VerifyMe, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2026 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-39332 VERIFYME, INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 23-3023677 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 801 International Parkway , Fifth Floor Lake Mary , FL 32746 (Address of Principal Executive Offices) (Zip Code) ( 585 ) 736-9400 (Registrant’s Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal year, if Changed Since Last Report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which Registered Common Stock, par value $0.001 per share VRME The Nasdaq Capital Market Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company x Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 13,165,196 shares of common stock outstanding at August 7, 2026. 2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements 4 Consolidated Balance Sheets (Unaudited) 4 Consolidated Statements of Operations (Unaudited) 6 Consolidated Statements of Comprehensive Loss (Unaudited) 7 Consolidated Statements of Cash Flows (Unaudited) 8 Consolidated Statements of Stockholders' Equity (Unaudited) 10 Notes to Consolidated Financial Statements (Unaudited) 12 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 32 ITEM 4. Controls and Procedures 32 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 33 ITEM 1A. Risk Factors 33 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 33 ITEM 3. Defaults Upon Senior Securities 33 ITEM 4. Mine Safety Disclosures 33 ITEM 5. Other Information 33 ITEM 6. Exhibits 34 SIGNATURES 35 3 Table of Contents PART I - FINANCIAL STATEMENTS ITEM 1. VerifyMe, Inc. Consolidated Balance Sheets (In thousands, except share data) June 30, 2026 December 31, 2025 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,092 $ 4,353 Accounts receivable, net of allowance for credit loss reserve, $ 21 and $ 10 as of June 30, 2026 and December 31, 2025, respectively 558 857 Note receivable, net of allowance for credit loss reserve, $ 0 and $ 12 as of June 30, 2026 and December 31, 2025, respectively - 1,988 Unbilled revenue 290 338 Prepaid expenses and other current assets 168 154 Inventory 41 37 TOTAL CURRENT ASSETS 6,149 7,727 PROPERTY AND EQUIPMENT, NET $ 13 $ 20 INTANGIBLE ASSETS, NET 2,304 2,345 GOODWILL 2,926 2,926 TOTAL ASSETS $ 11,392 $ 13,018 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 342 $ 745 Other accrued expense 331 530 Convertible note – related party, current 400 400 Convertible note, current 350 350 TOTAL CURRENT LIABILITIES 1,423 2,025 TOTAL LIABILITIES $ 1,423 $ 2,025 STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock, $ 0.001 par value, 37,564,767 shares authorized; 0 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively - - Series B Convertible Preferred Stock, $ 0.001 par value; 85 shares authorized; 0.85 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively - - 4 Table of Contents Common stock, $ 0.001 par value; 675,000,000 shares authorized; 13,626,076 and 13,553,049 shares issued, 13,165,196 and 13,071,601 shares outstanding as of June 30, 2026 and December 31, 2025, respectively 14 14 Additional paid in capital 102,192 102,059 Treasury stock at cost; 460,880 and 481,448 shares at June 30, 2026 and December 31, 2025, respectively ( 475 ) ( 502 ) Accumulated deficit ( 91,762 ) ( 90,578 ) STOCKHOLDERS' EQUITY 9,969 10,993 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,392 $ 13,018 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Table of Contents VerifyMe, Inc. Consolidated Statements of Operations (Unaudited) (In thousands, except share data) Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 NET REVENUE $ 1,908 $ 4,520 $ 3,680 $ 8,975 COST OF REVENUE 887 2,929 1,699 5,894 GROSS PROFIT 1,021 1,591 1,981 3,081 OPERATING EXPENSES Management and Technology (a) 607 920 1,177 1,846 General and administrative (a) 815 716 1,831 1,572 Research and development - 5 - 10 Sales and marketing (a) 155 272 296 568 Total Operating expenses 1,577 1,913 3,304 3,996 LOSS BEFORE OTHER INCOME (EXPENSE) ( 556 ) ( 322 ) ( 1,323 ) ( 915 ) OTHER INCOME (EXPENSE) Interest income, net 51 32 139 54 Other expense, net - ( 1 ) - ( 1 ) TOTAL OTHER INCOME, NET 51 31 139 53 NET LOSS $ ( 505 ) $ ( 291 ) $ ( 1,184 ) $ ( 862 ) LOSS PER SHARE BASIC ( 0.04 ) ( 0.02 ) ( 0.09 ) ( 0.07 ) DILUTED ( 0.04 ) ( 0.02 ) ( 0.09 ) ( 0.07 ) WEIGHTED AVERAGE COMMON SHARE OUTSTANDING BASIC 13,359,887 12,643,791 13,356,338 12,469,118 DILUTED 13,359,887 12,643,791 13,356,338 12,469,118 (a) Includes share-based compensation of $111 thousand and $188 thousand for the three and six months ended June 30, 2026, respectively, and $259 thousand and $592 thousand for the three and six months ended June 30, 2025, respectively. The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents VerifyMe, Inc. Consolidated Statements of Comprehensive Loss (Unaudited) (In thousands) Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 NET LOSS $ ( 505 ) $ ( 291 ) $ ( 1,184 ) $ ( 862 ) Change in fair value of interest rate, Swap - - - ( 12 ) Total Comprehensive Loss $ ( 505 ) $ ( 291 ) $ ( 1,184 ) $ ( 874 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 Table of Contents VerifyMe, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six months ended June 30, 2026 June 30, 2025 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 1,184 ) $ ( 862 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Allowance for expected credit losses - ( 5 ) Stock based compensation - 86 Fair value of restricted stock awards and restricted stock units issued in exchange for services 188 506 Loss on disposal of equipment - 1 Amortization and depreciation 280 572 Gain on partial lease termination - ( 6 ) Changes in operating assets and liabilities: Accounts receivable 287 1,541 Unbilled revenue 48 409 Inventory ( 4 ) 13 Prepaid expenses and other current assets ( 15 ) ( 216 ) Accounts payable, other accrued expenses and net change in operating leases ( 602 ) ( 1,733 ) Net cash (used in) provided by operating activities ( 1,002 ) 306 CASH FLOWS FROM INVESTING ACTIVITIES Collections on Note Receivable 2,000 - Leasehold Improvements - ( 6 ) Capitalized software costs ( 232 ) ( 326 ) Net cash (used in) provided by investing activities 1,768 ( 332 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Warrants Exercise - 4,348 Tax withholding payments for employee stock-based compensation in exchange for shares surrendered ( 27 ) ( 50 ) Increase in treasury shares (share repurchase program) - ( 153 ) Repayment of debt and line of credit - ( 875 ) Net cash (used in) provided by financing activities ( 27 ) 3,270 NET INCREASE IN CASH AND CASH EQUIVALENTS 739 3,244 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 4,353 2,823 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 5,092 $ 6,067 8 Table of Contents SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 30 $ 40 Income taxes $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Lease modification $ - $ 7 Conversion of convertible note and accrued interest $ - $ 360 Change in fair value of interest rate, swap $ - $ 12 The accompanying notes are an integral part of these unaudited consolidated financial statements. 