in contingent consideration of $475 thousand. The resulting consolidated loss per share for the three months ended September 30, 2024, and three months ended September 30, 2023, was $0.23 and $0.09 per diluted share, respectively. 33 Table of Contents Comparison of the nine months ended September 30, 2024, and 2023 The following discussion analyzes our results of operations for the nine months ended September 30, 2024, and 2023. Revenue Nine Months Ended September 30, 2024 2023 Precision Logistics $ 16,161 $ 16,085 Authentication 385 515 Total Revenue $ 16,546 $ 16,600 Consolidated revenue decreased $54 thousand for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease is primarily due to a decrease in our Authentication segment related to a project in 2023 that did not recur partially offset by an increase in Precision Logistics. Gross Profit Nine Months Ended September 30, 2024 2023 % of Revenue % of Revenue Precision Logistics $ 5,903 37 % $ 4,748 30 % Authentication 342 89 % 405 79 % Total Gross Profit $ 6,245 38 % $ 5,153 31 % Gross profit for the nine months ended September 30, 2024, was $6,245 thousand, compared to $5,153 thousand for the nine months ended September 30, 2023. The resulting gross margin was 38% for the nine months ended September 30, 2024, compared to 31% for the nine months ended September 30, 2023. The gross profit increase relates to the increased Premium services revenue which has higher margins as well as process improvements to increase Proactive services margins in the Precision Logistics segment. Segment Management and Technology Segment management and technology expenses increased by $492 thousand to $4,189 thousand for the nine months ended September 30, 2024, compared to $3,697 thousand for the nine months ended September 30, 2023. The increase relates primarily to the acquisition of Trust Codes Global in March 2023, lower capitalized labor costs and severance expense of $129 thousand. Amortization and depreciation expense of $905 thousand for the nine months ended September 30, 2024, compared to $835 thousand for the nine months ended September 2023. General and Administrative Expenses General and administrative expenses decreased by $613 thousand to $2,780 thousand for the nine months ended September 30, 2024, compared to $3,393 thousand for the nine months ended September 30, 2023. The decrease relates primarily to the deal costs related to the acquisition of the Trust Codes Global business of $278 thousand, as well as severance expense in 2023. Research and Development Research and development expenses were $65 thousand and $23 thousand for the nine months ended September 30, 2024, and 2023, respectively primarily due to additional projects in the Authentication segment. Sales and Marketing Sales and marketing expenses decreased by $404 thousand to $999 thousand for the nine months ended September 30, 2024, compared to $1,403 thousand for the nine months ended September 30, 2023. The decrease is primarily related to a reduction in employees and consultants in the Authentication segment, a reduction in stock compensation in Precision Logistics, partially offset by an increase in employees in Precision Logistics. 34 Table of Contents G oodwill and Intangible Asset Impairment As a result of a long-lived asset and goodwill asset impairment assessments performed in the third quarter of 2024, an intangible asset impairment charge of $914 thousand and a goodwill impairment charge of $1,351 thousand was recorded for the nine months ended September 30, 2024, which represents the amount by which the net carrying value in the Authentication segment exceeded the fair value of the segment, primary due to changes to the forecasted cashflows of the segment. Interest Expense Interest expense was $109 thousand for the nine months ended September 30, 2024, compared to interest expense of $127 thousand for the nine months ended September 30, 2023. Net Loss Consolidated net loss for the nine months ended September 30, 2024, and 2023 was $3,323 thousand and $3,392 thousand, respectively. The decreased loss was primarily related to an improvement in gross profit and a gain relating to the change in the fair value of the contingent consideration related to the acquisition of Trust Codes Global, offset by the goodwill and intangible asset impairment charge in 2024. The resulting consolidated loss per share for the nine months ended September 30, 2024, and nine months ended September 30, 2023, was $0.32 and $0.35 per diluted share, respectively. Liquidity and Capital Resources Cash provided by operating activities was $302 thousand during the nine months ended September 30, 2024, compared to cash used by operating activities of $599 thousand during the comparable period in 2023. The increase in cash is primarily due to the non-cash add backs to net loss. Cash used in investing activities was $353 thousand during the nine months ended September 30, 2024, compared to $1,080 thousand during the nine months ended September 30, 2023. The decrease in spending in investing activities related to a decrease in capitalized software costs and a decrease in acquisition costs. The acquisition of the Trust Codes Global business was in March 2023. Cash used in financing activities during the nine months ended September 30, 2024, was $438 thousand compared to cash provided by financing activities during the nine months ended September 30, 2023, of $1,277 thousand. The decrease relates mainly to the proceeds from the line of credit of $800 thousand and convertible debt of $1,100 thousand that occurred in the nine months ended September 30, 2023. On August 25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory notes for the aggregate principal amount of $1,100 thousand of which $475 thousand was purchased by relating parties including certain members of management and the Board of Directors. As of September 30, 2024, $450 