What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-12 · 442 added, 217 removed, 184 unchanged (78% of the section changed)

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VerifyMe, Inc.

(“VerifyMe,” the

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

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

the “Company,” “we,” “us,” or “our”), is a logistics company that specializes in time

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

We operate a Precision Logistics

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Through our Authentication segment our technologies enable brand owners to deter counterfeit

Further information regarding our business segments

is discussed below:

and diversion activities.

Further information regarding our business segments is discussed below:

Precision Logistics:

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

We manage complex industry-specific shipping logistic processes that require critical time, temperature control and handling

to prevent spoilage and extreme delivery times and brand impairment.

Utilizing predictive analytics from multiple data sources including

flight-tracking, weather, traffic, major carrier feeds, and time of day data, we provide our clients an end-to-end vertical approach for

their most critical service delivery needs.

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

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

The Precision Logistics

segment specializes in predictive analytics for optimizing delivery of time and temperature sensitive perishable products.

We manage complex

industry-specific shipping logistic processes that require critical time, temperature control, and handling to prevent spoilage and delayed

delivery times and brand impairment.

Utilizing predictive analytics from multiple data sources including flight-tracking, weather, traffic,

major carrier feeds, and time of day data, we provide our clients an end-to-end vertical approach for their most critical service delivery

Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, as

well as delivering last-mile resolution for key markets, including the perishable healthcare and food industries.

Through our proprietary PeriTrack® customer

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logistics assistance.

· Premium Service – clients pay us directly or through our carrier partner for our complete

white-glove shipping monitoring and predictive analytics service.

This service includes customer web portal access, weather monitoring,

temperature control, full-service center support and last mile resolution.

· Premium Services – clients use our shipping monitoring,

predictive analytics, or exception management services.

Shippers use their own transportation rates, provided and charged directly by

their carrier, with our added services charged (i) directly by the carrier, under a “white label”

arrangement, which we refer to as our Premium service, or (ii) by us, which we refer to as our Direct Premium service.

These services

include customer web portal access, weather monitoring, temperature control, full-service center support, and last mile resolution.

As discussed in the section “Partnerships”

below, w e ceased providing ProActive services to our prior carrier partner in September 2025.

2026, we ceased providing Premium services to our prior carrier partner.

While we no longer provide ProActive and Premium services to

our prior carrier partner we can and continue to provide Direct Premium services to our customers who use our prior carrier partner for

their shipping needs.

Beginning in September 2025, we began providing

ProActive services to our new Strategic Partner.

We are currently establishing the ability to offer our Premium

services to our Strategic Partner.

We expect to begin broadly offering Premium and Direct Premium services to customers of our new Strategic

Partner in the second quarter of 2026.

The Precision Logistics segment

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· PeriTrack® :

Our proprietary PeriTrack® customer dashboard was developed utilizing our

extensive logistics operational knowledge.

This integrated web portal tool gives our customers an in-depth look at their shipping activities

based on real-time data.

The PeriTrack® dashboard was designed to provide critical information in support of the specific needs of

supply chain stakeholders and gives our customer resolution specialists a 360° view of shipping activity.

PeriTrack® features

tools tailored for shippers of perishable goods, which includes the In-Transit Shipment Tracker.

This tool provides details on the unique

shipper’s in-transit shipments, with the ability to select and analyze data on individual shipments.

Our proprietary PeriTrack® customer dashboard was developed utilizing our extensive

logistics operational knowledge.

This integrated web portal tool gives our customers an in-depth look at their shipping activities based

on real-time data.

The PeriTrack® dashboard was designed to provide critical information in support of the specific needs of supply

chain stakeholders and gives our customer resolution specialists a 360° view of shipping activity.

PeriTrack® features tools tailored

for shippers of perishable goods, which includes the In-Transit Shipment Tracker.

This tool provides details on the unique shipper’s

in-transit shipments, with the ability to select and analyze data on individual shipments.

· Service Center :

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specializes in anti-counterfeit and brand protection.

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

customer expectations.

VerifyMe has patented technologies that address the needs of brands.

We are not actively pursuing business in the Authentication segment but continue

to service existing customers.

Recent Developments

Merger Agreement

On January 2, 2026, we entered into the LOI with

Open World Ltd.

regarding a proposed merger transaction.

On February 11, 2026, we entered into an Agreement and Plan of Merger (the “Merger

Agreement”) with VRME Subsidiary Corp., a Nevada corporation, and our wholly owned subsidiary (the “Merger Sub”) and

Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will merge

with and into Open World, Merger Sub will cease to exist and Open World will become our wholly-owned subsidiary (the “Merger”).

