VerifyMe, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures Conclusion Regarding the Effectiveness 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 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 December 31, 2024. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 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) Internal Control Over Financial Reporting Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, including our principal executive and principal financial officers, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024, using criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management has concluded that our internal controls over financial reporting was effective as of December 31, 2024. Changes in Internal Control over Financial Reporting There were no changes in internal control over financial reporting during the three months ended December 31, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Auditor’s Report on Internal Control Over Financial Reporting This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Report. ITEM 9B. OTHER INFORMATION. During the three months ended December 31, 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 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not Applicable. 28 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Adam H Stedham, age 56, has served as one of our directors since April 2022. Mr. Stedham has served as our Chief Executive Officer since June 2023 and as our President since August 2023. Mr. Stedham was a senior executive of Learning Technologies Group plc and was CEO of GP Strategies from June 2020 until June 2023. He also served as President of GP Strategies from November 2017 to October 2021. Mr. Stedham joined GP Strategies in 1997, after 6 years as a nuclear reactor operator in the US Navy. He has held roles of increasing responsibility during his tenure, including leading operational service lines, directing acquisitions and divestitures, heading business development, and managing the Asia-Pacific region. He was on the board of directors of GP Strategies from June 2020 until June 2023. Mr. Stedham has significant expertise in business strategy, mergers and acquisitions, learning and performance innovation, global operations, and strategic relationship management. He holds a Master of Business Administration from Anderson University, Master’s of Education from University of Pennsylvania, and Master’s in Adult & Community Education from Ball State University. Mr. Stedham’s prior experience as the chief executive officer and president of a public company gives him the qualifications, skills to serve on our Board. Marshall Geller, age 86, has served as one of our directors since July 2017. Mr. Geller was a director and a member of the audit committee of GP Strategies Corporation (formerly NYSE:GPX) from 2002 until October 2021. Mr. Geller was a director of Wright Investors’ Service Holdings Inc. (OTCMKT:WISH), formerly National Patent Development Corporation, from January 2015 until October 2018. Mr. Geller was a director and member of the audit committee of G3 VRM Acquisition Corp. (Nasdaq:GGGV) from June 2021 until July 2022. He is currently a Director of Easy Smart Pay, a public-private partnership of the California State Association of Counties Finance Corporation. Mr. Geller formerly served as a director of California Pizza Kitchen, Inc., (formerly Nasdaq:CPKI) from 2008 until 2011, and Hexcel Corporation (NYSE:HXL) from 1994 until 2003. Mr. Geller was a founder of St. Cloud Capital, a Los Angeles based private equity fund, and Senior Investment Advisor from December 2001 until September 2017. He has spent more than 50 years in corporate finance and investment banking, including 21 years as a Senior Managing Partner of Bear, Stearns & Co., with oversight of all operations in Los Angeles, San Francisco, Chicago, Hong Kong and the Far East. Mr. Geller is currently on the board of directors of UCLA Health System and on the Board of Governors of Cedars Sinai Medical Center, Los Angeles. Mr. Geller also serves on the Dean’s Advisory Council for the College of Business & Economics at California State University, Los Angeles. Mr. Geller’s financial and business experience, including as a managing partner of a private equity fund, and his many years of experience and expertise as an investor in and adviser to companies in various sectors as well as his experience with serving on the boards of directors of other public and private corporations give him the qualifications, skills and financial expertise to serve on our Board. Howard Goldberg , age 79, has served as one of our directors since July 2017. Mr. Goldberg has served as our Lead Independent director since 2020, having served from time to time in that capacity. From 2003 through 2005, Mr. Goldberg served as a part-time consultant to Laser Lock Technologies, Inc., the predecessor to VerifyMe, and provided consulting service to us again from 2016 through December 2017. Mr. Goldberg has been a private investor in both real estate and start-up companies and has provided consulting services to start-up companies since 1999. From 1994 through 1998, Mr. Goldberg served as President, CEO and board member of Player’s International, a publicly traded company in the gaming business prior to its sale to Harrah’s Entertainment Inc. Mr. Goldberg served on the board of directors and Audit Committee of Imall Inc., a publicly traded company that provided on-line shopping prior to its sale to Excite-at-Home. Mr. Goldberg served as a member of the Board of Trustees of Winthrop Realty Trust, a publicly traded real estate investment trust, from December 2003 to August 2016 when Winthrop’s assets were transferred to a liquidating trust. Mr. Goldberg was a member of Winthrop’s Audit Committee and Nominating and Corporate Governance Committee and was its lead independent trustee. Mr. Goldberg served as a trustee for Winthrop Realty Liquidating Trust until December 2019 when it was finally liquidated. Mr. Goldberg was a director of New York REIT, Inc. from March 2017 until October 2018, when it converted to a limited liability company called New York REIT LLC. Mr. Goldberg was a manager of New York REIT LLC from October 2018 until November 2022. Mr. Goldberg has a law degree from New York University and was previously the managing partner of a New Jersey law firm where he specialized in gaming regulatory law and real estate from 1970 through 1994. Mr. Goldberg’s experience as a director of other public companies and his legal expertise gives him the qualifications, skills and financial expertise to serve on our Board. Scott Greenberg , age 68, has served as one of our directors since November 2019. Mr. Greenberg served as our Interim Chief Executive Officer from March 15, 2023 to June 19, 2023 and Executive Chairman from April 7, 2022 to June 19, 2023. Mr. Greenberg served as the Chairman of the board of directors of GP Strategies Corporation (NYSE:GPX) from August 2018 until October 2021 when it was acquired by Learning Technologies Group. He previously served as Chief Executive Officer of GP Strategies from April 2005 until July 2020. He was also the President of GP Strategies from 2001 to 2006, Chief Financial Officer from 1989 until 2005, Executive Vice President from 1998 to 2001, Vice President from 1985 to 1998, and held various other positions with GP Strategies since 1981. Mr. Greenberg was also a Director of Wright Investors’ Service Holdings, Inc. (OTCMKT:WISH), formerly National Patent Development Corporation, from 2004 to 2015. Mr. Greenberg’s significant experience and expertise in management, acquisitions and strategic planning, as well as many years of finance and related transactional experience give him the qualifications, skills and financial expertise to serve on our Board. 29 Table of Contents Arthur Laffer , age 84, has served as one of our directors since March 2019. Dr. Laffer is the founder and chairman of Laffer Associates, an institutional economic research and consulting firm. Dr. Laffer has served as a director of NexPoint Residential Trust Inc. (NYSE:NXRT) since May 2015, NexPoint Real Estate Finance Inc. (NYSE:NREF) since February 2020, Melt Pharmaceuticals, Inc., a private company, since February 2022, and NexPoint Diversified Real Estate Trust (NYSE:NXDT) since July 2022. He was a director of EVO Transportation & Energy Services, Inc. (OTCPINK:EVOA) from August 2018 to December 2019 and the GEE Group Inc. (NYSE American:JOB) from January 2015 to March 2020. Dr. Laffer’s economic acumen and influence in triggering a world-wide tax-cutting movement in the 1980s have earned him the distinction in many publications as “The Father of Supply-Side Economics.” Dr. Laffer was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms (1981-1989). Dr. Laffer also advised Prime Minister Margaret Thatcher on fiscal policy in the UK during the 1980s. In the early 1970s, Dr. Laffer was the first to hold the title of Chief Economist at the Office of Management and Budget under George Shultz. Additionally, Dr. Laffer served as Charles B. Thornton Professor of Business Economics at the University of Southern California and as Associate Professor of Business Economics at the University of Chicago. In June 2019, Dr. Laffer received the Presidential Medal of Freedom. Dr. Laffer’s expertise in economics and his experience as a director of multiple companies give him the qualifications, skills and financial expertise to serve on our Board. David Edmonds , age 67, has served as one of our directors since June 2023. Mr. Edmonds has served as a member of the board of directors of our wholly owned subsidiary PeriShip Global LLC since June 2022. Prior to this he served as the Senior Vice President, Worldwide Services at FedEx from April 2001 until his retirement in December 2020. Prior to that, Mr. Edmonds was actively involved in the merger between Caliber System (FedEx Ground's former parent company) and FedEx Corporation and was responsible for bringing the two companies together to compete collectively under the new FedEx Corporation umbrella. Mr. Edmonds worked his entire 41-year career in the transportation and logistics field. He is a graduate of Kent State University, is a member of the American Management Association; the Council for Logistics Management; and the Sales and Marketing Executive Council of the Advisory Board. Mr. Edmond’s experience with the transportation and logistics field and network of relationships which we believe are valuable assets to the Company and its growth give him the qualifications, skills and financial expertise to serve on our Board. Management and Executive Officers We are currently served by four executive officers, Messrs. Stedman, Volk, and Wang and Ms. Meyers. Adam Stedham , age 56, is our Chief Executive Officer and President, and a member of our Board of Directors. Additional information about Mr. Stedham can be found under “Directors,” above. Nancy Meyers , age 55, has served as the Company’s Chief Financial Officer and Executive Vice President since August 2023 and was the Company’s Senior Vice President of Finance and Investor Relations from February 2022 until July 2023. Prior to joining the Company in September 2021, Ms. Meyers had several accounting and financial reporting roles at GP Strategies Corporation, ultimately serving as Manager of Financial Reporting from October 2017 until May 2021. Ms. Meyers is a Chartered Professional Accountant (CPA) and brings over 25 years of experience in finance, accounting, and operations. Fred G. Volk, III , age 57, has been the Vice President, Operations of the Company’s wholly owned subsidiary PeriShip Global, LLC since April 2022. Prior to this Mr. Volk served as Vice President of Operations of PeriShip, LLC from September 2001 until April 2022. Mr. Volk has over 22 years of supply chain expertise, which includes many years at FedEx®. Throughout his tenure there, he worked in multiple leadership positions across the Transportation, Logistics, and Customer Service spaces, allowing him to become intimately familiar with the principles required for operational effectiveness. With later experiences in leadership positions at various local law enforcement agencies, Mr. Volk’s acumen spans from supply chain management to compliance, and beyond. Jack Wang , age 65, has served as the Company’s Chief Information Officer and Senior Vice President of Technology since August 2023 and has been the Chief Information Officer of the Company’s wholly owned subsidiary PeriShip Global, LLC since April 2022. Prior to this Mr. Wang served as Chief Information Officer of PeriShip, LLC from December 2011 to 2016 and from 2018 until April 2022. From 2016 to 2018 Mr. Wang served as Chief Information Officer for IMEX Global Solutions, an international logistics company that distributes parcels, publication and business mail worldwide. Prior to joining PeriShip, Mr. Wang served as the head of IT operations and development at the Package Portfolio division of United Parcel Service. At UPS, Mr. Wang managed IT services for worldwide package operations. Before UPS, Mr. Wang was the managing director of Continental Airlines, where he was responsible for strategic system architecture and development as well as providing IT services for many of the airline's customer facing systems. Many of the core systems that Mr. Wang instituted at Continental Airlines were eventually selected as the baseline systems for the new United Airlines. Mr. Wang holds a Master's degree in Computer Science from State University of New York at New Paltz. Family Relationships There are no family relationships between any of our directors or executive officers. 30 Table of Contents Corporate Governance Director Independence The listing standards of The Nasdaq Stock Market LLC (“Nasdaq”) require that a majority of our Board be independent. No director will qualify as independent unless the board affirmatively determines that the director has no relationship with us that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Based upon the Nasdaq listing standards and applicable SEC rules and regulations, our board has determined that each of Scott Greenberg, Marshall Geller, Howard Goldberg, Dr. Arthur Laffer, and David Edmonds are independent. Adam Stedham our Chief Executive Officer is not an independent director. Board Leadership Structure Although the board has not adopted a formal policy regarding the separation of the roles of the Chairman and the Chief Executive Officer, we believe that our corporate governance is most effective when these positions are not held by the same person. The board recognizes the differences between the two roles and believes that separating them allows each person to focus on his individual responsibilities. Under this leadership structure, our Chief Executive Officer can focus his attention on generating sales, overseeing sales and marketing, and managing the day-to-day company operations, while our Chairman can focus his attention on board responsibilities. Depending on the circumstances, other leadership models, such as combining the role of Chairman with the role of Chief Executive Officer, might be appropriate. For example, Patrick White served as our Chief Executive Officer and as a director of the Company until March 14, 2023 at which time the board appointed Scott Greenberg to serve as the Interim Chief Executive Officer in addition to his position as Executive Chairman. Accordingly, the positions of Chief Executive Officer and Executive Chairman were combined on an interim basis. Mr. Greenberg served as both our Executive Chairman from April 7, 2022 to June 19, 2023 and Interim CEO from March 2023 to June 19, 2023 when Adam Stedham was appointed as our Chief Executive Officer, at which time Mr. Greenberg continued as our non-executive Chairman. Our Board intends to periodically review our leadership structure. Non-Executive Vice Chairman and Lead Independent Director In addition to a non-executive Chairman, we have appointed Marshall Geller to serve as our non-executive Vice Chairman of our board. The Board has also appointed a lead independent director, currently Howard Goldberg, in order to promote independent leadership of the board. Our non-executive vice chairman or lead independent director preside over the executive sessions of the independent directors. Our lead independent director chairs board meetings in the non-executive Vice Chairman’s absence and is available to engage directly with major stockholders where appropriate. The guidance and direction provided by the lead independent director reinforce the board’s independent oversight of management and contribute to communication among members of the Board. Board Committees The Board has established an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee Executive Committee, and Mergers & Acquisitions Committee. Each committee acts pursuant to a written charter adopted by our Board. The current charters for each board committee are available on our website, www.verifyme.com under the heading, “Investor Hub” and the subheading, “Corporate Governance.” Audit Committee The Audit Committee monitors the integrity of our financial statements, monitors the independent registered public accounting firm’s qualifications and independence, monitors the performance of our internal audit function and the auditors, and monitors our compliance with legal and regulatory requirements. The Audit Committee has the sole authority and responsibility to select, evaluate and engage independent auditors for the Company. The Audit Committee reviews with the auditors and with the Company’s financial management our annual and interim financial statements and all matters relating to the annual audit of the Company. The Audit Committee also prepares the audit committee report that the SEC requires to be included in our annual proxy statement. The Audit Committee is a separately designated standing committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Board has determined that each member of the Audit Committee meets the independence and financial literacy requirements applicable to audit committee members under the Nasdaq listing standards and SEC rules. The Board has further determined that Mr. Geller qualifies as an “Audit Committee Financial Expert” in accordance with the applicable rules and regulations of the SEC. Compensation Committee The Compensation Committee reviews, recommends and approves salaries and other compensation of the Company’s executive officers, and administers the Company’s equity incentive plans (including reviewing, recommending and approving stock option and other equity incentive grants to executive officers). 31 Table of Contents The Compensation Committee meets in executive session to determine the compensation of the Chief Executive Officer of the Company. In determining the amount, form, and terms of such compensation, the committee considers the annual performance evaluation of the Chief Executive Officer conducted by the board in light of our goals and objectives relevant to Chief Executive Officer compensation, competitive market data pertaining to Chief Executive Officer compensation at comparable companies, and such other factors as it deems relevant, and is guided by, and seeks to promote, the best interests of the Company and its stockholders. In addition, subject to existing agreements, the Compensation Committee determines the salaries, bonuses, and other matters relating to compensation of the executive officers of the Company using similar parameters. It sets performance targets for determining periodic bonuses payable to executive officers. It also reviews and makes recommendations to the board regarding executive and employee compensation and benefit plans and programs generally, including employee bonus and retirement plans and programs (except to the extent specifically delegated to a board appointed committee with authority to administer a particular plan). In addition, the Compensation Committee approves the compensation of non-employee directors and reports it to the full board. The Compensation Committee also reviews and makes recommendations with respect to stockholder proposals related to compensation matters. The committee administers the Company’s equity incentive plans, including the review and grant of stock options and other equity incentive grants to executive officers and other employees and consultants. The Compensation Committee may, in its sole discretion and at the Company’s cost, retain or obtain the advice of a compensation consultant, legal counsel or other adviser. The committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the committee. The Board has determined that each member of the Compensation Committee meets the independence requirements applicable to compensation committee members under the Nasdaq listing standards. Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee identifies individuals qualified to become members of the board, consistent with criteria approved by the board; recommends to the board the director nominees for the next annual meeting of stockholders or special meeting of stockholders at which directors are to be elected; recommends to the board candidates to fill any vacancies on the board; develops, recommends to the board, and reviews the corporate governance guidelines applicable to the Company; and oversees the evaluation of the board and management. In recommending director nominees for the next annual meeting of stockholders, the Nominating and Corporate Governance Committee ensures the Company complies with its contractual obligations, if any, governing the nomination of directors. It considers and recruits candidates to fill positions on the board, including as a result of the removal, resignation or retirement of any director, an increase in the size of the board or otherwise. The committee conducts, subject to applicable law, any and all inquiries into the background and qualifications of any candidate for the board and such candidate’s compliance with the independence and other qualification requirements established by the committee. The committee also recommends candidates to fill positions on committees of the board. In selecting and recommending candidates for election to the board or appointment to any committee of the board, the Nominating and Corporate Governance Committee does not believe that it is appropriate to select nominees through mechanical application of specified criteria. Rather, the committee shall consider such factors at it deems appropriate, including, without limitation, the following: personal and professional integrity, ethics and values; experience in corporate management, such as serving as an officer or former officer of a publicly-held company; experience in the Company’s industry; experience as a board member of another publicly-held company; diversity of expertise and experience in substantive matters pertaining to the Company’s business relative to other directors of the Company; practical and mature business judgment; and composition of the board (including its size and structure). The Nominating and Corporate Governance Committee develops and recommends to the board a policy regarding the consideration of director candidates recommended by the Company’s stockholders and procedures for submission by stockholders of director nominee recommendations. In appropriate circumstances, the Nominating and Corporate Governance Committee, in its discretion, will consider and may recommend the removal of a director, in accordance with the applicable provisions of our Amended and Restated Articles of Incorporation and Bylaws. If we are subject to a binding obligation that requires director removal structure inconsistent with the foregoing, then the removal of a director shall be governed by such instrument. The Nominating and Corporate Governance Committee oversees the evaluation of the board and management. It also develops and recommends to the board a set of corporate governance guidelines applicable to us, which the committee shall periodically review and revise as appropriate. In discharging its oversight role, the committee is empowered to investigate any matter brought to its attention. 32 Table of Contents The Board has determined that each member of the Nominating and Corporate Governance Committee meets the director independence requirements of the Nasdaq listing standards. Executive Committee The Executive Committee acts on behalf of the board between regularly scheduled board meetings, and subject to certain limitations imposed by applicable legal or regulatory requirements, may exercise during such intervals, all of the powers of the board in the management of the business, affairs and property of our Company other than: (i) the filling of vacancies on the board; (ii) approving or adopting, or recommending to the shareholders, any action or matter; (iii) adopting, amending or repealing the Amended and Restated Bylaws; and (iv) those matters that are specifically delegated to other committees of the board or that are under active review by the board or a board committee, unless the board specifically determines otherwise. Mergers & Acquisitions Committee The Mergers & Acquisitions Committee is empowered to review and assess, and assist the board in reviewing and assessing, potential mergers, acquisitions, joint ventures and strategic investments. In addition, the committee is empowered to assist management in identifying and reviewing merger and acquisition opportunities and is charged with assessing the associated risk to the Company and making recommendations with respect to the terms thereof to the board. The committee is also charged with planning of, and evaluating the execution of, integrations of merger and acquisition transactions. Role of the Board in Risk Oversight The Company’s risk management function is overseen by the board. This oversight is conducted in part through the board’s committees. Our Audit Committee focuses on risks associated with financial matters, particularly financial reporting and disclosures, accounting, internal control over financial reporting, financial policies, and compliance with legal and regulatory matters related to accounting and financial reporting. Our Nominating and Corporate Governance Committee focuses on the oversight of risks associated with our corporate governance, including board membership and structure. Our Compensation Committee focuses on the oversight of risks arising from our compensation policies and programs. While our board committees have certain oversight responsibilities, the full board retains responsibility for monitoring and assessing strategic risk exposure related to cybersecurity risks and general oversight of risk. Our Chairman works closely together with other members of the board when material risks are identified on how to best address such risks. If the identified risk poses an actual or potential conflict with management, our independent directors may conduct the assessment. In addition, our management keeps the board apprised of material risks and provides its directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect us, and how management addresses those risks. Code of Business Conduct and Ethics The board has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to our directors. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations and the prompt reporting of illegal or unethical behavior, and accountability for adherence to the Code of Ethics. The Code of Ethics is available on our website at https://www.vrmeinvestor.com/investors/. Insider Trading Policy We have adopted an insider trading policy designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. Insiders, who include our directors, executive officers, and certain employees who we may designate from time to time (the “Designated Individuals”), may buy and sell our stock within an open “window period,” which begins 24 hours after the release of the Company’s quarterly or annual financial results for that particular quarter and ends on the close of business on the last day of the next fiscal quarter. Designated Individuals are prohibited from purchasing or selling our stock if they are in possession of material non-public information, even if it is within the open “window period.” We reserve the right to impose event-specific black-out periods if we deem certain employees or groups to be in possession of non-public information regarding potentially significant matters, regardless of if it is an open “window period” and we may do so with little or no notice. Employees subject to an event-specific black-out period will be notified by our insider trading policy officer. Anti-Hedging Policy Our insider trading policy prohibits directors, officers and employees from engaging in transactions that hedge or offset any decrease in the market value of equity securities granted as compensation. 33 Table of Contents ITEM 11. EXECUTIVE COMPENSATION. Executive Compensation This section contains information about the compensation earned and paid to our named executive officers during fiscal year 2024 and fiscal year ended December 31, 2023 (“fiscal year 2023”), or only fiscal year 2024 if the individual was not a named executive officer for fiscal year 2023. For fiscal year 2024, in accordance with the executive compensation disclosure rules and regulations of the SEC, we determined that the following officers were our named executive officers: · Adam Stedham, Chief Executive Officer and President; · Fred G. Volk, III, VP of Operations, PeriShip Global; · Nancy Meyers, Chief Financial Officer; · Paul Ryan, former Executive Vice President, Authentication Segment; · Curt Kole, former Executive Vice President, Precision Logistics and Executive Vice President, Global Sales and Strategy, PeriShip Global ; Summary Compensation Table The table below summarizes the compensation earned for services rendered to us in all capacities, for the fiscal years indicated, by named executive officers: Summary Compensation Table Name and Principal Position Year Salary ($) Stock Awards ($) (1) All Other Compensation ($) (2) Total Compensation ($) Adam Stedham (3) 2024 285,000 12,844 14,250 312,094 CEO and President 2023 162,000 983,319 - 1,145,819 Fred G Volk, III 2024 190,000 81,763 9,327 281,090 VP of Operations, PeriShip Global Nancy Meyers 2024 171,000 7,706 8,550 187,256 CFO 2023 180,000 154,900 9,000 343,900 Paul Ryan (4) 2024 210,266 - 6,308 216,574 Former EVP, Authentication Segment Curt Kole (5) 2024 230,000 - 5,854 235,854 Former EVP, Precision Logistics; EVP Global Sales and Strategy, PeriShip Global 2023 230,000 129,200 - 359,200 (1) The amounts shown in this column reflect time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) granted to our named executive officers which are subject to certain vesting terms. The amounts in this column do not reflect the actual value realized by the recipient. Amounts in this column represent the grant date fair value of the awards, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation,” or ASC 718. The assumptions used in calculating the grant date fair value of the awards are set forth Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements. The value of the PSUs are based on the target level of the performance as of the date of grant. For fiscal year 2024, we only granted PSUs to Mr. Volk. If the highest level of performance is achieved, the value of the PSUs for Mr. Volk would be $105,750. (2) The amounts shown in this column reflect amounts paid by us to or on behalf of each named executive officer for company matching contributions to 401(k) or to New Zealand’s retirement savings scheme, Kiwis aver, as applicable . 34 Table of Contents (3) Adam Stedham served as a non- employee director in fiscal year 2023 until June 19, 2023 when he was appointed Chief Executive Officer. Mr. Stedham’s stock awards for fiscal year 2023 include a grant of 34,014 shares of restricted stock for his service as a non-employee director during fiscal year 2023. (4) Paul Ryan served as our Executive Vice President, Authentication Segment until October 4, 2024 . (5) Curt Kole served as our Executive Vice President of Precision Logistics and as Executive Vice President, Global Sales and Strategy of PeriShip Global until June 4, 2024. Employment and Consulting Agreements with Named Executive Officers Adam Stedham - Chief Executive Officer and President The Company entered into an employment agreement, dated as of June 19, 2023, with Adam Stedham, the Chief Executive Officer of the Company, with an annual salary of $300,000. In connection with the employment agreement, the board granted Mr. Stedham an annual bonus potential of up to 50% of base salary to be earned based on adjusted EBITDA performance goals to be set annually by the Compensation Committee. On March 12, 2024, the Compensation Committee approved a change to the cash bonus for Mr. Stedham, which if achieved, will be payable at Mr. Stedham’s discretion in either cash or in an amount of the Company’s common stock determined by dividing the cash value of the earned bonus by the 30-day VWAP of the Company’s shares on the day the Board of Directors approves the bonus. Mr. Stedham was also awarded 34,014 shares of restricted stock pursuant to the Company’s stockholder approved equity incentive plan for a half year of service as a non-employee director of the Company. The restricted stock award vested in full on date of grant. Mr. Stedham was awarded 204,082 RSUs pursuant to the Company’s stockholder approved equity incentive plan that vest in three equal annual increments over a three-year vesting term and 550,000 PSUs issued pursuant to the Company’s stockholder approved equity incentive plan based on performance criteria satisfied within 4 years of grant. In the event of Mr. Stedham’s employment is terminated for death or disability, the Company shall pay any accrued but unpaid base salary through the date of termination, accrued but unpaid expenses required to be reimbursed under this agreement and any annual bonus for which the executive completed the appliable calendar performance year but has not yet earned. If Mr. Stedham is terminated by the Company for cause or by the executive without good reason, the executive shall have no right to compensation. If Mr. Stedham is terminated by the Company without cause or by executive for good reason, the executive will be entitled to severance until the conclusion of the Initial term of two years. It will also include the accelerated vesting of RSUs and retention of PSUs for remainder of performance period. On July 2, 2024, the Company entered into Salary Reduction Agreement with Mr. Stedham, as part of a salary reduction program for certain employees of the Company and its subsidiaries approved by the Compensation Committee of the Company’s Board of Directors. Mr. Stedham will have his annual base salary reduced by ten percent (10%) during the term of the Salary Reduction Agreement. In return for the reduction in his annual base salary, Mr. Stedham will be entitled to receive a grant of restricted stock unit awards (“RSUs”) on July 1, 2024 and each 1st of January thereafter during the term of the Salary Reduction Agreement, each such RSU representing the contingent right to receive one share of the Company’s common stock, par value $0.001 per share, subject to the terms of the Company’s 2020 Equity Incentive Plan and form RSU award agreement, with the number of shares underlying the RSU awards to be determined by dividing the projected amount of Mr. Stedham’s base salary reduction for the calendar year, respectively, by $1.60, rounded down to the nearest number of whole shares. Each RSU granted pursuant to the Salary Reduction Agreement vests in full on the 1st of January following its grant date and is payable as soon as reasonably practicable after vesting. The term of the Salary Reduction Agreement is until December 31, 2025. Pursuant to the Salary Reduction Agreement, a pro-rata portion of RSUs granted will vest upon the early termination of the Salary Reduction Agreement, or any termination of the employment of Mr. Stedham except for a termination for cause. Any unvested RSUs will be forfeited in whole by Mr. Stedham in the event he is terminated by the Company for cause. Fred G Volk, III – VP of Operations, PeriShip Global On April 22, 2022, the Company’s wholly owned Subsidiary PeriShip Global, entered into an Employment Agreement with Mr. Volk with an initial term of two years, which automatically renews for additional one-year terms until either party gives 60-day notice of non-renewal or otherwise terminated the agreement according to its terms. Under the employment agreement, Mr. Volk is entitled to an annual base salary of $200,000 . Additionally, pursuant to the employment agreement, on April 22, 2022, Mr. Volk was awarded PSUs with a grant date value equal to his annual base salary, each such unit representing the contingent right to receive one share of the Company’s common stock, par value $0.001 per share, subject to the terms of the 2020 Plan. These PSUs, except as otherwise provided in the award agreement, will vest, subject to continuous employment and other conditions, as follows: 50% if the Company’s common stock price exceeds $5.00 per share for a period of 20 consecutive days, and the remaining 50% if the Company’s common stock price exceeds $7.00 per share for a period of 20 consecutive days, in each case prior to the three-year anniversary of the grant date. Pursuant to the employment agreement Mr. Volk will receive a commission of 1.0% on eligible annual sales in excess of $30,000,000. The employment agreement may be terminated by us for cause, by Mr. Volk without good reason, or by delivering a non-renewal notice. If terminated by us without cause or by Mr. Volk with good reason Mr. Volk will be entitled to accrued but unpaid base salary and expenses, a payment equal to 12 months of his then base salary if the Employment Agreement is terminated during the initial two year term or a payment equal to 6 months of his then base salary if the Employment Agreement is terminated after the initial two year term, and six months of benefits. If terminated upon a non-renewal notice, Mr. Volk will be entitled to any accrued and unpaid salary and expenses prior to the effective date of his termination. 35 Table of Contents Nancy Meyers – Chief Financial Officer On February 16, 2022, the Company entered into an Employment Agreement with Ms. Meyers. Under the employment agreement, Ms. Meyers is entitled to an annual base salary of $180 ,000. Additionally, pursuant to the employment agreement, on February 16, 2022, Ms. Meyers was awarded PSUs with a grant date value equal to 50% of her annual base salary, each such unit representing the contingent right to receive one share of the Company’s common stock, par value $0.001 per share, subject to the terms of the 2020 Plan. These PSUs, except as otherwise provided in the award agreement, will vest, subject to continuous employment and other conditions, as follows: 50% if the Company’s common stock price exceeds $5.00 per share for a period of 20 consecutive days, and the remaining 50% if the Company’s common stock price exceeds $7.00 per share for a period of 20 consecutive days, in each case prior to the three-year anniversary of the grant date. The employment agreement may be terminated by us for cause, or by Ms. Meyers without good reason. If terminated by us without cause or by Ms. Meyers with good reason Ms. Meyers will be entitled to accrued but unpaid base salary and expenses, a payment equal to 6 months of her base salary and six months of benefits. On July 2, 2024, the Company entered into Salary Reduction Agreement with Nancy Meyers, the Company’s Chief Financial Officer, as part of a salary reduction program for certain employees of the Company and its subsidiaries approved by the Compensation Committee of the Company’s Board of Directors. Ms. Meyers will have her annual base salary reduced by ten percent (10%) during the term of the Salary Reduction Agreement. In return for the reduction in her annual base salary, Ms. Meyers will be entitled to receive a grant of restricted stock unit awards (“RSUs”) on July 1, 2024 and each 1st of January thereafter during the term of the Salary Reduction Agreement, each such RSU representing the contingent right to receive one share of the Company’s common stock, par value $0.001 per share, subject to the terms of the Company’s 2020 Equity Incentive Plan and form RSU award agreement, with the number of shares underlying the RSU awards to be determined by dividing the projected amount of Ms. Meyers base salary reduction for the calendar year, respectively, by $1.60, rounded down to the nearest number of whole shares. Each RSU granted pursuant to the Salary Reduction Agreement vests in full on the 1st of January following its grant date and is payable as soon as reasonably practicable after vesting. The term of the Salary Reduction Agreement is until December 31, 2025. Pursuant to the Salary Reduction Agreement, a pro-rata portion of RSUs granted will vest upon the early termination of the Salary Reduction Agreement, or any termination of the employment of Ms. Meyers except for a termination for cause. Any unvested RSUs will be forfeited in whole by Ms. Meyers in the event she is terminated by the Company for cause. Paul Ryan – Former Executive Vice President, Authentication Segment On March 1, 2023, the Company’s wholly owned Subsidiary Trust Codes Global Limited (“Employer”) entered into an Employment Agreement with Mr. Ryan with an initial term of three years, until either party gives 90-day notice of non-renewal or otherwise terminated the agreement according to its terms. Under the employment agreement, Mr. Ryan is entitled to an annual base salary of NZD$ 160,000 until the first month where Employer breaks even as determined by the Employe, and NZD$320,000 per annum gross thereafter. In August 2023 Mr. Ryan’s salary was increased to NZD$320,000 and reduced by ten percent (10%) with the salary reduction agreement. On September 24, 2024, Mr. Ryan, notified us of his resignation and on October 4, 2024, we placed Mr. Ryan on garden leave, meaning he remained employed by us but was only working for us upon request. Curt Kole – Former Executive Vice President, Precision Logistics; Executive Vice President, Global Sales and Strategy, PeriShip Global On April 22, 2022, the Company’s wholly owned Subsidiary PeriShip Global, LLC entered into an Employment Agreement with Mr. Kole with an initial term of two years, which automatically renews for additional one-year terms until either party gives 60-day notice of non-renewal or otherwise terminated the agreement according to its terms. Under the employment agreement, Mr. Kole is entitled to an annual base salary of $ 230,000. Additionally, pursuant to the employment agreement, on April 22, 2022, Mr. Kole was awarded PSUs with a grant date value equal to his annual base salary, each such unit representing the contingent right to receive one share of the Company’s common stock, par value $0.001 per share, subject to the terms of the 2020 Plan. These PSUs, except as otherwise provided in the award agreement, will vest, subject to continuous employment and other conditions, as follows: 50% if the Company’s common stock price exceeds $5.00 per share for a period of 20 consecutive days, and the remaining 50% if the Company’s common stock price exceeds $7.00 per share for a period of 20 consecutive days, in each case prior to the three-year anniversary of the grant date. Pursuant to the employment agreement Mr. Kole will receive a commission of 1.5% on eligible annual sales in excess of $30,000,000, increasing to 2.0% on eligible annual sales in excess of $32,000,000. The employment agreement may be terminated by us for cause, by Mr. Kole without good reason, or by delivering a non-renewal notice. If terminated by us without cause or by Mr. Kole with good reason Mr. Kole will be entitled to accrued but unpaid base salary and expenses, a payment equal to 12 months of his then base salary if the Employment Agreement is terminated during the initial two year term or a payment equal to 6 months of his then base salary if the Employment Agreement is terminated after the initial two year term, and six months of benefits. If terminated upon a non-renewal notice, Mr. Kole will be entitled to any accrued and unpaid salary and expenses prior to the effective date of his termination. On June 4, 2024, we terminated Mr. Kole’s employment effective June 30, 2024 from all positions with the Company and its subsidiaries. 36 Table of Contents Short Term Incentive Plan On March 12, 2024, the Compensation Committee approved a short term incentive cash bonus plan. The plan is available to nearly all of the Company’s employees, including our named executive officers except for Mr. Stedham and Mr. Ryan. Under the plan, Ms. Meyers is eligible to receive a cash bonus up to 15% of her annual base salary as of January 1 each year, Mr. Volk is eligible to receive a cash bonus up to 6% of his annual base salary as of January 1 each year, and during his employment Mr. Kole was eligible to receive a cash bonus equal to 6% of his annual base salary as of January 1 each year, subject to upward adjustment. Under the Plan, 50% of the bonus is based on achieving 100% of an Adjusted EBITDA performance goal to be set annually by the Compensation Committee. Only if the Adjusted EBITDA target is achieved, the remaining 50% of the bonus is based on achieving 100% of a revenue performance goal to be set annually by the Compensation Committee. Under the plan, the bonus amount can be adjusted upward if the revenue performance goal is exceeded in an amount equal to the total target bonus multiplied by the same percentage that revenue exceeds the revenue performance goal, up to a maximum of 150 percent. No amounts were paid under the plan in fiscal year 2024. Outstanding Equity Awards at Fiscal Year-End The following table sets forth the outstanding equity awards for our Named Executive Officers as of December 31, 2024. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) (1) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (1) Adam Stedham — — — 9,375 (4) 12,750 136,055 (5) 185,035 550,000 (7) 748,000 Fred G. Volk III — — — 6,250 (4) 8,500 13,334 (6) 18,134 75,000 (8) 102,000 62,696 (9) 85,267 Nancy Meyers — — — 5,625 (4) 7,650 120,000 (10) 163,200 28,125 (11) 38,250 Paul Ryan (2) — — — — — — — Curt Kole (3) — — — — — — — (1) The amounts in these columns are calculated by multiplying the number of shares by the closing market price of our Common Stock on December 31, 2024, of $1.36 per share. (2) Paul Ryan served as our Executive Vice President, Authentication Segment until October 4, 2024. (3) Curt Kole served as our Executive Vice President of Precision Logistics and as Executive Vice President, Global Sales and Strategy of PeriShip Global until June 4, 2024. (4) These RSUs, which convert into common stock on a one-for-one basis, were granted on July 1, 2024 pursuant to the Company’s salary reduction program, pursuant to which the number of RSUs was determined by dividing the amount of the grantee’s salary reduction by $1.60. The RSUs will vest on January 1, 2025. (5) These RSUs, which convert into common stock on a one-for-one basis, were granted on July 19, 2023. The first tranche vested on June 19, 2024, and the remaining two tranches will vest in two equal installments on each of June 19, 2025 and June 19, 2026, subject to the grantees’ continued service through each vesting date except as otherwise provided in the applicable award agreement. (6) These RSUs, which convert into common stock on a one-for-one basis, were granted on November 2, 2022. The first and second tranches vested on each of November 2, 2023 and November 2, 2024, and the remaining tranche will vest on November 2, 2025, subject to the grantees’ continued service through each vesting date except as otherwise provided in the applicable award agreement. (7) These PSUs were granted on June 19, 2023 and vest in three tranches, except as otherwise provided in the award notice. Tranche 1 will vest 150,000 shares on or after June 19, 2024 if our common stock trades at or above $2.21 per share for 20 consecutive days prior to June 19, 2027. Tranche 2 will vest 200,000 shares on or after June 19, 2025 if our common stock trades at or above $2.94 per share for 20 consecutive trading days prior to June 19, 2027. Tranche 3 will vest 200,000 shares on June 19, 2027 if our common stock trades at or above $3.68 per share for 20 consecutive trading days prior to June 19, 2027. 37 Table of Contents (8) These PSUs were granted on June 30, 2024 and vest in three tranches, except as otherwise provided in the award notice. Tranche 1 will vest 20,000 shares on or after June 18, 2025 if our common stock trades at or above $2.21 per share for 20 consecutive trading days prior to June 18, 2027. Tranche 2 will vest 25,000 shares on or after June 18, 2025 if our common stock trades at or above $2.94 per share for 20 consecutive trading days prior to June 18, 2027. Tranche 3 will vest 30,000 shares on June 18, 2027 if our common stock trades at or above $3.68 per share for 20 consecutive trading days prior to June 18, 2027. (9) These PSUs were granted on April 22, 2022 and vest in two equal tranches, except as otherwise provided in the award notice. Tranche 1 will vest on the earlier of April 22, 2024, or April 22, 2025 if our common stock during such period is at or above $5.00 for 20 consecutive trading days. Tranche 2 will vest on the earlier of April 22, 2024, or April 22, 2025 if our common stock during such period is at or above $7.00 for 20 consecutive trading days. (10) These PSUs were granted on July 20, 2023 and vest in three tranches, except as otherwise provided in the award notice. Tranche 1 will vest 35,000 shares on or after June 18, 2024 if our common stock trades at or above $2.21 per share for 20 consecutive trading days prior to June 18, 2027. Tranche 2 will vest 40,000 shares on or after June 18, 2025 if our common stock trades at or above $2.94 per share for 20 consecutive trading days prior to June 18, 2027. Tranche 3 will vest 45,000 shares on June 18, 2027 if our common stock trades at or above $3.68 per share for 20 consecutive trading days prior to June 18, 2027. (11) These PSUs were granted on February 16, 2022 and vest in two equal tranches, except as otherwise provided in the award notice. Tranche 1 will vest on the earlier of February 16, 2024, or February 16, 2025 if our common stock during such period is at or above $5.00 for 20 consecutive trading days. Tranche 2 will vest on the earlier of February 16, 2024, or February 16, 2025 if our common stock during such period is at or above $7.00 for 20 consecutive trading days. Director Compensation Our directors are eligible to receive options, restricted stock and other equity linked grants under our equity incentive plans. The Compensation Committee of the Board has approved a director compensation policy (“Director Compensation Policy”) to govern the annual compensation payable to directors for their service on our Board. The Compensation Committee has reserved the right to make any necessary, appropriate or desirable changes to the terms of the Policy. Pursuant to our Director Compensation Policy, as amended, starting in fiscal year ended December 31, 2024, and until such time that our Compensation Committee or Board determines a change in director compensation is necessary, appropriate or desirable, each non-employee director shall receive an annual award of 35,000 RSUs or 35,000 shares of restricted stock under the 2020 Plan (or a successor stockholder-approved plan thereto) on the first business day following the date a quorum of stockholders meets and votes on proposals in an annual meeting of stockholders. Under our Director Compensation Policy in place during fiscal year 2024 and as of the date hereof, a non-employee director may specify before the date that is 15 days preceding the annual meeting of stockholders of the year prior to the year of grant whether he or she would prefer to receive his or her awards to be granted in the following year to be in the form of RSUs or restricted stock; provided, however, such choice will not be binding on the Compensation Committee. The RSUs or restricted stock granted pursuant to the Director Compensation Policy will vest in full on the earlier of the one-year anniversary of the date of grant subject to the non-employee director’s continued service to the Board through such date, or the death or disability of the non-employee director, and will be payable upon the earlier of the director’s separation from service as a director or, upon an earlier payment date elected by the director, provided that the election is made no later than the date that is 15 days preceding the annual meeting of stockholders of the year prior to the year of grant. 38 Table of Contents The following table sets forth information about the compensation earned by or paid to our directors during our fiscal year ended December 31, 2024. Please refer to the “Summary Compensation Table” above for compensation earned by Mr. Stedham as a member of the Board during fiscal year 2024. Name Stock Awards ($) (1) (2) Option Awards ($) (2) All Other Compensation ($) (3) Total Compensation ($) Scott Greenberg 56,000 - - 56,000 David Edmonds 56,000 - - 56,000 Marshall Geller 56,000 - - 56,000 Howard Goldberg 56,000 - - 56,000 Dr. Arthur Laffer 56,000 - - 56,000 (1) Amounts in this column represent the grant date fair value of the awards, calculated in accordance with ASC 718. Each of our directors received restricted stock awards except Mr. Edmonds who received restricted stock units. The assumptions used in calculating the grant date fair value of the awards are set forth in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements. (2) The table below sets forth the number of unvested stock awards and the aggregate number of options outstanding held by each of our directors, except for Mr. Stedham, as of December 31, 2024. Please refer to the “Outstanding Equity Awards at Fiscal Year End” table above for the number of unvested stock awards and options outstanding held by Mr. Stedham as of December 31, 2024. Name Aggregate Number of Unexercised Option Awards Outstanding at December 31, 2024 Aggregate Number of Unvested Stock Awards Outstanding at December 31, 2024 David Edmonds — 35,000 Marshall Geller 23,000 65,000 Howard Goldberg 25,000 35,000 Scott Greenberg 10,000 121,819 Arthur Laffer 23,000 35,000 (3) Does not include payments or benefits provided under the Company’s 2021 Stock Purchase Plan which are generally available to all salaried employees. Policies and Practices Related to the Grant of Certain Equity Awards We do not grant equity awards in anticipation of the release of material nonpublic information, and we do not time the release of material nonpublic information based on grant dates or for the purpose of affecting the value of executive compensation. In addition, we do not take material nonpublic information into account when determining the timing and terms of grants. We do not currently have a formal policy with respect to the timing of option grants as our current practice is to grant time- and performance-based RSUs to align executive compensation with shareholder return. During the fiscal ended December 31, 2024, we did not grant any named executive officers option awards in the period beginning four business days before and ending one business day after the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a current report on Form 8-K that disclosed material nonpublic information. 39 Table of Contents ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Equity Compensation Plan Information as of December 31, 2024 Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights (1) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 81,000 (2) $ 3.70 1,308,491 (3) Equity compensation plans not approved by security holders 140,000 (4) 3.50 - Total 221,000 3.57 1,308,491 (1) Represents the weighted-average exercise price of outstanding stock options. The weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units under the 2020 Equity Incentive Plan (the “2020 Plan”). (2) Represents shares of common stock issuable upon exercise of stock options granted under the 2017 Equity Incentive Plan (the “2017 Plan”). (3) Includes 954,322 shares remaining available for issuance under the 2020 Plan, 354,169 shares remaining available for issuance under the 2021 Plan. (4) Includes individual grants to employees and consultants for services rendered to the Company which were not made under the Company’s existing equity incentive plans. 40 Table of Contents Security Ownership of Management and Certain Beneficial Owners The following table sets forth the number of shares of our common stock beneficially owned as of February 27, 2025, by: (i) those persons known by us to be owners of more than 5% of its common stock; (ii) each director; (iii) our named executive officers (as disclosed in the Summary Compensation Table); and (iv) our executive officers and directors as a group. Unless otherwise specified in the notes to this table, the address for each person is: VerifyMe, Inc., 801 International Parkway, Fifth Floor, Lake Mary, Florida 32746. We also have 0.85 share of Series B Convertible Preferred Stock outstanding held by the Estate of Claudio Ballard. Beneficial Owner Amount of Beneficial Ownership of Common Stock (1) Percent of Common Stock Beneficially Owned (1) Named Executive Officers: Adam H Stedham (2) 424,522 (3) 3.4 % Fred G. Volk, III 56,780 * Nancy Meyers 22,918 (4) * Paul Ryan 353,492 (5) 2.9 % Curt Kole 62,310 * Directors: David Edmonds 84,662 (6) * Marshall Geller 750,563 (7) 5.9 % Howard Goldberg 343,662 (8) 2.8 % Scott Greenberg 315,005 (9) 2.5 % Arthur Laffer 476,818 (10) 3.8 % All directors and executive officers as a group (9 persons) 2,516,284 18.9 % Greater than 5% Stockholders Geller Living Trust, dated July 26, 2002 663,563 (11) 5.3 % * indicates less than 1% (1) Based on 12,354,772 shares of common stock issued and outstanding as of February 27, 2025. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days whether upon the exercise of options or warrants. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. This table does not include any unvested RSUs or PSUs, stock options or warrants except for those vesting within 60 days. As for the 5% stockholders, we are relying upon reports filed by each 5% stockholder with the SEC. (2) Mr. Stedham is also a director of the Company. (3) Includes (i) 28,592 vested RSUs that become payable in shares of common stock upon Mr. Stedham’s separation from service as a director of the Company and (ii) 152,174 shares of common stock underlying a presently exercisable convertible promissory note in the principal amount of $175,000 with conversation price of $1.15 per share. (4) Includes 48 shares of common stock held by Ms. Meyers’ spouse. (5) These shares of common stock are held by Trust Codes Limited. Mr. Ryan may be deemed to have beneficial ownership over the securities held by Trust Codes Limited. (6) Includes 15,217 vested RSUs that become payable in shares of common stock upon Mr. Edmonds’ separation from service as a director of the Company. (7) Includes (i) 35,000 unvested shares of restricted stock held by Mr. Geller that will vest in full on June 5, 2025, (ii) 370,034 shares of common stock held by the Geller Living Trust, dated July 26, 2002 (the “Geller Trust”), (iii) 68,310 vested RSUs held by the Geller Trust that become payable in shares of common stock upon Mr. Geller’s separation from service as a director of the Company, (iv) 152,174 shares of common stock underlying a presently exercisable convertible promissory note held by the Geller Trust in the principal amount of $175,000 with conversation price of $1.15 per share, (v) 3,000 shares of common stock underlying stock options exercisable at $5.295 per share held by the Geller Trust and (vi) 7,000, 31,104 and 31,941 shares of common stock underlying warrants exercisable at $4.60 per share, $3.215 per share and $4.60 per share, respectively, held by the Geller Trust. 41 Table of Contents (8) Includes (i) 35,000 unvested shares of restricted stock that will vest in full on June 5, 2025, (ii) 89,310 vested RSUs that become payable in shares of common stock upon Mr. Goldberg’s separation from service as a director of the Company and (iii) 5,000 shares of common stock underlying stock options exercisable at $5.295 per share. (9) Includes (i) 35,000 unvested shares of restricted stock that will vest in full on June 5, 2025, (ii) 68,310 vested RSUs that become payable in shares of common stock upon Mr. Greenberg’s separation from service as a director of the Company, (iii) 43,478 shares of common stock underlying a presently exercisable convertible promissory note in the principal amount of $50,000 with conversation price of $1.15 per share and (iv) 6,403 and 15,552 shares of common stock underlying warrants exercisable at $4.60 per share, and $3.215 per share, respectively. (10) Includes (i) 35,000 unvested shares of restricted stock that will vest in full on June 5, 2025, (ii) 89,310 vested RSUs that become payable in shares of common stock upon Mr. Laffer’s separation from service as a director of the Company, (iii) 25,600 and 10,800 shares of common stock underlying warrants exercisable at $4.60 per share, (iv) 31,104 shares of common stock underlying warrants exercisable at $3.215 per share held by Jama Land, LLC, (v) 3,000 shares of common stock underlying stock options exercisable at $4.025 per share, and (vi) 47,925 shares of common stock held by Jama Land, LLC. Dr. Laffer is the managing member of Jama Land, LLC. The amount also includes 43,478 shares of common stock underlying a presently exercisable convertible promissory note held by the 1065 Institute, Inc. in the principal amount of $50,000 with conversation price of $1.15 per share. Mr. Laffer is a director and the Secretary of the 1065 Institute, Inc. and may be deemed to beneficially own the securities held by the 1065 Institute, Inc. (11) Mr. Geller is a co-trustee, along with his wife, of the Geller Trust and exercises voting and investment power over the shares held by the Geller Trust. This information is derived from the Amendment No. 2 to Schedule 13D filed by Marshall Geller and the Geller Trust on January 30, 2025. The address for Marshall Geller and the Geller Trust is c/o VerifyMe, Inc. 801 International Parkway, Fifth Floor, Lake Mary, FL 32746. The table above does not include the following grants: • 60,000 PSUs granted to two members of the Board on April 7, 2022, which convert into common stock on a one-for-one basis, that were granted under the VerifyMe, Inc. 2020 Equity Incentive Plan, vesting over a period of two to three years, in two tranches, depending on certain criteria being met, • 121,994 PSUs granted to two members of management on April 22, 2022, which convert into common stock on a one-for-one basis, that were granted under the VerifyMe, Inc. 2020 Equity Incentive Plan, vesting over a period of two to three years, in two tranches, depending on certain criteria being met, • 56,819 PSUs granted to one member of the Board on March 15, 2023, which convert into common stock on a one-for-one basis, that were granted under the VerifyMe, Inc. 2020 Equity Incentive Plan, vesting over a period of two to three years, in two tranches, depending on certain criteria being met, • 550,000 PSUs granted to our Chief Executive Officer, which convert into common stock on a one-for-one basis, that were granted under the VerifyMe, Inc. 2020 Equity Incentive Plan on June 19, 2023 and vest over a period of four years, in three tranches, depending on certain criteria being met, • 195,000 PSUs granted to two members of management, which convert into common stock on a one-for-one basis, that were granted under the VerifyMe, Inc. 2020 Equity Incentive Plan on July 20, 2023 and vest over a period of four years, in three tranches, depending on certain criteria being met, • 75,000 PSUs granted to one member of management, which convert into common stock on a one-for-one basis, that were granted under the VerifyMe, Inc. 2020 Equity Incentive Plan on June 30, 2024 and vest over a period of three years, in three tranches, depending on certain criteria being met, and • 54,312 RSUs granted to four members of management, which convert into common stock on a one-for-one basis, pursuant to the Company’s salary reduction program, which will vest on January 1, 2026. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The following is a summary of transactions since January 1, 2023 to which we have been a party in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at the end of the last two recent fiscal years and in which any of our executive officers, directors, director nominees, or beneficial holders of more than five percent of our capital stock, or relative or spouse of any of the foregoing persons or any relative of such spouse who has the same house as such person or who is a director or officer of any parent or subsidiary of our Company, had or will have a direct or indirect material interest, other than compensation arrangements which are described under the sections entitled “Executive Compensation” and “Director Compensation.” 42 Table of Contents 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 and entities related to related parties including Adam Stedham, the Company’s President and CEO; Scott Greenberg, the Company’s Chairman; Curt Kole, one of our named executive officers; the Geller Trust; and the 1065 Institute, Inc., a non-profit entity to which our director Dr. Arthur Laffer serves as a director and secretary. 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. The largest aggregate amount of principal outstanding on the notes since they were issued was $1,100 thousand. As of April 17, 2024 the amount outstanding on the notes was $1,100 thousand. Between the date the notes were issued and April 17, 2024, the Company has paid a total of $0 and $44 thousand in principal and interest. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Policy on Pre-Approval of Retention of Independent Registered Public Accounting Firm The Audit Committee pre-approves all audit and permissible non-audit services on a case-by-case basis. In its review of non-audit services, the Audit Committee considers whether the engagement could compromise the independence of our independent registered public accounting firm, and whether the reasons of efficiency or convenience is in our best interest to engage our independent registered public accounting firm to perform the services. All of the services provided, and fees charged by MaloneBailey were approved by our Audit Committee. Independence Analysis by Audit Committee The Audit Committee considered whether the provision of the services described above was compatible with maintaining the independence of MaloneBailey and determined that the provision of these services was compatible with the firm’s independence. 43 Table of Contents Fees for Professional Services Provided by MaloneBailey, LLP The following table shows fees for professional services provided by MaloneBailey during the fiscal year ended December 31, 2024, which we refer to as fiscal year 2024 and the fiscal year ended December 31, 2023, which we refer to as fiscal year 2023. Fiscal Year 2024 Fiscal Year 2023 Audit Fees (1) $ 263,165 $ 243,756 Audit-Related Fees (2) - - Tax Fees (3) 24,546 15,450 All Other Fees (4) - 3,700 Total $ 287,711 $ 262,906 (1) Audit fees relate to services rendered for the audits of our annual financial statements, for the review of our quarterly financial statements, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements. (2) Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reporter under “Audit Fees.” (3) Tax fees relate to services performed in connection with the Company’s annual tax return. (4) All other fees relate to services rendered in connection with our registration statement filings with the SEC. 44 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. Exhibit No. Description 3.1 Certificate of Amendment to Amended and Restated Articles of Incorporation (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 22, 2020) 3.2 Second Amended Certificate of Designation for Series A Convertible Preferred Stock (incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 18, 2015) 3.3 Certificate of Designation for Series B Convertible Preferred Stock (incorporated herein by reference from Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on June 18, 2015) 3.4 Certificate of Withdrawal of Certificate of Designation for Series C and Series D Convertible Preferred Stock (incorporated herein by reference from Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018) 3.5 Amended and Restated Bylaws of VerifyMe, Inc., as amended through July 24, 2020 (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 29, 2020) 4.1 Form of Common Stock Purchase Warrant (incorporated herein by reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-1/A (File No. 333-234155) filed on May 22, 2020) 4.2 Warrant Agent Agreement dated June 22, 2020 between the Company and West Coast Stock Transfer, Inc. (incorporated herein by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 22, 2020) 4.3 Form of Common Warrant (incorporated herein by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April 18, 2022) 4.4 Form of Common Warrant (incorporated here by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 14, 2025) 4.5* Description of Securities 10.1# Form of Indemnification Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2021) 10.2# Employment Agreement with Nancy Meyers, dated February 15, 2022 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K file on February 22, 2022) 10.3# Employment Agreement between PeriShip Global, LLC and Fred Volk III, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on April 26, 2022) 10.4# Employment Agreement between PeriShip Global, LLC and Jack Wang, dated April 22, 2022 (incorporated herein by reference from Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on April 26, 2022) 10.5# Employment Agreement with Adam Stedham, effective June 19, 2023 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 31, 2023) 10.6# Restricted Stock Unit Award Agreement between the Company and Patrick White dated March 15, 2023 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 20, 2023) 10.7# Restricted Stock Unit Award Agreement between the Company and Keith Goldstein dated July 31, 2023 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 21, 2023) 10.8# Restricted Stock Unit Award Agreement between the Company and Margaret Gezerlis dated July 31, 2023 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on July 21, 2023) 10.9# Restricted Stock Unit Award Agreement between the Company and Adam Stedham dated June 19, 2023 (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023) 10.10# Restricted Stock Unit Award Agreement between the Company and Scott Greenberg dated March 15, 2023 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 20, 2023) 10.11# 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 20, 2017) 10.11.1# Amendment to the 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 29, 2019) 45 Table of Contents 10.12# 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File No. 333-249520) filed on October 16, 2020) 10.12.1# First Amendment to the VerifyMe, Inc. 2020 Equity Incentive Plan (incorporated herein by reference to the Company’s Definitive Proxy Statement filed Schedule 14A filed on April 4, 2022) 10.12.2# Second Amendment to the VerifyMe, Inc. 2020 Equity Incentive Plan (incorporated herein by reference from Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 24, 2023) 10.12.3# Third Amendment to the VerifyMe, Inc. 2020 Equity Incentive Plan (incorporated herein by reference from Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 25, 2024) . 10.13# VerifyMe, Inc. 2021 Stock Purchase Plan (incorporated herein by reference from Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 28, 2021) 10.14# Non-Qualified Stock Option Agreement dated August 2017 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No. 333-234155) filed on October 10, 2019) 10.15# Non-Qualified Stock Option Agreement dated April 17, 2018 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-234155) filed on October 10, 2019) 10.16# Amendment to Non-Qualified Stock Option Agreement dated April 16, 2020 to that Non-Qualified Stock Option Agreement dated August 2017 and that Non-Qualified Stock Option Agreement dated April 17, 2018 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 333-237950) filed on May 1, 2020) 10.17# Incentive Stock Option Agreement dated August 14, 2019 between the Company and Patrick White (incorporated herein by reference from Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 333-234155) filed on October 10, 2019) 10.18# Form of Restricted Stock Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018) 10.19# Form of Director Non-Qualified Stock Option Agreement (immediate vesting) (incorporated herein by reference from Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (File No. 333-237950) filed on May 1, 2020) 10.20# Form of Director Non-Qualified Stock Option Agreement (quarterly vesting) (incorporated herein by reference from Exhibit 10.21 to the Company’s Registration Statement on Form S-1 (File No. 333-237950) filed on May 1, 2020) 10.21# Form of Restricted Stock Agreement pursuant to the 2017 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020) 10.22# Form of Restricted Stock Unit Agreement (immediate vesting) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020) 10.23# Form of Restricted Stock Award Agreement (Employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021) 10.24# Form of Restricted Stock Award Agreement (Non-employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021) 10.25# Form of Restricted Stock Unit Award Agreement (Employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021) 10.26# Form of Restricted Stock Unit Award Agreement (Non-employees) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021) 46 Table of Contents 10.27# Form of Restricted Stock Unit Award Agreement (Subsidiary Employees) (incorporated herein by reference from Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on April 26, 2022) 10.28# Form of Restricted Stock Unit Award Agreement (performance) pursuant to the 2020 Equity Incentive Plan (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023) 10.29 Professional Services Agreement between PeriShip Global (as successor to PeriShip, LLC) and FedEx Corporate Services, Inc. dated June 1, 2019 (incorporated herein by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2022) 10.30 Form of FedEx Transportation Services Agreement Pricing Agreement between PeriShip Global (as successor to PeriShip, LLC) and Federal Express Corporation, et al (incorporated herein by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2022) 10.31 Amendment to Professional Services Agreement with FedEx Corporate Services, Inc. dated August 25, 2022 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2022) 10.32 Revolving Line of Credit Note between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 27, 2022) 10.33 Guaranty and Suretyship Agreement between VerifyMe, Inc., and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 27, 2022) 10.34 Security Agreement between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 27, 2022) 10.35 Security Agreement between VerifyMe, Inc. and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 27, 2022) 10.36 Amended and Restated Loan Agreement between PeriShip Global LLC and PNC Bank, National Association, effective October 31, 2023 (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023) 10.37 Waiver and Amendment to Loan Documents between PeriShip Global LLC and PNC Bank, National Association, effective October 31, 2023 (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023) 10.38 Waiver and Amendment to Loan Documents between PeriShip Global LLC and PNC Bank National Association effective August 7, 2024 (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024) 10.39 Form of Convertible Subordinated Promissory Note (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 28, 2023) 10.40 Employee Bonus Plan (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024) 10.41 Consulting Agreement with Pentant LLC effective as of November 15, 2023 (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024) 10.41.1 First Amendment to Consulting Agreement with Pentant LLC effective June 30, 2024 (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024) 10.42 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) 10.43 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) 10.44 Form of Inducement Letter Agreement dated January 13, 2025 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 14, 2025) 19 Insider Trading Policy 21.1* Subsidiaries of VerifyMe, Inc. 23* Consent of MaloneBailey, LLP 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 97* Policy for the Recovery of Erroneously Awarded Compensation 47 Table of Contents 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File * Filed herewith ** Furnished herewith # Denotes management compensation plan or contract ITEM 16. FORM 10-K SUMMARY None. 48 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ Adam Stedham Adam Stedham Chief Executive Officer and President Date: March 12, 2025 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Adam Stedham Chief Executive Officer, President and Director March 12, 2025 Adam Stedham ( Principal Executive Officer ) /s/ Nancy Meyers Executive Vice President and Chief Financial Officer March 12, 2025 Nancy Meyers ( Principal Financial Officer and Principal Accounting Officer) /s/ Scott Greenberg Director and Chairman March 12, 2025 Scott Greenberg /s/ Marshall Geller Director March 12, 2025 Marshall Geller /s/Howard Goldberg Director March 12, 2025 Howard Goldberg /s/ Arthur Laffer Director March 12, 2025 Arthur Laffer /s/ David Edmonds Director March 12, 2025 David Edmonds 49 Table of Contents INDEX TO FINANCIAL STATEMENTS CONTENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 206 ) F-1 CONSOLIDATED BALANCE SHEETS F-2 CONSOLIDATED STATEMENTS OF OPERATIONS F-3 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 50 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of VerifyMe, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of VerifyMe, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company's auditor since 2018 Houston, Texas March 12, 2025 F- 1 Table of Contents VerifyMe, Inc. Consolidated Balance Sheets (In thousands, except share data) December 31, 2024 December 31, 2023 ASSETS CURRENT ASSETS Cash and cash equivalents including restricted cash $ 2,823 $ 3,095 Accounts receivable, net of allowance for credit loss reserve, $ 71 and $ 165 as of December 31, 2024 and December 31, 2023, respectively 2,636 3,017 Unbilled revenue 733 1,282 Prepaid expenses and other current assets 131 254 Inventory 39 38 TOTAL CURRENT ASSETS 6,362 7,686 PROPERTY AND EQUIPMENT, NET $ 116 $ 240 RIGHT OF USE ASSET 236 468 INTANGIBLE ASSETS, NET 5,365 6,927 GOODWILL 3,988 5,384 TOTAL ASSETS $ 16,067 $ 20,705 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Term note, current $ 500 $ 500 Accounts payable 2,971 3,310 Other accrued expense 660 988 Lease liability- current 108 170 Contingent liability-current - 173 TOTAL CURRENT LIABILITIES 4,239 5,141 LONG-TERM LIABILITIES Contingent liability, non-current $ - $ 751 Long-term lease liability 139 307 Term note 375 875 Convertible note – related party 450 475 Convertible note 650 625 TOTAL LIABILITIES $ 5,853 $ 8,174 STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock, $ 0.001 par value, 37,564,767 shares authorized; 0 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively - - Series B Convertible Preferred Stock, $ 0.001 par value; 85 shares authorized; 0.85 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively - - Common stock, $ 0.001 par value; 675,000,000 shares authorized; 10,829,908 and 10,453,315 shares issued, 10,539,441 and 10,123,964 shares outstanding as of December 31, 2024 and December 31, 2023, respectively 11 10 Additional paid in capital 96,344 95,031 Treasury stock as cost; 290,467 and 329,351 shares at December 31, 2024 and December 31, 2023, respectively ( 480 ) ( 659 ) Accumulated deficit ( 85,673 ) ( 81,849 ) Accumulated other comprehensive loss 12 ( 2 ) STOCKHOLDERS' EQUITY 10,214 12,531 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,067 $ 20,705 The accompanying notes are an integral part of these consolidated financial statements. F- 2 Table of Contents VerifyMe, Inc. Consolidated Statements of Operations (In thousands, except per share data) Year Ended December 31, 2024 December 31, 2023 NET REVENUE $ 24,207 $ 25,313 COST OF REVENUE 15,545 17,287 GROSS PROFIT 8,662 8,026 OPERATING EXPENSES Segment management and Technology (a) 5,454 5,097 General and administrative (a) 3,852 4,416 Research and development 70 107 Sales and marketing (a) 1,361 1,644 Goodwill and Intangible asset impairment 2,315 90 Total Operating expenses 13,052 11,354 LOSS BEFORE OTHER INCOME (EXPENSE) ( 4,390 ) ( 3,328 ) OTHER INCOME (EXPENSE) Interest expenses, net ( 130 ) ( 161 ) Change in fair value of contingent consideration 844 201 Loss on equity investment - ( 100 ) Loss on sale of business ( 146 ) - Other expense, net ( 2 ) ( 2 ) TOTAL OTHER INCOME (EXPENSE), NET 566 ( 62 ) NET LOSS $ ( 3,824 ) $ ( 3,390 ) LOSS PER SHARE BASIC ( 0.37 ) ( 0.35 ) DILUTED ( 0.37 ) ( 0.35 ) WEIGHTED AVERAGE COMMON SHARE OUTSTANDING BASIC 10,402,508 9,766,469 DILUTED 10,402,508 9,766,469 (a) Includes share-based compensation of $1,555 thousand for the year ended December 31, 2024, and $1,675 thousand for the year ended December 31, 2023. The accompanying notes are an integral part of these consolidated financial statements. F- 3 Table of Contents VerifyMe, Inc. Consolidated Statements of Comprehensive Loss (In thousands) Year Ended December 31, 2024 December 31, 2023 NET LOSS $ ( 3,824 ) $ ( 3,390 ) Change in fair value of interest rate, swap 8 7 Foreign currency translation adjustments 6 ( 6 ) TOTAL COMPREHENSIVE LOSS $ ( 3,810 ) $ ( 3,389 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 Table of Contents VerifyMe, Inc. Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2024 December 31, 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 3,824 ) $ ( 3,390 ) Adjustments to reconcile net loss to net cash provided by operating activities: Allowance for bad debt 49 139 Stock based compensation 255 200 Loss on equity investment - 100 Loss on sale of business 134 - Change in fair value of contingent consideration ( 836 ) ( 201 ) Fair value of restricted stock awards and restricted stock units issued in exchange for services 1,300 1,475 Loss on disposal of equipment - 2 Impairments 2,301 190 Amortization and depreciation 1,212 1,134 Unrealized gain on foreign currency transactions ( 24 ) ( 25 ) Changes in operating assets and liabilities: Accounts receivable 298 1,295 Unbilled revenue 521 ( 96 ) Inventory - ( 57 ) Prepaid expenses and other current assets 115 9 Accounts payable, other accrued expenses and net change in operating leases ( 630 ) ( 531 ) Net cash provided by operating activities 871 244 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of patents ( 12 ) ( 62 ) Leasehold improvements - ( 8 ) Purchase of office equipment ( 7 ) ( 27 ) Cash paid in business combination - ( 363 ) Deferred implementation costs - ( 58 ) Capitalized software costs ( 504 ) ( 677 ) Cash from sale of business assumed by the buyer ( 52 ) - Net cash used in investing activities ( 575 ) ( 1,195 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit - 1,800 Proceeds from convertible debt - 1,100 Proceeds from SPP Plan 21 80 Contingent consideration payments ( 53 ) - Tax withholding payments for employee stock-based compensation in exchange for shares surrendered ( 66 ) ( 36 ) Increase in treasury shares (share repurchase program) ( 18 ) ( 10 ) Repayment of debt and line of credit ( 500 ) ( 2,300 ) Net cash (used in) provided by financing activities ( 616 ) 634 Effect of exchange rate changes on cash 48 1 NET DECREASE IN CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH ( 272 ) ( 316 ) CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH- BEGINNING OF PERIOD 3,095 3,411 CASH AND CASH EQUIVALENTS INCLUDING RESTRICTED CASH - END OF PERIOD $ 2,823 $ 3,095 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 178 $ 165 Income taxes $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Change in fair value of interest rate, swap $ 8 $ 7 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Table of Contents VerifyMe, Inc. Consolidated Statements of Stockholders' Equity (In thousands, except share data) Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Stock Additional 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 - 468 - - - - 468 Restricted stock units, net of shares withheld for employee tax - - - - 123,989 - 970 - - - - 970 Common stock issued in relation to Stock Purchase Plan - - - - 70,047 - ( 77 ) ( 61,302 ) 211 - - 134 Common stock issued for services - - - - 133,654 - 147 - - - - 147 Common stock issued in relation to Acquisition - - - - 353,492 - 625 - - - - 625 Repurchase of common stock - - - - ( 6,201 ) - - 6,201 ( 10 ) - - ( 10 ) Treasury stock retired - - - - - - ( 89 ) ( 5,515 ) 89 - - - Cancellation of Common stock - - - - ( 1,496 ) - - - - - - - Accumulated other comprehensive loss - - - - - - - - - 1 - 1 Net loss - - - - - - - - - - ( 3,390 ) ( 3,390 ) Balance at December 31, 2023 - - 0.85 - 10,123,964 10 95,031 329,351 ( 659 ) ( 2 ) ( 81,849 ) 12,531 Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Stock Additional 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 1 388 - - - - 389 Restricted stock units, net of shares withheld for employee tax - - - - 94,688 - 720 ( 38,095 ) 125 - - 845 Common stock issued in relation to Stock Purchase Plan - - - - 21,889 - ( 46 ) ( 21,889 ) 72 - - 26 Common stock issued for services - - - - 180,000 - 251 - - - - 251 Repurchase of Common Stock - - - - ( 21,100 ) - - 21,100 ( 18 ) - - ( 18 ) Accumulated other comprehensive loss - - - - - - - - - 14 - 14 Net loss - - - - - - - - - - ( 3,824 ) ( 3,824 ) Balance at December 31, 2024 - - 0.85 - 10,539,441 11 96,344 290,467 ( 480 ) 12 ( 85,673 ) 10,214 The accompanying notes are an integral part of these unaudited consolidated financial statement F- 6 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business VerifyMe, Inc. (“VerifyMe,” “we,” “us,” “our,” or the “Company”) was incorporated in the State of Nevada on November 10, 1999. VerifyMe, is based in Lake Mary, Florida and its common stock, par value $ 0.001 per share, and certain warrants to purchase common stock are traded on The Nasdaq Capital Market (“Nasdaq”) under the trading symbols “VRME” and “VRMEW,” respectively. The Company is a specialized logistics company that specializes in time and temperature sensitive products, as well as providing brand protection and enhancement solutions. The Company operates a Precision Logistics segment which includes the operations of our subsidiary PeriShip Global, LLC (“PeriShip Global”) and accounts for nearly all VerifyMe revenue and an Authentication segment. 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 activities. Further information regarding our business segments is discussed below. 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 year ended December 31, 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 consolidated financial statements include the accounts of VerifyMe and its wholly owned subsidiaries PeriShip Global and Trust Codes Global Limited (“Trust Codes Global”). Trust Codes Global was divested on December 8, 2024. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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. F- 7 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 15 – 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. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on their financial statement disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220). This standard requires disclosure of specific information about costs and expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the potential effect that the updated standard will have on their financial statement disclosures. F- 8 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Fair Value of Financial Instruments The Company’s financial instruments consist of accounts receivable, unbilled revenue, accounts payable, notes payable and accrued expenses, equity investments, and long-term derivative liabilities. The carrying value of accounts receivable, unbilled revenue, accounts payable and accrued expenses approximate their fair value because of their short maturities. The Company believes the carrying amount of its notes payable approximates fair value based on rates and other terms currently available to the Company for similar debt instruments. The Company follows FASB Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, and applies it to all assets and liabilities that are being measured and reported on a fair value basis. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs that are not corroborated by market data The level in the fair value within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2024 and December 31, 2023. Amounts in Thousands ('000) Schedule of fair value assets measured on recurring basis Derivative Asset (Liability) Contingent Consideration (Level 2) (Level 3) Balance as of December 31, 2023 4 ( 924 ) Change in fair value of contingent consideration - 844 Payments - 53 Foreign currency adjustment - 27 Change in fair value to interest rate, SWAP, recognized in other comprehensive loss 8 - Balance at December 31, 2024 $ 12 $ - 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 15 Segment Reporting, for further discussion of the Company’s segment reporting structure. F- 9 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Business Combinations The Company applies the provisions of ASC Topic 805, Business Combinations, in the accounting for business acquisitions. ASC Topic 805 requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately apply preliminary value to assets acquired and liabilities assumed at the acquisition date, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments in the current period, rather than a revision to a prior period. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations. Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets where applicable. Although the Company believes the assumptions and estimates made have been reasonable and appropriate, they are based in part on information obtained from management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. Basic and Diluted Net Loss per Share of Common Stock The Company follows ASC Topic 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 year ended December 31, 2024, 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 years presented. For the year ended December 31, 2024, there were approximately 7,971,000 anti-dilutive shares consisting of 1,606,000 unvested performance restricted stock units, 414,000 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. F- 10 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements 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 restricted cash As of December 31, 2024 December 31,2023 Cash and cash equivalents $ 2,823 $ 3,032 Restricted cash - 63 Total cash and cash equivalents including restricted cash $ 2,823 $ 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 December 31, 2024. As of December 31, 2023, the Company held $ 63 thousand of cash subject to restrictions. Concentration of Credit Risk Involving Cash and Cash Equivalents The Company’s cash and cash equivalents are held at various financial institutions. At times, the Company’s deposits may exceed Federal Deposit Insurance Corporation (FDIC) coverage limits which are currently set at $ 250,000 per depositor. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. Accounts Receivable Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, such allowances may be required. The Company recognized $ 22 thousand and $ 139 thousand for allowance for credit losses as of December 31, 2024, and 2023, respectively. Equity Investments When the Company does not have a controlling financial interest in an entity but can exert influence over the entity’s operations and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under applicable generally accepted accounting policies. The Company has elected the fair value option for its equity security under prepaid expenses and other current assets on the Consolidated Balance Sheets, as it has determined the fair value best reflects the economic performance of the equity investment. Changes in unrecognized gain or loss of the fair value of the equity investments are included in Other income (expense) on the accompanying Consolidated Statements of Operations. Inventory Inventory principally consists of canisters and pigments and is stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. During the year ended December 31, 2023, the Company impaired $ 100 thousand related to inventory in our Authentication segment, related to raw material to record at fair market value. Equipment for Lease Equipment for lease principally consists of costs associated with the development, certification and production of the VerifyChecker™ and the VerifyAuthenticator TM Smartphone Authenticator technology. These technologies are leased to customers typically for a period of one year in length with automatically renewable leases cancellable by either party by written notice provided 90 days in advance. We examined the effect of ASU No. 2016-02 Leases (Topic 842) and determined the impact is not material. Our policy is to capitalize the costs related to this equipment and depreciate on a straight-line basis over the estimated lives of the equipment which was determined to be 5 years. F- 11 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Capitalized Software Costs incurred in connection with the development of software related to our proprietary proactive end-to-end logistics management products are accounted for in accordance with ASC Topic 350 “Hosting Arrangements and Internally Used Software.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market. Amortization of capitalized software development costs begins once the product is available to the market. Capitalized software development costs are amortized over the estimated life of the related product, generally six years, using the straight-line method. The Company will evaluate its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets in accordance with ASC Topic 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC Topic 350, Intangibles-Goodwill and Other, the Company tests goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment test. The assessment considers factors such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and our share price. An entity is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price. Derivative Instruments The Company evaluates its equity investments, long-term derivative liabilities, preferred stock, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC Topic 480, Distinguish by Liabilities from Equity and ASC Topic 815, Derivatives and Hedging. The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as an asset or liability. The change in fair value is recorded in the Consolidated Statement of Operations as a component of other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. F- 12 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as assets, liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified as assets or liabilities at the fair value of the instrument on the reclassification date. Derivative instrument as assets or liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date. 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 unrealized foreign currency transaction gain/losses for the years ended December 31, 2024 and December 31, 2023, were $ 6 thousand loss and $ 5 thousand gain, respectively. Revenue Recognition The Company accounts for revenues according to ASC Topic 606, Revenue from Contracts with Customers which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. 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. For more detailed information about reportable segments, see Note 15 – Segment reporting. · 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. 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. F- 13 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements 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 twelve months ended December 31, 2024. Stock-Based Compensation We account for stock-based compensation under 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. 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. We recognize forfeitures as they occur with a reduction in compensation expense in the period of forfeiture. For performance restricted stock units (“RSU”) with stock price appreciation targets (see Note 10 – Stock Options, Restricted Stock and Warrants), we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future price paths over the RSU’s contractual life based on the appropriate probability distributions (which are based on commonly applied Black Scholes inputs). The fair value was determined by taking the average of the grant date fair values under each Monte Carlo simulation 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. F- 14 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements We account for stock-based compensation awards to non-employees in accordance with ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, 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. Advertising Costs Advertising costs are expensed as incurred. Advertising costs were $ 3 thousand and $ 39 thousand for the years ended December 31, 2024, and 2023, respectively, and are included in Sales and Marketing on the Consolidated Statements of Operations. Research and Development Costs In accordance with ASC Topic 730, research and development costs are expensed when incurred. Research and development costs for the years ended December 31, 2024, and 2023 were $ 70 thousand and $ 107 thousand, respectively. Income Taxes The Company follows ASC Topic 740, “Income Taxes,” when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Tax years from 2005 remain subject to examination by major tax jurisdictions due the carryforward of unutilized NOLs. NOTE 2 – EQUITY INVESTMENTS In December 2021, the Company acquired 8,841 shares of 10 % Cumulative Convertible Series D Preferred Stock at a price of $ 10.00 per share as payment for a customer’s outstanding AR balance of $ 88,410 . This instrument is considered an equity security within the scope of Topic 321 since the issuing entity has the option but no contractual obligation to redeem the preferred stock, and the Company can convert the preferred shares to common stock. During the year ended December 31, 2023, the Company determined that it would not be able to redeem the value of its investment and recorded a loss of $ 100 thousand bringing down the value of the equity investment to $ 0 as of December 31, 2023. F- 15 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 3 – 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 Year Ended December 31, Year Ended December 31, Year Ended December 31, 2024 2023 2024 2023 2024 2023 Proactive services $ - $ - $ 19,365 $ 19,879 $ 19,365 $ 19,879 Premium services - - 4,401 4,773 4,401 4,773 Brand protection services 441 661 - - 441 661 $ 441 $ 661 $ 23,766 $ 24,652 $ 24,207 $ 25,313 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 year ended December 31, 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 December 31, 2024, we did not have any capitalized sales commissions. For all periods presented, contract liabilities were not significant. F- 16 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements The following table provides information about contract assets from contracts with customers: Schedule of contract assets Contract Asset December 31, In Thousands 2024 2023 Beginning balance, January 1 $ 1,282 $ 1,185 Contract asset additions 8,572 8,087 Reclassification to accounts receivable, billed to customers ( 9,121 ) ( 7,990 ) Ending balance (1) $ 733 $ 1,282 ______________ (1) Included within "Unbilled revenue" on the accompanying Consolidated Balance sheets. F- 17 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 4 – BUSINESS COMBINATION 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 Topic 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 was estimated at $ 1.1 million at the acquisition date, however the maximum amount of the payment is unlimited. The preliminary purchase price allocation was subject to change and was finalized in the fourth quarter of 2023. The goodwill recognized was due to the expected synergies from combining the operations of the acquiree with the Company. All of the goodwill recorded for financial statement purposes was deductible for tax purposes. The Company incurred $ 278 thousand in relation to acquisition related costs which were included in General and administrative, 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 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 allocation for the acquisition 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. On December 8, 2024 the Company sold Trust Codes Global pursuant to a Share Sale Agreement with a related party, Paul Ryan, former Executive Vice President of the Authentication Segment and employee of Trust Codes Global Limited. This divestiture did not qualify as a discontinued operation. The purchase price per the agreement was $1 NZD. We recognized a loss of $ 0.1 million on the sale of the business. Through his purchase, Mr. Ryan assumed the remaining cash balance in the bank accounts of $ 0.1 million and all continuing obligations and liabilities of Trust Codes Global Limited. The Trust Codes Global business was part of the Authentication segment. F- 18 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements 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. The Company divested the Trust Codes business on December 8, 2024. As of December 31, 2024, we had no current or non-current contingent consideration related to the acquisition of Trust Codes on the Consolidated Balance sheets. In 2024, payments of $ 53 thousand was paid for contingent consideration. F- 19 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 5 – 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 , 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. 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. 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 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 segment. 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 year ended December 31, 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 December 31, 2024 $ - $ 3,988 $ 3,988 F- 20 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements 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 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 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 $ 964 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 segment. F- 21 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands): Schedule of intangible assets subject to amortization December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (Years) Patents and Trademarks $ 1,112 $ ( 230 ) $ 882 10 Customer Relationships 1,839 ( 495 ) 1,344 7 Developed Technology 3,143 ( 1,411 ) 1,732 3 Internally Used Software 1,418 ( 207 ) 1,211 7 Non-Compete Agreement 191 ( 103 ) 88 2 Deferred Implementation 135 ( 27 ) 108 8 Total Intangible Assets $ 7,838 $ ( 2,473 ) $ 5,365 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 $ 1,097 thousand and $ 1,030 thousand for the years ended December 31, 2024, and December 31, 2023, respectively. During the year ended December 31, 2023, the Company impaired certain assets related to its Developed Technology and Patents by $ 90 thousand, to bring the gross carrying amount related to these assets to zero, as these technologies are no longer in use. During the year ended December 31, 2024, the Company impaired certain assets by $ 964 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 December 31, 2024, our current patent and trademark portfolios consist of nine granted U.S. patents and two granted European patents, two pending foreign patent applications and several foreign trademarks. The Company abandoned one patents during the year ended December 31, 2024. The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows (in thousands): Schedule of finite-lived intangible assets, future amortization expense Fiscal Year ending December 31, 2025 $ 1,020 2026 1,020 2027 994 2028 620 2029 458 Thereafter 1,253 Total $ 5,365 As of December 31, 2024, our intangible assets with definite lives had a weighted average remaining useful life of 6 years. We have no amortizable intangible assets with indefinite useful lives. F- 22 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 6 – INCOME TAXES The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2024, and 2023 is as follows (in thousands) : Schedule of reconciliation of federal statutory tax rate Year Ended December 31, US 2024 2023 Loss before income taxes Domestic $ ( 4,602 ) $ ( 2,612 ) Foreign 721 ( 777 ) Total loss before income taxes ( 3,881 ) ( 3,389 ) Taxes under statutory US tax rates ( 815 ) ( 712 ) Increase (decrease) in taxes resulting from: Foreign taxes and rate differential 7 ( 53 ) Increase (decrease) in valuation allowance 696 642 Change in State tax rate 284 ( 25 ) Prior period true up 25 267 State taxes ( 197 ) ( 119 ) Income tax expense $ - $ - The increase in the valuation allowance during the years ended December 31, 2024 and December 31, 2023 was due primarily to the increase in our net operating losses which may not be utilized in the future. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities consist of the following (in thousands): Schedule of deferred tax assets and liabilities December 31, 2024 2023 US Net operating loss carryforwards $ 6,646 $ 6,318 Restricted stock (RSAs, RSUs) 819 613 Stock options 159 527 Stock Purchase Plan (SPP) - 2 Depreciation ( 22 ) ( 45 ) Intangibles 93 ( 27 ) Acquisition transaction costs 95 172 Capitalized research and development ( 18 ) ( 1 ) Unrealized gain on investment 2 2 Bad debt 18 42 Capital loss carryforward 930 680 Accruals & other - 11 Impairments 25 - Gross deferred tax assets $ 8,747 $ 8,294 Less valuation allowance ( 8,747 ) ( 8,294 ) Total deferred tax assets $ - $ - Deferred tax liabilities: Total deferred tax liabilities - - Net deferred tax assets / (liabilities) $ - $ - F- 23 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon these factors, Management has placed a full valuation allowance against all deferred tax assets, including net operating loss carryforwards, due to the uncertainty of future profitability. As of December 31, 2024, the Company has net operating loss carryforwards of $ 24.7 million for tax purposes, which will be available to offset future taxable income. If not used, $6.7 million of these carryforwards will expire beginning in 2025, and $18 million will carryforward indefinitely. As of the year ended December 31, 2023, the Company has net operating loss carryforwards of $ 22.7 million for tax purposes, which will be available to offset future taxable income. If not used, $7.5 million of these carryforwards will expire beginning in 2024, and $15.2 million will carryforward indefinitely. 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 change of the company that could occur in the future, as well as similar state provisions. In general, an “ownership change” as defined by Section 382 results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income. The Company completed the IRC Section 382 analysis, in 2022, and determined that an ownership change occurred sufficient to impose additional limitations on the use of NOL carryforwards. The Company has not completed the IRC Section 382 analysis in 2023 or 2024 and is not aware of any indicators that may impose additional limitations on the use of NOL carryforwards. No tax benefit has been reported in the December 31, 2024, financial statements due to the uncertainty surrounding the realizability of the benefit. Uncertain Tax Positions As of December 31, 2024, and 2023 we had no uncertain tax positions reflected on our balance sheet. The Company files income tax returns in U.S. federal, state and local jurisdictions, and various non-U.S. jurisdictions, and is subject to audit by tax authorities in those jurisdictions. Tax years 2020 through 2024 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statues of limitations. The Company’s tax years from 2005 are subject to examination by the United States and state taxing authorities due to the carryforward of unutilized NOLs. The Tax Cuts and Jobs Act of 2017 imposes a mandatory repatriation tax on certain unremitted foreign earnings and provides a 100% deduction to domestic corporations for certain dividends received from foreign corporations after Dec. 31, 2017. The Company divested of its foreign subsidiary on December 8, 2024, therefore, there will be no future dividends from the earnings of our foreign subsidiary to result in U.S. federal income taxes. 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 has evaluated its ability to realize some or all of the deferred tax assets on its balance sheet and has established a valuation allowance of approximately $ 8.9 million at December 31, 2024. The Company did not utilize any NOL deductions for the year ended December 31, 2024. The Company applied the "more-likely-than-not" recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2024, and December 31, 2023, respectively. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the balance sheets and recognized $ 1 thousand in interest and/or penalties in the Statements of Operations for the year ended December 31, 2024, and $ 2 thousand in interest and/or penalties in the Statements of Operations in the fiscal year ended December 31, 2023. There are no taxes payable as of December 31, 2024, or December 31, 2023. F- 24 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 7— DEBT PNC Facility 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”). 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 included a four-year term note (the “Term Note”) for $ 2 million which matured in September of 2026 and required equal quarterly payments of principal and interest. The Term Note incurred interest per annum at a rate equal to the sum of Daily SOFR plus 3.1% . On January 21, 2025, the Term Note was paid in full and no future principal payments are due. 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. On November 3, 2023, PeriShip Global entered into a waiver and amendment to loan documents and received a waiver for certain events of default and 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. 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. PeriShip Global was not in compliance with all affirmative and restrictive covenants under the PNC Facility as of December 31, 2024. On February 28, 2025, we received a waiver as of December 31, 2024 for certain events of default. 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. During the year ended December 31, 2024, and December 31, 2023, the Company made a repayment of $ 500 thousand towards the principal of the outstanding Term Note. As of December 31, 2023, our short-term debt outstanding under the Term Note was $ 500 thousand and total long-term debt outstanding under the Term Note was $ 875 thousand. As of January 21, 2025 the Term Note was paid in full and no future principal payments are due. During the year ended December 31, 2023, $ 1,800 thousand was drawn on the RLOC, of which $ 1,800 thousand was repaid. As of December 31, 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 December 31, 2024, and as of December 31, 2023, respectively. As of January 21, 2025, we terminated our interest rate swap agreement. 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 December 31, 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 year ended December 31, 2024, interest expense related to the convertible debt was $ 88 thousand. 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. As of January 21, 2025, $ 350 thousand was converted to common stock, none of which was related parties. F- 25 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 8 – CONVERTIBLE PREFERRED STOCK The Company is authorized to issue Series A Convertible Preferred Stock, par value of $ 0.001 per share (the “Series A”) and Series B Convertible Preferred Stock, par value of $ 0.001 per share (the “Series B”). As of December 31, 2024, and 2023, there were no shares of Series A outstanding and 0.85 of a share of Series B outstanding convertible into 144,444 shares of common stock. Each share of Series A and Series B has limited voting rights, is entitled to participate with the common stock on liquidation and holders of Series A and Series B are subject to beneficial ownership limitations. NOTE 9 – STOCKHOLDERS’ EQUITY The Company expensed $ 388 thousand and $ 477 thousand related to restricted awards for the years ended December 31, 2024 and December 31, 2023, respectively. The Company expensed $ 912 thousand and $ 998 thousand related to restricted stock units for the years ended December 31, 2024 and December 31, 2023, respectively. 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. On December 31, 2024, the Company issued an additional 60,000 of restricted common stock, vesting immediately, with a value of $ 81 thousand, for consulting services. 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 shares of common stock withheld for taxes. During the year ended December 31, 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 November 2, 2023 the Company issued 56,272 shares of common stock upon vesting of 72,329 restricted stock units, net of 16,057 shares of common stock withheld for taxes. On September 20, 2023, the Company issued 15,965 shares of common stock upon vesting of 22,807 restricted stock units, net of 6,842 shares of commons stock withheld for taxes. On July 31, 2023, the Company issued 14,000 shares of common stock upon vesting of 20,000 restricted stock awards, net of 6,000 shares of common stock withheld for taxes. On April 22, 2023, 750 shares of common stock were retired to cover taxes on the vesting of 2,500 restricted stock award. On March 31, 2023, the Company issued 1,750 shares of common stock upon vesting of 2,500 restricted stock units, net of 750 shares of common stock withheld for taxes. On February 28, 2023, 353,492 shares of common stock were issued in relation to the acquisition of Trust Codes Global, see Note 4 – Business Combinations, for details. On December 31, 2023, the Company issued 133,654 of restricted common stock, vesting immediately, with a value of $ 147 thousand, for consulting services. During the year ended December 31, 2023, the Company retired 5,515 shares of common stock held in Treasury and 1,496 shares of common stock outstanding, relating to issuances in prior periods that have been forfeited or cancelled. During the year ended December 31, 2023, the Company issued 50,002 shares of common stock issued upon the separation of a former director, relating to 50,002 shares of restricted stock units that had previously vested. F- 26 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements 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 ASC Topic 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 $ 4 thousand and $ 53 thousand for the years ended December 31, 2024 and December 31, 2023, respectively. During the years ended December 31, 2024, and December 31, 2023, the Company received $ 21 thousand and $ 80 thousand, respectively, 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 December 31, 2024, and December 31, 2023, the Company had 290,467 and 329,351 shares, respectively, held in treasury with a value of approximately $ 480 thousand and $ 659 thousand, respectively. On February 29, 2024, seven participants exercised their options 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. On August 31, 2023, six participants exercised their options under the Company’s 2021 Plan, and as a result, 12,802 shares were issued from treasury, with an exercise price of $ 0.96 per share. F- 27 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements On February 28, 2023, fourteen participants exercised their options under the Company’s 2021 Plan, and as a result, 57,245 shares were issued, of which 48,500 were issued from treasury, with an exercise price of $ 1.19 per share. Shares Repurchase Program Effective July 1, 2022, the Company’s Board of Directors approved a share repurchase program to allow the Company to spend up to $ 1.5 million to repurchase shares of its common stock, so long as the price does not exceed $5.00. This plan ended on July 1, 2023. During the year ended December 31, 2023, the Company repurchased 6,201 shares of common stock for $ 10 thousand under the Company’s 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 does not exceed $1.00 until December 14, 2024. 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. The share 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 for $ 18 thousand of common stock under the Company’s current program. NOTE 10– STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS 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”) and on September 30, 2020, the Company’s stockholders approved the 2020 Plan, which authorizes the potential issuance of up to 1,069,110 shares of common stock. Upon effectiveness of the 2020 Plan 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 and on June 9, 2022, the Company’s stockholders approved the First Amendment to the 2020 Plan, 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, 2023. On April 17, 2023, the Company’s Board of Directors adopted the Second Amendment to the 2020 Plan and on June 6, 2023, the Company’s stockholders approved the Second Amendment to the 2020 Plan, which increased the shares authorized for potential issuance under the 2020 Plan to 3,069,110 shares of common stock and extended the term of the 2020 Plan to June 6, 2033, and increased the annual cap on director compensation by $50 thousand. On March 18, 2024, the Company’s Board of Directors adopted the Third Amendment to the 2020 Plan, which on June 4, 2024, was approved by the Company’s stockholders, 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. 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. F- 28 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Stock Options The following table summarizes the activities for the Company’s stock options as of December 31, 2024, and 2023: 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, 2022 337,471 $ 4.63 Granted - - Forfeited/Cancelled/Expired ( 36,000 ) 5.17 Balance as of December 31, 2023 301,471 4.56 Exercisable as of December 31, 2023 301,471 $ 4.56 1.2 $ - Granted - - Forfeited/Cancelled/Expired ( 80,471 ) 7.27 Balance as of December 31, 2024 221,000 3.57 Exercisable as of December 31, 2024 221,000 $ 3.57 0.4 $ - (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. As of December 31, 2024, and 2023, the Company had no unvested stock options. F- 29 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements During the year ended December 31, 2024, and 2023, the Company expensed $ 0 thousand with respect to options. As of December 31, 2024, and 2023, 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 December 31, 2024 and 2023: Schedule of unvested options Weighted - Average Number of Grant Award Shares Date Fair Value Unvested at December 31, 2022 41,808 3.24 Granted 506,194 1.45 Vested ( 131,333 ) 2.06 Balance at December 31, 2023 416,669 1.44 Granted 140,000 1.60 Vested ( 416,669 ) 1.44 Balance at December 31, 2024 140,000 $ 1.60 As of December 31, 2024, and 2023, total unrecognized share-based compensation cost related to unvested restricted stock awards was $ 96 thousand and $ 260 thousand respectively, which is expected to be recognized over a weighted-average period of 0.4 years as of December 31, 2024. F- 30 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements The following table summarizes the unvested restricted stock units as of December 31, 2024 and 2023: Schedule of unvested restricted stock awards Unvested Restricted Stock Units Weighted - Average Number of Grant Unit Shares Date Fair Value Unvested at December 31, 2022 413,626 2.14 Granted 272,941 1.35 Vested ( 294,261 ) 2.51 Forfeit/Cancelled ( 21,053 ) 1.20 Unvested at December 31, 2023 371,253 1.32 Granted 88,011 1.46 Vested ( 160,194 ) 1.31 Forfeited/Cancelled ( 25,334 ) 1.23 Balance at December 31, 2024 $ 273,736 $ 1.38 As of December 31, 2024, and 2023, total unrecognized share-based compensation cost related to unvested restricted stock units was $ 120 thousand and $ 301 thousand respectively, which is expected to be recognized over a weighted-average period of 0.7 years as of December 31, 2024. For RSUs with stock price appreciation targets, we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future price paths over the RSU’s contractual life based on the appropriate probability distributions (which are based on commonly applied Black Scholes inputs). The fair value of each grant was determined by taking the average of the grant date fair values under each Monte Carlo simulation trial. We recognize compensation expense on a straight-line basis over the derived service period and there is no ongoing adjustment or reversal based on actual achievement during the period. F- 31 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements The following table summarizes the unvested performance restricted stock units as of December 31, 2024 and 2023: Schedule of unvested restricted stock units Unvested Performance Restricted Stock Units Weighted - Average Number of Grant Unit Shares Date Fair Value Unvested at December 31, 2022 432,326 2.95 Granted 1,156,591 1.16 Vested - - Forfeited/Cancelled ( 150,157 ) 2.95 Balance at December 31, 2023 1,438,760 1.51 Granted 555,000 1.08 Vested - - Forfeited/Cancelled ( 387,100 ) 1.47 Balance at December 31, 2024 1,606,660 $ 1.37 As of December 31, 2024, and December 31, 2023 total unrecognized share-based compensation cost related to unvested restricted stock units was $ 577 thousand and $ 1,778 thousand, respectively, which is expected to be recognized over a weighted-average period of 1.2 years as of December 31, 2024. F- 32 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements Warrants The following table summarizes the activities for the Company’s warrants for the year ended December 31, 2024 and 2023: Schedule of warrants outstanding Warrants Outstanding (Excluding Pre-Funded Warrants) Number of Warrant Shares Weighted- Average Exercise Price Weighted - Average Remaining Contractual Term in years) Aggregate Intrinsic Value (in thousands) (1) Balance at December 31, 2022 5,103,455 $ 4.34 Granted - - Expired ( 474,869 ) 6.34 Balance at December 31, 2023 4,628,586 4.13 Granted - - Expired - - Balance at December 31, 2024 4,628,586 4.13 1.2 Exercisable at December 31, 2024 4,628,586 4.13 1.2 $ - (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $1.36 for our common stock on December 31, 2024. F- 33 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 11— LOSS PER SHARE Basic loss per share (EPS) is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive common stock equivalent shares consist of preferred stock, stock options, warrants, restricted stock awards and restricted stock units computed under the treasury stock method, using the average market price during the period. The following table sets forth the computation of basic loss per share (in thousands, except share and per share data): Schedule of basic and diluted earnings/(loss) per share Years Ended December 31, 2024 2023 Numerator: Net loss: $ ( 3,824 ) $ ( 3,390 ) Denominator: Weighted average shares of common stock – basic 10,402,508 9,766,469 Loss per share: Basic $ ( 0.37 ) $ ( 0.35 ) Diluted $ ( 0.37 ) $ ( 0.35 ) F- 34 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements The following table represents the weighted average number of anti-dilutive instruments excluded from the computation of diluted loss per share: Schedule of anti-dilutive earnings per share Years Ended December 31, 2024 2023 Anti-dilutive instruments excluded from computation of diluted net loss per share: Preferred Stock 144,444 144,444 Stock Options 221,000 301,471 Warrants 4,628,586 4,628,586 Stock purchase plan - 28,065 Convertible note 956,527 956,527 Restricted Stock Units and Restricted Stock Awards 2,020,396 2,226,682 NOTE 12 – EMPLOYEE BENEFIT PLAN We offer the VRME Retirement Savings Plan (the “Plan”) to our employees located in the United States of America. Eligible employees can elect to participate in the Plan, as soon as administratively feasible after enrollment. The Plan permits pre-tax contributions to the Plan by participants pursuant to Section 401(k) of the Internal Revenue Code (IRC). The Company makes the matching contributions at our discretion. In the years ended December 31, 2024, and December 31, 2023, the Company contributed a value of approximately $ 172 thousand and $ 137 thousand respectively and is recognized as compensation expense in the Consolidated Statements of Operations for matching contributions to the Plan. New Zealand has a statutory retirement savings scheme, Kiwisaver, in which New Zealand employees may participate. The Company makes the required by law contributions equal to three percent of each employee’s salary. In the years ended December 31, 2024, and December 31, 2023, the Company contributed a value of approximately $ 19 thousand and $ 10 thousand, respectively. NOTE 13 – LEASES The Company accounts for its leases under 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. F- 35 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements 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 expense is included in Management and technology Expenses on the accompanying Consolidated Statements of Operations. The components of lease expense were as follows (in thousands): Schedule of components of lease expense Years ended December 31, 2024 2023 Operating lease cost $ 127 $ 182 Short-term lease cost 18 28 Total lease costs $ 145 $ 210 Schedule of supplemental information related to leases Supplemental information related to leases was as follows (dollars in thousands): December 31, 2024 December 31, 2023 Operating Lease right-of-use asset $ 236 $ 468 Current portion of operating lease liabilities 108 170 Non-current portion of operating lease liabilities 139 307 Total operating lease liabilities $ 247 $ 477 Cash paid for amounts included in the measurement of operating lease liabilities $ 126 $ 177 Right-of-use assets obtained in exchange for operating lease liabilities $ - $ - Weighted-average remaining lease term for operating leases (years) 2.3 3.0 Weighted average discount rate for operating leases 6.0 % 6.4 % F- 36 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our consolidated balance sheets as of December 31, 2024 (in thousands): Schedule of operating lease liabilities maturities Year ended December 31, 2025 $ 129 2026 134 2027 45 Thereafter - Total future lease payments 308 Less: imputed interest ( 61 ) Present value of future lease payments 247 Less: current portion of lease liabilities ( 108 ) Long-term lease liabilities $ 139 NOTE 14 – CONCENTRATIONS During the year ended December 31, 2024, one customer represented 16 % of revenues and one customer represented 17 % of revenues for the year ended December 31, 2023. As of December 31, 2024, two customers made up 36 % of accounts receivable. As of December 31, 2023, three customers accounted for 47 % of total accounts receivable. During the year ended December 31, 2024, and December 31, 2023, one vendor accounted for 99 % of transportation costs, in our Precision Logistics segment. NOTE 15 – SEGMENT REPORTING As of December 31, 2024, we operated through two reportable business segments: (i) Precision Logistics and (ii) Authentication. The Chief Executive Officer is the chief operating decision maker (“CODM”). These segments reflect the way the CODM evaluates the Company’s business performance and allocates resources. Reported revenue includes only the revenue generated by sales to external customers. 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). F- 37 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated loss before income tax expense (in thousands): Schedule of segment reporting information Years Ended December 31, 2024 2023 Revenue: Precision Logistics $ 23,766 $ 24,652 Authentication 441 661 Total Revenue $ 24,207 $ 25,313 Gross Profit: Precision Logistics $ 8,268 $ 7,504 Authentication 394 522 Total Gross Profit 8,662 8,026 Segment Management and Technology - Precision Logistics 4,294 3,936 Segment Management and Technology - Authentication 1,160 1,161 Sales and marketing - Precision Logistics 892 880 Sales and marketing - Authentication 469 764 General and administrative 3,852 4,416 Research and development 70 107 Goodwill and Intangible asset impairment 2,315 90 LOSS BEFORE OTHER INCOME (EXPENSE) ( 4,390 ) ( 3,328 ) OTHER INCOME (EXPENSE) 566 ( 62 ) NET LOSS $ ( 3,824 ) $ ( 3,390 ) Additional information relating to our business segments is as follows (in thousands): Identifiable assets: Years Ended December 31, 2024 2023 Precision Logistics $ 15,795 $ 16,637 Authentication 272 4,068 Total Assets $ 16,067 $ 20,705 F- 38 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements NOTE 16 – SUBSEQUENT EVENTS On February 28, 2025, we received a waiver as of December 31, 2024, for certain events of default of restrictive covenants under the PNC Facility. On January 1, 2025, the Company granted 70,773 restricted stock units pursuant to the salary reduction program that will vest on January 1, 2026. On January 1, 2025, the Company granted 16,000 restricted stock units that will vest over the next two years. On January 2, 2025, the Company issued 39,915 shares of common stock, of which 16,988 were issued from treasury, upon vesting of 61,011 restricted stock units, net of 21,096 shares withheld for taxes related to stock grants on July 20, 2023 and July 1, 2024. 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. As of January 21, 2025, $ 350 thousand was converted to 313,520 shares of common stock, of which 22,359 were issued from treasury. 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. Pursuant to 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 January 21, 2025, we paid in full all outstanding principal and interest under the Term Note. In connection with the repayment of the Term Note we terminated our interest rate swap agreement with PNC Bank. F-39