9 Table of Contents VerifyMe, Inc. Consolidated Statements of Stockholders' Equity (Unaudited) (In thousands, except share data) Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Accumulated Other Number of Number of Number of Paid-In Number of Comprehensive Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Loss Deficit Total Balance at March 31, 2025 - - 0.85 - 12,414,772 13 101,225 251,120 ( 351 ) - ( 86,244 ) 14,643 Restricted stock awards - - - - - - 41 - - - - 41 Restricted stock units, net of shares withheld for employee tax - - - - 50,382 - 81 ( 41,849 ) 70 - - 151 Common stock issued for services - - - - 60,000 - 45 - - - - 45 Repurchase of Common Stock - - - - ( 201,486 ) - - 201,486 ( 153 ) - - ( 153 ) Net loss - - - - - - - - - - ( 291 ) ( 291 ) Balance at June 30, 2025 - - 0.85 - 12,323,668 13 101,392 410,757 ( 434 ) - ( 86,535 ) 14,436 Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Number of Number of Number of Paid-In Number of Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Deficit Total Balance at March 31, 2026 - - 0.85 - 13,119,065 14 102,096 462,177 ( 476 ) ( 91,257 ) 10,377 Restricted stock awards - - - - - - 18 - - - 18 Restricted stock units, net of shares withheld for employee tax - - - - 46,131 - 78 ( 1,297 ) 1 - 79 Net loss - - - - - - - - - ( 505 ) ( 505 ) Balance at June 30, 2026 - - 0.85 - 13,165,196 14 102,192 460,880 ( 475 ) ( 91,762 ) 9,969 10 Table of Contents VerifyMe, Inc. Consolidated Statements of Stockholders' Equity (Unaudited) (In thousands, except share data) Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Additional Stock Accumulated Other Number of Number of Number of Paid-In Number of Comprehensive Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Loss Deficit Total Balance at December 31, 2024 - - 0.85 - 10,539,441 11 96,344 290,467 ( 480 ) 12 ( 85,673 ) 10,214 Warrants exercise - - - - 1,461,896 2 4,346 - - - - 4,348 Convertible note - - - - 313,520 - 285 ( 22,359 ) 75 - - 360 Restricted stock awards - - - - - - 96 - - - - 96 Restricted stock units, net of shares withheld for employee tax - - - - 90,297 - 235 ( 58,837 ) 124 - - 359 Common stock issued for services - - - - 120,000 - 86 - - - - 86 Repurchase of Common Stock - - - - ( 201,486 ) - - 201,486 ( 153 ) - - ( 153 ) Accumulated other comprehensive loss - - - - - - - - - ( 12 ) - ( 12 ) Net loss - - - - - - - - - - ( 862 ) ( 862 ) Balance at June 30, 2025 - - 0.85 - 12,323,668 13 101,392 410,757 ( 434 ) - ( 86,535 ) 14,436 Series A Series B Convertible Convertible Preferred Preferred Common Treasury Stock Stock Stock Stock Additional Number of Number of Number of Paid-In Number of Accumulated Shares Amount Shares Amount Shares Amount Capital Shares Amount Deficit Total Balance at December 31, 2025 - - 0.85 - 13,071,601 14 102,059 481,448 ( 502 ) ( 90,578 ) 10,993 Restricted stock awards - - - - - - 36 - - - 36 Restricted stock units, net of shares withheld for employee tax - - - - 93,595 - 97 ( 20,568 ) 27 - 124 Net loss - - - - - - - - - ( 1,184 ) ( 1,184 ) Balance at June 30, 2026 - - 0.85 - 13,165,196 14 102,192 460,880 ( 475 ) ( 91,762 ) 9,969 The accompanying notes are an integral part of these unaudited consolidated financial statements. 11 Table of Contents VerifyMe, Inc. Notes to the Consolidated Financial Statements (unaudited) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business VerifyMe, Inc. (“VerifyMe,” “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 is traded on The Nasdaq Capital Market (“Nasdaq”) under the trading symbol “VRME”. The Company is a logistics company that specializes in time and temperature sensitive products, as well as providing brand protection and enhancement solutions. The Company operates a single consolidated Precision Logistics segment which includes the operations of our subsidiary PeriShip Global, LLC (“PeriShip Global”) in which 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. The Company’s activities are subject to significant risks and uncertainties. See the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report. Reclassifications Certain amounts presented for the three and six months ended June 30, 2025, 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 LLC and VRME Subsidiary Corp. 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 (“U.S. 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. Recent Accounting Pronouncements In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the applicability of the interim reporting guidance, the types of interim reporting, and the form and content of interim financial statements in accordance with U.S. GAAP. Per the FASB, the amendment does not intend to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements but rather provide clarity and improve navigability of the existing interim reporting requirements. The update will be effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. We are assessing the effect of this update on our consolidated financial statements and related disclosures. In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements, which introduces five targeted improvements to better align hedge accounting with entities’ risk management activities. The update will be effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted. We are assessing the effect of this update on our consolidated financial statements and related disclosures. In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which simplifies the application of the current expected credit loss model for current accounts receivable and current contract assets under Accounting Standards Codification 606. The Company adopted ASU 2025-05 effective January 1, 2026. The adoption did not have a material impact on the Company’s consolidated financial statements. 12 Table of Contents Notes to the Consolidated Financial Statements (unaudited) 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. Fair Value of Financial Instruments The Company’s financial instruments consist of accounts receivable, unbilled revenue, accounts payable, notes payable and accrued expenses. 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. 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. Prior to 2026, we reported two operating segments: Precision Logistics and Authentication. We are not actively pursuing authentication business but continue to service existing customers. As a result, beginning in the first quarter of 2026, we changed our internal reporting to the chief operating decision maker (“CODM”), who is our Chief Executive Officer, and combined Precision Logistics and Authentication into a single segment, leaving Precision Logistics. See Note 2 – Segment Reporting, for further discussion of the Company’s segment reporting structure. 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 to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements. · identify the contract with a customer; · identify the performance obligations in the contract; · determine the transaction price; · allocate the transaction price to performance obligations in the contract; and · recognize revenue as the performance obligation is satisfied. 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. 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 from 7 days to 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, 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. 13 Table of Contents Notes to the Consolidated Financial Statements (unaudited) 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. Beginning in 2026, the Company included Authentication revenue in the Precision Logistics segment. The Company is no longer actively pursuing the Authentication business but continues to service existing customers. Authentication revenue primarily consists of anti-counterfeit and brand protection. Terms typically range between 30 and 60 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. 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. 