At the effective time of the Merger (the “Effective Time”), (i) each holder of ordinary shares of Open World outstanding immediately

prior to the Effective Time (excluding holders of Excluding Shares and Dissenting Shares, as defined in the Merger Agreement) will be

entitled to receive the number of shares of our common stock, based on the Exchange Ratio as defined in the Merger Agreement (the “Exchange

Ratio”), (ii) each investor in Open World Simple Agreements for Future Equity (“Open World SAFEs”) outstanding immediately

prior to the Effective Time will be entitled to receive a right to a number of shares of our common stock based on the Exchange Ratio

and (iii) any outstanding option to purchase shares of Open World shall be converted into an option to purchase the number of shares of

our common stock based on the Exchange Ratio.

Immediately following the closing of the Merger

(the “Closing”), our pre-Closing stockholders are expected to collectively retain approximately 10% of the post-Closing aggregate

number of shares of our common stock and holders of Open World ordinary shares and Open World SAFEs will receive as merger consideration

newly issued shares of our common stock representing approximately 90% of the post-Closing aggregate number of shares of our common stock.

The Merger Agreement contains customary representations,

warranties and covenants, including, among others, (i) covenants requiring each of us and Open World to conduct its business in the ordinary

course during the period between the execution of the Merger Agreement and the Closing or earlier termination of the Merger Agreement,

subject to certain exceptions, (ii) covenants prohibiting us and Open World from engaging in certain kinds of transactions during such

period (without the prior written consent of the other), and (iii) a covenant restricting us and Open World from activities relating to

the soliciting, initiating, encouraging, inducing or facilitating the communication, making, submission or announcement of any alternative

acquisition proposals or inquiries.

The Merger Agreement also requires us, in cooperation

with the Open World, to prepare and file with the SEC a registration statement on Form S-4 that will contain a proxy statement relating

to a Company stockholder meeting to be held in connection with the Merger (the “Registration Statement”) and pursuant to which

our shares of common stock will be registered under the Securities Act of 1933, as amended (the “Securities Act”), to be issued

by virtue of the Merger and the contemplated transactions thereunder.

We shall use its reasonable best efforts to (i) cause the Registration

Statement to comply with applicable rules and regulations promulgated by the SEC, (ii) cause the Registration Statement to become effective

as promptly as practicable, and (iii) keep the Registration Statement effective as long as is necessary to consummate the Merger and the

contemplated transactions thereunder.

In addition, under the Merger Agreement, the parties agreed to other customary provisions including

(i) obtaining requisite stockholder approval to consummate the Merger and the contemplated transactions thereunder, (ii) obtaining regulatory

approvals from relevant governmental authorities, (iii) indemnifying our directors and officers for a period of six years following the

Closing, (iv) completing certain disclosure obligations required by the SEC and listing requirements promulgated by the Nasdaq Capital

Market (“Nasdaq”), (v) electing or appointing to the positions of officers and directors of Company and the surviving corporation

certain persons designated by Open World, and (vi) executing employment agreements between us and Adam Stedham and Jennifer Cola.

Pursuant to Merger Agreement, we have also agreed

to enter into a Registration Rights Agreement and an Exchange Agent Agreement in forms reasonably acceptable to us and Open World at Closing.

Closing of the Merger is subject to various customary

closing conditions.

Each party’s obligations to effect the Merger and otherwise consummate the contemplated transactions thereunder

are conditioned upon (i) the effectiveness of the Registration Statement on Form S-4, (ii) expiration or termination of applicable regulatory

waiting periods, (iii) no restraints from any governmental authority preventing the consummation of the contemplated transactions under

the Merger Agreement, (iv) us and Open World obtaining the respective requisite stockholder votes to consummate the transactions contemplated

by the Merger Agreement, (v) us causing our PeriShip subsidiary to terminate its current credit facility, (vi) us effectuating a reverse

stock split upon the request of Open World, (vii) Nasdaq’s approval of our Nasdaq listing application for the post-Merger entity,

(viii) receipt of written approval of the Merger by the Cayman Islands Trade and Business Licensing Board, and (ix) execution of the Registration

Rights Agreement.

Our and Merger Sub’s obligations to effect the Merger and otherwise consummate the contemplated transactions thereunder

are further conditioned upon customary closing conditions.

