What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-12 compared with 2024-03-29 · 195 added, 236 removed, 206 unchanged (68% of the section changed)

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VerifyMe, Inc.

(“VerifyMe”) together

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

Global”), (together the “Company,” “we,” “us,” or “our”), is 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:

(“VerifyMe,” the

“Company,” “we,” “us,” or “our”), is a specialized logistics company that specializes

in time and temperature sensitive products, as well as providing brand protection and enhancement solutions.

We operate a Precision Logistics

segment which includes the operations of our subsidiary PeriShip Global and accounts for nearly all VerifyMe revenue, and an Authentication

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 deter counterfeit

Further information regarding our business segments

is discussed below:

Precision Logistics:

The Precision Logistics

(formerly PeriShip Global Solutions) 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.

The Precision Logistics segment specializes in predictive analytics for optimizing delivery of time and temperature sensitive perishable

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

Through our proprietary PeriTrack ® customer

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Authentication :

The Authentication (formerly

VerifyMe Solutions) 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.

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 Engage™ for brand enhancement allowing the brand owner to gather business intelligence and engage with customers

· 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

The Authentication segment

specializes in anti-counterfeit and brand protection.

This is critical in the current landscape of increased counterfeit activity and

customer expectations.

VerifyMe has patented technologies that address the needs of brands.

Opportunities

Precision Logistics:

Traditionally,

most shipping businesses utilize the carrier’s data platform for tracking which generally informs the shipping enterprise, and their

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.

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We are focusing our sales emphasis on those industries.

we believe that combining our authentication solutions into the product offering for Precision Logistics clientele, gives our Precision

Logistics segment a competitive advantage to generate revenue by enhancing clients’ ability to grow revenue, gain business intelligence

and build brand loyalty.

logistics industry is facing an economic

We believe this represents an opportunity since major global carriers are cutting internal staff.

These carriers are looking

for lower cost alternatives to service their customers as well as partners that can help the carrier increase revenues.

To maintain their

credibility in the market, these carriers will need to ensure they meet their customers’ demands for time and temperature sensitive

shipments, while maintaining their overheads.

We believe outsourcing this function to our Precision Logistics segment provides the ideal

solution for all parties involved.

Building logistics infrastructure is a capital-intensive

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Due to the current economic environment, and our cost competitive

offering, we believe companies will opt to outsource their precision logistics services to reduce their operational costs.

offering, we believe companies may opt to outsource their precision logistics services to reduce their operational costs.

The outsourcing

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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:

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in our Authentication segment have applications in many areas.

Currently, we are aggressively marketing opportunities in the following

· Agriculture, Food and Beverage – Food safety is becoming more common as supply chains become more

global and as imaging and manufacturing technology become more accessible.

Food traceability, sustainability and carbon neutral production

is becoming a significant consideration for brand and governments.

We believe our unit level traceability and authentication solutions

can help brands tell their story about sustainability and battle against tainted or substandard foods and beverages.

· Pharmaceuticals/nutraceuticals – We believe counterfeit prescription pharmaceuticals and nutraceuticals

are a growing problem, widely recognized as a public health risk and a serious concern to public health officials, private companies,

and consumers.

Counterfeiting can apply to both branded and generic products and counterfeit pharmaceuticals may include products with

the correct ingredients but fake packaging, with the wrong ingredients, without active ingredients or with insufficient active ingredients.

The United States enacted legislation requiring the implementation of a comprehensive system designed to combat counterfeit, diluted or

falsely labelled pharmaceuticals, referred to as serialization or electronic pedigree (e-Pedigree).

Our consumer facing visible codes

and unique pigments embedded in the ink of a unique serialized barcode can provide a layered security foundation for a customer solution

in this market.

We are seeking to expand our business in this market and believe that as additional pharmaceutical companies seek to comply

with the legislation, our products will provide attractive alternatives to address the need for product identifiers.

· Consumer Products – We believe our technology solutions are particularly suited for the cosmetics,

health and beauty and apparel industries.

We give the consumer the ability to test a product’s authenticity instantly with a smartphone.

We can protect brand owners from liability litigation, product diversion and lost financial sales with our consumer facing visible codes

and unique ink pigments which can be incorporated in dyes and used by manufacturers in these industries to combat counterfeiting and piracy

of actual physical goods.

