| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business VerifyMe, Inc. (“VerifyMe”) was incorporated
in the State of Nevada VerifyMe, through PeriShip Global, 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. The Company’s activities are subject to significant risks and uncertainties.
See the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and our other filings with the 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, 2021, as filed with the Securities and Exchange Commission (the “SEC”)
on March 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, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 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. 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 Fair Value of Financial Instruments The Company’s financial instruments consist
of accounts receivable, accounts payable, notes payable and accrued expenses, equity investments, and 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. 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 determined that G3 VRM Acquisition
Corp. (NASDAQ: GGGVU) (the “SPAC”, see Note 2 – Equity Investments), a Delaware corporation and special purpose acquisition
company, was a variable interest entity (“VIE”) in which the Company had a variable interest but was 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 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 was not the primary beneficiary of the VIE and as such, did not consolidate the SPAC. The Company
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. 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 Note 2 –
Equity 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 investments
are included in Loss on equity investments on the accompanying Consolidated Statements of Operations. Revenue Recognition The Company accounts for revenues according to
Accounting Standards Codification (“ASC”) Topic 606, “ Revenue from Contracts with 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, 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 goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.
Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values
of the identifiable assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately
apply preliminary value to assets acquired and liabilities assumed at the acquisition date, where applicable, these estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition
date, the Company records adjustments in the current period, rather than a revision to a prior period. Upon the conclusion of the measurement
period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments
are recorded in the Consolidated Statements of Operations. Accounting for business combinations requires management to make significant
estimates and assumptions, especially at the acquisition date, including estimates for intangible assets where applicable. Although the
Company believes the assumptions and estimates made have been reasonable and appropriate, they are based in part on information obtained
from management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect
the accuracy or validity of such assumptions, estimates, or actual results. Basic and Diluted Net Loss per Share of Common Stock The Company follows 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. 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 4,852,000 757,000 337,000 3,614,000 1,545,000 144,000 3,880,000 95,000 3,779,000 6,000 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. |