Open World’s obligations to effect the Merger and otherwise consummate

the contemplated transactions thereunder are further conditioned upon customary closing conditions as well as (i) us having Closing Net

Cash, as defined in the Merger Agreement, of no less than $1 million, and (ii) our common stock having not been delisted from Nasdaq.

In connection with and subject to the Closing

of the Merger, outstanding time-based and performance-based restricted stock awards and restricted stock units held by certain of our

employees and directors at Closing will accelerate and vest, regardless of any performance conditions, at the Effective Time.

At the Closing of the Merger, pursuant to the

Merger Agreement, each of David Edmonds, Marshall Geller, Howard Goldberg, and Adam Stedham are expected to resign as directors of our

Board of Directors.

The foregoing description of the Merger Agreement

does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the full text of the Merger Agreement.

Stockholder Support Agreements

In connection with the Merger Agreement, certain

of our stockholders representing approximately 14% or more of the voting power in the aggregate of our common stock, including our directors

and officers (the “Supporting Stockholders”), executed Stockholder Support Agreements (the “Support Agreements”),

pursuant to which they agreed to vote their shares of our common stock, including any shares of our capital stock or other equity securities

that they purchase or with respect to which they otherwise acquire sole or shared voting power (including any proxy) (the “Support

Agreement Shares”) after the execution of Support Agreement and prior to its expiration pursuant to its terms, in favor of the issuance

of our common stock in accordance with Nasdaq Listing Rule 5635 (the “Issuance Proposal”), (ii) any matter that could reasonably

be expected to facilitate the Issuance Proposal, (iii) against any other proposed action, agreement, transaction or other matter that

is intended to, or would reasonably be expected to, impede, interfere with, delay, postpone, discourage or adversely affect the approval

or consummation of the Issuance Proposal or the consummation of any or all of the other transactions contemplated by the Merger Agreement;

and (iv) to approve any proposal to adjourn or postpone the meeting to a later date, if there are not sufficient votes for the approval

of the Issuance Proposal on the date on which such meeting is held.

The Support Agreements also contain restrictions

on transfer of Support Agreement Shares held by the Supporting Stockholders.

The Support Agreements will terminate upon the earliest to

occur of the following events:

(a) the effective time of the approval of the Issuance Proposal, (b) the termination of the Merger Agreement

in accordance with its terms or (c) upon mutual written agreement of the parties to the Support Agreements.

The foregoing description

of the Support Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the full

text of the form of Support Agreement.

Amended and Restated Employment Agreement

with Adam Stedham

In connection with the Merger Agreement, on February

11, 2026, we entered into an Amended and Restated Employment Agreement with Adam Stedham, effective as of the Effective Time of the Merger.

As of the Effective Time, and subject to the Closing of the Merger, Mr.

Stedham is expected to resign as a director, Chief Executive Officer

and President to become the President of Precision Logistics (the “Stedham Employment Agreement”).

Stedham’s expected

resignation as our director, Chief Executive Officer and President is not the result of any disagreement with us on any matter relating

to our operations, policies or practices.

Pursuant to the Stedham Employment Agreement,

should it become effective, Mr.

Stedham will receive an annual base salary of $300,000 and be eligible for an annual bonus for each calendar

year, with a potential up to 50% of his base salary based on performance goals set by the Board of Directors each year.

Stedham shall

be eligible to receive equity-based compensation award(s), as determined by the Board of Directors (or a subcommittee thereof), from time

The Stedham Employment Agreement is for an initial

term of one year and will thereafter be “at-will”, and may be terminated by either party during the initial term.

If terminated

Stedham for good reason, or by us without cause prior to the 6-month anniversary of the Effective Time, then Mr.

Stedham shall

be entitled to an amount equal to his Base Salary that would have otherwise been paid until the conclusion of the initial term.

qualifying termination occurs after the 6-month anniversary of the Effective Time, then Mr.

Stedham shall be entitled to an amount equal

to six (6) months of his Base Salary.

Employment Agreement with Jennifer Cola

In connection with the Merger Agreement, on February

11, 2026, we entered into an Employment Agreement with Jennifer Cola, effective as of the Effective Time.

As of the Effective Time, and

subject to the Closing of the Merger, Ms.

Cola is expected to continue in her position as our Chief Financial Officer (the “Cola

Employment Agreement”).

Pursuant to the Cola Employment Agreement, should

it become effective, Ms.

Cola will receive an annual base salary of $180,000 and be eligible for an annual bonus for each calendar year

ending during the employment period, with a potential up to 50% of her base salary based on performance goals set by the Board of Directors

Cola shall be eligible to receive equity-based compensation award(s), as determined by the Board of Directors (or a subcommittee

thereof), from time to time.