Our pigments expressed as inks can also be used on packaging, as well as to track products that have been lost

in transit, whether misplaced or stolen.

in each of these markets, our SaaS software allows brand owners and consumers to track the products and will alert the consumer or brand

owner of product diversion with 24/7 monitoring.

As each product has a unique code, this allows consumers and brand owners to authenticate

the product in real time and link directly to the brand owner’s website for additional product information, discounts, and more.

We believe that Precision Logistics

and Authentication segments have synergistic product centric technology platforms and combined have a compelling technology offering for

brand owners.

For example, currently our Precision Logistics segment ships vaccines for major pharmaceutical companies.

With the addition

of our Authentication technology, we can add unit level traceability and authentication to protect clients’ vaccines from product

diversion and sub-standard counterfeits.

In addition, our Authentication segment brand enhancement solutions could give the Precision

Logistics food and beverage clients the ability to gather rich business intelligence and build customer loyalty with engagement functions

like videos, discounts, contests, recipes, etc.

Currently, we are marketing opportunities in the areas of preventing counterfeit

and protecting customer brands.

Results of Operations

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Consolidated revenue for the year ended December 31,

2023, was $25,313 thousand, a 29% increase compared to $19,576 thousand, for the year ended December 31, 2022.

increase in revenue primarily relates to the acquisition of the PeriShip Global business on April 22, 2022, which increased revenue by

$6,462 thousand for the twelve months ended December 31, 2023, partially offset by a $725 thousand decline in the Authentication revenue.

The Authentication segment maintained its existing client base but had reduced orders in the nutraceutical market in 2023.

2024, was $24,207 thousand, a 4% decrease compared to $25,313 thousand, for the year ended December 31, 2023.

decrease in our Precision Logistics segment primarily relates to a discontinued contract with one customer in our Premium services.

addition, with Thanksgiving arriving later than usual in 2024, there were fewer days from Black Friday to December 31, making this the

shortest peak season since 2019.

The Authentication segment did not grow during 2024 and we divested Trust Codes Global on December

(In thousands)

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December 31, 2024, compared to 32% for the year ended December 31, 2023.

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

the PeriShip Global business acquired on April 22, 2022, which is included for the full twelve months of 2023.

The Precision Logistics

segment had increased premium services revenue which has higher margins as well as process improvements to increase proactive services

With the acquisition of Trust Codes in March 2023, providing custom software, our margins in the Authentication segment also

The gross profit increase relates to the process improvements

to increase Proactive services margins in the Precision Logistics segment.

Segment Management and Technology

Segment management and technology expenses increased

by $357 thousand to $5,454 thousand for the year ended December 31, 2024, compared to $5,097 thousand for the year ended December 31,

The increase relates primarily to the acquisition of Trust Codes Global in March 2023, lower capitalized labor costs and severance

expense of $163 thousand in 2024.

Amortization and depreciation expense was $1,212 thousand for the year ended December 31, 2024, compared

to $1,134 thousand for the year ended December 31, 2023.

General and Administrative Expenses

General and administrative expenses were $10,586

thousand for the year ended December 31, 2023, compared to $8,428 thousand for the year ended December 31, 2022, an increase

of $2,158 thousand.

The increase relates to the acquisition of the PeriShip Global business on April 22, 2022 included for the full

twelve months of 2023, the deal transaction costs related to the acquisition of the Trust Codes Global business of $278 thousand, operations

related to Trust Codes, as well as severance expense of approximately $590 thousand which has been paid in full by the end of January

2024, partially offset by costs related to the acquisition of the PeriShip Global business of $661 thousand in 2022 that did not recur

Stock-based compensation was $1,509 thousand, including $121 thousand relating to severance in 2023, compared to $1,375 thousand

Amortization and depreciation expense was $1,134 thousand and $770 thousand for the twelve months ended December 30, 2023, and

2022, respectively.

General and administrative expenses decreased

by $564 thousand to $3,852 thousand for the year ended December 31, 2024, compared to $4,416 thousand for the year ended December 31,

The decrease relates primarily to the deal costs related to the acquisition of the Trust Codes Global business of $278 thousand,

and higher severance expense in 2023.