thousand is held by related parties after one member of management left the Company. The notes are subordinated unsecured obligations of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears on February 25 and August 25 of each year, beginning on February 25, 2024. The notes will mature on August 25, 2026 unless earlier converted or repurchased at a conversion price of $1.15 per share of common stock. The Company may not redeem the notes prior to the maturity date. As of September 30, 2024, the amount outstanding on the convertible debt was $1,100 thousand and included in Convertible Note, and Convertible Note – related party on the accompanying Consolidated Balance Sheets. The Company has accrued interest expense of $9 thousand as of September 30, 2024. On September 22, 2022, PeriShip Global became a party to the PNC Facility with PNC Bank, National Association. The PNC Facility includes a $1 million RLOC with a term of one-year, which was extended to December 14, 2023. We also entered into an amended and restated loan agreement with PNC effective October 31, 2023, which provided amendments to a number of affirmative and restrictive covenants applicable to PeriShip Global and extended the RLOC to September 30, 2024. We entered into a waiver and amendment on August 14, 2024 which provided a waiver for a certain event of default and extended the RLOC to September 30, 2025. 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. As of September 30, 2024, we had no borrowings under the RLOC. The PNC Facility also includes a four-year Term Note for $2 million which matures in September of 2026 and requires equal quarterly payments of principal and interest. The Term Note incurs interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%. The RLOC and Term Note are guaranteed by VerifyMe and secured by the assets of PeriShip Global and VerifyMe. 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. 35 Table of Contents Of the proceeds of $2.0 million from the Term Note, we used $1.8 million to settle debt outstanding issued in connection with the PeriShip Global acquisition, including the redemption of 61,000 shares of our common stock. As of September 30, 2024, our short-term debt outstanding under the Term Note was $0.5 million and total long-term debt outstanding under the Term Note was $0.5 million. Effective October 17, 2022, we entered into an interest rate swap agreement, with a notional amount of $1,958 thousand, effectively fixing the interest rate on our outstanding debt at 7.602%. In December 2023, the Company’s Board of Directors approved a new share repurchase program to allow the Company to spend up to $0.5 million to repurchase shares of its common stock so long as the price per share does not exceed $1.00 until December 14, 2024. During the nine months ended September 30, 2024, the Company repurchased 1,000 shares of common stock for $1 thousand under the Company’s current program. We believe that our cash and cash equivalents will fund our operations for the next 12 months. We may issue additional debt or equity as we grow our business which we expect to grow organically, and if the opportunity arises, through key acquisitions that will help accelerate the growth of our business. Off-Balance Sheet Arrangements None. Critical Accounting Policies and Estimates Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial position, results of operations or cash flows. Revenue Recognition Our revenue transactions include logistics management for time and temperature sensitive packages, sales of our ink canisters, software, licensing, pre-printed labels, integrated solutions, and leasing of our equipment. We recognize revenue based on the principals established in ASC Topic 606, “ Revenue from Contracts with Customers .” Revenue recognition is made when our performance obligation is satisfied. Our terms vary based on the solutions we offer and are examined on a case-by-case basis. For licensing our VerifyInk TM technology we depend on the integrity of our clients’ reporting. Goodwill We have recorded goodwill as part of our acquisitions, which represents the excess of purchase price over the fair value of net assets acquired in the business combinations. Pursuant to ASC 350, the Company will test goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment test. The assessment considers factors such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and our share price. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. On September 24, 2024, Paul Ryan, Executive Vice President, Authentication Segment, notified us of his resignation effective December 24, 2024. On October 4, 2024, we placed Mr. Ryan on garden leave, meaning he remains employed by us but is only working for us upon request. During the quarter, we have identified concerns relating to the commercial viability of this segment and we are evaluating a number of strategic alternatives for our Authentication segment. As a result, the Company made revisions to our internal forecasts and concluded that in accordance with ASC 350 a triggering event occurred indicating that potential impairment exists, which required the Company to conduct an interim test of the fair value of the goodwill for the Authentication segment. We performed a quantitative goodwill impairment test and determined the fair value of our reporting units using a combination of an income approach, employing a discounted cashflow model, and a market approach, employing a guideline public company approach. The results of our goodwill impairment test indicated that the carrying value of the Authentication reporting unit exceeded its estimated fair value. As a result, the Company recorded a goodwill impairment charge of $1,351 thousand during the three and nine months ended September 30, 2024, within goodwill and intangible asset impairment on the consolidated statement of operations. 36 Table of Contents Intangibles We review long-lived assets for impairment when performance expectations, events, or changes in circumstances indicate that the asset’s carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cashflows by comparing the carrying value of the asset to the undiscounted cashflow. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique. As a result, of the revised internal forecasts, the Company concluded that this change was an interim triggering event for the three months ended September 30, 2024, indicating the carrying value of our long-lived assets including patents and trademarks, customer relationships, and developed technology may not be recoverable. Accordingly, the Company performed an interim impairment test and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value to the net undiscounted cashflow expected to be generated. The analysis indicated that certain intangible assets were impaired. The Company recorded an intangible impairment charge of $901 thousand during the three months ended September 30, 2024, within goodwill and intangible asset impairment on the consolidated statement of operations. Stock-based Compensation We account for stock-based compensation under the provisions of FASB ASC 718, “ Compensation—Stock Compensation ”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line method. For restricted stock units 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 restricted stock unit’s contractual life based on the appropriate probability distributions (which are based on commonly applied Black Scholes inputs). The fair value was determined by taking the average of the grant date fair values under each Monte Carlo simulation trial. We recognize compensation expense on a straight-line basis over the performance period and there is no ongoing adjustment or reversal based on actual achievement during the period. We account for stock-based compensation awards to non-employees in accordance with ASU No. 2018-07, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, “ Equity – Equity-Based Payments to Non-Employees ”. All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments are recorded as an expense over the service period, as if we had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity-based payments will be re-measured, and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed. Recently Adopted Accounting Pronouncements Recently adopted accounting pronouncements are discussed in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements. 37 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures 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 September 30, 2024, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2024, 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. (b) Changes in Internal Control over Financial Reporting There have been no other changes in our internal controls over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 38 Table of Contents PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 1A. RISK FACTORS. For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC, and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, and subsequent Quarterly Reports on Form 10-Q, except as noted herein. Our Precision Logistics segment relies on one key strategic partner for shipping services for our customers and as a source for customers representing a substantial percentage of our revenues. Our business is dependent, and we believe that it will continue to depend on our relationship with one strategic partner. PeriShip Global partners with one major global carrier for all its customers’ shipping needs. While we work closely with this key strategic partner and have transportation services and pricing agreements in place covering the shipping services they provide to our customers, such agreements are subject to termination or modification from time to time. If our strategic partner is unwilling or unable to supply to us the shipping services we market and sell on acceptable terms, or at all, or otherwise elects to terminate its business relationship with us, we may not be able to obtain alternative shipping services from other providers on acceptable terms, in a timely manner, or at all, and our business may be materially and adversely impacted. We do not currently have any alternative shipping service suppliers from which we can obtain the shipping services we currently receive from our strategic partner. Establishing the necessary information technology infrastructure and business relationship with another shipping services provider would be costly and time consuming and may ultimately not be successful or cost-effective. Further, any increase in the prices charged by our single strategic partner or failure to perform by our strategic partner could cause our costs to increase or could cause us to experience short-term unavailability of shipping services on which our business relies. In particular, delays and other shipping disruptions at our strategic partner significantly negatively impact our business. Our business involves the shipment of time and temperature sensitive goods, so our customers are significantly negatively impacted by delays and other shipping disruptions that cause product loss, spoilage and reputational harm. An increase in delays and other shipping disruptions on the part of our strategic partner could cause our clients to seek shipping solutions from our competitors who use alternative shipping service providers. If these events occur, it may reduce our profitability or may cause us to increase our prices. In addition, any material interruptions in shipping services by this strategic partner may result in significant cost increases and reduce sales, which could harm our business, financial condition and results of operations and may have a material adverse impact on our business. In addition to relying on this strategic partner for shipping services, a material portion of our revenue has been generated through a service agreement pursuant to which this strategic partner resells our services to its customers under a “white label” arrangement. Under this arrangement we provide our logistics services to our strategic partner’s customers in exchange for a pre-negotiated service fee per shipment. Sales through our strategic partner accounted for approximately 17% of revenue of our Precision Logistics segment for the year ended December 31, 2023, and 20% for the nine months ended September 30, 2024. Our strategic partner has begun to provide its own service offerings to its customers, and we expect revenue from our Premium Services in our Precision Logistics segment will begin to decrease as we experience a reduction in business for these services. If we fail to offset a reduction in business for our Premium Services in our Precision Logistics segment through our ProActive Services or other service offerings, our business, financial condition and results of operations could be materially adversely affected. The Company has significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on the Company's financial results. The Company has recorded significant goodwill and other identifiable intangible assets on its balance sheet as a result of its acquisition of the PeriShip business in 2022 and Trust Codes business in 2023. A number of factors may result in impairments to goodwill and other intangible assets, including significant negative industry or economic trends, disruptions to our business, increased competition and significant changes in the use of the assets. 39 Table of Contents On September 24, 2024, Paul Ryan, Executive Vice President, Authentication Segment, notified us of his resignation effective December 24, 2024. On October 4, 2024, we placed Mr. Ryan on garden leave, meaning he remains employed by us but is only working for us upon request. During the quarter, we have identified concerns relating to the commercial viability of this segment and on November 8, 2024 the Company made the decision to close Trust Codes Global by the end of November 2024 unless we can find a buyer for this business. As a result, the Company made revisions to our internal forecasts and concluded that in accordance with ASC 350 a triggering event occurred indicating that potential impairment exists, which required the Company to conduct an interim test of the fair value of the goodwill for the Authentication segment. The results of our goodwill impairment test indicated that the carrying value of the Authentication reporting unit exceeded its estimated fair value. As a result, the Company recorded a goodwill impairment charge of $1,351 thousand during the three and nine months ended September 30, 2024, within goodwill impairment charge on the consolidated statement of operations. As a result of the revised internal forecasts, the Company concluded that this change was an interim triggering event for the three months ended September 30, 2024, indicating the carrying value of our long-lived assets including patents and trademarks, customer relationships, and developed technology may not be recoverable. Accordingly, the Company performed an interim impairment test and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value to the fair value. The analysis indicated that certain intangible assets were impaired. The Company recorded an intangible impairment charge of $901 thousand during the three months ended September 30, 2024, within impairment loss on intangibles on the consolidated statement of operations. Impairment charges could adversely affect the Company's financial condition or results of operations in the periods recognized. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. On September 30, 2024, the Company issued 60,000 shares of common stock for services rendered to the Company pursuant to a Consulting Agreement between the Company and Pentant LLC, effective November 15, 2023, as amended June 30, 2024 (the “Consulting Agreement”). The securities issued pursuant to the Consulting Agreement were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. Share Repurchase Plan ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Units) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1 (In thousands) 07/01/2024-07/31/2024 - - - - 08/01/2024-08/31/2024 - - - - 09/01/2024-09/30/2024 - - - - Total - - - $499 (1) Purchases made pursuant to the Company’s share repurchase program announced on December 8, 2023, pursuant to which the Company is authorized to purchase up to $0.5 million worth of shares of its common stock so long as the price per share does not exceed $1.00. Under the repurchase program, shares of the Company’s common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be suspended or discontinued at any time until it expires on December 14, 2024. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 40 Table of Contents ITEM 5. OTHER INFORMATION. During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. ITEM 6. EXHIBITS Exhibit No. Description 10.1# Form of Salary Reduction Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 5, 2024). 10.2# Form of RSU Award Agreement (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 5, 2024). 10.3* Waiver and Amendment to Loan Documents between PeriShip Global LLC and PNC Bank National Association effective August 7, 2024 31.1* Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). *Filed herewith **Furnished herewith # Denotes management compensation plan or contract 41 Table of Contents SIGNATURE S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VERIFYME, INC. Date: November 12, 2024 By: /s/ Adam Stedham Adam Stedham Chief Executive Officer and President (Principal Executive Officer) Date: November 12, 2024 By: /s/ Nancy Meyers Nancy Meyers Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 42