In addition, in connection with and subject to entering into the Cola Employment Agreement, the Compensation

Committee of the Board of Directors approved the grant on the Effective Time of 130,000 restricted stock awards under our 2020 equity

incentive plan, which shall vest on the Effective Time.

The Cola Employment Agreement is for an initial

term of one year and will thereafter be “at-will”, and may be terminated by either party during the initial term.

If terminated

Cola for good reason, or by us without cause prior to the 6-month anniversary of the Effective Time, then Ms.

Cola shall be entitled

to an amount equal to her Base Salary that would have otherwise been paid until the conclusion of the initial term.

If the qualifying

termination occurs after the 6-month anniversary of the Effective Time, then Ms.

Cola shall be entitled to an amount equal to six (6)

months of her Base Salary.

Jennifer Cola Severance Period

In connection with the Merger, on February 11,

2026, the Board of Directors approved the grant of a severance period for Ms.

Cola effective immediately and which will expire upon the

Effective Time of the Merger (the “Severance Period”), whereby Ms.

Cola will receive a continuation of her base salary and

benefits for a period of six months if she is terminated without cause during the Severance Period.

Termination of ATM Sales Agreement

As previously disclosed, on March 6, 2025, we

entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Sales Agent”),

pursuant to which we could issue and sell, from time to time, shares of our common stock up to an aggregate offering price of $15.8 million

(the “ATM Program”).

On February 11, 2026, we provided the Sales Agent

written notice of its decision to terminate the ATM Program and pursuant to Section 12(b) of the Sales Agreement, the ATM Program and

Sales Agreement terminated on February 16, 2026.

During the year ended December 31, 2025, and through

the termination of the ATM Program, we sold 628,432 shares of common stock through the ATM Program for net proceeds of $483 thousand,

after deducting $15 thousand in offering costs.

ZenCredit Agreement

On August 8, 2025, we entered into a Master Loan Agreement and Promissory

Note (the “Loan Agreement”) with ZenCredit Ventures, LLC (“ZenCredit”).

Pursuant to the Loan Agreement, we agreed

to loan ZenCredit up to $2 million.

Pursuant to the terms of the Loan Agreement, ZenCredit will pay us regular quarterly interest payments

at an annual interest rate of 16%.

The term of the initial promissory note is nine months at which time all accrued principal and interest

is due to us subject to the terms of the Loan Agreement.

On August 11, 2025, we loaned ZenCredit $2 million in exchange for a promissory

note issued pursuant to the Loan Agreement that matures on May 11, 2026.

Opportunities

Precision Logistics:

Traditionally, most

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

customers, when a package is in transit, when a package has been delivered, and some level of detail of the path which a package traveled.

We believe taking the data feeds from a carrier and adding real-time visibility with predictive analytics and the human intervention factor

of our service center gives us a competitive advantage against other third-party platforms that solely rely on the carrier’s data

We utilize a variety of input sources beyond the carrier’s data feed.

Our proprietary “Predictive Analytics”

technology is fed real-time meteorology data, traffic and road construction data, and power grid information to help predict issues before

If an alert is created the shipper and our service center will work to address the issue and save the perishable product

from spoiling, saving the shipper significant costs and reducing the need to replace products that are no longer viable.

Traditionally, most shipping businesses utilize

the carrier’s data platform for tracking which generally informs the shipping enterprise, and their customers, when a package is

in transit, when a package has been delivered, and some level of detail of the path which a package traveled.

We believe taking the data

feeds from a carrier and adding real-time visibility with predictive analytics and the human intervention factor of our service center

agents give us a competitive advantage against other third-party platforms that solely rely on the carrier’s data feeds.

a variety of input sources beyond the carrier’s data feed.

Our proprietary “Predictive Analytics” technology is fed

real-time meteorology data, traffic and road construction data, and power grid information to help predict issues before they happen.

If an alert is created the shipper and our service center agents work to address the issue saving the perishable product from spoiling,

while saving the shipper significant costs and reducing the need to replace products that are no longer viable.

We have meteorologists

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areas of opportunity.

First, our services are specifically designed to address the needs of small and medium size agriculture, food and

beverage companies.

Second, the pharmaceutical and healthcare industries represent significant opportunities due to the enhanced tracking

and customer service associated with distribution of these products.

We are focusing our sales emphasis on those industries.

First, our services are specifically designed to address the needs of small and medium-sized health care, agriculture,

food and beverage companies.