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 three and six months ended June 30, 2026, and 2025, there were shares potentially issuable, that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the periods presented. For the three and six months ended June 30, 2026, there were approximately 3,668,000 anti-dilutive shares consisting of 1,153,000 unvested performance restricted stock units, 164,000 restricted stock units and restricted stock awards, 1,555,000 shares issuable upon exercise of warrants, 652,000 shares issuable upon conversion of convertible debt, and 144,000 shares issuable upon conversion of preferred stock. For the three and six months ended June 30, 2025, there were approximately 4,037,000 anti-dilutive shares consisting of 1,322,000 unvested performance restricted stock units, 224,000 restricted stock units and restricted stock awards, 140,000 shares issuable upon exercise of stock options, 1,555,000 shares issuable upon exercise of warrants, 652,000 shares issuable upon conversion of convertible debt, and 144,000 shares issuable upon conversion of preferred stock. 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 6 – Stock Options, Restricted Stock and Warrants), we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future price paths over the 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. 14 Table of Contents Notes to the Consolidated Financial Statements (unaudited) 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. 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. Merger Agreement On February 11, 2026, we entered into an Agreement and Plan of Merger, as subsequently amended by the First Amendment to Agreement and Plan of Merger, effective April 13, 2026 (the “First Amendment”), and the Second Amendment to Agreement and Plan of Merger, effective June 4, 2026 (the “Second Amendment”), and collectively with the First Amendment and the Agreement and Plan of Merger (the “Merger Agreement”) with VRME Subsidiary Corp., a Nevada corporation, and our wholly owned subsidiary (the “Merger Sub”) and Open World Ltd., a Cayman Islands exempted company (“Open World”). 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 87.75% and Maxim Group LLC, (“Maxim Group”), financial advisor to Open World, will hold approximately 2.25% of the post-Closing aggregate number of shares of our common stock (to the extent any portion of the advisory fee due to Maxim Group by OpenWorld exceeding the required upfront cash fee, if any, is paid in shares of common stock of the combined company and assuming a $200 million enterprise value for the combined company pursuant to the M&A Advisory Agreement between Maxim Group and Open World dated October 26, 2025). 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. Closing of the Merger is subject to various customary closing conditions, including, but not limited to, us causing our PeriShip subsidiary to terminate its current credit facility and us effectuating a reverse stock split upon the request of Open World. 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. On April 15, 2026, we entered into the First Amendment, effective as of April 13, 2026, pursuant to which the outside date set forth in the Merger Agreement was extended from June 30, 2026 to August 31, 2026. On June 4, 2026, we entered into the Second Amendment effective as of June 4, 2026, pursuant to which the definition of Fully Diluted Company Shares in the Merger Agreement was revised to include the aggregate number of Open World ordinary shares issuable in connection with any existing agreement by Open World to issue Equity Interests (as such term is defined in the Merger Agreement) of Open World . On August 10, 2026, we entered into the Third Amendment, effective as of August 10, 2026, pursuant to which the outside date set forth in the Merger Agreement was extended from August 31, 2026 to October 31, 2026. For additional details regarding the Merger Agreement, see the “Recent Developments” section in this report. The foregoing description of the Merger Agreement, First Amendment, and Second Amendment, 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, First Amendment, and Second Amendment. 15 Table of Contents Notes to the Consolidated Financial Statements (unaudited) NOTE 2 - SEGMENT REPORTING Prior to 2026, we reported two operating segments: Precision Logistics and Authentication. We are not actively pursuing authentication business but continue to service existing customers. As of January 1, 2026, the Authentication segment falls below segment reporting quantitative thresholds, and is therefore not required to be presented as a separate reportable segment. As a result, beginning in the first quarter of 2026, we changed our internal reporting to the CODM and combined Precision Logistics and Authentication into a single segment, leaving Precision Logistics. This represents a reduction in the number of reportable segments by aggregation, not a re-labeling. Following this change, the Company has one reportable consolidated segment. The CODM evaluates consolidated segment performance and makes resource allocation decisions based on consolidated results. Since the Company operates as one operating segment, financial segment information, including profit or loss and asset information, can be found in the consolidated financial statements. NOTE 3 – REVENUE Revenue by Category The following table presents our revenue disaggregated by service lines (dollars in thousands) Schedule of disaggregation of revenue Consolidated Consolidated Revenue Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Proactive services $ 1,120 $ 3,829 $ 2,160 $ 7,523 Premium services 754 664 1,462 1,399 Other 34 27 58 53 $ 1,908 $ 4,520 $ 3,680 $ 8,975 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 six-month period ended June 30, 2026, were not materially impacted by any other factors. Applying the practical expedient in ASC Topic 606, we recognize the incremental costs of obtaining contracts (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 June 30, 2026, we did not have any capitalized sales commissions. For all periods presented, contract liabilities were not significant. The following table provides information about contract assets from contracts with customers (dollars in thousands): Schedule of contract assets from contracts with customers Contract Asset June 30, 2026 2025 Beginning balance, January 1 $ 338 $ 733 Contract asset additions 575 3,290 Reclassification to accounts receivable, billed to customers ( 623 ) ( 3,699 ) Ending balance, June 30 (1) $ 290 $ 324 ______________ (1) Included within "Unbilled revenue" on the accompanying Consolidated Balance Sheets. 16 Table of Contents Notes to the Consolidated Financial Statements (unaudited) NOTE 4 – INTANGIBLE ASSETS AND GOODWILL Goodwill Goodwill represents costs in excess of values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill is deemed to have an indefinite life and is not amortized but is tested for impairment annually, and at any time when events suggest an impairment more likely than not has occurred. We test goodwill at the reporting unit level. ASC Topic 350, “ Intangibles - Goodwill and Other” (“Topic 350”), permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. Under 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. No impairment was recognized for the three and six months ended June 30, 2026 and 2025. We continue to monitor our goodwill for impairment and conduct formal tests when impairment indicators are present. Intangible Assets Subject to Amortization Our intangible assets include amounts recognized in connection with patents and trademarks, capitalized software and acquisitions, including tradenames, and developed technology. 