Research and Development

Research and development expenses increased by

$18 thousand to $107 thousand for the year ended December 31, 2023, from $89 thousand for the year ended December 31, 2022.

The increase was primarily related to research and development activities as a result of the acquisition of Trust Codes during the first

quarter of 2023.

Research and development expenses were $70 thousand

for the year ended December 31, 2024, compared to $107 thousand for the year ended December 31, 2023, primarily due to fewer projects

in the Authentication segment in 2024.

Sales and Marketing

Sales and marketing expenses for the year ended

December 31, 2023, were $1,638 thousand compared to $1,718 thousand for the year ended December 31, 2022, a decrease of $80

The decrease is related to a reduction in employees and consultants in the Authentication segment partially offset by the

PeriShip Global business included for the full twelve months of 2023.

Our net loss for the year ended December 31, 2023,

was $3,390 thousand, compared to $14,398 thousand for the year ended December 31, 2022.

The decreased loss was primarily due to the impairment

of the SPAC of $10,932 thousand during 2022.

The resulting consolidated loss per diluted share for the year ended December 31, 2023, was

$0.35 compared to a consolidated loss per diluted share of $1.70 for the year ended December 31, 2022.

Sales and marketing expenses decreased by $283

thousand to $1,361 thousand for the year ended December 31, 2024, compared to $1,644 thousand for the year ended December 31, 2023.

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.

Goodwill and Intangible Asset Impairment

As a result of a long-lived asset and goodwill

asset impairment assessment performed in 2024, intangible asset impairment charges of $964 thousand and a goodwill impairment charge of

$1,351 thousand was recorded for the year ended December 31, 2024, which primarily 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.

On December 8, 2024, we divested our Trust Codes business in the Authentication segment.

Interest Expense, net

Interest expense, net was $130 thousand for the

year ended December 31, 2024, compared to $161 thousand for the year ended December 31, 2023.

Consolidated net loss for the year ended December

31, 2024, and 2023 was $3,824 thousand and $3,390 thousand, respectively.

The increased loss was primarily related to the goodwill and

intangible asset impairment noted above partially offset by a gain in contingent consideration of $844 thousand and improvement in gross

The resulting consolidated loss per share for the year ended December 31, 2024, and year ended December 31, 2023, was $0.37 and

$0.35 per diluted share, respectively.

Liquidity and Capital Resources

Our operations provided $871 thousand of cash

during the year ended December 31, 2023, compared to $2,551 thousand cash used in operations during the year end December 31, 2022.

increase in cash from operations is due to a favorable change in working capital accounts during 2023 compared to 2022 from our acquisition

of PeriShip Global in April of 2022.

during the year ended December 31, 2024, compared to $244 thousand cash during the year end December 31, 2023.

The increase in cash from

operations is primarily due to the non-cash addbacks to net loss.

Net cash used in investing activities was $575

thousand for the year ended December 31, 2024, compared to $1,195 thousand for the year ended December 31, 2023.

During the year

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

Net cash provided by financing activities for

the year ended December 31, 2023, was $634 thousand compared to $4,424 thousand for the year ended December 31, 2022, related to proceeds

from issuance of convertible debt in 2023 and debt and offerings of our common stock in 2022.

On December 8, 2023, we announced a new $0.5 million

share repurchase program to repurchase shares of the Company’s common stock through December 14, 2024, but may be modified, suspended

or discontinued at the discretion of the Board at any time.

To date, no shares have been purchased under the program.

The decrease in

spending in investing activities related to a decrease in capitalized software costs and the acquisition of the Trust Codes Global business

in March 2023.

Net cash used in financing activities for the

year ended December 31, 2024, was $616 thousand primarily related to repayments toward the PNC Facility, compared to cash provided by

financing activities of $634 thousand for the year ended December 31, 2023, primarily related to proceeds from the PNC Facility and issuance

of convertible debt in 2023 offset by repayments towards the PNC Facility.

On January 13, 2025, we entered into an

Inducement Letter Agreement with an institutional investor and holder of existing warrants to purchase up to 1,461,896 shares of our

common stock, for $4.7 million in gross proceeds.

The existing warrants were originally issued on April 14, 2022, with an exercise price of

$3.215 per share, and became exercisable six months following issuance.

the Inducement Letter Agreement, the holder agreed to exercise the existing warrants for cash at the exercise price of $3.215 per

share in consideration for our agreement to issue a new unregistered warrant to purchase up to an aggregate of 1,461,896 shares of

common stock at an exercise price of $4.00 per share.

The new warrant was immediately exercisable upon issuance and has a term of

five and one-half years from the issuance date.

On November 26, 2024, we announced an extension

of the $0.5 million share repurchase program to repurchase shares of the Company’s common stock through December 31, 2025.

repurchase program may be modified, suspended or discontinued at the discretion of the Board at any time.

During the year ended

December 31, 2024, the Company repurchased 21,100 shares of common stock for $18 thousand under the program.

25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory

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by relating parties including certain members of management and the Board of Directors.

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.

As of December 31, 2024, $450 thousand was 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

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 December 31, 2023, 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 $31 thousand related to the convertible note

as of December 31, 2023.

As of December 31, 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 $31 thousand related to the convertible note as of December 31,

As of January 21, 2025, $350 thousand was converted to common stock.

On September 22, 2022, we entered into the PNC

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until maturity, and bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments.

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%.

Term Note are guaranteed by the Company and secured by the assets of PeriShip and the Company.

is guaranteed by the Company and secured by the assets of PeriShip Global and the Company.

As of December 31, 2024, $0 was outstanding

The PNC Facility also included a four-year Term

Note for $2 million which had a maturity date of September 2026 and required equal quarterly payments of principal and interest.

Note incurred interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%.

As of December 31, 2024, our short-term debt

outstanding under the Term Note was $500 thousand and total long-term debt outstanding under the Term Note was $375 thousand.

year ended December 31, 2024, the Company made a repayment of $500 thousand towards the principal of the outstanding Term Note.

January 21, 2025, the Term Note was paid in full and no future principal payments are due.

The PNC Facility includes a number of affirmative

and restrictive covenants applicable to PeriShip, including, among others, a financial covenant to maintain a fixed charge coverage ratio

of at least 1.10 to 1.00 at the end of each fiscal year, affirmative covenants regarding delivery of financial statements, payment of

taxes, and establishing primary depository accounts with PNC Bank, and restrictive covenants regarding dispositions of property, acquisitions,

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 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.

On November 3, 2023, we entered into a waiver and amendment to loan documents and received

a waiver for certain events of default.

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 were in compliance with all affirmative and

restrictive covenants under the PNC Facility at December 31, 2023.

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.

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.

We were not in compliance with all affirmative

and restrictive covenants under the PNC Facility at December 31, 2024.

On February 28, 2025, we received a waiver as of December 31, 2024,

for certain events of default.

Effective October 17, 2022, we entered into an

interest rate swap agreement, with a notional amount of $1,958 thousand, effectively fixing the interest rate on our outstanding debt

Of the proceeds of $2.0 million, we used $1.8

million to settle debt outstanding issued in connection with the PeriShip Global acquisition, including the redemption of 61,000 shares

of our common stock.

As of December 31, 2023, our short-term debt outstanding under the Term Note was $0.5 million and total long-term

debt outstanding under the Term Note was $0.9 million.

As of January 21, 2025, we terminated our interest rate swap agreement.

We believe that our cash and cash equivalents,

together with the proceeds from the convertible note, from debt issued and RLOC, will fund our operations for the next 12 months including

expected capital expenditures.

together with the proceeds from the convertible notes, warrant inducement, share repurchase program, and the amount available on the RLOC,

will fund our operations for the next 12 months including expected capital expenditures.

We expect to grow our business organically and

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We have identified that the estimates used in the valuation of the assets of the

PeriShip acquisition, and the Trust Codes acquisition are critical and require significant judgment.

We believe estimates and assumptions

related to these accounting policies are appropriate under the circumstances;

Trust Codes acquisition in March 2023, are critical and require significant judgment.

We believe estimates and assumptions related to

these accounting policies are appropriate under the circumstances;

however, should future events or occurrences result in unanticipated

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We recognize revenue based on the principals established

in ASC Topic 606, “ Revenue from Contracts with Customers .” Revenue recognition is made when our performance obligation

is satisfied at a point in time of delivery of the service.

Over 95% of our revenue is derived from logistics management for time and

temperature sensitive packages with the remaining from our traceability solutions.

Our terms vary based on the solutions we offer and

are examined on a case-by-case basis.

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

Determining whether products and services in agreements with non-standard terms are distinct performance obligations that should

be accounted for separately or combined to one unit of accounting may require significant judgement.

in the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue

from Contracts with Customers.

Revenue recognition is made when our performance obligation is satisfied at a point in time of delivery

of the service.

Over 95% of our revenue is derived from logistics management for time and temperature sensitive packages with the remaining

from our brand protection solutions.

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.

Determining whether products and services

in agreements with non-standard terms are distinct performance obligations that should be accounted for separately or combined to one

unit of accounting may require significant judgement.

The timing of revenue recognition, billings and

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

the contract assets have not significantly increased as of December 31, 2023, due to the business combination.

No other factors materially

impacted the balances.

the contract assets have not significantly changed as of December 31, 2024.

No other factors materially impacted the balances.

Business Combinations

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acquisition date.

Although we believe the assumptions and estimates we have made in relation to the acquisition of the PeriShip business

are appropriate, they are based, in part, on historical experience and information obtained from management of the acquired companies

and are inherently uncertain.

Critical estimates in valuing certain acquired intangible assets include, but are not limited to, future

expected cash flows including revenue growth rate assumptions from product sales, customer contracts and acquired technologies, estimated

royalty rates used in valuing technology related intangible assets, and discount rates.

The discount rates used to discount expected future

cash flows to present value are typically derived from a weighted-average cost of capital (“WACC”) analysis and adjusted to

reflect inherent risks.

Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions,

estimates or actual results.

Although we believe the assumptions and estimates we have made in relation to the acquisitions are appropriate, they

are based, in part, on historical experience and information obtained from management of the acquired companies and are inherently uncertain.

Critical estimates in valuing certain acquired intangible assets include, but are not limited to, future expected cash flows including

revenue growth rate assumptions from product sales, customer contracts and acquired technologies, estimated royalty rates used in valuing

technology related intangible assets, and discount rates.

The discount rates used to discount expected future cash flows to present value

are typically derived from a weighted-average cost of capital (“WACC”) analysis and adjusted to reflect inherent risks.

Unanticipated

events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results.

We allocate the fair value of the purchase price

of our acquisitions to the tangible assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair

values at acquisition date.

of our Trust Codes acquisition, to the tangible assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated

fair values at acquisition date.

The excess of the fair value of the purchase price over the fair values of these net tangible and intangible

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from the business combination and are expensed as incurred.

We have recorded goodwill as part of our acquisition

of the PeriShip business and Trust Codes business, which represents the excess of purchase price over the fair value of net assets acquired

in the business combinations.

Pursuant to ASC 350, the Company will test goodwill for impairment on an annual basis in the fourth

quarter, or between annual tests, in certain circumstances.

Under authoritative guidance, the Company first assessed qualitative factors

to determine whether it was necessary to perform the quantitative goodwill impairment test.

The assessment considers factors

such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and our share price.

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.

For our annual goodwill impairment test as of December 31, 2023, we performed

a qualitative assessment as permitted by ASU 2017-04 for our reporting units and determined that it was more likely than not that the

fair value exceeded their respective carrying value.

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

Topic 350, Intangibles—Goodwill and Other, 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, former Executive

Vice President, Authentication Segment, notified us of his resignation.

During the third quarter of fiscal year ended December 31, 2024,

we identified concerns relating to the commercial viability of the Authentication segment.

As a result, the Company made revisions to

our internal forecasts and concluded that in accordance with ASC Topic 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.

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.

the Company recorded a goodwill impairment charge of $1,351 thousand during the year ended December 31, 2024, within goodwill and intangible

asset impairment on the consolidated statement of operations.

On December 8, 2024 we divested the Trust Codes business in the Authentication

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

the provisions of ASC Topic 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.

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Improvements to Nonemployee

Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to

that of employees under the existing guidance of Topic 718, with certain exceptions.

This update supersedes previous guidance for equity-based

payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees.

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

12 unchanged sentences

Not applicable for smaller reporting companies.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements required to be filed pursuant to this Item 8

are appended to this Report beginning on page F-1 located immediately after the signature page and incorporated by reference in this Item

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis