UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2021~~2022

¨o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-39332

VERIFYME, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		23-3023677
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Clinton Square, 75 S. Clinton Ave, Suite 510 Rochester, NY		14604
(Address of Principal Executive Offices)		(Zip Code)

(585) 736-9400
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which

Registered

Common Stock, par value $0.001 per share

VRME

The Nasdaq Capital Market

Warrants to Purchase Common Stock

VRMEW

The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~7,297,270~~9,035,411 shares of common stock outstanding at November 8, ~~2021.~~

2022.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.	Financial Statements	4
Consolidated Balance Sheets (Unaudited)		4
Consolidated Statements of Operations (Unaudited)		56
Consolidated Statements of Cash Flows (Unaudited)		67
Consolidated Statements of Stockholders' Equity ~~(Deficit)~~ (Unaudited)		78
Notes to Consolidated Financial Statements (Unaudited)		910
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1926
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2634
ITEM 4.	Controls and Procedures	2634

PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	2735
ITEM 1A.	Risk Factors	2735
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2836
ITEM 3.	Defaults Upon Senior Securities	2937
ITEM 4.	Mine Safety Disclosures	2937
ITEM 5.	Other Information	2937
ITEM 6.	Exhibits	2937
SIGNATURES		3038

Table of Contents

FINANCIAL STATEMENTS

~~FINANCIAL STATEMENTS~~

ITEM 1.

VerifyMe, Inc.

Consolidated
Balance Sheets

(In thousands, except share data)

As of
September 30, 2021 December 31, 2020
(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 10,630 $ 7,939
Accounts Receivable 319 31
Prepaid expenses and other current assets 111 177
Inventory 48 54
TOTAL CURRENT ASSETS 11,108 8,201

INVESTMENTS
Equity Investment 10,806 -

PROPERTY AND EQUIPMENT
Equipment for lease, net of accumulated amortization
of $88 and $50 as of September 30, 2021 and December 31, 2020, respectively 207 200
Office Equipment, net of accumulated amortization of
$1 and $0 as of September 30, 2021 and December 31, 2020, respectively
8 -

INTANGIBLE ASSETS
Patents and Trademarks, net of accumulated amortization of
$345 and $320 as of September 30, 2021 and December 31, 2020, respectively

328

293

Capitalized Software Costs, net of accumulated amortization of
$40 and $20 as of September 30, 2021 and December 31, 2020, respectively

143

80

TOTAL ASSETS $ 22,600 $ 8,774

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and other accrued expenses $ 434 $ 383
TOTAL CURRENT LIABILITIES 434 383

NON-CURRENT LIABILITIES
Term Note $ - $ 72
Other Long Term Liabilities 9 -

TOTAL LIABILITIES $ 443 $ 455

STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock, $.001 par value, 37,564,767 shares
authorized; 0 shares issued and outstanding as of September 30, 2021 and
0 shares issued and outstanding as of December 31, 2020 - -

Series B Convertible Preferred Stock, $.001 par value; 85 shares
authorized; 0.85 shares issued and outstanding as of September 30, 2021 and - -
December 31, 2020, respectively

Common stock, $.001 par value; 675,000,000 authorized; 7,440,546 and 5,603,888
issued, 7,296,183 and 5,596,877 shares outstanding as of September 30, 2021 and
December 31, 2020, respectively
7 6

Additional paid in capital 85,784 76,099

Treasury stock as cost; 144,363 and 7,011 shares as of September 30, 2021 and
December 31, 2020, respectively (577 ) (113 )

Accumulated deficit (63,057 ) (67,673 )

STOCKHOLDERS' EQUITY 22,157 8,319

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,600 $ 8,774


	As of

	September 30, 2022		December 31, 2021
	(Unaudited)

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	3,694	$	9,422
Accounts Receivable, net of allowance for credit loss reserve, $13, and $0 as of September 30, 2022 and December 31, 2021, respectively		1,188		297
Unbilled revenue		695		-
Prepaid expenses and other current assets		190		152
Short term investments		93		88
Inventory		141		52
TOTAL CURRENT ASSETS		6,001		10,011

INVESTMENTS
Equity Investment	$	-	$	10,964

PROPERTY AND EQUIPMENT, NET		321		204

RIGHT OF USE ASSET		500		-

INTANGIBLE ASSETS, NET		6,421		509

GOODWILL		4,092		-

DEFERRED IMPLEMENTATION COSTS		87		-

TOTAL ASSETS	$	17,422	$	21,688

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of debt	$	500	$	-
Accounts payable		1,220		341
Other accrued expense		486		109
Lease liability- current		116		-
TOTAL CURRENT LIABILITIES		2,322		450

LONG-TERM LIABILITIES
Long-term portion of debt	$	1,500	$	-
Long-term lease liability		387		-
Long-term derivative liability		-		71

TOTAL LIABILITIES	$	4,209	$	521

Table of Contents

STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock, $0.001 par value, 37,564,767 shares authorized, 0 shares issued and outstanding as of September 30, 2022 and 0 shares issued and outstanding as of December 31, 2021		-			-

Series B Convertible Preferred Stock, $0.001 par value; 85 shares authorized; 0.85 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		-			-

Common stock, $0.001 par value; 675,000,000 authorized; 9,341,002 and 7,420,633 issued, 9,035,411 and 7,196,677 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		10			7

Additional paid in capital		92,613			86,059

Treasury stock as cost; 305,591 and 223,956 shares at September 30, 2022 and December 31, 2021, respectively		(843	)		(838	)

Accumulated deficit		(78,567	)		(64,061	)

STOCKHOLDERS' EQUITY		13,213			21,167

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	17,422		$	21,688

The accompanying notes are an integral part of these unaudited ~~financial statements.~~

~~Table of Contents~~

~~VerifyMe, Inc.~~

~~Statements of Operations~~

~~(Unaudited)~~

~~(In thousands, except share and per share data)~~

Three months ended Nine months ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

NET REVENUE
Sales $ 300 $ 101 $ 612 $ 268

COST OF SALES 114 19 183 49

GROSS PROFIT 186 82 429 219

OPERATING EXPENSES
General and administrative (a) 636 550 2,320 1,520
Legal and accounting 74 98 288 235
Corporate payroll expenses (a) 194 117 621 436
Research and development 8 7 25 7
Sales and marketing (a) 299 293 843 415
Total Operating expenses 1,211 1,065 4,097 2,613

LOSS BEFORE OTHER INCOME (EXPENSE) (1,025 ) (983 ) (3,668 ) (2,394 )

OTHER INCOME (EXPENSE), NET
Interest income (expenses), net 1 - 1 (2,054 )
Fair value gain on equity investment 8,214 - 8,214 -
Loss on extinguishment of debt - - - (280 )
Payroll Protection Program Debt Forgiveness - - 70 -
Income tax expense (1 ) 0 (1 ) 0
TOTAL OTHER INCOME (EXPENSE), NET 8,214 - 8,284 (2,334 )

NET INCOME/(LOSS) $ 7,189 $ (983 ) $ 4,616 $ (4,728 )

EARNINGS/(LOSS) PER SHARE
BASIC $ 0.99 $ (0.18 ) $ 0.65 $ (1.38 )
DILUTED $ 0.95 $ (0.18 ) $ 0.63 $ (1.38 )

WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING
BASIC 7,290,975 5,488,111 7,078,046 3,436,805
DILUTED 7,570,985 5,488,111 7,335,268 3,436,805

~~(a)~~

~~Includes share-based compensation of $372~~ ~~thousand and $1,379~~ ~~thousand for the three and nine months ended September 30, 2021, respectively, and $311 thousand~~ ~~and $1,000~~ ~~thousand for the three and nine months ended September 30, 2020, respectively.~~

~~The accompanying notes are an integral part of these unaudited~~consolidated financial statements.

Table of Contents

VerifyMe, Inc.

Consolidated

Statements of ~~Cash Flows~~Operations

(Unaudited)

(In ~~thousands)~~thousands, except share data)

Nine Months Ended
September 30, 2021 September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income/(loss) $ 4,616 $ (4,728 )
     Adjustments to reconcile net income/(loss) to net cash used in
        operating activities:

Stock based compensation 44 62
Fair value of options in exchange for services 85 643
Fair value of restricted stock awards issued in exchange for services 739 241
Fair value of restricted stock units issued in exchange for services 511 -
Fair value of warrants in exchange for services - 54
Payroll Protection Program Debt Forgiveness (70 ) -
Fair value gain on equity investment (8,214 ) -
Loss on Extinguishment of Debt - 281
Amortization of debt discount - 1,992
Common stock issued for interest expense - 61
Amortization and depreciation 84 70
Changes in operating assets and liabilities:
Accounts Receivable (288 ) (22 )
Inventory 5 (18 )
Prepaid expenses and other current assets 66 (50 )
Accounts payable and accrued expenses 54 120
Net cash used in operating activities (2,368 ) (1,294 )

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Patents (60 ) (52 )
Purchase of Equipment for lease (45 ) (23 )
Purchase of equity investment (2,593 ) -
Purchase of Office Equipment (8 ) -
Capitalized Software Costs (84 ) -
Net cash used in investing activities (2,790 ) (75 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of securities 8,447 9,023
Proceeds from issuance of notes payable - 72
Repayments of notes payable (3 ) -
Repayment of bridge financing and early redemption fee - (750 )
Proceeds from convertible debt, net of costs - 1,747
Tax withholding payments for employee stock-based compensation
in exchange for shares surrendered (131 ) -
Repurchase Shares (464 ) -
Net cash provided by financing activities 7,849 10,092

NET INCREASE IN CASH AND
CASH EQUIVALENTS

2,691

8,723

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 7,939 253

CASH AND CASH EQUIVALENTS - END OF PERIOD $ 10,630 $ 8,976

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ - $ 1
Income taxes $ - $ -

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES

Common Stock issued in relation to conversion of 2020 Debentures and
warrant cancellation $ - $ 1,992
Relative fair value of common stock issued in connection with 2020 Debentures $ - $ 34
Relative fair value of warrants issued in connection with 2020 Debentures $ - $ 1,063
Beneficial conversion feature in connection with 2020 Debentures $ - $ 650
Common stock issued to settle accrued payroll $ - $ 119


	Three Months Ended						Nine Months Ended
	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021


NET REVENUE	$	5,215		$	300		$	9,873		$	612

COST OF REVENUE		3,360			114			6,210			183

GROSS PROFIT		1,855			186			3,663			429

OPERATING EXPENSES
General and administrative (a)		2,213			905			6,213			3,230
Research and development		39			8			73			25
Sales and marketing (a)		478			299			1,224			843
Total operating expenses		2,730			1,212			7,510			4,098

LOSS BEFORE OTHER INCOME (EXPENSE)		(875	)		(1,026	)		(3,847	)		(3,669	)

OTHER INCOME (EXPENSE)
Interest (expense) income, net		(32	)		1			(54	)		1
Loss on equity investment		(1	)		-			(10,959	)		-
Unrealized gain on equity investments		-			8,214			-			8,214
Other income		25			-			28			-
Gain on extinguishment of debt		326			-			326			-
Payroll Protection Program debt forgiveness		-			-			-			70
TOTAL OTHER INCOME (EXPENSE), NET		318			8,215			(10,659	)		8,285

NET (LOSS) INCOME	$	(557	)		7,189		$	(14,506	)	$	4,616

LOSS PER SHARE
BASIC		(0.06	)		0.99			(1.76	)		0.65
DILUTED		(0.06	)		0.95			(1.76	)		0.63

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
BASIC		8,943,613			7,290,975			8,219,154			7,078,046
DILUTED		8,943,613			7,570,985			8,219,154			7,335,268

(a)

Includes share-based compensation of $354 thousand and $1,095 thousand for the three and nine months ended September 30, 2022, respectively, and $372 thousand and $1,379 thousand for the three and nine months ended September 30, 2021, respectively

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

VerifyMe, Inc.

Consolidated

Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended
	September 30, 2022			September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income	$	(14,506	)	$	4,616
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Allowance for bad debt		13			-
Stock based compensation		123			44
Fair value of options in exchange for services		-			85
Fair value of restricted stock awards issued in exchange for services		206			739
Fair value of restricted stock units issued in exchange for services		766			511
Payroll Protection Program Debt Forgiveness		-			(70	)
Loss (Gain) on equity investment		10,959			(8,214	)
Gain on extinguishment of debt		(326	)		-
Amortization and depreciation		504			84
Changes in operating assets and liabilities
Accounts receivable		(69	)		(288	)
Unbilled revenue		(695	)		-
Inventory		(89	)		5
Prepaid expenses and other current assets		(33	)		66
Accounts payable, other accrued expenses and net change in operating leases		479			54
Net cash used in operating activities		(2,668	)		(2,368	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of patents	$	(33	)	$	(60	)
Purchase of equipment for lease		-			(45	)
Purchase of equity investment		-			(2,593	)
Purchase of office equipment		-			(8	)
Acquisition of PeriShip		(7,500	)		-
Deferred implementation costs		(87	)		-
Capitalized software costs		(127	)		(84	)
Net cash used in investing activities		(7,747	)		(2,790	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of securities	$	4,528		$	8,447
Proceeds from issuance of notes payable		2,000			-
Settlement of debt and redemption of shares from PeriShip seller		(1,724	)		(3	)
Proceeds from Stock Purchase Plan		102			-
Tax withholding payments for employee stock-based compensation in exchange for shares surrendered		(34	)		(131	)
Increase in treasury shares (share repurchase program)		(185	)		(464	)

Net cash provided by financing activities		4,687			7,849

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(5,728	)		2,691
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		9,422			7,939

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	3,694		$	10,630

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	-		$	-
Income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES


Initial recognition of right-of-use asset and lease liability during the period	$	552		$	-
Exercise of pre-funded warrants	$	1		$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

VerifyMe, Inc.

~~Statement~~Consolidated Statements of Stockholders' Equity ~~(Deficit)~~

(Unaudited)

(In thousands, except share data)

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 June 30, 2020 - - 0.85 - 5,343,380 5 75,442 7,011 (113 ) (65,516 ) 9,818
Fair value of stock options - - - - - - 157 - - - 157
Restricted stock awards - - - - 230,000 - 142 - - - 142
Common stock issued for services - - - - 3,261 - 12 - - - 12
Common stock issued in relation to
public offering of securities - - - - 888 1 (1 ) - - - -
Net loss - - - - - - - - - (983 ) (983 )
Balance at September 30, 2020 - - 0.85 - 5,577,529 6 75,752 7,011 (113 ) (66,499 ) 9,146


	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 June 30, 2021		-		-		0.85		-		7,360,478			7		85,495		74,527		(341	)		(70,246	)		14,915
Restricted stock awards, net of shares withheld for employee tax		-		-		-		-		(18,720	)		-		43		-		-			-			43
Restricted Stock Units		-		-		-		-		21,000			-		234		-		-			-			234
Common stock issued for services		-		-		-		-		3,261			-		12		-		-			-			12
Repurchase of Common Stock		-		-		-		-		(69,836	)		-		-		69,836		(236	)		-			(236	)
Net Income		-		-		-		-		-			-		-		-		-			7,189			7,189
Balance at September 30, 2021		-		-		0.85		-		7,296,183			7		85,784		144,363		(577	)		(63,057	)		22,157

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 June 30, 2021 - - 0.85 - 7,360,478 7 85,495 74,527 (341 ) (70,246 ) 14,915
Restricted stock awards, net of shares
withheld for employee tax - - - - (18,720 ) - 43 - - - 43
Restricted Stock Units - - - - 21,000 - 234 - - - 234
Common stock issued for services - - - - 3,261 - 12 - - - 12
Repurchase of Common Stock - - - - (69,836 ) - - 69,836 (236 ) - (236 )
Net loss - - - - - - - - - 7,189 7,189
Balance at September 30, 2021 - - 0.85 - 7,296,183 7 85,784 144,363 (577 ) (63,057 ) 22,157

	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 June 30, 2022		-		-		0.85		-		8,467,046			9		92,347			198,956			(756	)		(78,010	)		13,590
Restricted stock awards, net of shares withheld for employee tax		-		-		-		-		-			-		33			-			-			-			33
Restricted Stock Units		-		-		-		-		-			-		289			-			-			-			289
Stock Purchase Plan		-		-		-		-		-			-		31			-			-			-			31
Common stock issued in relation to SPP		-		-		-		-		28,895			-		(63	)		(28,895	)		98			-			35
Common stock issued in relation to private placement		-		-		-		-		-			-		(24	)		-			-			-			(24	)
Repurchase of Common Stock		-		-		-		-		(135,530	)		-		-			135,530			(185	)		-			(185	)
Exercise of Pre-funded Warrants		-		-		-		-		675,000			1		-			-			-			-			1
Net loss		-		-		-		-		-			-		-			-			-			(557	)		(557	)
Balance at September 30, 2022		-		-		0.85		-		9,035,411			10		92,613			305,591			(843	)		(78,567	)		13,213

The accompanying notes are an integral part of these unaudited ~~financial statements.~~

~~Table of Contents~~

~~VerifyMe, Inc.~~

~~Statement of Stockholders' Equity (Deficit)~~

~~(Unaudited)~~

~~(In thousands, except share data)~~

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 December 31, 2019 - - 0.85 - 2,232,112 2 61,815 7,011 (113 ) (61,771 ) (67 )
Fair value of stock options - - - - - - 642 - - - 642
Restricted stock awards - - - - 267,500 - 360 - - - 360
Fair value of warrants issued for services - - - - - - 54 - - - 54
Common stock issued for services - - - - 6,596 - 30 - - - 30
Common stock issued in connection with 2020 Debentures - - - - 19,208 - 66 - - - 66
Beneficial conversion feature in connection with 2020
Debentures - - - - - - 650 - - - 650
Warrants issued in connection with 2020 Debentures - - - - - - 1,063 - - - 1,063
Common Stock in relation to conversion of 2020 Debentures
and interest expense and cancellation of warrants - - - - 816,713 1 2,052 - - - 2,053
Common stock issued in relation to public offering of
securities - - - - 2,254,801 3 9,020 - - - 9,023 ��
Cancellation of Common Stock - - - - (19,401 ) - - - - - -
Net loss - - - - - - - - - (4,728 ) (4,728 )
Balance at September 30, 2020 - - 0.85 - 5,577,529 6 75,752 7,011 (113 ) (66,499 ) 9,146

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 December 31, 2020 - - 0.85 - 5,596,877 6 76,099 7,011 (113 ) (67,673 ) 8,319
Fair value of stock options - - - - - - 85 - - - 85
Restricted stock awards, net of shares withheld for
employee tax - - - - 56,971 - 608 - - - 608
Restricted Stock Units - - - - 21,000 - 511 - - - 511
Common stock issued for services - - - - 8,687 - 35 - - - 35
Common stock issued in relation to public offering of
securities - - - - 1,750,000 1 8,446 - - - 8,447
Repurchase of Common Stock (137,352 ) - - 137,352 (464 ) - (464 )
Net gain - - - - - - - - - 4,616 4,616
Balance at September 30, 2021 - - 0.85 - 7,296,183 7 85,784 144,363 (577 ) (63,057 ) 22,157

~~The accompanying notes are an integral part of these unaudited~~consolidated financial statements.

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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
	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, 2020		-		-		0.85		-			5,596,877			6		76,099		7,011		(113	)		(67,673	)		8,319
Fair value of stock options		-		-		-		-			-			-		85		-		-			-			85
Restricted stock awards, net of shares withheld for employee tax		-		-		-		-			56,971			-		608		-		-			-			608
Restricted Stock Units		-		-		-		-			21,000			-		511		-		-			-			511
Common stock issued for services		-		-		-		-	��		8,687			-		35		-		-			-			35
Common stock issued in relation to public offering of securities		-		-		-		-			1,750,000			1		8,446		-		-			-			8,447
Repurchase of Common Stock		-		-		-		-			(137,352	)		-		-		137,352		(464	)		-			(464	)
Net Income		-		-		-		-			-			-		-		-		-			4,616			4,616
Balance at September 30, 2021		-		-		0.85		-			7,296,183			7		85,784		144,363		(577	)		(63,057	)		22,157

	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 December 31, 2021		-		-		0.85		-		7,196,677			7		86,059			223,956			(838	)		(64,061	)		21,167
Restricted stock awards, net of shares withheld for employee tax		-		-		-		-		29,688			-		172			-			-			-			172
Restricted Stock Units		-		-		-		-		-			-		766			-			-			-			766
Stock Purchase Plan		-		-		-		-		-			-		98			-			-			-			98
Common stock issued in relation to Stock Purchase Plan		-		-		-		-		53,895			-		(78	)		(53,895	)		180			-			102
Common stock issued in relation to private placement		-		-		-		-		880,208			2		4,526			-			-			-			4,528
Common stock issued for services		-		-		-		-		30,000			-		96			-			-			-			96
Common stock issued in relation to Acquisition		-		-		-		-		305,473			-		974			-			-			-			974
Repurchase of Common Stock		-		-		-		-		(135,530	)		-		-			135,530			(185	)		-			(185	)
Exercise of Pre-funded Warrants		-		-		-		-		675,000			1		-			-			-			-			1
Net loss		-		-		-		-		-			-		-			-			-			(14,506	)		(14,506	)
Balance at September 30, 2022		-		-		0.85		-		9,035,411			10		92,613			305,591			(843	)		(78,567	)		13,213

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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VerifyMe, Inc.

Notes to the Consolidated Financial Statements (unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

VerifyMe, Inc. (“VerifyMe”) was incorporated in the State of Nevada on November 10, 1999. VerifyMe,” together with its wholly owned subsidiary, PeriShip Global LLC (“PeriShip Global”), (together the “Company,” “we,” “us,” or “our”) ~~was incorporated in the State of Nevada on November 10, 1999. The Company~~ is based in Rochester, New York and its common stock, par value $~~0.001~~$0.001 per share, and warrants to purchase common stock are traded on The Nasdaq Capital Market (“Nasdaq”) under the trading symbols “VRME” and “VRMEW,” respectively.

~~The Company~~VerifyMe, through PeriShip Global, is a ~~technology solutions~~software driven logistics provider ~~specializing in products to connect brands with consumers.~~of high-touch, end-to-end logistics management representing most of our current revenue stream. In addition, VerifyMe technologies ~~give brand owners the ability to gather business intelligence while engaging directly with their consumers. VerifyMe technologies also~~ provide brand protection and supply chain ~~functions such~~functions. Our operations are split into two segments: PeriShip Global Solutions and VerifyMe Solutions. Through our PeriShip Global Solutions segment we provide a value-added service for time and temperature sensitive parcel management through logistics management from a sophisticated IT platform with proprietary databases, package and flight-tracking software, weather, traffic, and flight status monitoring systems, as ~~counterfeit prevention, authentication, serialization,~~well as dynamic dashboards with real-time visibility into shipment transit and ~~track~~last-mile events that are managed by a call center. Using our proprietary IT platform, we provide real-time information and ~~trace features~~analysis to mitigate supply chain flow interruption, delivering last-mile resolution for ~~labels, packaging~~key markets, including the perishable healthcare and ~~products. Until 2018, the Company primarily engaged in the research~~food industries. Through our VerifyMe Solutions segment our technologies provide brand protection and ~~development of its technologies.~~

consumer engagement solutions allowing brand owners to gather business intelligence. The Company’s activities are subject to significant risks and ~~uncertainties, including its ability to successfully commercialize its technologies~~uncertainties. 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 ~~need to further develop~~fiscal year ended December 31, 2021, and our other filings with the ~~Company’s intellectual property.~~ Securities and Exchange Commission (the “SEC”).

Reclassifications

Certain amounts presented for the three and nine months ended September 30, 2022, and 2021, respectively, reflect reclassifications made to conform to the presentation in our current reporting period.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements (the “Interim Statements”) include the accounts of VerifyMe and its wholly owned subsidiary PeriShip Global. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The Interim Statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, as filed with the Securities and Exchange Commission (the “SEC”) on March ~~25, 2021.~~14, 2022. The accompanying Interim Statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The interim results for the three and nine months ended September 30, ~~2021~~2022, are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021~~2022, or for any future interim periods.

Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method by which to allocate resources and assess performance. The Company has two reportable segments, namely, (i) PeriShip Global Solutions and (ii) VerifyMe Solutions. See Note 14 Segment Reporting, for further discussion of the Company’s segment reporting structure.

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.

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, (“CECL”), which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance was to be effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The Company has elected to early adopt ASU 2016-13, as of January 1, 2022, and the impact has been disclosed on the face of the Consolidated Balance Sheets. The Company’s accounts receivable is currently the only financial instrument subject to the new CECL model. The Company has considered relevant internal and/or external information about past events, e.g., historical loss experience with similar assets, current conditions, and reasonable and supportable forecasts that affect the expected collectability of the reported amount of financial assets in determining the credit loss.

Fair Value of Financial Instruments

The Company’s financial instruments consist of accounts receivable, accounts payable, notes payable and accrued expenses, equity investments, and ~~other~~ long-term derivative liabilities. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities. The Company believes the carrying amount of its notes payable approximates fair value based on rates and other terms currently available to the Company for similar debt instruments.

The Company follows FASB ASC 820, “Fair Value Measurements and Disclosures,” and applies it to all assets and liabilities that are being measured and reported on a fair value basis. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

The level in the fair value within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

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The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of September 30, 2022 and December 31, 2021.

Schedule of fair value assets measured on recurring basis
Amounts in Thousands ('000)
	Short Term Investment		Equity Investment			Derivative Liability
	(Level 1)		(Level 3)			(Level 3)

Balance as of December 31, 2021	$	88		10,964			(71	)

Realized loss on fair value recognized in other (expense)/income		-		(10,964	)		-

Unrealized gain on fair value recognized in other (expense)/income		5		-			-

Realized gain on fair value recognized in share-based compensation		-		-			71

Balance at September 30, 2022	$	93	$	-		$	-

Variable Interest Entity

The Company ~~has~~ determined that G3 VRM Acquisition Corp., (NASDAQ: GGGVU) (the “SPAC”, see FNNote 2 – Equity ~~Investment)~~Investments), isa Delaware corporation and special purpose acquisition company, was a variable interest entity (“VIE”) in which the Company ~~has~~had a variable interest but iswas not the primary beneficiary. Making the determination as to whether a VIE should be consolidated requires judgement in assessing if the Company is the primary beneficiary. To make this determination, the Company evaluated its power to direct the activities that most significantly ~~impact~~impacted the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the SPAC. The Company concluded that it iswas not the primary beneficiary of the VIE and as such, ~~does~~did not consolidate the SPAC. The Company ~~reassess~~reassessed its evaluation of whether an entity is a VIE and if it continues to be a VIE, whether the Company is the primary beneficiary of the VIE, on an ongoing basis based on the current facts and circumstances surrounding the entity. The SPAC was unable to complete its initial business combination within 12 months from the closing of the IPO, and the Company made the decision not to fund the extension and did not deposit additional funds into the trust account. As a result, the SPAC was dissolved, and liquidated according to its charter. The SPAC redeemed 100% of the public shares for cash, the rights have expired worthless, and the founder shares and the private placement securities have become worthless.

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Equity Investments

When the Company does not have a controlling financial interest in an entity but can exert influence over the entity’s operations and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under applicable generally accepted accounting policies. The Company has elected the fair value option for its equity investment in the SPAC (see ~~FN2~~Note 2 – Equity ~~Investment)~~Investments) and its equity security under short term investment on the balance sheets, as it has determined the fair value best reflects the economic performance of the equity investment. Changes in unrecognized gains or losses of the fair value of the equity ~~investment~~investments are included in ~~Other Income (Expense), Net~~Loss on equity investments on the accompanying ~~Statement~~Consolidated Statements of Operations.

Revenue Recognition

The Company accounts for revenues according to Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.

The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

identify the contract with a customer;

identify the performance obligations in the contract;

determine the transaction price;

allocate the transaction price to performance obligations in the contract; and

recognize revenue as the performance obligation is satisfied.

During the three and nine months ended September 30, ~~2021,~~2022, the Company’s revenues primarily consisted of revenue related to our shipping logistics services generated by our subsidiary PeriShip Global.

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations. Pursuant to ASC 350, the Company tests goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first 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.

Business Combinations

The Company applies the provisions of Accounting Standard Codification (“ASC”) Topic 805, Business Combinations, in the accounting for business acquisitions. ASC 805 requires the Company to recognize separately from ~~printing labels~~goodwill the assets acquired and ~~through our product authentication technology,~~the liabilities assumed at their acquisition date fair values. Goodwill as ~~well~~of the acquisition date is measured as ~~our customer engagement technology.~~the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately apply preliminary value to assets acquired and liabilities assumed at the acquisition date, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments in the current period, rather than a revision to a prior period. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations. Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets where applicable. Although the Company believes the assumptions and estimates made have been reasonable and appropriate, they are based in part on information obtained from management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results.

Basic and Diluted Net ~~Income~~Loss per Share of Common Stock

The Company follows Financial Accounting Standards Board (“FASB”) ASC 260, “Earnings Per Share,” when reporting earnings per share resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss for each of the periods presented, common stock equivalents, including preferred stock, stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.

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For each of the three and nine months ended September 30, 2022, and 2021, there were shares potentially issuable, that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the periods presented. For the three and nine months ended September 30, 2022, there were approximately 4,852,000 anti-dilutive shares consisting of 757,000 unvested performance restricted stock units, restricted stock units, restricted stock awards and options under the stock purchase plan, 337,000 shares issuable upon exercise of stock options, 3,614,000 shares issuable upon exercise of warrants (excludes 1,545,000 warrants not yet exercisable), and 144,000 shares issuable upon conversion of preferred stock. For the three and nine months ended September 30, 2021, there were approximately 3,880,000 anti-dilutive shares excluded from the calculation of diluted earnings per share consisting of 95,000 shares issuable upon exercise of stock options, 3,779,000 shares issuable upon exercise of warrants, and 6,000 unvested restricted stock units.

Stock-Based Compensation

We account for stock-based compensation under the provisions of FASB ASC 718, “Compensation—Stock Compensation”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes model. The assumptions used in the Black-Scholes option pricing model include risk-free interest rates, expected volatility and expected life of the stock options. Changes in these assumptions can materially affect estimates of fair value stock-based compensation, and the compensation expense recorded in future periods. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line method. For performance restricted stock units with stock price appreciation targets (see Note 7 – 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.

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 (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments are recorded as an expense over the service period, as if we had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity-based payments will be re-measured, and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed.

NOTE 2 – EQUITY ~~INVESTMENT~~INVESTMENTS

On February 26, 2021, the Company formed VMEA Holdings Inc. (the “Sponsor Entity”), a Delaware corporation ~~and wholly owned subsidiary~~that was the founder of ~~the Company, that owns~~ G3 VRM Acquisition Corp. ~~(NASDAQ: GGGVU)~~ (the “SPAC”)~~, a Delaware corporation and special purpose acquisition company~~ that was being co-sponsored by the Company. The SPAC was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. While it may pursue an initial business combination target in any business, industry or geographical location, it intends to focus its search on target businesses with enterprise values of approximately $250 million to $500 million within the technology and business services industry.

On April 12, 2021, the Sponsor Entity converted to a Delaware limited liability company, changed its name to “G3 VRM Holdings LLC” and a co-sponsor was added as a member of the Sponsor Entity resulting in an equity interest of 44.40% attributed to the Company.

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On July 6, 2021, the SPAC consummated the IPO of 10,626,000 units (the “Units”), including 626,000Units pursuant to the partial exercise of the underwriter’s over-allotment option, generating gross proceeds of $~~106,260~~ $106,260 thousand. Each Unit ~~consists~~consisted of one share of SPAC common stock, $0.0001 par value, and one right to receive one-tenth (1/10) of a share of SPAC common stock upon the consummation of an initial business combination. Simultaneously with the closing of the IPO, the SPAC consummated the Private Placement of an aggregate of 569,410Units with the Sponsor Entity purchasing 516,280Units and Maxim Partners LLC purchasing 53,130Units, generating total proceeds of $5,694thousand. Of this amount, the Company iswas the indirect beneficial owner of 229,228Units purchased by the Sponsor Entity for a total of $2,581thousand. Upon consummation of the IPO, VerifyMe, as co-sponsor, indirectly through the Sponsor Entity, beneficially ~~owns~~owned approximately 9.42% of the outstanding shares of the SPAC, which shares ~~are~~were subject to forfeiture upon certain conditions and restrictions on transfer.

As a result of ceasing to have a controlling financial interest in the Sponsor Entity on April 12, 2021, the Company accounted for the Sponsor Entity as an equity investment and has elected the fair value ~~option resulting~~option.

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The SPAC was unable to complete its initial business combination within 12 months from the closing of the IPO and the Sponsor Entity decided not to fund the extension and did not deposit additional funds into the trust account. As a result, the SPAC was dissolved and liquidated in accordance with its charter. The SPAC redeemed 100% of the public shares for cash on July 19, 2022, the rights expired worthless, and the founder shares and private placement securities became worthless. The SPAC was dissolved on July 29, 2022 and no distributions were made to the Sponsors. The SPAC’s management team has informed the Company that it is still evaluating the liquidation costs of the SPAC and depending on the ultimate costs incurred that the Company may be required to contribute towards these costs. If the costs to dissolve the SPAC are ultimately less than the remaining assets of the SPAC then the SPAC may make a ~~fair value gain of $8,214 thousand for~~distribution to the ~~nine months ended September 30, 2021~~Company. No additional amounts have been included ~~in Fair value gain on equity investment,~~ in the accompanying ~~Statement~~Consolidated Statements of Operations.

The fair value of the equity investment iswas $0 million as of September 30, 2022, and $11.0 million as of December 31, 2021. The fair value of the equity investment was classified as Level 3 in the fair value hierarchy as the calculation iswas dependent upon company specific adjustments to the observable trading price of the SPAC’s public units and shares, and related risk of forfeiture should no business combination occur.

~~If the SPAC is unable to complete its initial business combination within 12 months from the closing~~ The Company recognized a loss on equity investments of the IPO (or 15 or 18 months from the closing of the IPO, should the Company and the co-sponsor extend the period of time to consummate a business combination by depositing additional funds into the trust account as described in more detail in IPO prospectus), the SPAC will redeem 100% of the public shares for cash, the rights will expire worthless, and the founder shares and the private placement securities will be worthless. Even if the SPAC is able to complete a business combination within the allotted time, if the combined company is unable to maintain adequate results from operations, then our investment in the SPAC could lose value and may ultimately become worthless. There can be no assurance that the SPAC will complete a business combination within the allotted time or that any such business combination will be successful.

The following table presents summary financial information of the Sponsor Entity. Such summary information has been provided herein based upon the individual significance of the equity investment to the financial information of the Company.

Amounts in Thousands ('000)
September 30, 2021 December 31, 2020
Current Assets $ 1,371 $ -
Non-current assets 107,855 -
Current Liabilities 3,719 -
Mezzanine Equity 107,854 -
Stockholders' Deficit (2,347 ) -

Amounts in Thousands ('000)
Nine Months Ended
September,
2021 2020
Operating Loss (274 ) -
Net Loss (273 ) -

~~NOTE 3 –~~ ~~PROPERTY AND EQUIPMENT~~

~~Equipment for Lease~~

~~During the nine months ended September 30, 2021 and 2020, the Company capitalized~~ $450 ~~thousand~~ and $74 ~~thousand~~ ~~(including a $~~51 ~~thousand deposit made in fiscal 2019)~~ ~~respectively, in connection with the certification and production of the VerifyChecker™ and the Verify Authenticator~~^TM~~technology. The Company depreciates equipment for lease over its useful life of~~ ~~five years~~. ~~Depreciation expense for Equipment for lease was $~~11 ~~thousand and $~~3810,964 thousand for the three and nine months ended September 30, ~~2021, respectfully, and $~~11 ~~thousand and $~~34 ~~thousand for the three and nine month ended~~ ~~September~~ ~~30, 2020,~~2022, respectively, ~~and is~~ included in ~~general and administrative expense~~the Loss on equity investments in the accompanying Consolidated Statements of Operations.

In December 2021, the Company acquired 8,841 shares of 10% Cumulative Convertible Series D Preferred Stock at a price of $10.00 per share as payment for a customer’s outstanding AR balance of $88,410. This instrument is considered an equity security within the scope of Topic 321 since the issuing entity has the option but no contractual obligation to redeem the preferred stock, and the Company can convert the preferred shares to common stock. For the three and nine months ended September 30, 2022, a fair value loss of $1 thousand and a gain of $5 thousand, was recognized, respectively and included in Loss on equity investments, in the accompanying Consolidated Statements of Operations. The fair value of the equity investment was $93 thousand as of September 30, 2022, and $88 thousand as of December 31, 2021 and included in Prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets. The fair value of the equity investment is classified as Level 1 in the fair value hierarchy as the calculation is dependent upon the quoted market price of the entity.

NOTE 3 – REVENUE

Revenue by Category

The following series of tables present our revenue disaggregated by various categories (dollars in thousands).

Schedule of disaggregation of revenue
	VerifyMe				PeriShip Global				Consolidated
Revenue	Three Months Ended September 30,				Three Months Ended September 30,				Three Months Ended September 30,
	2022		2021		2022		2021		2022		2021

Proactive services	$	-		-	$	4,026		-	$	4,026	$	-
Premium services		-		-		1,010		-		1,010		-
Brand protection services		179		300		-		-		179		300
	$	179	$	300	$	5,036	$	-	$	5,215	$	300

	VerifyMe				PeriShip Global				Consolidated
Revenue	Nine Months Ended September 30,				Nine Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2022		2021

Proactive services	$	-		-	$	7,341		-	$	7,341	$	-
Premium services		-		-		1,926		-		1,926		-
Brand protection services		606		612		-		-		606		612
	$	606	$	612	$	9,267	$	-	$	9,873	$	612

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 the 30 days. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the nine-month period ended September 30, 2022, were not materially impacted by any other factors.

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~~Office Equipment~~

~~During~~Applying the ~~nine months ended~~practical expedient in ASC Topic 606, we recognize the incremental costs of obtaining contracts (i.e. sales commissions) as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. As of September 30, ~~2021~~2022, we did not have any capitalized sales commissions.

NOTE 4 – BUSINESS COMBINATION

PeriShip LLC

On April 22, 2022, we acquired, through PeriShip Global, the business and ~~2020,~~certain assets of PeriShip, LLC (“PeriShip”), a value-added service provider for time and temperature sensitive parcel management. PeriShip Global provides shipping logistics services utilizing proprietary predictive analytics software and supporting call center services. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries. The purchase price was $10.5 million which consisted of $7.5 million in cash paid at closing, a promissory note of $2.0 million with a fixed interest rate of 6% per annum on the unpaid principal balance, to be paid in three installments on the sixth, fifteenth, and eighteenth month anniversaries of the closing, and 305,473 shares of common stock of the Company, ~~capitalized~~representing $81.0 ~~thousand~~million in stock consideration. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the Company. All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired PeriShip business is included in the PeriShip Global Solutions segment and $the results of its operations have been included in the consolidated financial statements beginning April 22, 2022.

On September 22, 2022 the Company entered into an agreement with the owner of PeriShip, LLC to resolve certain disputes among the parties, reduce the principal and interest on the promissory note, repay the amended promissory note in full, and repurchased 061,000 ~~thousand respectively, in office equipment.~~shares of the Company’s common stock (see Note 8). The Company ~~depreciates~~accounted for the ~~office equipment over its useful life~~agreement in accordance with Topic 250, through earnings, with the full amount included as a Gain on extinguishment of ~~three years. The depreciation expense~~debt on the accompanying Consolidated Statements of Operations, for ~~office equipment was~~a total of $1326 thousand, for the three and nine months ended September 30, ~~2021~~2022.

The following table summarizes the purchase price allocation for the acquisition (dollars in thousands).

Schedule of business acquisitions
Cash			7,500
Promissory note			2,000
Stock (issuance of 305,473 shares of common stock) ^(a)			974
Total purchase price			10,474

			Amortization
			Period
Purchase price allocation:
Accounts receivable, net	836
Prepaid expenses	5
Developed Technology	3,120		6 years
Trade Names/Trademarks	1,096		13 years
Customer Relationships	1,923		10 years
Non-Compete Agreement	41		1 year
Property and Equipment, net	193
Goodwill	4,092
Accounts payable and other accrued expenses	(832	)
	10,474

^(a)Stock issued was calculated based on the 15 days prior to April 22, 2022, volume-weighted average price (“VWAP”) calculated at $3.2736.

Unaudited Pro forma Financial Information

The following unaudited proforma financial information presents the combined results of operations of the Company and $0 ~~thousand~~gives effect to the acquisition discussed above for the three and nine months ended September 30, ~~2020 respectively,~~2022, as if the acquisition had occurred as of the beginning of the first period presented instead of on April 22, 2022.

The pro forma financial information is presented for illustrative purposes only and is ~~included~~not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on January 1, 2021, nor does it purport to project the results of operations of the combined company in ~~general and administrative expense in~~future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the ~~accompanying Statement of Operations.~~acquired company during the periods presented.

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The below table summarizes proforma financial information for the Company, and the acquired PeriShip business, assuming the acquisition date of Periship occurred on January 1, 2021 (dollars in thousands):

Schedule of financial information
	Three Months Ended September 30,					Nine Months Ended September 30,
Description	2022			2021		2022			2021

Revenues	$	5,215		$	6,639	$	15,694		$	18,817
Net loss	$	(557	)	$	7,691	$	(14,406	)	$	6,234

NOTE 45 – INTANGIBLE ASSETS AND GOODWILL

Goodwill

Goodwill represents costs in excess of values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill is deemed to have an indefinite life and is not amortized but is tested for impairment annually, and at any time when events suggest an impairment more likely than not has occurred. We test goodwill at the reporting unit level.

ASC Topic 350, Intangibles - Goodwill and Other (ASC Topic 350), permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. Under ASC Topic 350, an entity is not required to perform a quantitative goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that 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. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.

Each of our two reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. We determined that we have two reporting units for purposes of goodwill impairment testing, which represent our two reportable business segments, as discussed below.

Changes in the carrying amount of goodwill by reportable business segment for the nine months ended September 30, 2022, were as follows (in thousands):

Schedule of goodwill by reportable business segment
	VerifyMe		PeriShip Global		Total
Net book value at
January 1, 2022	$	-	$	-	$	-

2022 Activity
Acquisition		-		4,092		4,092

Net book value at
September 30, 2022	$	-	$	4,092	$	4,092

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Intangible Assets Subject to Amortization

Our intangible assets include amounts recognized in connection with patents and trademarks, capitalized software and acquisitions, including customer relationships, tradenames, developed technology and non-compete agreements. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. Except for goodwill, we do not have any intangible assets with indefinite useful lives.

Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category

and their respective balances were as follows (in thousands):

Schedule of intangible assets subject to amortization
September 30, 2022	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents and Trademarks	$	1,836	$	(419	)	$	1,417
Capitalized Software		206		(81	)		125
Customer Relationships		1,923		(85	)		1,838
Developed Technology		3,120		(229	)		2,891
Internally Used Software		127		-			127
Non-Compete Agreement		41		(18	)		23
	$	7,253	$	(832	)	$	6,421
December 31, 2021
Patents and Trademarks	$	707	$	(354	)	$	353
Capitalized Software		206		(50	)		156
Customer Relationships		-		-			-
Developed Technology		-		-			-
Non-Compete Agreement		-		-			-
	$	913	$	(404	)	$	509

Amortization expense for intangible assets was $428 thousand and $45 thousand for the nine months ended September 30, 2022, and 2021, respectively.

Patents and Trademarks

As of September 30, ~~2021,~~2022, the current patent and trademark portfolios consist of elevengranted U.S. patents and one granted European patent validated in four countries (France, Germany, United Kingdom, and Italy), ~~five~~six pending U.S. and foreign patent applications, ~~six~~fifteen registered U.S. trademarks (of which seven trademarks were acquired through our wholly owned subsidiary, PeriShip Global), two EU trademark registrations, one Colombian trademark registration, one Australian trademark registration, one Japanese trademark registration, one Mexican trademark registration, one Singaporean trademark registration, two UK trademark registrations, and ~~seventeen~~twenty-two pending US and foreign trademark applications. ~~Our~~ ~~issued patents expire between the years 2022 and 2039. Costs associated with the prosecution and legal defense~~

The Company expects to record amortization expense of ~~the patents have been capitalized and are amortized on a~~ ~~straight-line basis~~intangible assets over the ~~estimated lives of the patents which were determined to be~~ 17 to 19 ~~years.~~ ~~During the nine months ended~~ ~~September~~ ~~30, 2021~~next 5 years and ~~2020, the Company capitalized $~~60 ~~thousand and $~~52 ~~thousand, respectively, of patent and trademarks costs. Amortization expense for patents and trademarks was $~~9 ~~thousand and $~~7 ~~thousand for the three months ended~~ ~~September~~ ~~30, 2021 and 2020, respectively, and $~~25 ~~thousand and $~~20 ~~thousand for the nine months ended~~ ~~September~~ ~~30, 2021 and 2020, respectively and included in general and administrative expense in the accompanying Statement of Operations.~~thereafter as follows (in thousands):

~~Capitalized Software~~

Costs incurred in connection with the development of software related to our proprietary digital products are accounted for in accordance with FASB ASC 985 “Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market. Amortization of capitalized software costs begins once the product is available to the market. Capitalized software costs are amortized over the estimated life of the related product, generally ~~five years~~, using the straight-line method. The Company will evaluate its software assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company capitalized $84 ~~thousand and $~~0 ~~thousand for the nine months ended September 30, 2021 and 2020, respectively.~~ ~~Amortization expense for capitalized software was $~~8 ~~thousand and $~~5 ~~thousand for the three months ended~~ ~~September~~ ~~30, 2021 and 2020, respectively, and $~~20 ~~thousand and $~~15 ~~thousand for the nine months ended~~ ~~September~~ ~~30, 2021 and 2020, respectively,~~ ~~included in general and administrative expense in the accompanying Statements of Operations.~~

~~NOTE 5 –~~ ~~TERM NOTE~~

~~On May 17, 2020, the Company entered into a paycheck protection program term note for $~~72 thousand (the “SBA Loan”) with PNC Bank, N.A. under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) pursuant to the Paycheck Protection Program (the “PPP”), which is administered by the U.S. Small Business Administration. The SBA Loan is scheduled to mature on ~~May 17, 2022, bears interest at a rate of~~ ~~1.00~~% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. Pursuant to the CARES Act and the PPP, all or a portion of the principal amount of the SBA Loan is subject to forgiveness so long as, over the eight-week period following the receipt of the SBA Loan, the Company used those proceeds for payroll costs, payment on rent obligations, utility costs, and costs of certain employee benefits as per Section 1106 of the CARES Act. As of December 31, 2020, the amount outstanding on the SBA Loan was $72 ~~thousand classified as Long-Term Liabilities and included in the accompanying Balance Sheets.~~

The Company applied for and was notified in June 2021 that $69 thousand in eligible payroll expenditures as described in the CARES Act, has been forgiven. Loan forgiveness is reflected in Other Income (Expense), Net in the accompanying Statements of Operations. The forgiveness recognized during the nine months ended September 30, 2021, included principal of $69 ~~thousand, and interest payable of $~~1 ~~thousand. The remaining loan balance of $~~3 ~~thousand was paid in full in June 2021.~~

Schedule of amortization expenses
Fiscal Year ending December 31,
2022 (three months remaining)	$	234
2023		902
2024		892
2025		870
2026		860
Thereafter		2,663
Total	$	6,421

NOTE 6 – STOCKHOLDERS’ EQUITY

The Company expensed $~~117~~33 thousand and $~~739~~206 thousand related to restricted stock awards for the three and nine months ended September 30, ~~2021,~~2022, respectively. For the three and nine months ended September 30, ~~2020,~~2021, the Company expensed $~~142~~117 thousand and $~~241~~739 thousand, respectively, related to restricted stock awards.

The Company expensed $289 thousand and $766 thousand related to restricted stock units for the three and nine months ended September 30, 2022, and $234 thousand and $511 thousand related to restricted stock units for the three and nine months ended September 30, 2021.

During the nine months ended September 30, 2022, and 2021, the Company issued 30,000 and 8,687 shares of ~~restricted~~ common stock in relation to ~~investor relation~~ services with a stock-based compensation expense of $96 thousand and $35 ~~thousand.~~thousand, respectively.

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On ~~September 17, 2021~~ August 11, 2022, we received an exercise notice to exercise 675,000 pre-funded warrants with an exercise price of $0.001 per share. Upon receipt of $675 the Company issued 675,000 shares of its common stock.

On April 22, 2022, 305,473 shares of common stock were issued in relation to the acquisition of the PeriShip business, see Note 4 – Business Combinations, for details.

On April 22, 2022, the Company, as part of the acquisition of the PeriShip business, entered into employment agreements with three executives effective as of April 22, 2022. In accordance with the employment agreements, the Compensation Committee of the Board approved grants of performance restricted stock units (“Performance RSUs”) to each of the executives with a grant date value as of April 22, 2022, equal to their respective base salary for ~~three non-employee directors for an aggregate~~a total of ~~63,000~~194,044 restricted stock units with a fair value on grant date of $571 thousand.

The Performance RSUs vest as follows: 50% of the RSUs (“Tranche 1”) will vest on the two-year anniversary of the Date of Grant if the Participant has remained in continuous employment with the Company through such date and the closing price of the Common Stock during such two-year period was at or above $5.00 for 20 consecutive trading days. If Tranche 1 does not vest on the two-year anniversary of the Date of Grant because closing price of the Common Stock was not at or above $5.00 during such two year period, then Tranche 1 will vest on the three-year anniversary of the Date of Grant if the Participant has remained in continuous employment with the Company through such date and the closing price of the Common Stock during such three-year period was at or above $5.00 for 20 consecutive trading days. In the event of termination of the Participant’s employment due to the death or Disability of the Participant at any time on or before the two-year anniversary of the Date of Grant, if Tranche 1 has not vested prior to the date of termination, then Tranche 1 will vest on the date of the Participant’s termination if the closing price of the Common Stock was at or above $5.00 for 20 consecutive trading days during the period from Date of Grant through the date of the Participant’s employment. 50% of the RSUs (“Tranche 2”) will vest on the two-year anniversary of the Date of Grant if the Participant has remained in continuous employment with the Company through such date and the closing price of the Common Stock during such two-year period was at or above $7.00 for 20 consecutive trading days. If Tranche 2 does not vest on the two-year anniversary of the Date of Grant because closing price of the Common Stock was not at or above $7.00 during such two year period, then Tranche 2 will vest on the three-year anniversary of the Date of Grant if the Participant has remained in continuous employment with the Company through such date and the closing price of the Common Stock during such three-year period was at or above $7.00 for 20 consecutive trading days. In the event of termination of the Participant’s employment due to the death or Disability of the Participant at any time on or before the two-year anniversary of the Date of Grant, if Tranche 2 has not vested prior to the date of termination, then Tranche 2 will vest on the date of the Participant’s termination if the closing price of the Common Stock was at or above $7.00 for 20 consecutive trading days during the period from Date of Grant through the date of the Participant’s employment.

Effective April 15, 2021, Norman Gardner, our former Chairman of the board of directors retired from the board of directors. Mr. Gardner was awarded ~~217~~69,284 shares of restricted stock awards for a fair value of $300 thousand, half of which vested immediately. On February 11, 2022, the Company accelerated the vesting and payment of the remaining 34,642 shares upon Mr. Gardner’s death pursuant to the agreement.

On April 15, 2022, the Company withheld and retired 750 shares of common stock in order to satisfy U.S. payroll tax withholding obligations on restricted stock awards held by our Chief Financial Officer.

On April 12, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the selling stockholder and certain directors, providing for the issuance and sale to purchasers therein of an aggregate of 880,208 shares of our common stock, pre-funded warrants to purchase up to 675,000 shares of our common stock, and warrants to purchase up to 1,555,208 shares of our common stock, for gross proceeds to us of approximately $5.0 million and net proceeds of $4.6 million. The pre-funded warrant is exercisable immediately and shall terminate when fully exercised and has an exercise price of $0.001 per share. The pre-funded warrant was exercised in full on August 11, 2022. The warrants will be exercisable for a period of five years commencing six months from the date of issuance and have an exercise price of $3.215 per share. Both the pre-funded warrants and warrants contain price adjustment provisions which may, under certain circumstances, reduce the applicable exercise price. The transaction closed on April 14, 2022.

Four of our directors, participated in the offering as purchasers and acquired an aggregate of 93,312 shares of our common stock and warrants to purchase an aggregate of 93,312 shares of our common stock.

Effective April 7, 2022, the Company approved restricted stock units or restricted stock awards, for a non-employee director, with a grant date fair value equal to $92 thousand. ~~One-third of the units vested upon approval, one-third~~The award will vest ~~on September 17, 2022, and the remaining one-third vest on September 17, 2023,~~in nine equal monthly installments subject to the non-employee director’s continued service on the Board of ~~Directors.~~Directors and become payable upon separation of the non-employee director’s service as a director. In April 2022, a total of 28,592 restricted stock units were issued to the non-employee director.

On April 7, 2022, the Compensation Committee of the Board approved grants of 30,000 Performance RSUs each to two of the board members with a grant date fair value amount of $178 thousand as of April 7, 2022.

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On March 29, 2022, the Company withheld and retired 8,870 shares of common stock in order to satisfy U.S. payroll tax withholding obligations on restricted stock awards held by our Chief Executive Officer.

On February 16, 2022, the Company, as part of the development and implementation of the Company’s strategic initiatives, entered into employment agreements with its Chief Executive Officer, President & Chief Operating Officer, Executive Vice President & Chief Financial Officer, Chief Technology Officer and Senior VP of Finance and Investor Relations, each with effect as of February 15, 2022. In accordance with the employment agreements, the Compensation Committee of the Board approved grants of Performance RSUs to each of the executives, for a total of 178,282 restricted stock units with a grant date fair value of $525 thousand as of February 16, 2022, equal to their respective base salary multiplied by their respective annual equity award eligibility percentage ranging from 50% to 70%.

Effective January 1, 2021, the Company approved restricted stock units or restricted stock awards, for each non-employee director, with a grant date fair value equal to $100 thousand. If the non-employee director serves as a Board committee chair or Lead Independent director, he ~~will~~ also ~~receive and~~received an additional award of restricted stock units or restricted stock award with a grant date fair value equal to $25 thousand. These awards will vest in full on the ~~earlier of the~~ one-year anniversary of the date of grant subject to the non-employee director’s continued service on the Board of ~~Directors.~~Directors and become payable upon separation of the non-employee director’s service as a director. In January ~~2021,~~2022, a total of ~~145,010~~157,232 restricted stock units were issued to ~~five~~four non-employee directors for a fair value of ~~$625~~$500 thousand, and 39,308 restricted stock awards were issued to one non-employee director for a fair value of $125 thousand, vesting one year from the date of issuance.

~~The Company expensed $234~~ ~~thousand and $511~~ ~~thousand related to restricted stock units for the three and nine months ended~~ ~~September~~ ~~30, 2021. There was~~ no ~~expense related to restricted stock units for the three and nine months ended~~ ~~September~~ ~~30, 2020.~~

~~In August 2021, upon vesting of the restricted stock awards held by our Chief Executive Officer, the Company withheld and retired~~ ~~18,720~~ ~~shares of common stock in order to satisfy his U.S. payroll tax withholding obligations.~~

~~On April 16, 2021, upon vesting of the restricted stock awards held by our Chief Executive Officer, the Company withheld and retired~~ ~~12,843~~ ~~shares of common stock in order to satisfy his U.S. payroll tax withholding obligations.~~

~~Effective April 15, 2021, Norman Gardner, our former Chairman of the board of directors retired from the board of directors. Mr. Gardner was awarded~~ ~~69,284~~ ~~shares of restricted stock for a fair value of $300~~ thousand, half of which vest immediately and the balance vesting in equal installments on June 30, 2022 and June 30, 2023 pursuant to a two-year independent contractor consulting agreement with the Company. Mr. Gardner agreed to cancel options to purchase 8,300 shares that were scheduled to expire on ~~December 21, 2026. Additionally, the Company accelerated the vesting of~~ ~~40,000~~ restricted shares held by Mr. Gardner that were scheduled to vest in August 2021. Payments and vesting of restricted stock awards under the agreement will be accelerated upon Mr. Gardner’s death or termination other than for cause.

~~On April 15, 2021, the board of directors granted the Company’s Chief Financial Officer, an award of~~ ~~5,000~~ ~~shares of restricted stock with a fair value equal to $~~21 ~~thousand, half of which vested on April 15, 2021, and half of which vests on April 15, 2022. The Company withheld and retired~~ ~~750~~ ~~shares of common stock in order to satisfy her U.S. payroll tax withholding obligations.~~

~~In April 2021, the Company granted an employee an award of~~ ~~5,000~~ ~~shares of restricted stock with a fair value of $~~21 ~~thousand, vesting annually over a~~ ~~two-year~~ ~~period from the date of grant.~~

~~Effective March 1, 2021, the Company amended and restated the Consulting Agreement it has with its Chief Operating Officer.~~ The amended and restated agreement provides among other things, an annual fee of $214,400, a commission of 2% on all gross sales above $500 thousand, the issuance of 10,000 restricted stock awards and the extension of the expiration date for options previously granted to him to the five-year anniversary of the agreement’s effective date. ~~As a result,~~ ~~80,000~~ ~~options previously granted to the Company’s Chief Operating Officer now expire on March 1, 2026. The Company applied FASB ASC 718, “Compensation—Stock Compensation,” modification accounting and expensed a change in fair value of $~~75 ~~thousand.~~

On February 9, 2021, the Company entered into an underwriting agreement with Maxim Group LLC (“Maxim”), as the representative of several underwriters pursuant to which the Company agreed to issue and sell to the underwriters in an underwritten public offering an aggregate of ~~1,650,000~~ ~~shares of common stock, of the Company at a public offering price of $5.30~~ ~~per share, less underwriting discounts and commissions. The public offering closed on February 12, 2021 resulting in gross proceeds of $8.7~~ ~~million and net proceeds of $8.1~~ ~~million, less underwriting discounts and commissions and other offering expenses.~~

In connection with the public offering that closed on February 12, 2021, the Company granted Maxim a 45-day option to purchase up to 247,500 shares of common stock to cover over-allotments, if any. On February 19, 2021 Maxim partially exercised its over-allotment option to purchase 100,000 shares of common stock for gross proceeds of $530 thousand and net proceeds of $493 thousand, less underwriting discounts and commissions. ~~The total net proceeds from the public offering including partial exercise of the overallotment option, were $8,447 thousand.~~

On August 5, 2020, the Company issued restricted stock awards for an aggregate of 230,000 shares of restricted common stock to the Company’s directors in consideration of their years of service to the Company that vest in full one-year from the date of grant, subject to the respective director’s continued service as member of the Board of Directors on the vesting date. During the nine months ended September 30, 2020, $133 thousand was expensed related to these services.

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~~On June 17, 2020, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, as representative of the underwriters (the “Representative”),~~ ~~for an underwritten public offering (the “Offering”) of an~~ ~~aggregate of~~ ~~2,173,913~~ Units consisting of one share (each a “Share” and collectively, the “Shares”) of the Company’s common stock, and a warrant to purchase one share of Common Stock (each a “Warrant” and collectively, the “Warrants”) at an exercise price equal to $~~4.60~~ per share of Common Stock. The public offering price was $4.60 per Unit and the underwriters agreed to purchase 2,173,913 Units at an 8.0% discount to the public offering price. The Company granted the Representative a 45-day option to purchase up to 326,087 Shares and/or Warrants for 326,087 shares of Common Stock to cover over-allotments, if any. The Offering closed on ~~June 22, 2020~~ ~~resulting in gross proceeds of $10.0~~ million, before deducting underwriting discounts and commissions and other offering expenses. Also, on June 22, 2020, the Representative partially exercised its over-allotment option to purchase 50,000 Shares and 325,987 Warrants for gross proceeds of $233 thousand. The net proceeds in relation to the Offering and including the over-allotment option were $9,023 thousand. Additionally, the Company issued ~~30,000~~ shares of common stock for consulting services related to the Offering, with a fair value of $125 thousand accounted for in Additional Paid in Capital and included in the accompanying Statement of Balance Sheets. Additionally, the Company issued ~~888~~ ~~shares of common stock, with a fair value of $3,614, to its non-exclusive financial advisor and placement agent as commission for units purchased by an investor in the Offering.~~

~~Of the 2,173,913 Units purchased in the Offering, 17,800 Units were purchased by two directors of the Company.~~

Pursuant to the Underwriting Agreement, the Company agreed to issue to the Representative, as a portion of the underwriting compensation payable to the Representative, warrants to purchase up to a total of ~~173,913~~ ~~shares of Common Stock (the “Representative’s Warrants”). The Representative’s warrants are exercisable at $5.06~~ ~~per share, are initially exercisable 180 days after the effective date of the Offering and have a term of~~ ~~three~~ ~~years from their initial exercise date.~~

In connection to the closing of the Offering and the related automatic conversion of the 2020 Debentures (as defined below) the Company issued 637,513 shares of common stock related to the principal amount outstanding of $1,992 thousand and interest expense of $61 thousand and issued ~~179,200~~ ~~shares of common stock related to the cancellation of the 2020 Warrants.~~

~~In May 2020, the Company rescinded and cancelled an aggregate of 19,401 shares of common stock that the Company had approved for issuance but were not yet issued and outstanding shares.~~

~~On April 16, 2020, the Company granted its Chief Executive Officer, Patrick White, a restricted stock award of~~ ~~37,500~~ ~~restricted shares of the Company’s common stock in lieu of $150~~ thousand in deferred salary. Of this amount, $119 thousand was accrued in prior years, and the remaining amount was expensed in payroll expenses included in the accompanying Statement of Operations. The restricted stock award vests in full ~~one-year from the date of grant, subject to Mr. White’s continued services as an officer and employee of the Company on the vesting date.~~

~~On March 6, 2020, the Company completed the offering of senior secured convertible debentures (the “2020 Debentures”) and warrants and raised $1,992~~ ~~thousand in gross proceeds from the sale of the 2020 Debentures and warrants. In connection to the 2020 Debentures, the Company issued~~ ~~19,208~~ ~~restricted shares of common stock during the three and nine months ended September 30, 2020.~~

Non-Qualified Stock Purchase Plan

On June 10, 2021, the stockholders of the Company approved a non-qualified stock purchase plan (the “2021 Plan”). The 2021 Plan provides eligible participants, including employees, directors and consultants of the Company, the opportunity to purchase shares of the Company’s common stock thereby increasing their interest in the Company’s continued success. The maximum numbers of common stock reserved and available for issuance under the 2021 Plan ~~will be~~is 500,000 shares. The purchase price of shares of common stock acquired pursuant to the exercise of an option will be the lesser of 85% of the fair market value of a share (a) on the enrollment date, and (b) on the exercise date. The 2021 Plan is not intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). ~~As of~~The Company applied FASB ASC 718, “Compensation-Stock Compensation” and estimated the fair value using the Black-Scholes model, as the plan is considered compensatory. During the three and nine months ended September 30, ~~2021, eight participants~~2022, $31 thousand and $98 thousand, respectively, have ~~elected~~been expensed in relation to ~~participate in~~ the ~~2021 Plan and unless a participant withdraws from an offering, his or her option for the~~non-qualified stock purchase ~~of shares of common stock will be automatically exercised on February 28, 2022, the exercise date of the offering.~~

plan.

Shares Held in Treasury

As of September 30, ~~2021~~2022, and December 31, ~~2020,~~2021, the Company had ~~144,363~~305,591 and ~~7,011~~223,956 shares, respectively, held in treasury with a value of approximately $~~577~~843 thousand and $~~113~~838 thousand, respectively.

On February 28, 2022, five participants exercised their option under the Company’s non-qualified stock purchase plan, and as a result, 25,000 shares were issued from treasury with a purchase price of $2.69 per share.

On August 31, 2022, four participants exercised their option under the Company’s non-qualified stock purchase plan, and as a result, 28,895 shares were issued from treasury with a purchase price of $1.41 per share.

On September 22, 2022, the Company paid $1.8 million of the $2.0 million principal amount promissory note issued to the seller in connection with the PeriShip acquisition, inclusive of the Company redeeming 61,000 shares of its common stock from the seller, pursuant to an agreement with the seller, see Note 8.

Shares Repurchase Program

In November 2020, the Company’s Board of Directors approved a share repurchase program for up to ~~$1.5~~$1.5 million of the Company’s common stock until August 16, 2021. On August 12, 2021, the Company’s Board of Directors extended the share repurchase program to expire on August 16, 2022. ~~All other terms~~Effective July 1, 2022, the Company’s Board of Directors terminated the existing share repurchase program and ~~conditions remained~~approved a new share repurchase program to replace the ~~same.~~existing program due to expire on August 16, 2022, to allow the Company to spend up to $1.5 million to repurchase shares of its common stock, so long as the price does not exceed $5.00 until July 1, 2023. During the three ~~months ended September 30, 2021 the Company repurchased 69,836 shares of common stock at an average price of $3.38 for approximately $236 thousand pursuant to the Share Repurchase Plan. During the~~and nine months ended September 30, ~~2021~~2022, the Company repurchased ~~137,352~~74,530 shares of common stock ~~at an average price of $3.38 for approximately $464 thousand pursuant to~~under the ~~Share Repurchase Plan.~~Company’s current program.

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NOTE 7 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS

During 2013, the Company adopted the 2013 Omnibus Equity Compensation Plan (the “2013 Plan”). Under the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based awards up to an aggregate of 400,000 shares of common stock. The 2013 Plan is intended to permit certain stock options granted to employees under the 2013 Plan to qualify as incentive stock options. All options granted under the 2013 Plan, which are not intended to qualify as incentive stock options are deemed to be non-qualified stock options.

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On November 14, 2017, the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”) ~~that~~which covered the potential issuance of 260,000shares of common stock. The 2017 Plan provided that directors, officers, employees, and consultants of the Company were eligible to receive equity incentives under the 2017 Plan at the discretion of the Board or the Board’s Compensation Committee.

On August 10, 2020, the Company’s Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), subject to stockholder approval, which authorizes the potential issuance of up to 1,069,110 shares of common stock. On September 30, 2020, the Company’s stockholders approved the 2020 Plan, and upon such approval the 2020 Plan became effective and the 2017 Plan was terminated. Shares of common stock underlying existing awards under the 2017 Plan may become available for issuance pursuant to the terms of the 2020 Plan under certain circumstances. Employees and non-employee directors of the Company or its affiliates, and other individuals who perform services for the Company or any of its affiliates, are eligible to receive awards under the 2020 Plan at the discretion of the Board of Directors or the Board’s Compensation Committee.

The 2020 Plan is administered by the Compensation Committee which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.

In connection with incentive stock options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company). The aggregate fair market value (determined at the time of the grant) of stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its affiliates) shall not exceed $100 thousand, and the options in excess of $100 thousand shall be deemed to be non-qualified stock options, including prices, duration, transferability and limitations on exercise. The maximum number of shares of common stock that may be issued under the 2020 Plan pursuant to incentive stock options may not exceed, in the aggregate, 1,000,000.

The Company has issued non-qualified stock options pursuant to contractual agreements with non-employees. Options granted under the agreements are expensed when the related service or product is provided.

~~On April 15, 2021, Norman Gardner agreed to cancel options to purchase~~ ~~8,300~~ ~~shares that expire on~~ ~~December 21, 2026~~ ~~in connection with his retirement agreement.~~

~~No stock options were granted during the nine months ended September 30, 2021.~~

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties and judgements.

~~Schedule of~~

Details for all stock ~~option activity~~issuances are discussed in Note 6 – Stockholders’ Equity.

Stock Options

Options Outstanding
Weighted -
Average
Remaining Aggregate
Weighted- Contractual Intrinsic
Number of Average Term Value
Shares Exercise Price (in years) (in thousands)⁽¹⁾
Balance as of December 31, 2020 473,771 $ 4.48

Granted - -

Forfeited/Cancelled/Expired
(8,300) 9.72

Balance as of September 30, 2021 465,471 $ 4.38

Exercisable as of September 30, 2021 465,471 $ 4.38 3.4 $56

Schedule of stock options
	Options Outstanding
						Weighted -
						Average
						Remaining		Aggregate
				Weighted-		Contractual		Intrinsic
	Number of			Average		Term		Value
	Shares			Exercise Price		(in years)		(in thousands)⁽¹⁾
Balance as of December 31, 2021		465,471		$	4.38

Granted		-			-

Forfeited/Cancelled/Expired		(128,000	)		3.74

Balance as of September 30, 2022		337,471		$	4.63

Exercisable as of September 30, 2022		337,471		$	4.63		2.7	$	-

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for options that were in-the-money at each respective period.

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~~The following table summarizes~~As of September 30, 2022, the ~~activities for the Company’s~~Company had no unvested stock ~~options for the~~ ~~nine months ended~~ ~~September~~ ~~30, 2021~~:options.

~~Schedule of summary for the activities of unvested stock options~~

Unvested Options

Weighted - Average
Number of Unvested Grant Date
Options Exercise Price
Balance as of December 31, 2020 10,000 $ 9.75

Vested (10,000 ) 9.75

Balance as of September 30, 2021 - $ -

During the three months ended September 30, 2022, and 2021, the Company expensed $0 thousand, with respect to options. During the nine months ended September 30, 2022, and 2021, the Company expensed $0 and $85 thousand, respectively, with respect to ~~stock~~ options. ~~During the three and nine months ended September 30, 2020 the Company expensed $158~~ ~~thousand and $643~~ ~~thousand, respectively.~~

As of September 30, ~~2021,~~2022, there was $0 unrecognized compensation cost related to outstanding stock options.

Restricted Stock Awards and Restricted Stock Units

The following table summarizes the unvested restricted stock awards as of September 30, 2022:

Schedule of unvested restricted stock awards
	Unvested Restricted Stock Awards
				Weighted -
				Average
	Number of			Grant
	Award Shares			Date Fair Value

Unvested at December 31, 2021		44,642			4.31

Granted		39,308			3.18

Vested		(42,142	)		4.32

Balance September 30, 2022		41,808		$	3.24

As of September 30, 2022, total unrecognized share-based compensation cost related to unvested restricted stock awards was $34 thousand, which is expected to be recognized over a weighted-average period of 0.3 years.

The following table summarizes the unvested restricted stock units as of September 30, 2022:

Schedule of unvested restricted stock units
	Unvested Restricted Stock Units
				Weighted -
				Average
	Number of			Grant
	Unit Shares			Date Fair Value
Unvested at December 31, 2021		187,010			4.11

Granted		185,824			3.18

Vested		(166,010	)		4.20

Balance September 30, 2022	$	206,824		$	3.21

As of September 30, 2022, total unrecognized share-based compensation cost related to unvested restricted stock units was $192 thousand, which is expected to be recognized over a weighted-average period of 0.3 years.

For RSUs with stock price appreciation targets, we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future price paths over the RSU’s contractual life based on the appropriate probability distributions (which are based on commonly applied Black Scholes inputs). The fair value of each grant was determined by taking the average of the grant date fair values under each Monte Carlo simulation trial. We recognize compensation expense on a straight-line basis over the derived service period and there is no ongoing adjustment or reversal based on actual achievement during the period.

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The following table summarizes the unvested performance restricted stock units as of September 30, 2022:

Schedule of unvested performance restricted stock units
	Unvested Performance Restricted Stock Units
			Weighted -
			Average
	Number of		Grant
	Unit Shares		Date Fair Value
Unvested at December 31, 2021	-		-

Granted		432,326		2.95

Vested		-		-

Balance September 30, 2022	$	432,326	$	2.95

As of September 30, 2022, total unrecognized share-based compensation cost related to unvested restricted stock units was $1,054 thousand, which is expected to be recognized over a weighted-average period of 2.5 years.

Warrants

The following table summarizes the activities for the Company’s warrants for the nine months ended September 30, ~~2021~~:2022:

~~Schedule of warrant activity~~

Warrants Outstanding
Number of
Shares
Weighted-
Average
Exercise
Price

Weighted -
Average
Remaining
Contractual
Term
in years)

Aggregate
Intrinsic
Value
(in thousands)⁽¹⁾

Balance as of December 31, 2020 3,779,243 $ 5.89

Granted - -

Balance as of September 30, 2021 3,779,243 $ 5.89 3.3

Exercisable as of September 30, 2021 3,779,243 $ 5.89 3.3 $ -

Schedule of warrants outstanding
	Warrants Outstanding (Excluding Pre-Funded Warrants)
	Number of Warrant Shares			Weighted- Average Exercise Price		Weighted - Average Remaining Contractual Term in years)		Aggregate Intrinsic Value (in thousands)⁽¹⁾
Balance as of December 31, 2021		3,779,243		$	5.89

Granted		1,590,150			3.22

Expired		(210,288	)		7.50

Balance as of September 30, 2022		5,159,105		$	4.98		3.2

Exercisable as of September 30, 2022		3,613,907		$	5.74		2.4	$	-

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $~~3.40~~1.28 for our common stock on September 30, ~~2021.~~2022.

For the nine months ended September 30, 2022, the Company granted 39,942 warrants to warrant holders pursuant to anti-dilution provisions, 1,555,208 warrants in conjunction with the Securities Purchase Agreement (see Note 6 – Stockholders’ Equity). As the fair value of the warrants granted would have had a net zero impact to equity (increasing additional paid in capital and offering costs for the same amount), the Company did not break out or complete a separate valuation of the warrants granted in association with either capital raise.

Pre-funded Warrants

On April 14, 2022, in connection with our Securities Purchase Agreement (see Note 6 – Stockholders’ Equity), the Company issued 675,000 pre-funded warrants to purchase up to an aggregate of 675,000 shares of common stock at a purchase price of $3.214 per pre-funded warrant, which represented the per share public offering price for the common stock less the $0.001 per share exercise price for each pre-funded warrant. In August 2022, 675,000 pre-funded warrants with an exercise price of $0.001 per share were exercised, and 675,000 shares of the Company’s common stock were issued. No pre-funded warrants are outstanding as of September 30, 2022.

NOTE 8—~~INCOME TAXES~~DEBT

~~During the three and nine months ended September 30, 2021~~On April 22, 2022, the Company issued a $2.0 million unsecured promissory note through our subsidiary PeriShip Global as part of the acquisition of the PeriShip business. The note had a fixed interest rate of 6% per annum on the unpaid principal balance, to be paid in three installments on the sixth, fifteenth, and eighteenth month anniversaries of the closing. On September 22, 2022, the Company entered into an agreement with the note holder whereby the Company repaid the outstanding principal balance and accrued interest outstanding on the note and redeemed 61,000 shares of its common stock from the holder of the note, for a total of $1.8 million, at which point the guarantee agreement entered into by the Company in connection therewith was automatically terminated and has no further effect.

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The Company accounted for the early extinguishment of debt in accordance with ASC 405-20 - Extinguishment of Liabilities, and recognized a gain included in Gain on extinguishment of debt on the accompanying Consolidated Statements of Operations of $1326 thousand ~~respectively, in income tax expense and $~~0 for the three and nine months ended September 30, ~~2020,~~2022, respectively.

Contemporaneously, the Company entered into a new debt facility with PNC Bank, National Association (the “PNC Facility”). The PNC Facility includes a $1 million revolving line of credit (the “RLOC”) with a term of one-year, expiring in September 2023. The RLOC has no scheduled payments of principal until maturity, and bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments. The PNC Facility also includes a four-year term note (the “Term Note”) for $2 million which matures in September of 2026 and requires equal quarterly payments of principal and interest. The Term Note incurs interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%. The RLOC and Term Note are guaranteed by the Company and secured by the assets of PeriShip and the Company.

The PNC Facility includes a number of affirmative and restrictive covenants applicable to PeriShip, including, among others, a financial covenant to maintain a fixed charge coverage ratio of at least 1.10 to 1.00 at the end of each fiscal year, affirmative covenants regarding delivery of financial statements, payment of taxes, and establishing primary depository accounts with PNC Bank, and restrictive covenants regarding dispositions of property, acquisitions, incurrence of additional indebtedness or liens, investments and transactions with affiliates. PeriShip is also restricted from paying dividends or making other distributions or payments on its capital stock if an event of default (as defined in the PNC Facility) has occurred or would occur upon such declaration of dividend. PeriShip was in compliance with all affirmative and restrictive covenants under the PNC Facility at September 30, 2022.

As of September 30, ~~2021,~~2022, our short-term debt outstanding under the Term Note was $0.5 million and total long-term debt outstanding under the Term Note was $1.5 million.

No amounts were drawn on the RLOC as of September 30, 2022.

NOTE 9 – LOSS CONTINGENCY

One of the Company’s vendors has made an assessment of fees owed by the Company ~~had~~in the amount of approximately ~~$43.4 million~~$143 thousand. The Company believes that these fees are not valid based on precedent established in ~~net operating~~the business relationship. The Company has determined that a loss contingency is reasonably possible and has not accounted for the amount in the accompanying Consolidated Statements of Operations for the nine months ended September 30, 2022.

NOTE 10—INCOME TAXES

There are no taxes payable as of September 30, 2022, or December 31, 2021.

Some of the federal tax carry forwards ~~for federal income tax purposes which~~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%~~21% for our projected available net operating loss carry-forward. ~~However, as a result of potential stock offerings and stock issuances, as well as~~No tax benefit has been recognized in the ~~possibility~~three months ending September 30, 2022, due to the uncertainty surrounding the realizability of the ~~Company not realizing its business plan objectives and having future taxable income to offset,~~benefit.

Utilization of the ~~Company’s use of these NOLs~~net operating loss (NOL) carryforwards may be ~~limited under~~subject to a substantial annual limitation due to ownership changes that could occur in the ~~provisions of~~future, as required by Section 382 of the ~~Internal Revenue Code~~IRC, as well as similar state provisions. These ownership changes may limit the amount of ~~1986,~~NOL carryforwards that can be utilized annually to offset future taxable income. In general, an “ownership change” as ~~amended. The Company is in the process of evaluating the implications of~~defined by Section 382 ~~on its ability to utilize some~~of the IRC results from a transaction or ~~all~~series of ~~its NOLs.~~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.

In accordance with FASB ASC 740 “Income Taxes”, valuation allowances are provided against deferred tax assets, if based on the weight of available evidence, some or all, of the deferred tax assets may or will not be realized. The Company has evaluated its ability to realize some or all of the deferred tax assets on its balance sheet and has established a valuation allowance of approximately $8.1 million at September 30, 2021. The Company did not utilize any NOL deductions for the ~~nine~~three months ended September 30, ~~2021.~~2022.

The Company acquired certain assets and the business of PeriShip LLC on April 22, 2022. Intangible assets have been established in the amount of $6,180 thousand for patents and trademarks, customer relationships, developed technology, and a non-compete agreement. These assets will be amortized over 15 years for tax purposes, while for book purposes they will be amortized over varying useful lives ranging from 1 to 13 years. In addition, goodwill of $4,092 thousand was established. Goodwill is not amortizable for book purposes but is amortizable for tax over a period of 15 years. These timing differences will result in the creation of deferred tax assets in future quarters. As of September 30, 2022, the differences are not material. See Note 5. Intangible Assets and Goodwill.

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NOTE 9—11—~~EARNINGS (LOSS) PER SHARE~~LONG TERM DERIVATIVE LIABILITY

~~Earnings (Loss) Per Share~~On April 7, 2022, the Company granted two directors 11,250 restricted stock units each (“SPAC RSUs”) with respect to the common stock, $0.0001 par value per share, of G3 VRM Acquisition Corp. The SPAC RSUs were to vest upon the initial business combination of the SPAC (see Note 2 – Equity Investments) subject to continuous service to the Company through the vesting date. Each vested SPAC RSU represented the right to receive the value of one share of stock in G3 VRM Acquisition Corp., which would have been paid to the director as soon as practicable after the fifteen-month anniversary of the vesting date.

~~Basic earnings~~On September 17, 2021, the Company granted two directors SPAC RSUs with respect to the common stock, $0.0001 par value per share, ~~(EPS) is computed by dividing net income by~~of G3 VRM Acquisition Corp. The SPAC RSUs were to vest upon the ~~weighted average number~~initial business combination of ~~common~~the SPAC (see Note 2 – Equity Investments) subject to continuous service to the Company through the vesting date. Each vested SPAC RSU represented the right to receive the value of one share of stock in G3 VRM Acquisition Corp., which was to be paid to the director as soon as practicable after the fifteen-month anniversary of the vesting date. The grant date fair value of the SPAC RSUs for each director was $98 thousand. As the underlying awards were not the Company’s stock but an unrelated, publicly traded entity’s shares, ~~outstanding during~~ the ~~period. Diluted EPS reflects~~Company accounted for the ~~potential dilution~~awards under ASC 815 – Derivatives and Hedging, with the expense included in stock-based compensation under General and Administrative expenses in the accompanying Consolidated Statements of ~~common stock equivalent shares~~Operations.

In June 2022, the Sponsor Entity decided not to fund the extension for the time that ~~could occur if securities or other contracts~~the SPAC had to ~~issue common stock~~complete its initial business combination. As a result, the SPAC was dissolved and liquidated in accordance with its charter and under ASC 815, and the derivative instrument was terminated. As a result, the SPAC RSUs were ~~exercised or converted into common stock.~~forfeited. For the nine months ended September 30, 2022, the Company has recorded the effect of termination to reduce the fair value and recorded a credit to share-based compensation expense of $(126) thousand in relation to these awards. The fair value of the derivative liability was $0 as of September 30, 2022, and $71 thousand as of December 31, 2021.

NOTE 12– LEASES

The ~~dilutive common stock equivalent shares consist~~Company accounts for its leases under Accounting Standard Codification (“ASC”) Topic 842, Leases. The Company determines at its inception whether an arrangement that provides us control over the use of ~~preferred stock, stock options, warrants~~an asset is a lease. We recognize at lease commencement a right-of-use (ROU) asset and ~~restricted stock units computed under~~lease liability based on the ~~treasury stock method, using~~present value of the ~~average market price during~~future lease payments over the ~~period.~~lease term. We have elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Our current long-term lease includes an option to extend the term of the lease prior to the end of the initial term. It is not reasonably certain that we will exercise the option and have not included the impact of the option in the lease term for purposes of determining total future lease payments. As our lease agreement does not explicitly state the discount rate implicit in the lease, we use our promissory note borrowing rate to calculate the present value of future payments.

~~The following table sets forth~~In addition to the ~~computation~~base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. For all other types of ~~basic~~leases, non-lease components are excluded from our ROU assets and ~~diluted earnings/(loss) per share (in thousands, except share~~lease liabilities and ~~per share data):~~expensed as incurred.

(Unaudited)
Three Months Ended September
30, (Unaudited)
Nine Months Ended September
30,
2021 2020 2021 2020
Numerator:

Net Income/(Loss) $ 7,189 $ (983 ) $ 4,616 $ (4,728 )
Denominator:
Weighted average shares of common
stock – basic 7,290,975 5,488,111 7,078,046 3,436,805

Effect of dilutive securities

Preferred Stock 144,444 - 144,444 -

Stock Options 32,795 - 58,618 -

Warrants 12 - 30 -
Stock Purchase Plan 2,687 - 896 -
Restricted Stock Units & Restricted Stock Awards 100,072 - 53,234 -
Weighted average shares of common
stock – diluted 7,570,985 5,488,111 7,335,268 3,436,805

Net Earnings (Loss) per share

Basic $ 0.99 $ (0.18 ) $ 0.65 $ (1.38 )

Diluted $ 0.95 $ (0.18 ) $ 0.63 $ (1.38 )

We have operating leases for office facilities. We do not have any finance leases.

Lease expense is included in General & Administrative Expenses on the accompanying Consolidated Statements of Operations. The components of lease expense were as follows (in thousands):

Schedule of components of lease expense
	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Operating lease cost	$	32	$	-	$	53	$	-
Short-term lease cost		4		4		11		10
Total lease costs	$	36		4	$	64		10

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Supplemental information related to leases was as follows (dollars in thousands):

Schedule of supplemental information related to leases
	September 30, 2022			December 31, 2021
Operating Lease right-of-use asset	$	500		$	-

Current portion of operating lease liabilities	$	116		$	-
Non-current portion of operating lease liabilities		387			-
Total operating lease liabilities	$	503		$	-

Cash paid for amounts included in the measurement of operating lease liabilities	$	50		$	-

Right-of-use assets obtained in exchange for operating lease liabilities	$	552		$	-

Weighted-average remaining lease term for operating leases (years)		4.6
Weighted average discount rate for operating leases		6.0	%

The following ~~table represents~~is a reconciliation of future undiscounted cash flows to the ~~weighted average number~~operating lease liabilities on our consolidated balance sheets as of ~~anti-dilutive instruments excluded from the computation of diluted earnings per share:~~September 30, 2022 (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Anti-dilutive instruments excluded from
computation of diluted net income per share:

Preferred Stock - 144,444 - 144,444

Stock Options 91,471 473,771 94,621 473,771

Warrants 3,778,983 3,779,246 3,778,983 3,779,246

Restricted Stock Units 5,935 - 5,935 -

Schedule of operating lease liabilities maturities
Year ended December 31,
2022 (Excluding nine months ended September 2022)	$	30
2023		122
2024		126
2025		130
2026		134
Thereafter		45
Total future lease payments		587
Less: imputed interest		(84	)
Present value of future lease payments		503
Less: current portion of lease liabilities		(116	)
Long-term lease liabilities	$	387

NOTE ~~10–~~13– CONCENTRATIONS

~~Revenue~~

For the three months ended September 30, 2022, one customer represented 16% of revenues and four customers represented 97% of revenues for the three months ended September 30, 2021, During the nine months ended September 30, ~~2021, four~~2022, one customer represented 17% of revenues and five customers represented 97~~% and~~ 95% of revenues ~~respectively.~~for the nine months September 30, 2021.

~~Accounts Receivable~~

As of September 30, 2022, one customer made up 23% of accounts receivable. As of September 30, 2021, four customers represented 90% of accounts receivable.

During each of the three and nine months ended September 30, 2022, one vendor accounted for 99% of transportation cost, in our Periship Global Solutions segment.

NOTE 14 – SEGMENT REPORTING

As of September 30, 2022, we operated through two reportable business segments: (i) PeriShip Global Solutions and (ii) VerifyMe Solutions.

PeriShip Global Solutions: This segment offers a value-added service provider for time and temperature sensitive parcel management. Through logistics management from a sophisticated IT platform with proprietary databases, package and flight-tracking software, weather, traffic, and flight status monitoring systems, as well as dynamic dashboards with real-time visibility into shipment transit and last-mile events that are managed by a call center Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries.

VerifyMe Solutions. This segment specializes in solutions that connect brands with consumers through their products. Consumers can authenticate products with their smart phone prior to usage, and brand owners have the ability to gather business intelligence while engaging directly with their consumers. Our VerifyMe Solutions also provide brand protection and supply chain functions such as counterfeit prevention.

We do not allocate the following items to the segments: general & administrative expenses, sales & marketing expenses, restructuring charges, other expense, interest expense, gain on equity investments and income tax expense.

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The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated loss before income tax expense (in thousands):

Schedule of segment reporting information
	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue
PeriShip Global Solutions	$	5,036		$	-		$	9,267		$	-
VerifyMe Solutions		179			300			606			612
Total Revenue	$	5,215		$	300		$	9,873		$	612

Gross Profit
PeriShip Global Solutions	$	1,722		$	-		$	3,231		$	-
VerifyMe Solutions		133			186			432			429
Total Gross Profit		1,855			186			3,663			429

General and administrative (a)		2,213			905			6,213			3,230
Research and development		39			8			73			25
Sales and marketing (a)		478			299			1,224			843
LOSS BEFORE OTHER INCOME (EXPENSE)		(875	)		(1,026	)		(3,847	)		(3,669	)
OTHER INCOME (EXPENSE)		318			8,215			(10,659	)		8,285
NET (LOSS) INCOME	$	(557	)	$	7,189		$	(14,506	)	$	4,616

NOTE 1115 – SUBSEQUENT EVENTS

InEffective October ~~2021,~~17, 2022, the Company entered into an interest rate SWAP agreement, with a notional amount of $1,958 thousand, effectively fixing the interest rate on the Company’s outstanding debt at 7.602%.

On November 2, 2022, the Company issued ~~1,087~~140,000 ~~shares~~restricted stock units to executive employees under the 2020 Equity Incentive Plan, vesting one-third on each anniversary of ~~restricted common stock in relation to investor relation services.~~the grant date.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and notes.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.

Our actual results and financial condition may differ materially from those express or implied in such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. ~~Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:~~

~~the ongoing coronavirus (“COVID-19”) pandemic;~~

~~our relatively new business model and lack of significant revenues;~~

~~our ability to prosecute, maintain or enforce our intellectual property rights;~~

~~disputes or other developments relating to proprietary rights and claims of infringement;~~

~~the accuracy of our estimates regarding expenses, future revenues and capital requirements;~~

~~the implementation of our business model and strategic plans for our business and technology;~~

~~the successful development of our sales and marketing capabilities;~~

~~the potential markets for our products and our ability to serve those markets;~~

~~the rate and degree of market acceptance of our products and any future products;~~

~~our ability to retain key management personnel;~~

~~regulatory developments and our compliance with applicable laws; and~~

~~our liquidity.~~

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, ~~2020,~~2021, 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.

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Overview

VerifyMe, Inc. (“~~VerifyMe,”~~VerifyMe”) through its wholly owned subsidiary, PeriShip Global, LLC (“PeriShip Global”), (together the “Company,” ~~“we” “us”~~“we,” “us,” or “our”), is a software driven logistics provider of high-touch end-to-end logistics management representing most of our current revenue stream. In addition, VerifyMe technologies provide brand protection and supply chain functions. Our operations are split into two segments: PeriShip Global Solutions and VerifyMe Solutions. Through our PeriShip Global Solutions segment we provide a value-added service for time and temperature sensitive parcel management through logistics management from a sophisticated IT platform with proprietary databases, package and flight-tracking software, weather, traffic, and flight status monitoring systems, as well as dynamic dashboards with real-time visibility into shipment transit and last-mile events that are managed by a call center. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries. Through our VerifyMe Solutions segment our technologies provide brand protection and consumer engagement solutions allowing brand owners to gather business intelligence. Further information regarding our business segments is discussed below:

PeriShip Global Solutions: The PeriShip Global Solutions segment specializes in predictive analytics for optimizing delivery of time and temperature sensitive perishable products. We manage complex industry-specific shipping logistic processes that require critical time, temperature control and handling to prevent spoilage and extreme delivery times. Utilizing predictive analytics from multiple data sources including 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 its proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries.

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.

PeriShip Global generates revenue from three business service models.

Pro-Active Service – PeriShip Global clients pay us directly for carrier service coupled with our pro-active logistics assistance.

Direct Premium Service –PeriShip Global clients pay us directly for carrier service coupled with our complete white-glove shipping monitoring and predictive analytics service. This service includes the customer web portal access, weather monitoring, temperature control, full call center support and last mile resolution.

Indirect Premium Service – Our carrier partner also offers a “white label” version of our Premium Service to its customers and pays us a fixed contractual fee.

PeriShip Service Products: The PeriShip Global Solutions segment provides the following 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.

Call Center Service: PeriShip Global has assembled a team of customer resolution specialists based in the U.S. This service team resolves shipping problems on behalf of our customers. The call center acts as a help desk and monitors shipping to delivery for our customers.

Pre-Transit Service: PeriShip Global helps 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 the shipment, and we utilize our extensive knowledge and research to provide our customers with packaging recommendations to meet their unique needs.

Post-Delivery: PeriShip Global provides 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: PeriShip Global has 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 changes of timely and safe transit of shipments. Similarly, traffic and construction also creates unpredictable delays which our team works diligently to mitigate. If delays or other issues occur the PeriShip team informs clients and works with them to pro-actively resolve such shipment issues.

VerifyMe Solutions: The VerifyMe Solutions segment specializes in technology solutions ~~provider specializing in products~~ to connect brands with ~~consumers. VerifyMe technologies give~~consumers through their product. Consumers can authenticate products with their smart phone prior to usage, and brand owners have the ability to gather business intelligence while engaging directly with their consumers. Our VerifyMe ~~technologies~~solutions also provide brand protection and supply chain functions such as counterfeit ~~prevention, authentication,~~prevention.

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Our commercialization and sales efforts for VerifyMe are focused on six key areas of growth: Cosmetics, Food and Beverages, Nutraceuticals, Cannabis, Apparel and Pharmaceuticals. We believe these areas present particularly attractive markets of our products and services. For example, the U.S. Drug Supply Chain Security Act, requires that by November 2023 the FDA implement a comprehensive system designed to combat counterfeit, diluted or falsely labelled pharmaceuticals, referred to as serialization or electronic pedigree (e-Pedigree). We believe this presents a significant opportunity for VerifyMe because our brand protection, serialization and track and trace ~~features~~technologies can provide a layered security foundation for ~~labels, packaging~~a customer solution in this market and ~~products. We are a Nevada corporation formed in 1999. Until 2018, we primarily engaged in~~believe our products will provide attractive alternatives to pharmaceutical companies seeking to comply with this legislation and the ~~research and development of our technologies before ultimately becoming a Brand Protection Solutions provider.~~

e-Pedigree requirements.

Our brand protection technologies involve the utilization of invisible and visible images, which are special composition inks comprised of a rare earth material that are compatible and printed with modern digital and standard printing presses. The visible inks may be used with certain printing systems such as digital, offset, flexographic, silkscreen, gravure, inkjet and toner-based laser printers. The inks can be used to print both static and variable images utilizing digital printing presses and third-party digital inkjet systems that can be attached to traditional printing presses and finishing equipment. Our invisible ink can be used to print fixed images, variable images, serialized codes, static and dynamic bar codes and QR codes. We have developed and patented a product that attaches to a smartphone that brand inspectors can use to read our invisible ink codes into sophisticated cloud-based track and trace software that contain our patented verification technology along with algorithms which analyze the label, package or product’s authenticity and diversion activity. We also have a product that informs users that our invisible ink is present for authentication.

VerifyMe Products: VerifyMe has a custom suite of products ~~as described below,~~ that offer clients the brand protection security, anti-counterfeiting, protection from product diversion, consumer engagement and a robust serialization, track and trace system. These products are ~~sold as a~~combined with “software as a service” or “SAAS” which is stored in the cloud and accessed through the internet.

VerifyMe Engage™ for consumer engagement allowing the brand owner to gather business intelligence and engage with customers

VerifyMe Authenticate™ for product authentication

VerifyMe Track & Trace™ for product supply chain control

VerifyMe Online™ for on-line (web) brand monitoring

~~VerifyMe Engage™~~ services provide the ability for the brand owner to gather business intelligence and engage with the consumer using our authentication test as the initial contact with the consumer. For example, consumers can simply use their smart phone camera to scan our visible unique codes and/or RFID/NFC chips printed on products, labels and packages. Once the consumer scans the code, an instant authenticity check is made using algorithms stored in the cloud to determine the products authenticity on multiple factors. This allows brands to understand where their products are being scanned, whether they are legitimate, and form an immediate bridge for communication with the consumer. After this test is completed, the brand owner can then engage with the consumer and can offer a gift or future discounts to the consumer in exchange for their personal information as well as providing marketing materials, videos, discount coupons, product specifications, contest entries or cross sell other products through the consumer engagement software. This service allows to the brand owner to gather real-time information on their customer base,. To date, we have derived limited revenue from VerifyMe Engage customers in the cannabis industry.

~~VerifyMe Authenticate™~~ services provide an assortment of tools through our patented products allowing the brand owner to instantly authenticate a product, label or package as genuine and / or determine if a product has been fraudulently diverted and where such diversion occurred in the supply chain. Brand owners can use our cloud-based web portal to easily order many types of serialization codes for their products, labels and packages. Once the codes are applied to their products, brand owners can then monitor, control and protect their products during the products complete life cycle through the supply chain. Our customers use our patented invisible ink, VerifyInk^TM ~~which is combined with a proprietary reader to easily identify counterfeit products. Product investigators may then use our patented VerifyAuthenticator~~^TM ~~technology, a device used with a smartphone and the VerifyMe app, to authenticate and decode VerifyInk~~^TM ~~codes. The user attaches this device to their smartphone, which upon use reveals the hidden VerifyInk~~^TM images on the smartphone screen that are then sent to our web portal in the cloud for authentication and data submission. We also have another device that does not require use the of a smartphone, our VerifyChecker™ which is a handheld beeping device that is tuned to authenticate the unique frequency of our VerifyInk^TM ~~invisible ink and will broadcast an audible alert to confirm the authenticity when placed on products, labels and packaging containing our VerifyInk~~^TM. The VerifyChecker™ is designed for use by customers who desire instant authentication on items. It is perfect for field investigators, CBP officials, or as validation in practice such as scanning event tickets at an entry gate. The device functionality was upgraded in September 2021 adding wireless connectivity to a mobile phone enabling authentication attempts to be recorded in the cloud with geo-location, inspector’s names, and time and date stamp. To date, we have derived limited recurring revenues from VerifyMe Authenticate two global brand owners.

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~~VerifyMe Track & Trace™~~ supply chain serialization, track and trace technology utilizes overt dynamic codes (QR codes or other barcode symbology), such as our VerifyCode™, which is tied to our cloud-based authentication and track and trace system. This technology provides brand owners business intelligence on counterfeiting and diversion through the use of distribution channel scans through the supply chain coupled with consumer scan data all tied to a back end system that allows brands to customize rules and parameters and sophisticated alert systems allowing brands to be proactive, rather than reactive, in thwarting illicit activity. Invisible codes can be added using VerifyInk^TM to increase brand protection security and provide inspectors a means to authenticate counterfeit or diverted product if the visible codes have been defaced or removed. Using information from a smartphone screen, our VerifyCode^TM technology, can provide authentication and data submission information. A customer or end-user can scan codes printed on labels and packaging and send it to the cloud where our software can verify authenticity of the product, as well as track and trace the product from production through delivery. To date, we have derived limited revenues from the use of this technology in the personal protective equipment industry and in the cannabis industry. While we consider revenues limited to date, we expect recurring orders from our current customer base as well as an expansion into other industries.

~~VerifyMe® Online™~~includes, through our collaboration with a strategic partner, a brand clearance and protection leader, technologies and services that better enable customers to effectively tackle counterfeit websites, domains and e-commerce platforms, and social media sites offering or promoting counterfeit products. To date, we have not derived revenue from this technology.VerifyMe/PeriShip Global Synergies:

We believe that VerifyMe and PeriShip Global have synergistic product centric technology platforms and combined have a compelling technology offering for brand owners. For example, currently PeriShip Global ships vaccines for major pharmaceutical companies. With the addition of VerifyMe technology, PeriShip Global can add product authentication and serialization to protect clients’ vaccines from product diversion and sub-standard counterfeits. In addition, VerifyMe’s consumer engagement solutions could give PeriShip Global food and beverage clients the ability to gather rich business intelligence and build customer loyalty with engagement functions like video’s, discounts, contests, etc.

Partnerships

PeriShip Global has a direct partnership with a major global carrier company. This partnership includes the ability for both companies to white label each partner’s services. In addition, PeriShip Global has data feeds directly from the carrier into our ~~brand protection security technologies, coupled with our~~proprietary logistics optimization software which provides shippers much more detailed information and predictive analytics on their shipment versus just a standard shipping code look up which is provided by the carrier.

VerifyMe has a contract with HP Indigo, and a strategic partnership with INX, the third largest producer of inks in North America. We believe these partnerships can be used to enable brand owners to securely prevent counterfeiting, prevent product diversion and authenticate labels, packaging and products ~~and alleviate the brand owner’s~~alleviating liability from counterfeit products that ~~physically~~ harm consumers. Our covert technologies give brand owners the ability to control, monitor and protect their products life cycle. In cases where the brand owner may be subject to liability brought forth by counterfeit products, our tools allow the brand owner to prove whether the product causing an issue is authentic or counterfeit. Combined with our customer engagement product lines, we offer a unique and comprehensive brand protection and promotion solution that can be tailored to any brand’s specifications.

~~At present, our strategic partner, HP Indigo has~~Current Economic Environment

In early September, 2022, the ~~ability,~~major global carrier company that PeriShip partners with ~~their Indigo 6000 series,~~disclosed that a global recession could be coming based on various indicators in its business including the demand for packages weakening considerably in the final weeks of August 2022, a negative impact on its express delivery business due to ~~print our technology on~~the weakening global economy, particularly in Asia and Europe, and a ~~variable basis. HP Indigo has produced flexible packaging pouch samples, shrink sleeves samples,~~decline in the volume of freight it handles in every region around the world. The major global carrier stated that it expects business conditions to further weaken during its current quarter and ~~tax stamp samples with our covert VerifyInk~~^TM~~. In May 2019, we entered into a strategic partnership with INX, the third largest producer of inks in North America allowing us to successfully print our covert VerifyInk™on garments, metal~~is responding by reducing flights, temporarily parking aircraft, trimming hours for its staff, delaying some hiring plans and plastic objects, and INX is now co-marketing the new security ink to its global clients. We are continuing to work with our partners and INX international to develop inkjet ink for various print head, drop on demand and continuous inkjet, that can be used independently or mounted to printing presses and finishing equipment. We have successfully developed VerifyInk™~~for drop on demand inkjet printing and are carrying on with the development of a continuous inkjet solution. The specially formulated inks will enable these printing presses to print our VerifyInk~~^TM ~~invisible ink technology, which includes our variable VerifyCode™ serialization, track and trace technology. We believe VerifyInk~~^TM ~~is particularly well-suited to closed and controlled environments that want to verify transactions within a specific area,~~closing ninety office locations as well as ~~labels, packaging, textiles, plastics and metal products that need authentication.~~

five corporate offices. It also stated it is cutting $500 million from its capital expenditure budget for its fiscal year, which runs through May of 2023.

~~To optimize our security~~We have seen a softening in demand for some services related to high-end perishable items and cannabis products which seem to be impacted by reduced discretionary spending by U.S. consumers. While a recession, whether global or more localized to the U.S., may decrease the demand for our ~~customers,~~services that are more discretionary in nature, we ~~are seeking~~believe that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service providers, including PeriShip Global. Additionally, PeriShip Global is working with this major global carrier to ~~migrate our brand protection platform from~~address their small and medium sized business clients, which we believe is an underserved segment and presents considerable growth opportunities for PeriShip Global. However, we can provide no assurances that a ~~current centralized cloud-based data architecture to~~decline in discretionary consumer spending will not have a blockchain (fractured data) architecture. We are exploring opportunities to gain the skillsets needed either through mergers and acquisitions or through strategic partnerships with blockchain specialists that will help us create this product.

~~COVID-19~~

The COVID-19 pandemic disrupted businesses and affected production and sales across a range of industries, as well as caused volatility in the financial markets, which negatively impacted our results of operations for the first nine months of 2021. The full extent of the impact of the COVID-19 pandemic on our customer demand, sales and financial performance will depend on certain developments, including, among other things, the continued duration and spread of the outbreak, the effectiveness of vaccines against new variants, the availability of vaccines and vaccination rates, and thenegative impact on our ~~customers~~revenues and ~~employees, all~~results of which are uncertain and cannot be predicted. Please see Item 1A, “Risk Factors- Risks Relating to the COVID-19 Pandemic” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and our other filings with the SEC in this Report for additional information regarding certain risks associated with the pandemic.operations.

The COVID-19 pandemic has caused an increase in demand for safety products such as masks and gloves, COVID-19 test kits, medications and vaccines to treat the virus, which we believe has further caused an increase in counterfeit products. Our suite of technology solutions for global manufacturers, distributors and sellers are designed to allow consumers to prove authenticity and we have proactively reached out to global manufacturers who are seeking to provide their customers authenticity in their products. We believe we have a dynamic management and sales team in place with the ability to seamlessly work remotely to minimize any operational disruption.

After an approximately one-year COVD-19 related hiatus we have recently begun attending sales conferences and other in-person sales initiatives. Although we have been attending in-person sales events, such events are not at full capacity due to the ongoing pandemic. Since we have recently begun face to face sales presentations and trade shows we are experiencing a small increase in travel related costs versus the previous 12 months. We expect these travel related costs to grow which should be offset by increased sales activity. VerifyMe has continued to be aggressive in regards to sales and marketing efforts as we have completed a new website which is generating new leads and we have expanded our sales force. We also have started our first social media advertising campaign. New leads are being generated due to these actions. We continue to work with our sales representatives to look for alternative ways to communicate effectively and promote sales both with our customers and potential customers.

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~~Further,~~

Business Combination

On April 22, 2022, we ~~anticipate that as~~acquired, through PeriShip Global, the business and certain assets of PeriShip, LLC, value-added service provider for time and temperature sensitive parcel management. PeriShip Global provides shipping logistics services utilizing proprietary predictive analytics software and supporting call center services. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, delivering last-mile resolution for key markets, including the perishable healthcare and food industries. The purchase price was $10.5 million which consisted of $7.5 million in cash paid at closing, a ~~result~~promissory note of $2.0 million with a fixed interest rate of 6% per annum on the unpaid principal balance, to be paid in three installments on the sixth, fifteenth, and eighteenth month anniversaries of the ~~continued COVID-19 pandemic, our customers may still require~~closing, and 305,473 shares of restricted common stock of the Company, representing $1.0 million in stock consideration. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the Company. We expect that ~~their programs be cancelled, delayed or reduced. We will continue to work~~all of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired PeriShip business is included in ~~partnership with our customers to continually assess any potential impacts~~the PeriShip Global Solutions segment and ~~opportunities to mitigate risk.~~the results of its operations have been included in the consolidated financial statements beginning April 22, 2022.

SPAC Investment

On July 6, 2021, we ~~acted as the co-sponsor for~~co-sponsored the initial public offering of G3 VRM Acquisition Corp, a special purpose acquisition company, or ~~SPAC,~~“SPAC,” through a contribution into G3 VRM Holdings LLC, or the ~~Sponsor~~“Sponsor Entity. The Sponsor Entity holds founder shares equal to approximately 20% of the shares underlying the Units issued in the SPAC IPO (less 210,000 founder shares transferred to the officers and certain directors of the SPAC), plus 516,280 shares underlying Private Placement units purchase by the Sponsor Entity in connection with the SPAC’s IPO.” The closing of the IPO of 10,626,000 Units, including 626,000 Units pursuant to the partial exercise of the underwriter’s over-allotment, generated gross proceeds of ~~$106,260 thousand. As co-sponsor, we~~$106,260,000. G3 VRM commenced trading on NASDAQ under the symbol “GGGVU” and was targeting businesses with enterprise values of approximately $250 million to $500 million within the technology and business services industry. VerifyMe, indirectly through the Sponsor Entity beneficially ~~own~~owned approximately 9.42% of the ~~outstanding shares of G3 VRM Acquisition Corp. upon consummation~~common stock of the ~~IPO; which are subject to forfeiture upon certain conditions and restrictions on transfer.~~SPAC.

~~If the~~The SPAC iswas unable to complete its initial business combination within 12 months from the closing of the IPO ~~(or 15 or 18 months from the closing of the IPO, should we~~ and the ~~co-sponsor extend~~Sponsor Entity decided not to fund the ~~period of time to consummate a business combination by depositing~~extension and did not deposit additional funds into the trust ~~account as described~~account. As a result, the SPAC was dissolved and liquidated in ~~more detail in IPO prospectus), our~~accordance with its charter. The SPAC redeemed 100% of the public shares for cash, the rights expired worthless, and the founder shares and the private placement securities will be worthless. Even if the SPAC is able to complete a business combination within the allotted time, if the combined company is unable to maintain adequate results from operations, then our investment in the SPAC could lose value and may ultimatelyhave become worthless. ~~There can be no assurance that~~

The fair value of the ~~SPAC will complete a business combination within the allotted time or that any such business combination will be successful.~~equity investment was $0 million as of September 30, 2022, and $11.0 million as of December 31, 2021.

As of September 30, ~~2021,~~2022, we have ~~accounted for~~recognized the ~~Sponsor Entity as an equity investment and have elected the fair value option resulting in a fair value gain~~impairment loss of ~~$8,214~~$10,964 thousand included in ~~Other Income (Expense), Net~~Loss on equity investments in the accompanying ~~Statement~~Consolidated Statements of Operations.

~~We believe our sponsorship of the SPAC will allow us to pursue an equity interest in larger companies and add value without diluting the equity interests of our shareholders.~~

Results of Operations

Comparison of the three months ended September 30, ~~2021~~2022, and ~~2020~~2021

The following discussion analyzes our results of operations for the three months ended September 30, ~~2021~~2022, and ~~2020.~~2021.

~~Revenue~~

Revenue	Three Months Ended September 30,
	2022		2021

PeriShip Global Solutions	$	5,036	$	-
VerifyMe Solutions		179		300
Total Revenue	$	5,215	$	300

~~Revenue~~Consolidated revenue for the three months ended September 30, ~~2021~~2022, was ~~$300~~$5,215 thousand ~~a 197% increase as~~ compared to ~~$101~~$300 thousand for the three months ended September 30, ~~2020.~~2021. The increase in revenue primarily ~~related~~relates to ~~increased use~~the acquisition of ~~our security printing, authentication serialization technology~~the PeriShip business on April 22, 2022, which contributed $5,036 thousand for the three months ended September 30, 2022. VerifyMe Solutions Segment revenue decreased by $121 thousand to $179 thousand from ~~recurring customers and an order with a new cannabis customer using our unique smart phone readable codes, allowing customers~~$300 thousand, primarily due to ~~authenticate their product and engage with the brand in a new and innovative way.~~fluctuating timing of orders.

Gross Profit	Three Months Ended September 30,
	2022					2021
			% of Revenue					% of Revenue
PeriShip Global Solutions		1,722		34	%		-		-
VerifyMe Solutions		133		74	%		186		62	%
Total Gross Profit	$	1,855		36	%	$	186		62	%

~~Gross Profit~~

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Gross profit for the three months ended September 30, ~~2021~~2022, was ~~$186~~$1,855 thousand, compared to ~~$82~~$186 thousand for the three months ended September 30, ~~2020.~~2021. The resulting gross margin was 36% for the three months ended September 30, 2022, compared to 62% for the three months ended September 30, ~~2021, compared~~2021. The gross profit increase relates to ~~81% for~~ the ~~three months ended September 30, 2020.~~acquisition of the PeriShip business. The decrease in our gross ~~profit~~ margin ~~relates~~is due to ~~a shift~~the acquisition of the PeriShip business which has significantly lower margins than the VerifyMe Solutions Segment. The increase in ~~product mix, with~~the VerifyMe Solutions gross margin was due to an increase in the use of our patented secure ~~track and trace serialization~~ink technology, ~~and customer engagement products. We believe our high gross profit margins demonstrate our business model’s ability to generate profitable growth.~~which has higher margins.

General and Administrative Expenses

General and administrative expenses increased by ~~$86~~$1,308 thousand to ~~$636~~$2,213 thousand for the three months ended September 30, 2021 from $550 thousand for the three months ended September 30, 2020. The increase primarily related to increases in non-cash stock-based compensation of $137 thousand, offset by a net decrease in public company related expenses and consulting fees.

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~~Legal and Accounting~~

Legal and accounting fees decreased by $24 thousand to $74 thousand for the three months ended September 30, 2021 from $98 thousand for the three months ended September 30, 2020. The decrease relates primarily to savings in legal fees during the period.

~~Corporate Payroll Expenses~~

~~Corporate payroll expenses were $194 thousand for the three months ended September 30, 2021, an increase of $77 thousand from $117 thousand, for the three months ended September 30, 2020.~~2022. The increase related to the acquisition of the PeriShip business, and primarily ~~to increases in~~made up of salaries and ~~number of~~related expenses for approximately 35 employees ~~of $60 thousand~~in the IT and ~~increases in stock based compensation expense of $17 thousand.~~

operations department.

Research and Development

Research and development expenses were $8$39 thousand and $7$8 thousand for the three months ended September 30, ~~2021~~2022, and ~~2020,~~2021, respectively.

Sales and Marketing

Sales and marketing expenses ~~were $299~~increased $179 thousand ~~and $293~~to $478 thousand for the three months ended September 30, ~~2021~~2022. The increase is related to the acquisition of the PeriShip business, primarily consisting of salaries and ~~2020, respectively.~~related expenses for four employees.

~~Operating~~Net Loss

~~Operating~~Consolidated net loss for the three months ended September 30, ~~2021~~2022 was ~~$1,025 thousand, an increase in loss of $42~~$557 thousand compared to ~~$983~~a consolidated net income of $7,189 thousand for the ~~three~~nine months ended September 30, ~~2020.~~2022. The increase in loss primarily related to a net increase of stock-based compensation of $60 thousand and a $60 thousand increase in payroll expenses due to increase in the number of employees and higher salaries; partially offset by the increase of $104 thousand in gross profit.

~~Net Income~~

Our net income increased by $8,172 thousand to $7,189 thousand for the three months ended September 30, 2021 from a net loss of $983 thousand for the three months ended September 30, 2020. The increasedecrease was primarily due to the ~~fair value~~unrealized gain on equity investment of $8,214 thousand in 2021, partially offset by a gain on ~~our equity investment in~~extinguishment of debt of $326 thousand and the ~~SPAC.~~decreases discussed above. The resulting ~~gain per share for the three months ended September 30, 2021 was $0.95 per diluted share, compared to $0.18~~consolidated loss per diluted share for the three months ended September 30, ~~2020.~~2022, was $0.06 compared to a consolidated earnings per diluted share of $0.95 for the three months ended September 30, 2021.

Comparison of the ~~Nine Months Ended~~nine months ended September 30, ~~2021~~2022, and ~~2020~~2021

The following discussion analyzes our results of operations for the nine months ended September 30, ~~2021~~2022, and ~~2020.~~2021.

~~Revenue~~

Revenue	Nine Months Ended September 30,
	2022		2021

PeriShip Global Solutions	$	9,267		-
VerifyMe Solutions		606		612
Total Revenue	$	9,873	$	612

~~We generated~~Consolidated revenue offor the nine months ended September 30, 2022, was $9,873 thousand compared to $612 thousand for the nine months ended September 30, ~~2021, an 128%~~2021. The increase ~~compared~~in revenue relates to ~~$268~~the acquisition of the PeriShip business on April 22, 2022, which contributed $9,267 thousand for the nine months ended September 30, ~~2020. The revenue primarily related to security printing with our authentication serialization technology for two large global brand owners as well~~ ~~as a new application of our technology, in the personal protective equipment space and~~ a ~~new order with a cannabis company using our unique smart phone readable codes which allow it to connect directly with its customer base.~~2022. VerifyMe Solutions Segment decreased by $6 thousand from $612 thousand.

Gross Profit	Nine Months Ended September 30,
	2022					2021
			% of Revenue					% of Revenue
PeriShip Global Solutions		3,231		35	%		-		-
VerifyMe Solutions		432		71	%		429		70	%
Total Gross Profit	$	3,663		37	%	$	429		70	%

~~Gross Profit~~

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~~Gross~~Consolidated gross profit for the nine months ended September 30, ~~2021~~2022, was ~~$429~~$3,663 thousand, compared to ~~$219~~$429 thousand for the nine months ended September 30, ~~2020.~~2021. The resulting gross margin was 37% for the nine months ended September 30, 2022, compared to 70% for the nine months ended September 30, ~~2021, compared to 81% for the nine months ended September 30, 2020.~~2021. The decrease in our gross ~~profit~~ margin ~~relates~~is due to ~~a shift in product mix, with an increase in~~ the ~~use~~acquisition of ~~our secure track and trace serialization technology and customer engagement products. We believe our high gross profit~~the PeriShip business which has significantly lower margins ~~demonstrate our business model’s ability to generate profitable growth.~~than the VerifyMe Solutions Segment.

General and Administrative Expenses

General and administrative expenses increased by ~~$800~~$2,983 thousand to ~~$2,320~~$6,213 thousand for the nine months ended September 30, 2021 from $1,520 thousand for the nine months ended September 30, 2020. The increase primarily related to increases in non-cash stock-based compensation of $451 thousand, increased cost associated with being a Nasdaq listed company of approximately $113 thousand, and an increase of costs associated with exploratory costs related to our search of strategic partnerships, mergers and acquisitions of $165 thousand.

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~~Legal and Accounting~~

Legal and accounting fees increased by $53 thousand to $288 thousand for the nine months ended September 30, 2021 from $235 thousand for the nine months ended September 30, 2020. The increase relates primarily to the expansion of our accounting department, partially offset by savings in legal fees.

~~Corporate Payroll Expenses~~

~~Corporate payroll expenses were $621 thousand for the nine months ended September 30, 2021, an increase of $185 thousand from $436 thousand for the nine months ended September 30, 2020.~~2022. The increase related to ~~an increase~~the acquisition of the PeriShip business, and primarily made up of salaries and related expenses for approximately 35 employees in the ~~executive compensation~~IT and ~~an increase in the number of our employees.~~

operations department.

Research and Development

Research and development expenses were ~~$25~~$73 thousand and $7$25 thousand for the nine months ended September 30, 2022, and 2021, ~~and 2020,~~ respectively. ~~The increase is due to continued development costs associated with commercialized product lines.~~

Sales and Marketing

Sales and marketing expenses ~~were $843~~increased $381 thousand ~~and $415~~to $1,224 thousand for the nine months ended September 30, ~~2021 and 2020, respectively.~~2022. The increase ~~primarily~~is related to ~~an expansion~~the acquisition of ~~our sales team~~the PeriShip business, primarily consisting of salaries and ~~marketing outreach in 2021. We expanded our sales team~~related expenses to ~~address growing domestic and international opportunities.~~

four employees.

~~Operating Loss~~

Operating loss for the nine months ended September 30, 2021 was $3,668 thousand an increase in loss of $1,274 thousand compared to $2,394 thousand for the nine months ended September 30, 2020. The increase in loss primarily related to an increase in non-cash stock-based compensation of approximately $380 thousand, an increase in employee headcount, increase in executive salaries, an increase relating to our sales and marketing outreach to meet our growing number of opportunities, and increased costs associated with being a Nasdaq listed company.

Net Loss/Income

~~Our net income for the nine months ended September 30, 2021 was $4,616 thousand an increase of $9,344 thousand compared to $4,728 thousand~~Consolidated net loss for the nine months ended September 30, ~~2020. The increase~~2022 was ~~primarily due~~$14,506 thousand compared to ~~the fair value gain of $8,214 thousand on our equity investment in the SPAC. The resulting~~a consolidated net income ~~per share~~of $4,616 thousand for the nine months ended September 30, ~~2021~~2022. The decrease was ~~$0.63 per diluted share, compared~~primarily due to ~~$1.38~~the impairment of the SPAC of $10,964 thousand during 2022. The resulting consolidated loss per diluted share for the nine months ended September 30, ~~2020.~~2022 was $1.76 compared to a consolidated gain per diluted share of $0.63 for the nine months ended September 30, 2021.

Liquidity and Capital Resources

Our operations used ~~$2,368~~$2,668 thousand of cash during the nine months ended September 30, ~~2021~~2022, compared to ~~$1,294~~$2,368 thousand during the comparable period in ~~2020, relating primarily to an~~2021. The increase in ~~employee headcount, an expansion of~~cash used from operations is due to a net decrease in working capital balances due to our ~~sales team and marketing outreach efforts and an increase in expenses related to operating as a Nasdaq listed company.~~significant acquisition that occurred during the nine months ended September 30, 2022.

Cash used in investing activities was $7,747 thousand during the nine months ended September 30, 2022, compared to $2,790 thousand during the nine months ended September 30, ~~2021 compared to $75 thousand during~~2021. During the nine months ended September 30, ~~2020.~~2022, $7,500 thousand was used for the acquisition of the PeriShip business. The ~~increase~~use of cash in 2021 relates primarily to ~~our investment~~the acquisition of sponsor units in the SPAC of $2,593 thousand.

Cash provided by financing activities during the nine months ended September 30, ~~2021,~~2022, was ~~$7,849~~$4,687 thousand compared to ~~$10,092~~$7,849 thousand during the nine months ended September 30, ~~2020. On February 12,~~ 2021 ~~as part~~related to proceeds from debt and offerings of our ~~public offering~~common stock in 2022 and 2021.

On April 12, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the selling stockholder and certain directors, providing for the issuance and sale to purchasers therein of an aggregate ~~1,750,000~~of 880,208 shares of our common stock, ~~we generated aggregate~~pre-funded warrants to purchase up to 675,000 shares of our common stock, and warrants to purchase up to 1,555,208 shares of our common stock, for gross proceeds to us of ~~$9.3~~approximately $5.0 million and net proceeds of ~~$8.4~~$4.6 million. The pre-funded warrant was exercisable immediately and terminated when fully exercised and had an exercise price of $0.001 per share. The pre-funded warrant was fully exercised in August 2022, with an exercise price of $0.001, and as a resulted, 675,000 shares of our common stock were issued. The warrants are exercisable for a period of five years commencing six months from the date of issuance and have an exercise price of $3.215 per share. The warrants contain price adjustment provisions which may, under certain circumstances, reduce the applicable exercise price. The transaction closed on April 14, 2022.

On September 22, 2022 we entered into the PNC Facility with PNC Bank, National Association. The PNC Facility includes a $1 million ~~less underwriting discounts~~RLOC with a term of one-year, expiring in September 2023. The RLOC has no scheduled payments of principal until maturity, and ~~commissions~~bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments. The PNC Facility also includes a four-year Term Note for $2 million which matures in September of 2026 and ~~other offering expenses,~~requires equal quarterly payments of principal and interest. The Term Note incurs interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%. The RLOC and Term Note are guaranteed by the Company and secured by the assets of PeriShip and the Company.

Of the proceeds of $2.0 million, we used $1.8 million to settle debt outstanding issued in connection with the PeriShip acquisition, including the ~~partial exercise~~redemption of 61,000 shares of our common stock. As of September 30, 2022, our short-term debt outstanding under the ~~over-allotment option resulting in gross proceeds of $530 thousand.~~ Term Note was $0.5 million and total long-term debt outstanding under the Term Note was $1.5 million.

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We believe that our cash and cash equivalents, together with the net proceeds from ~~this~~the April 12, 2022 offering and proceeds from debt issued, will fund our operations through 2025.

In ~~November 2020,~~June 2022, we announced a new $1.5 million share repurchase program to ~~spend up to $1.5 million to~~ repurchase shares of ~~our~~the Company’s common stock ~~until August 16, 2021. On August~~commencing July 1, 2022, for a period of 12 ~~2021, this~~months. This new repurchase program replaces our existing share repurchase program that was ~~extended~~due to expire onin August ~~16, 2022. All other terms~~2022 and ~~conditions remained~~is now terminated. During the ~~same. To date, 137,352~~three months ended September 30, 2022, the Company repurchased 74,530 shares ~~have been purchased~~of common stock under the Company’s current program for a total of ~~$464 thousand.~~$109 thousand

and a remaining $1,390 thousand may be purchased under the program.

While we expect revenues to increase, we expect continued negative cash flows in 2022, as we incur increased costs associated with expanding our business. We expect to grow our business organically and through key acquisitions that will help accelerate the growth of our business. We expect to continue to fund our operations primarily through utilization of our current financial resources and future revenue and ~~through the issuance of~~may issue additional debt or equity.

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Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial position, results of operations or cash flows.

~~Variable Interest Entities~~

We determined that we have a variable interest in a VIE through our indirect ownership of the SPAC. As such, we used judgment to determine whether we are the primary beneficiary of the VIE and would need to consolidate as a result. To make this determination, we evaluated our power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the SPAC. We concluded that we are not the primary beneficiary, and as such account for it as an equity investment. The facts and circumstances surrounding our determination of whether the SPAC is a VIE and the entity that is the primary beneficiary are analyzed on an ongoing basis based on the current facts and circumstances surrounding the entity, including at every reporting period.

~~Equity Method Investment~~

We have accounted for our beneficial ownership in the SPAC as an equity investment as we have determined that we exert a significant influence in the entity’s operations and accounting policies. Furthermore, we have elected the fair value option under applicable US GAAP as we believe the fair value best reflects the economic performance of the equity investment.

Revenue Recognition

Our revenue transactions include sales of our ink canisters, software, licensing, pre-printed labels, integrated solutions, ~~and~~ leasing of our ~~equipment.~~equipment and logistics management for time and temperature sensitive packages. We recognize revenue based on the principals established in ASC Topic 606, ~~“Revenue~~“Revenue from Contracts with ~~Customers.~~Customers.” Revenue recognition is made when our performance obligation is satisfied. Our terms vary based on the solutions we offer and are examined on a case-by-case basis. For licensing of our VerifyInk^TM technology we depend on the integrity of our clients’ reporting.

Business Combinations

Accounting for business combinations requires management to make significant estimates and assumptions to determine the fair values of assets acquired and liabilities assumed at the acquisition date. Although we believe the assumptions and estimates we have made in relation to the acquisition of the PeriShip business are appropriate, they are based, in part, on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain acquired intangible assets include, but are not limited to, future expected cash flows including revenue growth rate assumptions from product sales, customer contracts and acquired technologies, estimated royalty rates used in valuing technology related intangible assets, and discount rates. The discount rates used to discount expected future cash flows to present value are typically derived from a weighted-average cost of capital (“WACC”) analysis and adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results.

We allocate the fair value of the purchase price of our acquisitions to the tangible assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair values at acquisition date. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which will not exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the conclusion of the measurement period or final determination of the fair value of the purchase price of our acquisitions, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

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Goodwill

We have recorded goodwill as part of our acquisition of the PeriShip business, which represents the excess of purchase price over the fair value of net assets acquired in the business combinations. Pursuant to ASC 350, the Company will test goodwill for impairment on an annual basis in the fourth quarter, or between annual tests, in certain circumstances. Under authoritative guidance, the Company first assessed qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment test. The assessment considers factors such as, but not limited to, macroeconomic conditions, data showing other companies in the industry and our share price. 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.

Stock-based Compensation

For RSUs with stock price appreciation targets, we applied a lattice approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future price paths over the RSU’s contractual life based on the appropriate probability distributions (which are based on commonly applied Black Scholes inputs). The fair value 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.

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.

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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 the ~~three~~nine months ended September 30, ~~2021,~~2022, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, ~~2021,~~2022, our disclosure controls and procedures were ineffective 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.

We have ~~an inherit~~inherent material weakness in controls due to a lack of segregation of duties, resulting from limited staffing in our accounting department. ~~As of September 30, 2021, we have~~Management has been implementing measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively and has hired ~~a Vice President of Finance and a Corporate Financial Controller in an effort~~additional personnel to address its staffing needs. Management believes that it has taken action that will remediate the material weakness identified above. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company expects that the remediation of this ~~inherit~~material weakness ~~and as part~~will be completed prior to the end of ~~our remediation efforts.~~fiscal year 2022.

(b) Changes in ~~internal control~~Internal Control over ~~financial reporting~~Financial Reporting

Other than the remediation efforts underway, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020, we have hired a Vice President of Finance. There~~2021, there were no changes in our internal control over financial reporting during the quarter ended September 30, ~~2021~~2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

To address the material weaknesses identified, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

On April 22, 2022, we acquired, through PeriShip Global, the business and certain assets of PeriShip, LLC, a value-added service provider for time and temperature sensitive parcel management. For additional information regarding the acquisition, refer to Note 4 to the Unaudited Consolidated Financial Statements included in Item 1 in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 in this Quarterly Report on Form 10-Q. Based on the recent completion of this acquisition and, pursuant to the Securities and Exchange Commission’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of the effectiveness of internal control over financial reporting as of September 30, 2022 does not include PeriShip Global. We plan to include PeriShip Global within the timeframe set forth by the SEC’s guidance.

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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, ~~2020~~2021, 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, ~~2020,~~2021, and subsequent Quarterly Reports on Form 10-Q, except as noted ~~below.~~herein.

~~Our investment~~Reductions in ~~G3 VRM Acquisition Corp. (the “SPAC”)~~discretionary consumer spending could ~~be lost if the SPAC is unable to consummate a~~have an adverse effect on our business, ~~combination or if its business combination proves unsuccessful.~~financial condition, and results of operations.

~~On July 6, 2021,~~The services and products we ~~acted as~~provide are sensitive to reductions from time to time in discretionary consumer spending. For example, demand for high-end perishable items and cannabis products, and subsequently the ~~sponsor~~demand for shipping, brand protection, and other services related to such, can be affected by changes in the ~~initial public offering~~economy and consumer tastes, both of ~~G3 VRM Acquisition Corp, a special purpose acquisition company, or SPAC, through a contribution into the SPAC’s sponsor, G3 VRM Holdings LLC,~~which are difficult to predict and beyond our control. Unfavorable changes in general economic conditions, including recessions, economic slowdowns, sustained high levels of unemployment, and rising prices or the ~~Sponsor Entity. The Sponsor Entity holds founder shares equal to 20%~~perception by consumers of weak or weakening economic conditions, may reduce consumer’s disposable income or result in a decrease in demand for our services and products. As a result, we cannot ensure that demand for our services and products will materialize or remain constant. In early September, 2022, the ~~shares underlying~~major global carrier company that PeriShip partners with disclosed that a global recession could be coming based on various indicators in its business including the ~~Units issued~~demand for packages weakening considerably in the ~~SPAC IPO (less 210,000 founder shares issued~~final weeks of August 2022, a negative impact on its express delivery business due to the ~~officers~~weakening global economy, particularly in Asia and ~~certain directors of the SPAC), plus 516,280 shares underlying private placement units purchase by the Sponsor Entity in connection with the SPAC’s IPO. Our investment~~Europe, and a decline in the ~~SPAC~~volume of freight it handles in every region around the world. The major global carrier stated that it expects business conditions to further weaken during its current quarter and is responding by reducing flights, temporarily parking aircraft, trimming hours for its staff, delaying some hiring plans and closing ninety office locations as well as five corporate offices. It also stated it is cutting $500 million from its capital expenditure budget for its fiscal year, which runs through ~~the Sponsor Entity equaled approximately $2,593 thousand, and our ownership in the Sponsor Entity is 44.4%. The Sponsor Entity and all holders~~May of founder shares and private placement securities have agreed to waive any right to distributions under the trust established for the benefit of the SPAC’s public shareholders. Accordingly, if the SPAC is unable to complete its initial business combination within 12 months from the closing of the IPO (or 15 or 18 months from the closing of the IPO, if we and the co-sponsor extend the period of time to consummate a business combination by depositing additional funds into the trust account as described in more detail in IPO prospectus), the SPAC will redeem 100% of the public shares for cash, the rights will expire worthless, and the founder shares and the private placement securities will be worthless. Even if the SPAC is able to complete a business combination within the allotted time, if the combined company is unable to maintain adequate results from operations, then our investment in the SPAC could lose value and may ultimately become worthless. There can be no assurance that the SPAC will complete a business combination within the allotted time or that any such business combination will be successful.

~~As a company with significant revenues deriving from clients in the cannabis industry, we face many unique and evolving risks.~~2023.

We ~~currently derive material revenues from clients~~have seen a softening in ~~the cannabis industry from use of our track and trace and customer engagement technologies. As such, any risks~~demand for some services related to high-end perishable items and cannabis products which seem to be impacted by reduced discretionary spending by U.S. consumers. While a recession, whether global or more localized to the ~~cannabis industry~~U.S., may ~~adversely impact our clients, and potential clients, which may in turn, impact~~decrease the demand for our ~~products and services. Specific risks impacting the cannabis industry include, but are not limited, to the following:~~

~~United States federal law prohibits Marijuana~~

Under the Controlled Substances Act (“CSA”), marijuana is a Schedule-I controlled substance making it illegal under federal law to grow, cultivate, distribute, sell or possess marijuana for any purpose or to assist or conspire with those who do so. Although the use of marijuana is legal in certain states under state law, since federal law supersedes state law, strict enforcement of federal law would likely result in adverse effects on our clients’ operations, which would in turn, adversely impact our revenues.

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~~Banking regulations could limit access to banking~~ services ~~and expose us to risk~~

Funds received from our clients in the cannabis industry, operating legally under state law, may subject us to a variety of federal laws and regulations involving money laundering, financial record keeping and proceeds of crime, since the funds are considered illegal under the CSA and as such banks and other financial institutions providing services to us risk violation of anti money laundering statutes and other applicable statutes. Furthermore, banks often refuse to provide banking services to businesses involved in the cannabis industry due to the federal and state laws and regulations governing financial institutions. The difficulty and potential inability to open bank accounts that ~~our clients in the cannabis industry deal with, makes it difficult to conduct business and as such could affect our ability to collect revenues earned. Furthermore, our clients in this industry~~ are more ~~susceptible~~discretionary in nature, we believe that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service providers, including PeriShip Global. Additionally, PeriShip Global is working with this major global carrier to ~~theft,~~address their small and ~~potentially lack the ability to insure themselves against theft. We may experience similar difficulties~~medium sized business clients, which we believe is an underserved segment and presents considerable growth opportunities for PeriShip Global. However, we can provide no assurances that a decline in ~~obtaining banking and financial services because of the activities of our clients in the cannabis industry.~~

~~The legality of cannabis could be reversed in one or more states~~

The voters or legislatures of states in which marijuana has already been legalized could potentially repeal applicable laws that permit the operation of both medical and retail marijuana businesses. These actions might force businesses, including those that are our clients, to cease operations in one or more states entirely. Additionally, these actions could negatively impact us and lead to a decrease of our revenue through the loss of current and potential customers.

~~Recent and changing interpretations of the law regarding medical and recreational use of marijuana~~

State laws and regulations surrounding medical and recreational use of marijuana are fairly recent and constantly changing resulting in a potential challenge to maintain compliance. As such, violations of these laws, or allegations of such violations, could be disruptive to our clients’ business and in return cause a disruption in our operations. Future modifications of state and local laws surrounding marijuana, may limit operations of our clients’ business in this industry, which could negatively impact our revenues.

~~Dependence on client licensing~~

~~Our clients in the cannabis industry must obtain various licenses from various local and state licensing agencies. As such, there is a risk that our existing clients~~discretionary consumer spending will not be able to retain their licenses going forward, should they violate applicable rules and regulations, or should renewal become more stringent. If our customers are not able to maintain or renew their licenses, this would adversely impact our operations.

~~Insurance Risk~~

~~Insurance companies may limit policies to only cover claims legal under federal law. As such our clients in the cannabis industry may not be properly insured. Any claims against our clients may~~ have a negative impact on our ~~ability~~revenues and results of operations. Adverse developments affecting economies throughout the world, including a general tightening of availability of credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases, could lead to ~~collect revenues from~~a further reduction in consumer discretionary spending and have an adverse effect on our ~~clients in the cannabis sector.~~business, financial condition, and results or operations.

Risks Related to our Debt

~~Global supply-chain delays~~If we do not timely pay amounts due and ~~shortages~~comply with the covenants under our debt facilities, our business, financial condition and results of operations may be adversely ~~impact our customers or potential customers~~impacted.

~~Global supply-chain delays~~Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and ~~shortages,~~satisfaction of liabilities in the normal course of business. The Term Note, among other things, requires high interest payments, and both the Term Note and the PNC Facility place encumbrances on our assets, and subject us to restrictive covenants that limit our operating flexibility. Additionally, under the terms of the Term Note, the Company is required to make monthly loan principal payments of $41,667 per month plus interest, through September 15, 2026.

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The terms of the Term Note and the PNC Facility have been structured in such a way that, if we default under one, we will also default under the other. In the event of a continuing default, our senior secured lenders would have the right to accelerate the then-outstanding amounts under each such facility and to exercise their respective rights and remedies to collect such amounts, which ~~are out~~would include foreclosing on collateral constituting substantially all of our ~~control,~~assets and the assets of our PeriShip Global subsidiary. Any continuing default on the Term Note or the PNC Facility could result in the outstanding principal balance under each such facility becoming immediately due and payable, which could harm our business, financial condition and results of operations and may have a material adverse impact on our business.

Our cash flows and operating results could be adversely affected by required payments of debt or related interest and other risks of our debt financing.

We are ~~currently affecting~~generally subject to risks associated with debt financing. These risks include: (1) our cash flow may not be sufficient to satisfy required payments of principal and interest; (2) we may not be able to refinance existing indebtedness or the terms of any refinancing may be less favorable to us than the terms of existing debt; (3) debt service obligations could reduce funds available for other uses such as growing our business; (4) any default on our indebtedness could result in acceleration of those obligations and possible loss of assets or capital; and (5) the risk that necessary capital expenditures cannot be financed on favorable terms. Any of these risks could place strains on our cash flows, reduce our ability to grow, and adversely affect our results of operations.

Covenants in our debt agreements may restrict our operating activities and adversely affect our financial condition.

Our existing debt agreements contain, and future debt agreements may contain, financial and/or operating covenants including, among other things, certain coverage ratios, as well as limitations on the ability to incur additional secured and unsecured debt, and/or otherwise affect our distribution and operating policies. These covenants may limit our operational flexibility and acquisition and disposition activities. Moreover, if any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a ~~wide variety of businesses globally including~~payment default. A default under one of our ~~customers. Supply-chain delays shortages may affect~~debt agreements could result in a cross-default under other debt agreements, and our ~~customers or potential customers~~lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, and enforce their respective interests against existing collateral. The terms of the Term Note and the PNC Facility have been structured in such a way that, if we default under one, we will also default under the other. In the event of a continuing default, our senior secured lenders would have the right to accelerate the then-outstanding amounts under each such facility and to exercise their respective rights and remedies to collect such amounts, which would ~~adversely affect~~include foreclosing on collateral constituting substantially all of our assets and the assets of our PeriShip Global subsidiary As a result, a default under applicable debt covenants could have an adverse effect on our financial condition or results of operations. These covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our stockholders.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~In August 2021, the Company issued 2,174 shares of restricted common stock in relation to investor relation services.~~

~~In September 2021, the Company issued 1,087 shares of restricted common stock in relation to investor relation services~~.

These securities described above were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), as set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from registration was required. The recipients of the securities described in the transactions above acquired the securities for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof.

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~~Use of Proceeds~~

On June 17, 2020, our Registration Statement on Form S-1 (File No. 333-234155), as amended (the “Registration Statement”) relating to an underwritten public offering of an aggregate of 2,173,913 units consisting of one share of the Company’s common stock and a warrant to purchase one share of common stock at an exercise price equal to $4.60 per share of common stock was declared effective by the SEC. The cash proceeds from the offering were $9,023 thousand, net of underwriting discounts and commissions of approximately $800 thousand and fees and expenses of approximately $450 thousand. There has been no material change in the expected use of the net proceeds from the offering, as described in our final prospectus filed with the SEC on June 19, 2020 pursuant to Rule 424(b)(4). As of September 30, 2021 this offering has terminated.

Share Repurchase Plan

ISSUER PURCHASES OF EQUITY SECURITIES

Period Total Number of Shares
(or Units) Purchased Average Price Paid per
Share (or Units) Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs⁽¹⁾⁽²⁾ Approximate Dollar Value of Shares that
May Yet Be Purchased Under the Plans
or Programs⁽¹⁾⁽²⁾
(In thousands)
07/01/2021-07/31/2021 - - - -
08/01/2021-08/31/2021 18,869 $3.45 18,869 $1,208
09/01/2021-09/30/2021 50,967 $3.36 50,967 $1,036
Total 69,836 $3.38 69,836 $1,036

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Units)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(1)(2)(3)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs^(1)(2)(3) (In thousands)
07/01/2022-07/31/2022	-	-	-	$1,500
08/01/2022-08/31/2022	60,000	$1.50	60,000	$1,410
09/01/2022-09/30/2022	15,530	$1.33	14,530	$1,390
Total	74,530	$1.46	74,530	$1,390

(1)

~~Purchases made pursuant to~~In November 2020, the Company’s Board of Directors approved a share repurchase program ~~announced on November 17, 2020, pursuant to which the Company is authorized to purchase~~for up to $1.5 million ~~worth of shares of its common stock. Under the repurchase program, shares~~ of the Company’s common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of shares repurchased depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program may be suspended or discontinued at any time until ~~it expires on~~ August 16, 2021. On August 12, 2021, the Company’s Board of Directors extended the share repurchase program to expire on August 16, 2022. ~~All other terms~~Effective July 1, 2022, the Company’s Board of Directors terminated the existing share repurchase program and ~~conditions remained~~approved a new share repurchase program to replace the ~~same.~~existing program due to expire in August 2022 to allow the Company to spend up to $1.5 million to repurchase shares of its common stock, so long as the price does not exceed $5.00 until July 1, 2023. During the three months ended September 30, 2022, the Company repurchased 74,530 shares of common stock under the Company’s current program.

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(2)

Excludes shares surrendered by employees to satisfy minimum tax withholding obligations on restricted stock awards which ~~vested~~Vested in the ~~third~~second quarter of ~~2021.~~2022.

(3)

Excludes 61,000 shares redeemed from the seller of the PeriShip acquisition as part of the settlement of outstanding debt outstanding in connection with the acquisition.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

The information included under the heading Share Repurchase Plan of Part II–Item 2–Unregistered Sales of Equity Securities and Use of Proceeds of this form 10-Q, is incorporated by reference herein.

ITEM 6: EXHIBITS

Exhibit No.		Description
10.1*^		Amendment to Professional Services Agreement with FedEx Corporate Services, Inc. dated August 25, 2022
10.2		Loan Agreement between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 27, 2022)
10.3+		Term Note between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2022)
10.4		Revolving Line of Credit Note between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 27, 2022)
10.5		Guaranty and Suretyship Agreement between VerifyMe, Inc., and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 27, 2022)
10.6		Security Agreement between PeriShip Global LLC and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 27, 2022)
10.7		Security Agreement between VerifyMe, Inc. and PNC Bank, National Association, effective September 15, 2022 (incorporated herein by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 27, 2022)
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 or furnished herewith, as applicable

^ Certain portions of this exhibit have been omitted (indicated by asterisks) pursuant to Item 601(b) of Regulation S-K of the Securities Act of 1933, as amended, because such omitted information is (i) not material and (ii) would be competitively harmful if publicly disclosed.

# Denotes management compensation plan or contract

+ The schedule to this agreement has been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the SEC upon request

2937

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~~SIGNATURES~~SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VERIFYME, INC.

Date: November 10, ~~2021~~2022	By: /s/ Patrick White
	Patrick White
	Chief Executive Officer (Principal Executive Officer)

Date: November 10, ~~2021~~2022	By: /s/ Margaret Gezerlis
	Margaret Gezerlis
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


	As of
	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	10,630		$	7,939
Accounts Receivable		319			31
Prepaid expenses and other current assets		111			177
Inventory		48			54
TOTAL CURRENT ASSETS		11,108			8,201

INVESTMENTS
Equity Investment		10,806			-

PROPERTY AND EQUIPMENT
Equipment for lease, net of accumulated amortization of $88 and $50 as of September 30, 2021 and December 31, 2020, respectively		207			200
Office Equipment, net of accumulated amortization of $1 and $0 as of September 30, 2021 and December 31, 2020, respectively		8			-

INTANGIBLE ASSETS
Patents and Trademarks, net of accumulated amortization of $345 and $320 as of September 30, 2021 and December 31, 2020, respectively		328			293
Capitalized Software Costs, net of accumulated amortization of $40 and $20 as of September 30, 2021 and December 31, 2020, respectively		143			80
TOTAL ASSETS	$	22,600		$	8,774

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and other accrued expenses	$	434		$	383
TOTAL CURRENT LIABILITIES		434			383

NON-CURRENT LIABILITIES
Term Note	$	-		$	72
Other Long Term Liabilities		9			-

TOTAL LIABILITIES	$	443		$	455

STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock, $.001 par value, 37,564,767 shares
authorized; 0 shares issued and outstanding as of September 30, 2021 and
0 shares issued and outstanding as of December 31, 2020		-			-

Series B Convertible Preferred Stock, $.001 par value; 85 shares
authorized; 0.85 shares issued and outstanding as of September 30, 2021 and		-			-
December 31, 2020, respectively

Common stock, $.001 par value; 675,000,000 authorized; 7,440,546 and 5,603,888 issued, 7,296,183 and 5,596,877 shares outstanding as of September 30, 2021 and December 31, 2020, respectively		7			6

Additional paid in capital		85,784			76,099

Treasury stock as cost; 144,363 and 7,011 shares as of September 30, 2021 and December 31, 2020, respectively		(577	)		(113	)

Accumulated deficit		(63,057	)		(67,673	)

STOCKHOLDERS' EQUITY		22,157			8,319

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	22,600		$	8,774


	Nine Months Ended
	September 30, 2021			September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)	$	4,616		$	(4,728	)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Stock based compensation		44			62
Fair value of options in exchange for services		85			643
Fair value of restricted stock awards issued in exchange for services		739			241
Fair value of restricted stock units issued in exchange for services		511			-
Fair value of warrants in exchange for services		-			54
Payroll Protection Program Debt Forgiveness		(70	)		-
Fair value gain on equity investment		(8,214	)		-
Loss on Extinguishment of Debt		-			281
Amortization of debt discount		-			1,992
Common stock issued for interest expense		-			61
Amortization and depreciation		84			70
Changes in operating assets and liabilities:
Accounts Receivable		(288	)		(22	)
Inventory		5			(18	)
Prepaid expenses and other current assets		66			(50	)
Accounts payable and accrued expenses		54			120
Net cash used in operating activities		(2,368	)		(1,294	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Patents		(60	)		(52	)
Purchase of Equipment for lease		(45	)		(23	)
Purchase of equity investment		(2,593	)		-
Purchase of Office Equipment		(8	)		-
Capitalized Software Costs		(84	)		-
Net cash used in investing activities		(2,790	)		(75	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of securities		8,447			9,023
Proceeds from issuance of notes payable		-			72
Repayments of notes payable		(3	)		-
Repayment of bridge financing and early redemption fee		-			(750	)
Proceeds from convertible debt, net of costs		-			1,747
Tax withholding payments for employee stock-based compensation in exchange for shares surrendered		(131	)		-
Repurchase Shares		(464	)		-
Net cash provided by financing activities		7,849			10,092

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,691			8,723
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		7,939			253

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	10,630		$	8,976

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	-		$	1
Income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Common Stock issued in relation to conversion of 2020 Debentures and warrant cancellation	$	-		$	1,992
Relative fair value of common stock issued in connection with 2020 Debentures	$	-		$	34
Relative fair value of warrants issued in connection with 2020 Debentures	$	-		$	1,063
Beneficial conversion feature in connection with 2020 Debentures	$	-		$	650
Common stock issued to settle accrued payroll	$	-		$	119


	Amounts in Thousands ('000)
		Nine Months Ended September,
		2021		2020
Operating Loss		(274	)	-
Net Loss		(273	)	-

	Unvested Options

	Weighted - Average
	Number of Unvested			Grant Date
	Options			Exercise Price
Balance as of December 31, 2020		10,000		$	9.75

Vested		(10,000	)		9.75

Balance as of September 30, 2021		-		$	-

	Warrants Outstanding
	Number of Shares		Weighted- Average Exercise Price		Weighted - Average Remaining Contractual Term in years)		Aggregate Intrinsic Value (in thousands)⁽¹⁾
Balance as of December 31, 2020		3,779,243	$	5.89

Granted		-		-

Balance as of September 30, 2021		3,779,243	$	5.89		3.3

Exercisable as of September 30, 2021		3,779,243	$	5.89		3.3	$	-


	(Unaudited) Three Months Ended September 30,					(Unaudited) Nine Months Ended September 30,
	2021		2020			2021		2020
Numerator:

Net Income/(Loss)	$	7,189	$	(983	)	$	4,616	$	(4,728	)
Denominator:
Weighted average shares of common stock – basic		7,290,975		5,488,111			7,078,046		3,436,805

Effect of dilutive securities

Preferred Stock		144,444		-			144,444		-

Stock Options		32,795		-			58,618		-

Warrants		12		-			30		-
Stock Purchase Plan		2,687		-			896		-
Restricted Stock Units & Restricted Stock Awards		100,072		-			53,234		-
Weighted average shares of common stock – diluted		7,570,985		5,488,111			7,335,268		3,436,805

Net Earnings (Loss) per share

Basic	$	0.99	$	(0.18	)	$	0.65	$	(1.38	)

Diluted	$	0.95	$	(0.18	)	$	0.63	$	(1.38	)

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Units)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾⁽²⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾⁽²⁾ (In thousands)
07/01/2021-07/31/2021	-	-	-	-
08/01/2021-08/31/2021	18,869	$3.45	18,869	$1,208
09/01/2021-09/30/2021	50,967	$3.36	50,967	$1,036
Total	69,836	$3.38	69,836	$1,036