Second, the pharmaceutical and healthcare industries represent significant opportunities due to the enhanced

tracking and customer service associated with distribution of these products.

We are focusing our sales emphasis on those industries and

discovering other industries that need a “high touch”, “white glove” exception management team.

Building logistics infrastructure is a capital-intensive

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provides the ideal solution for all parties involved.

Authentication:

We believe the products

in our Authentication segment have applications in many areas.

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

and protecting customer brands.

Partnerships:

On August 26, 2025, our prior carrier partner,

notified providers, including PeriShip Global, that it would be providing preferred shipping services through its own internal platform

and that the providers would no longer be approved as preferred shippers effective September 24, 2025.

As such, PeriShip Global is no

longer a preferred shipper for our prior carrier partner and our Precision Logistics segment ceased providing ProActive services to our

prior carrier partner’s customers in September 2025.

We continued to provide Premium

services to our prior carrier partner until we ceased providing Premium services in February 2026.

While we no longer provide ProActive

and Premium services to our prior carrier partner we can and continue to provide Direct Premium services to our customers who use our

prior carrier partner for their shipping needs.

24, 2025, we began offering ProActive services to the customers of an alternative Preferred Shipping Partner.

are currently establishing the ability to offer our Premium services to our Strategic Partner.

We expect to begin broadly offering Premium

and Direct Premium services to customers of our new Strategic Partner in the second quarter of 2026.

We experience seasonal fluctuations

in our net revenues from sales in our Precision Logistics segment.

Revenues from sales are generally higher in the fourth quarter than

in other quarters due to increased holiday shipments.

While the fourth quarter is historically our highest revenue quarter, revenues from

ProActive services declined in the quarter ended December 31, 2025 as compared to the quarter ended December 31, 2024 due to the previously

disclosed loss of our prior carrier partner as a shipping supplier integrating our service offerings, and larger shippers not wanting

to change shipping suppliers during the peak season.

The seasonality of our business may cause fluctuations in our quarterly operating

Results of Operations

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2025, was $16,398 thousand, a 32% decrease compared to $24,207 thousand, for the year ended December 31, 2024.

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

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

shortest peak season since 2019.

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

decrease in our Precision Logistics segment primarily relates to the termination of our agreement with our prior carrier partner to offer

our ProActive services effective September 24, 2025.

During the fourth quarter of 2025 we began offering our ProActive services under

our new Program Agreement with our Strategic Partner.

We anticipate our ProActive services revenue to take several quarters to recover

while our Premium services revenue increased by 5% in the fourth quarter 2025 compared to the fourth quarter 2024.

The Authentication

segment did not grow during 2025, primarily due to the shift to servicing existing customers and the Company not actively pursuing

business in the Authentication segment .

(In thousands)

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December 31, 2025, and 2024, was $6,321 thousand and $8,662 thousand, respectively.

The resulting gross margin was 36% for the year ended

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

The gross profit increase relates to the process improvements

to increase Proactive services margins in the Precision Logistics segment.

The resulting gross margin was 38.5% for the year

ended December 31, 2025, compared to 35.8% for the year ended December 31, 2024.

The gross profit percentage increase relates to process

improvements implemented to increase ProActive services margins in the Precision Logistics segment.

Segment Management and Technology

Segment management and technology expenses increased

Segment management and technology expenses decreased

by $2,316 thousand to $3,138 thousand for the year ended December 31, 2025, compared to $5,454 thousand for the year ended December 31,

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

expense of $163 thousand in 2024.

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

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

The decrease relates primarily to the divestiture of Trust Codes Global in December 2024 and gain on derecognized liability

in our Authentication segment and a decrease in management wages and severance expense in our Precision Logistics segment.

General and Administrative Expenses

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by $436 thousand to $3,416 thousand for the year ended December 31, 2025, compared to $3,852 thousand for the year ended December 31,

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

and higher severance expense in 2023.

The decrease relates primarily to a decrease in stock-based compensation from $1,386 thousand for the year ended December 31, 2024

to $545 thousand for the year ended December 31, 2025, partially offset by an increase in legal fees.

Research and Development

Research and development expenses were $20 thousand

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

in the Authentication segment in 2024.

for the year ended December 31, 2025, compared to $70 thousand for the year ended December 31, 2024, primarily due to fewer projects in

the Authentication segment in 2025.