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. ASC Topic 360-10, “ Impairment or disposal of long-lived assets” (“Topic 360”) provides guidance on accounting for the impairment and disposal of long-lived assets, covering both tangible and intangible finite-lived assets. The standard ensures that financial statements reflect the economic reality of assets by properly accounting for declines in value or disposals. Under Topic 360, an entity must perform an analysis to determine whether it is more likely than not that the fair value of a long-lived asset is less than its carrying amount based on estimates of future cash flows. Determining the fair value of long-lived assets 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. Our fair value estimates are based on assumptions that 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 long-lived asset impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. No impairment was recognized for the three and six months ended June 30, 2026 and 2025. We continue to monitor our intangible assets for impairment and conduct formal tests when impairment indicators are present. 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 June 30, 2026 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (Years) Patents and Trademarks $ 699 $ ( 55 ) $ 644 9 Developed Technology 795 ( 233 ) 562 2 Internally Used Software 1,211 ( 113 ) 1,098 5 Total Intangible Assets $ 2,705 $ ( 401 ) $ 2,304 December 31, 2025 Patents and Trademarks $ 699 $ ( 18 ) $ 681 9 Developed Technology 795 ( 78 ) 717 2 Internally Used Software 979 ( 32 ) 947 5 Total Intangible Assets $ 2,473 $ ( 128 ) $ 2,345 17 Table of Contents Notes to the Consolidated Financial Statements (unaudited) Amortization expense for intangible assets was $ 273 thousand and $ 548 thousand for the six months ended June 30, 2026, and 2025, respectively. Patents and Trademarks As of June 30, 2026, our current patent and trademark portfolios consist of six granted U.S. patents and several U.S. and foreign trademarks. The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows (in thousands): Schedule of future amortization expense Fiscal Year ending December 31, 2026 (six months remaining) $ 289 2027 578 2028 362 2029 267 2030 267 Thereafter 541 Total $ 2,304 NOTE 5 – STOCKHOLDERS’ EQUITY The Company expensed $ 18 thousand and $ 36 thousand related to restricted stock awards for the three and six months ended June 30, 2026, respectively. The Company expensed $ 41 thousand and $ 96 thousand related to restricted stock awards for the three and six months ended June 30, 2025, respectively. The Company expensed $ 93 thousand and $ 152 thousand related to restricted stock units for the three and six months ended June 30, 2026, respectively. The Company expensed $ 173 thousand and $ 410 thousand related to restricted stock units for the three and six months ended June 30, 2025, respectively. On January 2, 2026, the Company issued 47,464 shares of common stock, of which 19,271 were issued from treasury, upon vesting of 70,773 restricted stock units, net of 23,309 shares withheld for taxes related to stock grants on January 1, 2025. On June 19, 2026, the Company issued 46,131 shares of common stock, of which 1,297 were issued from treasury, upon vesting of 68,028 restricted stock units, net of 21,897 shares withheld for taxes related to a stock grant on June 19, 2023. Shares Held in Treasury As of June 30, 2026, and December 31, 2025, the Company had 460,880 and 481,448 shares, respectively, held in treasury with a value of approximately $ 475 thousand and $ 502 thousand, respectively. NOTE 6 – 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 14, 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. 18 Table of Contents Notes to the Consolidated Financial Statements (unaudited) 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. On April 13, 2026, the Company’s Board of Directors adopted the Fourth Amendment to the 2020 Plan, which will not be effected unless it is approved by the Company’s stockholders. If effected, the Fourth Amendment would increase the shares authorized for potential issuance under the 2020 Plan by 16,182,541 shares of common stock and would extend the term of the 2020 Plan to the 10th anniversary of the date stockholder approval is obtained. 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. Restricted Stock Awards and Restricted Stock Units The following table summarizes the unvested restricted stock awards as of June 30, 2026: Schedule of unvested restricted stock awards Weighted - Average Number of Grant Award Shares Date Fair Value Unvested at December 31, 2025 70,000 $ 1.04 Granted - - Vested - - Forfeited - - Balance at June 30, 2026 70,000 $ 1.04 As of June 30, 2026, total unrecognized share-based compensation cost related to unvested restricted stock awards is $ 20 thousand. The following table summarizes the unvested restricted stock units as of June 30, 2026: Schedule of unvested restricted stock units Weighted - Average Number of Grant Unit Shares Date Fair Value Unvested at December 31, 2025 232,801 $ 1.32 Granted - - Vested ( 138,801 ) 1.57 Forfeited - - Balance at June 30, 2026 94,000 $ 0.95 As of June 30, 2026, total unrecognized share-based compensation cost related to unvested time-based restricted stock units was $ 25 thousand, which is expected to be recognized over a weighted-average period of less than one 1 year. 19 Table of Contents Notes to the Consolidated Financial Statements (unaudited) The following table summarizes the unvested performance-based restricted stock units as of June 30, 2026: Schedule of unvested performance restricted stock units Weighted - Average Number of Number of Unit Shares Unit Shares Unvested at December 31, 2025 1,321,591 $ 1.15 Granted - - Forfeited/Cancelled ( 168,183 ) 1.55 Balance at June 30, 2026 1,153,408 $ 1.10 As of June 30, 2026, total unrecognized share-based compensation cost related to unvested performance based restricted stock units was $ 64 thousand, which is expected to be recognized over a weighted-average period of less than one 1 year. Warrants The following table summarizes the activities for the Company’s warrants as of June 30, 2026: Schedule of warrants outstanding Number of Warrant Shares Weighted- Average Exercise Price Weighted - Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) (1) Balance as of December 31, 2025 1,555,207 3.95 4.4 Issued - - Exercised - - Expired - - Balance as of June 30, 2026 1,555,207 $ 3.95 3.9 Exercisable as of June 30, 2026 1,555,207 $ 3.95 3.9 $ - (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.614 for our common stock on June 30, 2026. 20 Table of Contents Notes to the Consolidated Financial Statements (unaudited) At-the-Market Equity Offering Program On March 6, 2025, the Company entered into a now terminated At-The-Market Sales Agreement (“Sales Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which the Company could issue and sell, from time to time, shares of its common stock up to an aggregate offering price of $ 15.8 million (“ATM Program”). Roth acted as the Company’s sales agent and was entitled to a 3.0 % commission on gross proceeds from sales under the ATM Program. During the year ended December 31, 2025, and through the termination of the ATM Program, the Company sold an aggregate of 628,432 shares of its common stock pursuant to the ATM program for net proceeds of $ 483 thousand, after deducting $ 15 thousand in offering costs. On February 11, 2026, the Company provided Roth 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. NOTE 7— DEBT PeriShip Global is a party to a debt facility with PNC Bank, National Association (the “PNC Facility”). The PNC Facility includes a $ 1 million revolving line of credit (the “RLOC”). 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 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 August 8, 2025, the Company extended the line of credit to September 30, 2026. On March 26, 2026, we received a waiver as of December 31, 2025, for certain events of default. The PNC Facility includes a four-year Term Note for $ 2 million which matures in September of 2026 and requires equal quarterly payments of principal and interest. The Term Note incurs interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%. The PNC Facility is guaranteed by VerifyMe and secured by the assets of PeriShip Global and VerifyMe. In connection with the Merger Agreement (as defined herein) 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. As of January 21, 2025, the Term Note balance of $ 875 thousand was paid in full and no future principal payments are due. As of June 30, 2026, $ 0 was outstanding on the RLOC. 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 June 30, 2026 and December 31, 2025, $ 400 thousand was held by related parties. 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 six months ended June 30, 2026 and June 30, 2025, interest expense related to the convertible debt was $ 30 thousand and $ 30 thousand, respectively. As of January 21, 2025, $ 350 thousand was converted to common stock, none of which was related parties. As of June 30, 2026 and December 31, 2025, the amount outstanding on the convertible debt was $ 750 thousand included in Convertible note and Convertible note related party on the accompanying Consolidated Balance Sheets. 21 Table of Contents Notes to the Consolidated Financial Statements (unaudited) NOTE 8— NOTE RECEIVABLE 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 paid us regular quarterly interest payments at an annual interest rate of 16 % . The term of the initial promissory note was nine months at which time all accrued principal and interest is due to us unless we elect to make an Additional Loan (as such term is defined in the Loan Agreement) 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. On May 11, 2026, our $ 2.0 million promissory note issued under our Loan Agreement with ZenCredit matured and became due and payable. On May 11, 2026, we received from ZenCredit our principal balance of $ 2.0 million plus our final quarterly interest payment of $ 80 thousand, and we reversed a credit loss reserve of $ 12 thousand. NOTE 9— INCOME TAXES There are no taxes payable as of June 30, 2026, or December 31, 2025. Some of the federal tax carry forwards will expire at various dates through 2037. Generally, these can be carried forward and applied against future taxable income at the tax rate applicable at that time. We are currently using an effective income tax rate of 21 % for our projected available net operating loss carry-forward. No tax benefit has been recognized in the six months ending June 30, 2026, due to the uncertainty surrounding the realizability of the benefit. As of June 30, 2026, the Company had no unrecognized tax benefits. 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. Assuming the Merger contemplated by the Merger Agreement is consummated in accordance with the terms of the Merger Agreement, these limitations will apply for tax periods following the Merger. In accordance with ASC Topic 740, Income Taxes , valuation allowances are provided against deferred tax assets, if based on the weight of available evidence, some or all of the deferred tax assets may or will not be realized. The Company did not utilize any NOL deductions for the three and six months ended June 30, 2026. NOTE 10– 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. 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 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. 22 Table of Contents Notes to the Consolidated Financial Statements (unaudited) During 2025, we maintained operating leases for office facilities. We do not have any finance leases. In January 2026, we entered into a lease amendment to terminate a facility lease effective February 15, 2026, and adjusted our right-of-use assets and liabilities. 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 Three months ended June 30, Six months ended June 30, 2026 2025 2026 2025 Operating lease cost $ - $ 13 $ - $ 39 Short-term lease cost - 4 - 8 Total lease costs $ - $ 17 $ - $ 47 Supplemental information related to leases was as follows (dollars in thousands): Schedule of supplemental information related to leases June 30, 2026 December 31, 2025 Operating Lease right-of-use asset $ - $ - Current portion of operating lease liabilities - - Non-current portion of operating lease liabilities - - Total operating lease liabilities $ - $ - Cash paid for amounts included in the measurement of operating lease liabilities $ - $ 65 Right-of-use assets obtained in exchange for operating lease liabilities $ - $ - Weighted-average remaining lease term for operating leases (years) - - Weighted average discount rate for operating leases - - NOTE 11– CONCENTRATIONS For the three months ended June 30, 2026 and 2025, one customer represented 10 % and 11 % of revenues, respectively. For the six months ended June 30, 2026 and 2025, one customer represented 8 % and 13 % of revenues, respectively. During the six months ended June 30, 2026, and 2025, one vendor accounted for 99 % of transportation cost. As of June 30, 2026, two customers made up 51 % of accounts receivable, net. As of December 31, 2025, two customers made up 50 % of accounts receivable. 23 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and notes. Cautionary Note Regarding Forward-Looking Statements This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “may,” “estimate,” “continue,” “could,” “can,” “potential,” “will,” “would,” “expect,” “shall,” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, sources of future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. Our actual results and financial condition may differ materially from those expressed or implied in such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and our other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements in this report are made only as of the date hereof or as indicated and represent our views as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise, except as required by law. Overview VerifyMe, Inc. (“VerifyMe,” 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. Prior to 2026, we reported two operating segments: Precision Logistics and Authentication. We are not actively pursuing authentication business but continue servicing existing customers. As of January 1, 2026, the Authentication segment falls below segment reporting quantitative thresholds, and is therefore not required to be presented as a separate reportable segment. As a result, beginning in 2026, we changed our internal reporting to the chief operating decision maker who is our Chief Executive Officer, and combined Precision Logistics and Authentication into a single segment, leaving Precision Logistics. This represents a reduction in the number of reportable segments by aggregation, not a re-labeling. 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. 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 needs. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, as well as delivering last-mile resolution for key markets, including the perishable healthcare and food industries. Through our proprietary PeriTrack® customer dashboard, we provide an integrated tool that gives our customers an in-depth look at their shipping activities and allows them access to critical information in support of the specific needs of the supply chain stakeholders. We offer post-delivery services such as customized reporting for trend analysis, system performance reports, power outage maps, and other tailored reports. Precision Logistics generates revenue from two business service models. · ProActive Service – clients pay us directly for carrier service coupled with our proactive logistics assistance. · Premium 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. 24 Table of Contents As discussed in the section “Partnerships” below, w e ceased providing ProActive services to our prior carrier partner in September 2025. In February 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 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. In June 2026, we began offering Premium and Direct Premium services to the customers of our Preferred Shipping Partner. Products: The Precision Logistics segment includes the following bundled services as part of our service offerings to our customers: · PeriTrack® : Our proprietary PeriTrack® customer dashboard was developed utilizing our extensive logistics operational knowledge. This integrated web portal tool gives our customers an in-depth look at their shipping activities based on real-time data. The PeriTrack® dashboard was designed to provide critical information in support of the specific needs of supply chain stakeholders and gives our customer resolution specialists a 360° view of shipping activity. PeriTrack® features tools tailored for shippers of perishable goods, which includes the In-Transit Shipment Tracker. This tool provides details on the unique shipper’s in-transit shipments, with the ability to select and analyze data on individual shipments. · Service Center : We have assembled a team of customer resolution specialists based in the U.S. This service team resolves shipping problems on behalf of our customers. The service center acts as a help desk and monitors shipping to delivery for our customers. · Pre-Transit Service : We help clients prepare their products for shipments by advising clients on packaging requirements for various types of perishable products. Each product type requires its own particular packaging to protect it during shipment, and we utilize our extensive knowledge and research to provide our customers with packaging recommendations to meet their unique needs. · Post-Delivery : We provide customized reporting for trend analysis, system performance reports, power outage maps, and many other reports to help our customers improve their processes and customer service outcomes. · Weather/Traffic Service : We have full-time meteorologists on staff to monitor weather. A package may experience a variety of weather conditions between the origin and destination, and our team actively monitors these conditions to maximize the number of timely and safely transmitted shipments. Similarly, traffic and construction also create unpredictable delays which our team works diligently to mitigate. If delays or other issues occur, we inform clients and work with them to proactively resolve such shipment issues. Recent Developments Nasdaq Delisting Notice On April 17, 2026, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based on the closing bid price of our common stock for 30 consecutive business days, we no longer meet Nasdaq Listing Rule 5550(a)(2), which requires listed companies to maintain a minimum bid price of at least $1 per share (the “Minimum Bid Price Rule”). The Nasdaq Listing Rules provided us a compliance period of 180 calendar days, or until October 14, 2026, in which to regain compliance with the Minimum Bid Price Rule. See the “Risk Factors” section in this report. Merger Agreement On February 11, 2026, we entered into the Merger Agreement with the Merger Sub and Open World. 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. At 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, (ii) each investor in 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. 25 Table of Contents Immediately following 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 87.75% of the post-Closing aggregate number of shares of our common stock and “Maxim Group”, financial advisor to Open World, will hold approximately 2.25% of the post-Closing aggregate number of shares of our common stock (to the extent any portion of the advisory fee due to Maxim Group by OpenWorld exceeding the required upfront cash fee, if any, is paid in shares of common stock of the combined company and assuming a $200 million enterprise value for the combined company pursuant to the M&A Advisory Agreement between Maxim Group and Open World dated October 26, 2025). 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 our 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 our 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. On April 15, 2026, we entered into the First Amendment , effective as of April 13, 2026 pursuant to which the outside date in the Merger Agreement was extended from June 30, 2026 to August 31, 2026. On June 4, 2026, we entered into the Second Amendment, effective as of June 4, 2026, pursuant to which the definition of Fully Diluted Company Shares in the Merger Agreement was revised to include the aggregate number of Open World ordinary shares issuable in connection with any existing agreement to issue Equity Interests (as such term is defined in the Merger Agreement) of Open World. On August 10, 2026, we entered into the Third Amendment, effective as of August 10, 2026, pursuant to which the outside date set forth in the Merger Agreement was extended from August 31, 2026 to October 31, 2026. 26 Table of Contents The foregoing description of the Merger Agreement, First Amendment, and Second Amendment 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, First Amendment, and Second Amendment. Opportunities 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. We utilize a variety of input sources beyond the carrier’s data feed. Our proprietary “Predictive Analytics” technology is fed real-time meteorology data, traffic and road construction data, and power grid information to help predict issues before they happen. If an alert is created the shipper and our service center 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 on staff that track world-wide weather patterns to address predicted issues before they happen. We believe the company has two significant areas of opportunity. First, our services are specifically designed to address the needs of small and medium-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 process as the investment is locked in for a considerably long period. Due to the current economic environment, and our cost competitive offering, we believe companies may opt to outsource their precision logistics services to reduce their operational costs. The outsourcing of supply chain related and other logistics operations to service providers such as ours allows companies to improve the efficiency of their businesses by focusing their resources on core competencies. We believe outsourcing this function to our Precision Logistics segment provides the ideal solution for all parties involved. 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 continue to provide Direct Premium services to our customers who use our prior carrier partner for their shipping needs. On September 24, 2025, we began offering ProActive services to the customers of an alternative Preferred Shipping Partner . In June 2026, we began offering Premium and Direct Premium services to the customers of our Preferred Shipping Partner. Current Economic Environment We have seen a softening in demand for some services related to high-end perishable items which seem to be impacted by reduced discretionary spending by U.S. consumers. In response to uncertainty in the global market and lower demand some carriers have implemented strategies to address a potential global recession. Additional changes in U.S. or international trade policy, along with continued uncertainty surrounding such policies, could lead to further weakened business conditions. Additionally, inflation and uncertainty and instability in the global economy and geopolitical events such as the war in Iran and unrest in areas of the world that are dependent upon fuel production can negatively affect transportation costs and further reduce consumer spending leading to fewer goods being transported globally. We can provide no assurances that a decline in discretionary consumer spending for these or any reasons will not have a negative impact on our revenues and results of operations. Seasonality We typically 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. We anticipate that the historical seasonality trends of the business will return in 2026. The seasonality of our business may cause fluctuations in our quarterly operating results. 27 Table of Contents Results of Operations Comparison of the three months ended June 30, 2026, and 2025 The following discussion analyzes our results of operations for the three months ended June 30, 2026 and 2025.   Three Months Ended   June 30,   2026 2025       NET REVENUE $ 1,908 $ 4,520   COST OF REVENUE 887 2,929   GROSS PROFIT 1,021 1,591     OPERATING EXPENSES   Management and technology 607 920 General and administrative 815 716 Research and development - 5 Sales and marketing 155 272 Total Operating expenses 1,577 1,913 LOSS BEFORE OTHER INCOME (556 ) (322 )     TOTAL OTHER INCOME, NET $ 51 $ 31     NET LOSS $ (505 ) $ (291 ) Revenue Revenue decreased $2,612 thousand or 58% during the second quarter of 2026 compared to the second quarter of 2025. The decrease primarily relates to the termination of our agreement, effective September 24, 2025, with our prior carrier partner to offer our ProActive services which resulted in erosion of our customer base, as previously disclosed, compared to the same period in the prior year. Gross Profit Gross profit for the three months ended June 30, 2026, was $1,021 thousand, compared to $1,591 thousand for the three months ended June 30, 2025. The resulting gross margin was 54% for the three months ended June 30, 2026, compared to 35% for the three months ended June 30, 2025. The gross profit percentage increase relates to the mix of ProActive and Premium services provided during the current quarter. Management and Technology Management and technology expenses decreased by $313 thousand to $607 thousand for the three months ended June 30, 2026, compared to $920 thousand for the three months ended June 30, 2025. The decrease primarily relates to lower amortization of intangible assets as a result of the previously reported asset impairment in the third quarter of 2025, and a decrease in wages from reduced headcount. General and Administrative Expenses General and administrative expenses increased by $99 thousand to $815 thousand for the three months ended June 30, 2026, compared to $716 thousand for the three months ended June 30, 2025. The increase relates to an increase in legal expenses associated with the Company’s proposed merger with Open World, partially offset by a decrease in stock compensation and wages. Research and Development Research and development expenses were $0 and $5 thousand for the three months ended June 30, 2026 and June 30, 2025, respectively. 28 Table of Contents Sales and Marketing Sales and marketing expenses decreased by $117 thousand to $155 thousand for the three months ended June 30, 2026, compared to $272 thousand for the three months ended June 30, 2025. The decrease primarily relates to a decrease in headcount. Interest Income, net Interest income, net was $51 thousand for the three months ended June 30, 2026, compared to $32 thousand for the three months ended June 30, 2025. The increase primarily relates to interest earned from the ZenCredit promissory note, which matured on May 11, 2026 and was not renewed. Net Loss Net loss for the three months ended June 30, 2026 and 2025 was $505 thousand and $291 thousand, respectively. The increased loss primarily relates to the decrease in revenues resulting from the previously disclosed loss of the Company’s former carrier partner. The resulting consolidated loss per share for the three months ended June 30, 2026, and three months ended June 30, 2025, was $0.04 and $0.02 per basic and diluted share, respectively. Comparison of the six months ended June 30, 2026, and 2025 The following discussion analyzes our results of operations for the six months ended June 30, 2026 and 2025.   Six Months Ended   June 30,   2026 2025       NET REVENUE $ 3,680 $ 8,975   COST OF REVENUE 1,699 5,894   GROSS PROFIT 1,981 3,081     OPERATING EXPENSES   Management and technology 1,177 1,846 General and administrative 1,831 1,572 Research and development - 10 Sales and marketing 296 568 Total Operating expenses 3,304 3,996 LOSS BEFORE OTHER INCOME (1,323 ) (915 )     TOTAL OTHER INCOME, NET $ 139 $ 53     NET LOSS $ (1,184 ) $ (862 ) Revenue Consolidated revenue decreased $5,295 thousand for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease primarily relates to the termination of the agreement, effective September 24, 2025, with our prior carrier partner to offer our ProActive services which resulted in erosion of our customer base, as previously disclosed, compared to the same period in the prior year. Gross Profit Consolidated gross profit for the six months ended June 30, 2026, was $1,981 thousand, compared to $3,081 thousand for the six months ended June 30, 2025. The resulting gross margin was 54% for the six months ended June 30, 2026, compared to 35% for the six months ended June 30, 2025. The gross profit percentage increase relates to the mix of ProActive and Premium services provided during the current period, and process improvements previously implemented to increase ProActive services margins. 29 Table of Contents Management and Technology Management and technology expenses decreased by $669 thousand to $1,177 thousand for the six months ended June 30, 2026, compared to $1,846 thousand for the six months ended June 30, 2025. The decrease primarily relates to lower amortization of intangible assets as a result of the previously reported asset impairment in the third quarter of 2025, and a decrease in wages from reduced headcount. General and Administrative Expenses General and administrative expenses increased by $259 thousand to $1,831 thousand for the six months ended June 30, 2026, compared to $1,572 thousand for the six months ended June 30, 2025. The increase relates to legal expenses associated with the Company’s proposed merger with Open World, partially offset by a decrease in stock compensation and wages. Research and Development Research and development expenses were $0 thousand and $10 thousand for the six months ended June 30, 2026, and 2025, respectively. Sales and Marketing Sales and marketing expenses decreased by $272 thousand to $296 thousand for the six months ended June 30, 2026, compared to $568 thousand for the six months ended June 30, 2025. The decrease primarily relates to a decrease in headcount. Interest Income, net Net interest income was $139 thousand for the six months ended June 30, 2026, compared to net interest income of $54 thousand for the six months ended June 30, 2025. The increase primarily relates to interest earned from the ZenCredit promissory note, which matured on May 11, 2026 and was not renewed. Net Loss Consolidated net loss for the six months ended June 30, 2026, and 2025 was $1,184 thousand and $862 thousand, respectively. The increased loss primarily relates to the decrease in revenues resulting from the previously disclosed loss of the Company’s former carrier partner. The resulting consolidated loss per share for the six months ended June 30, 2026, and six months ended June 30, 2025, was $0.09 and $0.07 per basic and diluted share, respectively. Liquidity and Capital Resources Cash used in operations was $1,002 thousand during the six months ended June 30, 2026, compared to $306 thousand provided by operations during the six months ended June 30, 2025. The increase in cash used in operating activities was primarily attributable to lower revenue and gross profit following the previously disclosed termination of our former partner agreement, as well as increased legal and other expenses related to the proposed merger with OpenWorld. Cash provided by investing activities was $1,768 thousand during the six months ended June 30, 2026, compared to $332 thousand used in investing activities during the six months ended June 30, 2025. The increase was primarily attributable to the collection of the ZenCredit promissory note receivable on May 11, 2026. Cash used in financing activities during the six months ended June 30, 2026, was $27 thousand, compared to cash provided by financing activities during the six months ended June 30, 2025, of $3,270 thousand. The change was primarily attributable to one-time proceeds received from the exercise of warrants during the six months ended June 30, 2025, with no comparable proceeds received in 2026. 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. On May 11, 2026, our $2.0 million promissory note issued under our Loan Agreement with ZenCredit matured and became due and payable. On May 11, 2026, we received from ZenCredit our principal balance of $2.0 million plus our final quarterly interest payment of $80 thousand, and we reversed a credit loss reserve of $12 thousand. 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. 30 Table of Contents 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 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 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, 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 June 30, 2026, 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 Facility with PNC Bank, National Association. The PNC Facility includes a $1 million 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 RLOC is guaranteed by the Company and secured by the assets of PeriShip Global and the Company. On August 8, 2025, the Company extended the line of credit to September 30, 2026. As of June 30, 2026, $0 was outstanding on the RLOC. 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 due. 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 warrant inducement and loan agreement, will fund our operations for the next 12 months including expected capital expenditures. Off-Balance Sheet Arrangements None. Critical Accounting Policies and Estimates Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. Management has determined that there are no critical accounting estimates that require disclosure. We have identified below the critical accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management. We believe estimates and assumptions related to these accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial position, results of operations or cash flows. Revenue Recognition We recognize revenue based on the principals established in the Financial Accounting Standards Board Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers . 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 six-month period ended June 30, 2026, were not materially impacted by any other factors. 31 Table of Contents Applying the practical expedient in ASC Topic 606, we recognize the incremental costs of obtaining contracts (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 June 30, 2026, we did not have any capitalized sales commissions. Recently Adopted Accounting Pronouncements Recently adopted accounting pronouncements are discussed in Note 1 – Summary of Significant Accounting Policies in the notes accompanying the financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures are designed to ensure information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. The Company’s Chief Executive Officer, our principal executive officer, and Chief Financial Officer, our principal financial officer, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2026, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2026, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) Changes in Internal Control over Financial Reporting There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the three months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 32 Table of Contents PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 1A. RISK FACTORS. For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC, and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein. There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025 and subsequent Quarterly Reports on Form 10-Q. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. ITEM 5. OTHER INFORMATION. During the three months ended June 30, 2026, 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. 33 Table of Contents ITEM 6. EXHIBITS Exhibit No. Description 2.1+ Agreement and Plan of Merger dated February 11, 2026, by and among VerifyMe, Inc., VRME Subsidiary Corp., and Open World, Ltd. (incorporated herein by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 12, 2026) 2.2 First Amendment to the Agreement and Plan of Merger dated April 13, 2026, by and among VerifyMe, Inc., VRME Subsidiary Corp., and Open World, Ltd., (incorporated herein by reference from Exhibit 2.2 to the Company’s Registration Statement on Form S-4, filed on April 15, 2026). 2.3 Second Amendment to the Agreement and Plan of Merger dated June 4, 2026, by and among VerifyMe, Inc., VRME Subsidiary Corp., and Open World, Ltd., (incorporated herein by reference from Exhibit 2.3 to the Company’s Registration Statement on Form S-4/A, filed on June 8, 2026). 10.1*† + Digital Channel Program Agreement (incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025). 10.2* †+ Partner API Access Agreement (incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025). 10.3* Master Loan Agreement and Promissory Note with ZenCredit Ventures, LLC (incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025). 10.4* Promissory Note to ZenCredit Ventures, LLC (incorporated herein by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025). 10.5 Letter of Intent, dated January 2, 2026, between VerifyMe, Inc. and Open World Ltd.(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 5, 2026). 10.6+ Form of Company Stockholder Support Agreement dated February 11, 2026 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 12, 2026). 10.7#+ Amended and Restated Employment Agreement with Adam Stedham dated February 11, 2026 and subject to effectiveness (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 12, 2026). 10.8#+ Employment Agreement with Jennifer Cola dated February 11, 2026 and subject to effectiveness (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 12, 2026). 10.9* Waiver and Amendment to Loan Documents between PeriShip Global LLC and PNC Bank, National Association, effective December 31, 2025 (incorporated herein by reference from Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed on March 31, 2026). 31.1* Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). *Filed herewith **Furnished herewith + Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K of the Securities Act of 1933, as amended. The Company will furnish a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request. 34 Table of Contents SIGNATURE S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VERIFYME, INC. Date: August 14, 2026 By: /s/ Adam Stedham Adam Stedham Chief Executive Officer and President (Principal Executive Officer) Date: August 14, 2026 By: /s/ Jennifer Cola Jennifer Cola Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 35