Sales and Marketing

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thousand to $967 thousand for the year ended December 31, 2025, compared to $1,361 thousand for the year ended December 31, 2024.

decrease is primarily related to a reduction in employees and consultants in the Authentication segment, a reduction in stock compensation

in Precision Logistics, partially offset by an increase in employees in Precision Logistics.

decrease primarily relates to a reduction in employees and consultants in the Authentication segment.

Goodwill and Intangible Asset Impairment

As a result of a long-lived asset and goodwill

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

$1,351 thousand was recorded for the year ended December 31, 2024, which primarily represents the amount by which the net carrying value

in the Authentication segment exceeded the fair value of the segment, primary due to changes to the forecasted cashflows of the segment.

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

Interest Expense, net

Interest expense, net was $130 thousand for the

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

asset impairment assessment performed in September 2025, an intangible asset impairment charge of $2,788 thousand and a goodwill impairment

charge of $1,062 thousand was recorded for the year ended December 31, 2025 relating to the Precision Logistics segment.

An intangible

asset impairment charge of $964 thousand and a goodwill impairment charge of $1,351 thousand was recorded for the year ended December

31, 2024 relating to Authentication segment.

Interest Income (Expense), net

Interest income, net was $214 thousand for the

year ended December 31, 2025, compared to interest expense, net $130 thousand for the year ended December 31, 2024.

This increase in interest

income primarily relates to the repayment of the Term Note in the first quarter of 2025 reducing interest expense as well as the increase

in interest income from the Company’s investment of the proceeds from the warrants exercise in January 2025, and interest income

earned on the Promissory Note with ZenCredit entered on August 8, 2025

that matures on May 11, 2026.

Consolidated net loss for the year ended December

31, 2025, and 2024 was $4,905 thousand and $3,824 thousand, respectively.

The increased loss was primarily related to the goodwill and

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

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

$0.35 per diluted share, respectively.

The increased loss was primarily related to the decline in revenue

resulting from the decline in ProActive services previously described, and the goodwill and intangible asset impairment noted above and

the gain on change in fair value of the contingent consideration related to the acquisition of Trust Codes Global of $844 thousand for

the year ended December 31, 2024 that did not recur for the year ended December 31, 2025.

The resulting consolidated loss per share for

the year ended December 31, 2025, and year ended December 31, 2024, was $0.39 and $0.37 per diluted share, respectively.

Liquidity and Capital Resources

1 unchanged sentence

during the year ended December 31, 2025, compared to $871 thousand cash during the year end December 31, 2024.

The increase in cash from

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

Net cash used in investing activities was $2,733

thousand for the year ended December 31, 2025, compared to $575 thousand for the year ended December 31, 2024.

The decrease in

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

in March 2023.

Net cash used in financing activities for the

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

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

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

On January 13, 2025, we entered into an

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

common stock, for $4.7 million in gross proceeds.

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

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

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

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

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

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

five and one-half years from the issuance date.

On November 26, 2024, we announced an extension

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

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

During the year ended

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

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

notes for the aggregate principal amount of $1,100 thousand of which $475 thousand was purchased

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

As of December 31, 2024, $450 thousand was held

by related parties after one member of management left the Company.

The increase in spending

in investing activities relates primarily to a Promissory Note of $2 million with ZenCredit entered into on August 8, 2025 and increased

capitalized software costs.

Net cash provided by financing activities for

the year ended December 31, 2025, was $3,660 thousand compared to cash used in financing activities of $616 thousand for the year ended

December 31, 2024.

The increased cash primarily relates to proceeds from the exercise of warrants and proceeds from the ATM, partially

offset by the repurchase of shares under the repurchase program and repayment of the Term Note during the year ended December 31, 2025.

On August 8, 2025, we entered into the Loan Agreement

with ZenCredit.

Pursuant to the Loan Agreement, we agreed to loan ZenCredit up to $2 million and on August 11, 2025 we loaned ZenCredit

$2 million in exchange for a promissory note issued pursuant to the Loan Agreement that matures on May 11, 2026.

Pursuant to the terms

of the Loan Agreement, ZenCredit will pay us regular quarterly interest payments at an annual interest rate of 16%.

The term of the initial

promissory note is nine months at which time all accrued principal and interest is due to us subject to the terms of the Loan Agreement.

As of December 31, 2025, we reserved $12 thousand allowance for expected credit loss on the Note.

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.

The Company recognized the fair value of the new

warrants, calculated using the Black-Scholes option pricing model, as $3,971 thousand.

The transaction was treated as an equity issuance,

and the fair value of the new warrants was recorded in additional paid-in capital.

Direct transaction costs totaling approximately $352

thousand, including legal fees and placement agent commissions, were also recorded as a reduction to additional paid-in capital.

On March 6, 2025, the Company entered into an

At-The-Market Sales Agreement (“ATM”) with Roth Capital Partners, LLC (“Roth”), pursuant to which the Company

may issue and sell, from time to time, shares of its common stock up to an aggregate offering price of $15.8 million.

Roth acts as the

sales agent and is entitled to a 3.0% commission on gross proceeds from sales under the program.

On February 11, 2026, we provided the Sales Agent

written notice of our decision to terminate the ATM Program and pursuant to Section 12(b) of the Sales Agreement, the ATM Program and

Sales Agreement terminated on February 16, 2026.

During the year ended December 31, 2025, and through

the termination of the ATM Program on February 16, 2026, we have sold 628,432 shares of common stock through the ATM Program for net proceeds

of $483 thousand, after deducting $15 thousand in offering costs.

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, 2025, $400 thousand was held by related parties.

The notes are subordinated unsecured obligations of the Company and

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The Company may not redeem the notes prior to the maturity date.

As of December 31, 2024, the amount outstanding on the

convertible debt was $1,100 thousand and included in Convertible Note, and Convertible Note – related party on the accompanying

Consolidated Balance Sheets.

The Company has accrued interest expense of $31 thousand related to the convertible note as of December 31,

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

For the year ended December 31, 2025, interest expense

related to the convertible debt was $61 thousand.

As of January 21, 2025, $350 thousand was converted to common stock, none of which was

related parties.

As of December 31, 2025 the amount outstanding on the convertible debt was $750 thousand and included in Convertible

note and Convertible note related party on the accompanying Consolidated Balance Sheets.

On September 22, 2022, we entered into the PNC

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As of December 31, 2025, $0 was outstanding

The PNC Facility also included a four-year Term

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

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

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

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

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

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

The PNC Facility includes a number of affirmative

and restrictive covenants applicable to PeriShip 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.

We entered into a waiver and amendment on August 14, 2024 which provided

a waiver for a certain event of default and extended the RLOC to September 30, 2025.

We were not in compliance with all affirmative

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

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

On August 8, 2025, the Company extended the line of credit to September 30, 2026.

The PNC Facility included a four-year 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%.

The PNC Facility is guaranteed by VerifyMe and secured by

the assets of PeriShip Global and VerifyMe.

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

We were not in compliance with

all affirmative and restrictive covenants under the PNC Facility at December 31, 2025.

On March 26, 2026, we received a waiver as of December

31, 2025, for certain events of default.

Effective October 17, 2022, we entered into an

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

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

In connection with the Merger Agreement we have agreed that PeriShip

Global will not utilize the PNC Facility or RLOC from the execution of the Merger Agreement.

Additionally, we have agreed that at least

three business days prior to closing of the merger to cause PeriShip Global to use its reasonable best efforts to obtain and deliver to

Open World, a customary payoff letter with respect to the PNC Facility.

As such, we do not expect to be able to utilize the PNC Facility

or RLOC unless the merger is not completed pursuant to the terms of the merger agreement.

We believe that our cash and cash equivalents,

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

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

together with the proceeds from the warrant inducement and loan agreement, will fund our operations for the next 12 months including expected

capital expenditures.

We expect to grow our business organically and

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the application of significant judgment by management.

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

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

We believe estimates and assumptions related to

these accounting policies are appropriate under the circumstances;

however, should future events or occurrences result in unanticipated

consequences, there could be a material impact on our future financial position, results of operations or cash flows.

We believe estimates and assumptions related to these accounting policies are appropriate

under the circumstances;

however, should future events or occurrences result in unanticipated consequences, there could be a material

impact on our future financial position, results of operations or cash flows.

The critical accounting estimates of impairment

assessment of intangible assets and goodwill are estimates made in accordance with generally accepted accounting principles that involve

a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition

or results of operations.

Revenue Recognition

We recognize revenue based on the principals established

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

from Contracts with Customers.

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

of the service.

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

from our brand protection solutions.

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

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

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

protection solutions.

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

For licensing

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

Determining whether products and services

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

unit of accounting may require significant judgement.

For licensing our VerifyInk TM

technology we depend on the integrity of our clients’ reporting.

Determining whether products and services in agreements with non-standard

terms are distinct performance obligations that should be accounted for separately or combined to one unit of accounting may require significant

The timing of revenue recognition, billings and

cash collections results in billed accounts receivable, and unbilled revenue when billings occur after the end of the month (contract

assets) on the consolidated balance sheets.

Amounts charged to our clients become billable when the performance obligation has been met

at a point in time.

cash collections results in billed accounts receivable and unbilled revenue when billings occur after the end of the month (contract assets)

on the consolidated balance sheets.

Amounts charged to our clients become billable when the performance obligation has been met at a point

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

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

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

These assets are

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

Changes in the contract

assets have not significantly changed as of December 31, 2025.

No other factors materially impacted the balances.

Business Combinations

Accounting for business combinations requires

management to make significant estimates and assumptions to determine the fair values of assets acquired and liabilities assumed at the

acquisition date.

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

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

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

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

technology related intangible assets, and discount rates.

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

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

Unanticipated

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

We allocate the fair value of the purchase price

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

fair values at acquisition date.

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

assets acquired is recorded as goodwill.

Management’s estimates of fair value are based upon assumptions believed to be reasonable,

but our estimates and assumptions are inherently uncertain and subject to refinement.

As a result, during the measurement period, which

will not exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the

corresponding offset to goodwill.

After the conclusion of the measurement period or final determination of the fair value of the purchase

price of our acquisitions, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.

Acquisition-related expenses are recognized separately

from the business combination and are expensed as incurred.

We have recorded goodwill as part of our acquisitions,

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Pursuant to ASC

Topic 350, Intangibles—Goodwill and Other, the Company will test goodwill for impairment on an annual basis in the fourth quarter,

or between annual tests, in certain circumstances.

Under authoritative guidance, the Company first assessed qualitative factors to determine

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

The assessment considers factors such as, but

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

An entity is not required

to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely

than not that its fair value is less than its carrying amount.

Events or changes in circumstances which could trigger an impairment review

include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events

and sustained decrease in share price.

On September 24, 2024, Paul Ryan, former Executive

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

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

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

As a result, the Company made revisions to

our internal forecasts and concluded that in accordance with ASC Topic 350 a triggering event occurred indicating that potential impairment

exists, which required the Company to conduct an interim test of the fair value of the goodwill for the Authentication segment.

a quantitative goodwill impairment test and determined the fair value of our reporting units using a combination of an income approach,

employing a discounted cashflow model, and a market approach, employing a guideline public company approach.

The results of our goodwill

impairment test indicated that the carrying value of the Authentication reporting unit exceeded its estimated fair value.

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

asset impairment on the consolidated statement of operations.

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

Topic 350, the Company will test goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain

circumstances.

Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform

the quantitative goodwill impairment test.

The assessment considers factors such as, but not limited to, macroeconomic conditions,

data showing other companies in the industry and our share price.

An entity is not required to calculate the fair value of a reporting

unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than

its carrying amount.

Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry

and market conditions, cost factors, overall financial performance, other entity specific events, and sustained decrease in share price.

On August 26, 2025, our prior carrier partner

notified providers, including PeriShip Global, that it would be providing preferred shipping services internally and that the providers

would no longer be approved FedEx preferred shippers effective September 24, 2025.

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 us to conduct an interim test of the fair value of the goodwill for the Precision Logistics segment.

We performed a quantitative

goodwill impairment test and determined the fair value of our reporting units using a combination of an income 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 Precision Logistics reporting unit exceeded its estimated fair value.

As a result, we recorded a goodwill impairment charge of

$1,062 thousand during the year ended December 31, 2025, within goodwill and intangible asset impairment on the consolidated statement

of operations.

We review long-lived assets for impairment when

performance expectations, events, or changes in circumstances indicate that the asset’s carrying value may not be recoverable.

evaluation is performed at the lowest level of identifiable cashflows by comparing the carrying value of the asset to the undiscounted

If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured

based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique.

On August 26, 2025, our prior carrier partner

notified providers, including PeriShip Global, that it would be providing preferred shipping services internally and that the providers

would no longer be approved FedEx preferred shippers effective September 24, 2025.

As a result of the revised internal forecasts, the

Company concluded in accordance with Topic ASC 360 that this change was an interim triggering event for the three months ended September

30, 2025, indicating the carrying value of our long-lived assets including internally used software, deferred implementation, trademarks,

customer relationships, non-compete 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.

We recorded an

intangible impairment charge of $2,788 thousand during the year ended December 31, 2025, within goodwill and intangible asset impairment

on the consolidated statement of operations.

Stock-based Compensation

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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.

the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service is completed.

Recently Adopted Accounting Pronouncements

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Not applicable for smaller reporting companies.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis