VerifyMe(US:VRME)2025-08-13 20:45PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, cash flows, and stockholders' equity, along with detailed notes explaining significant accounting policies, revenue recognition, business combinations, intangible assets, equity, debt, income taxes, leases, concentrations, segment reporting, and subsequent events Consolidated Balance Sheets (Unaudited) Consolidated Balance Sheets (Unaudited) (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Cash and cash equivalents | $6,067 | $2,823 | +$3,244 | | Accounts receivable, net | $1,100 | $2,636 | -$1,536 | | Total Current Assets | $7,867 | $6,362 | +$1,505 | | Total Assets | $17,166 | $16,067 | +$1,099 | | Term note, current | $- | $500 | -$500 | | Accounts payable | $1,559 | $2,971 | -$1,412 | | Total Current Liabilities | $1,937 | $4,239 | -$2,302 | | Total Liabilities | $2,730 | $5,853 | -$3,123 | | Total Stockholders' Equity | $14,436 | $10,214 | +$4,222 | Consolidated Statements of Operations (Unaudited) Consolidated Statements of Operations (Unaudited) (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Net Revenue | $4,520 | $5,352 | -15.5% | $8,975 | $11,111 | -19.3% | | Cost of Revenue | $2,929 | $3,262 | -10.2% | $5,894 | $6,761 | -12.8% | | Gross Profit | $1,591 | $2,090 | -23.9% | $3,081 | $4,350 | -29.2% | | Total Operating Expenses | $1,913 | $2,626 | -27.2% | $3,996 | $5,533 | -27.8% | | Net Loss | $(291) | $(346) | -15.9% | $(862) | $(899) | -4.1% | | Basic/Diluted EPS | $(0.02) | $(0.03) | -33.3% | $(0.07) | $(0.09) | -22.2% | Consolidated Statements of Comprehensive Loss (Unaudited) Consolidated Statements of Comprehensive Loss (Unaudited) (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Loss | $(291) | $(346) | $(862) | $(899) | | Change in fair value of interest rate, Swap | $- | $2 | $(12) | $5 | | Foreign currency translation adjustments | $- | $18 | $- | $(49) | | Total Comprehensive Loss | $(291) | $(326) | $(874) | $(943) | Consolidated Statements of Cash Flows (Unaudited) Consolidated Statements of Cash Flows (Unaudited) (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $306 | $312 | | Net cash used in investing activities | $(332) | $(191) | | Net cash provided by (used in) financing activities | $3,270 | $(313) | | Net increase (decrease) in cash and cash equivalents | $3,244 | $(195) | | Cash and cash equivalents, end of period | $6,067 | $2,900 | - Proceeds from Warrants Exercise contributed $4,348 thousand to financing activities in the six months ended June 30, 202522 - Repayment of debt and line of credit amounted to $875 thousand in the six months ended June 30, 202522 Consolidated Statements of Stockholders' Equity (Unaudited) Consolidated Statements of Stockholders' Equity (Unaudited) (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Common stock | $13 | $11 | | Additional paid in capital | $101,392 | $96,344 | | Treasury stock | $(434) | $(480) | | Accumulated deficit | $(86,535) | $(85,673) | | Total Stockholders' Equity | $14,436 | $10,214 | - Warrants exercise contributed $4,348 thousand to additional paid-in capital27 - Convertible note conversion added $360 thousand to total equity27 - The company repurchased 201,486 shares for $153 thousand during the six months ended June 30, 20252627 Notes to Consolidated Financial Statements (Unaudited) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - VerifyMe, Inc. is a logistics company specializing in time and temperature sensitive products and brand protection solutions, operating through Precision Logistics and Authentication segments31150 - Precision Logistics, through its subsidiary PeriShip Global, accounts for nearly all of VerifyMe's revenue31150 - The Company is evaluating the potential effects of new accounting standards ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), effective for annual periods beginning January 1, 2025, and December 15, 2026, respectively3638 NOTE 2 – REVENUE Revenue (in thousands) | Revenue (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (%) | | :--------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Precision Logistics | $4,493 | $5,244 | -14.3% | $8,922 | $10,858 | -17.8% | | Proactive services | $3,829 | $3,945 | -2.9% | $7,523 | $8,170 | -7.9% | | Premium services | $664 | $1,299 | -48.9% | $1,399 | $2,688 | -47.9% | | Authentication | $27 | $108 | -75.0% | $53 | $253 | -79.0% | | Total Revenue | $4,520 | $5,352 | -15.5% | $8,975 | $11,111 | -19.3% | - The decrease in Authentication segment revenue is primarily due to the divestiture of the Trust Codes Global business in December 2024169178 - Unbilled revenue (contract assets) decreased from $733 thousand at January 1, 2025, to $324 thousand at June 30, 202563 NOTE 3 – BUSINESS COMBINATIONS - VerifyMe divested its Trust Codes Global business (Authentication segment) on December 8, 2024, for $1 NZD, resulting in a $0.1 million loss64 NOTE 4 – INTANGIBLE ASSETS AND GOODWILL Intangible Assets and Goodwill (in thousands) | Asset Category (in thousands) | June 30, 2025 (Net Carrying Amount) | December 31, 2024 (Net Carrying Amount) | | :---------------------------- | :---------------------------------- | :-------------------------------------- | | Goodwill | $3,988 | $3,988 | | Patents and Trademarks | $839 | $882 | | Customer Relationships | $1,252 | $1,344 | | Developed Technology | $1,470 | $1,732 | | Internally Used Software | $1,411 | $1,211 | | Non-Compete Agreement | $69 | $88 | | Deferred Implementation | $101 | $108 | | Total Intangible Assets, Net | $5,142 | $5,365 | - Amortization expense for intangible assets was $548 thousand for the six months ended June 30, 202575 - The Company expects to record $567 thousand in amortization expense for the remaining six months of 202577 NOTE 5 – STOCKHOLDERS' EQUITY - The Company expensed $96 thousand for restricted stock awards and $410 thousand for restricted stock units for the six months ended June 30, 20257879 - $350 thousand of convertible notes were converted into 313,520 shares of common stock as of January 21, 202580 - The Company repurchased 201,486 shares for $153 thousand under its share repurchase program during the six months ended June 30, 202588214 - As of June 30, 2025, 410,757 shares were held in treasury, valued at approximately $434 thousand87 NOTE 6 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS Equity Instrument Details | Equity Instrument | June 30, 2025 (Number of Shares/Units) | Weighted-Average Exercise Price / Grant Date Fair Value | Unrecognized Compensation Cost (in thousands) | | :---------------- | :------------------------------------- | :------------------------------------------------------ | :-------------------------------------------- | | Stock Options Outstanding | 140,000 | $3.50 | $0 | | Unvested Restricted Stock Awards | 0 | $- | $0 | | Unvested Time-Based Restricted Stock Units | 224,471 | $1.41 | $259 | | Unvested Performance-Based Restricted Stock Units | 1,321,591 | $1.15 | $513 | | Warrants Outstanding | 1,555,207 | $3.95 | N/A | - On January 13, 2025, the Company entered into a warrant inducement agreement, resulting in $4.3 million net proceeds from warrant exercises and the issuance of new warrants to purchase 1,461,896 shares at $4.00 per share109110 - The fair value of the new warrants was estimated at $3,971 thousand and recorded in additional paid-in capital110 - The Company entered into an At-The-Market Sales Agreement (ATM) on March 6, 2025, to sell up to $15.8 million of common stock, but no shares have been sold through the ATM as of June 30, 2025113115 NOTE 7—DEBT - The Term Note balance of $875 thousand was paid in full on January 21, 2025119 - The revolving line of credit (RLOC) had $0 outstanding as of June 30, 2025120 - The interest rate swap agreement was terminated on January 21, 2025, with $12 thousand reclassified from accumulated other comprehensive loss121 - Convertible debt outstanding was $750 thousand as of June 30, 2025, including $450 thousand held by related parties122 NOTE 8—INCOME TAXES - No taxes payable as of June 30, 2025, or December 31, 2024123 - No tax benefit recognized for the six months ended June 30, 2025, due to uncertainty of realizing deferred tax assets, with a valuation allowance in place124126 - Utilization of net operating loss (NOL) carryforwards may be limited by Section 382 of the IRC due to potential ownership changes125 NOTE 9– LEASES Lease Metrics (in thousands) | Lease Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Operating Lease right-of-use asset | $89 | $236 | | Total operating lease liabilities | $94 | $247 | | Cash paid for operating lease liabilities | $39 | $126 | | Weighted-average remaining lease term (years) | 1.8 | 2.3 | | Weighted average discount rate | 7.4% | 6.0% | - Total lease costs for the six months ended June 30, 2025, were $47 thousand, compared to $104 thousand in the prior year130 NOTE 10– CONCENTRATIONS - One customer accounted for 13% of revenues for the six months ended June 30, 2025132 - One vendor accounted for 99% of transportation costs in the Precision Logistics segment for the three and six months ended June 30, 2025132 - Two customers comprised 26% of accounts receivable, net, as of June 30, 2025133 NOTE 11 – SEGMENT REPORTING Segment Reporting (in thousands) | Metric (in thousands) | Precision Logistics (6 Months Ended June 30, 2025) | Authentication (6 Months Ended June 30, 2025) | Precision Logistics (6 Months Ended June 30, 2024) | Authentication (6 Months Ended June 30, 2024) | | :-------------------- | :------------------------------------------------- | :-------------------------------------------- | :------------------------------------------------- | :-------------------------------------------- | | Net Revenue | $8,922 | $53 | $10,858 | $253 | | Cost of Revenue | $5,881 | $13 | $6,732 | $29 | | Gross Profit | $3,041 | $40 | $4,126 | $224 | | Total Segment Expenses | $2,474 | $(50) | $2,583 | $935 | | Segment Income | $567 | $90 | $1,543 | $(711) | - Precision Logistics segment offers value-added services for time and temperature sensitive parcel management, utilizing a proprietary IT platform for predictive analytics and real-time visibility135150 - Authentication segment specializes in anti-counterfeit and brand protection136153 NOTE 12 – SUBSEQUENT EVENTS - On August 8, 2025, VerifyMe entered a loan agreement with ZenCredit Ventures, LLC, to loan up to $2 million at 16% annual interest144 - An initial loan of $2 million was disbursed to ZenCredit on August 11, 2025144 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews VerifyMe's business, market opportunities, financial performance, liquidity, and capital resources for the periods ended June 30, 2025 Overview - VerifyMe operates two segments: Precision Logistics (majority revenue, sensitive parcel management with predictive analytics) and Authentication (anti-counterfeit and brand protection)150 - Precision Logistics offers "ProActive Service" (carrier service + proactive logistics) and "Premium Service" (white-glove monitoring, predictive analytics, web portal, service center)152 - The PeriTrack® customer dashboard provides real-time data, in-depth shipping activity insights, and tools for perishable goods shippers151157 Opportunities - Proprietary "Predictive Analytics" technology, integrating real-time meteorology, traffic, and power grid data, provides a competitive advantage by predicting and mitigating shipping issues154 - Significant growth opportunities exist in small and medium-sized agriculture, food and beverage companies, and the pharmaceutical and healthcare industries154 - The current economic environment may encourage companies to outsource precision logistics services, benefiting VerifyMe's cost-competitive offerings155 Partnerships - Precision Logistics has a direct partnership with a major global carrier, providing data feeds for its proprietary logistics optimization software156 - The strategic partner is shifting to offer its own solutions, potentially impacting VerifyMe's "Premium service" but not "Proactive services," where direct customer focus is expected to drive growth156 - The Authentication segment has a contract with HP Indigo and a strategic partnership with INX for anti-counterfeit solutions159 Current Economic Environment - Softening demand for high-end perishable items is observed due to reduced discretionary spending161 - Cost-cutting measures by major global carriers could benefit outsourced service providers, creating growth opportunities for VerifyMe's Precision Logistics segment, particularly with small and medium-sized businesses161 - Changes in U.S. or international trade policy, including tariffs, could further weaken business conditions161 Seasonality - Net revenues from the Precision Logistics segment are generally higher in the fourth quarter due to increased holiday shipments162 Recent Developments - PeriShip Global signed agreements with UPS on July 29, 2025, for digital channel program access and API integration, offering promotional rates for time-sensitive and perishable shipments163 - On August 11, 2025, VerifyMe loaned $2 million to ZenCredit Ventures, LLC, under a Master Loan Agreement with a 16% annual interest rate164 - The Company received a Nasdaq deficiency notice on April 3, 2025, for failing to meet the $1 minimum bid price rule, with a compliance period until September 30, 2025165 - The Company's Uplist Warrants (VRMEW) expired on June 23, 2025, and Nasdaq formalized their suspension167 Results of Operations Comparison of the three months ended June 30, 2025, and 2024 Financial Performance (Q2 2025 vs Q2 2024, in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Total Revenue | $4,520 | $5,352 | $(832) | -15.5% | | Gross Profit | $1,591 | $2,090 | $(499) | -23.9% | | Gross Margin | 35% | 39% | -4% pts | | | Segment Management and Technology Expenses | $920 | $1,517 | $(597) | -39.4% | | General and Administrative Expenses | $716 | $894 | $(178) | -19.9% | | Sales and Marketing Expenses | $272 | $210 | $62 | +29.5% | | Interest Income (Expense), net | $32 | $(42) | $74 | N/A | | Net Loss | $(291) | $(346) | $55 | -15.9% | | Basic/Diluted EPS | $(0.02) | $(0.03) | $0.01 | -33.3% | - Revenue decrease attributed to $585 thousand from a discontinued Premium services contract and $495 thousand from two discontinued Proactive services customers169 - Gross profit decrease is linked to lower Premium services revenue (higher margins) and the divestiture of Trust Codes Global170 Comparison of the six months ended June 30, 2025, and 2024 Financial Performance (H1 2025 vs H1 2024, in thousands) | Metric (in thousands) | H1 2025 | H1 2024 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Total Revenue | $8,975 | $11,111 | $(2,136) | -19.2% | | Gross Profit | $3,081 | $4,350 | $(1,269) | -29.2% | | Gross Margin | 34% | 39% | -5% pts | | | Segment Management and Technology Expenses | $1,846 | $2,860 | $(1,014) | -35.5% | | General and Administrative Expenses | $1,572 | $2,015 | $(443) | -22.0% | | Sales and Marketing Expenses | $568 | $598 | $(30) | -5.0% | | Interest Income (Expense), net | $54 | $(80) | $134 | N/A | | Net Loss | $(862) | $(899) | $37 | -4.1% | | Basic/Diluted EPS | $(0.07) | $(0.09) | $0.02 | -22.2% | - Revenue decrease attributed to decreased demand in Proactive services, a customer's shift to their own cold chain strategy, and a discontinued Premium services contract178 - Gross profit decrease is linked to lower Premium services revenue (higher margins) and the divestiture of Trust Codes Global179 Liquidity and Capital Resources - Net cash provided by operating activities was $306 thousand for the six months ended June 30, 2025186 - Net cash used in investing activities increased to $332 thousand, mainly due to increased capitalized software costs186 - Net cash provided by financing activities was $3,270 thousand, primarily from $4.7 million in gross proceeds from warrant exercises, partially offset by share repurchases and debt repayment187188 - The Company believes its cash and cash equivalents will fund operations beyond the next 12 months and may pursue additional debt or equity for organic growth and acquisitions195 Off-Balance Sheet Arrangements - The Company has no off-balance sheet arrangements196 Critical Accounting Policies and Estimates - No critical accounting policies and estimates were discussed in this section197 Recently Adopted Accounting Pronouncements - Recently adopted accounting pronouncements are detailed in Note 1 – Summary of Significant Accounting Policies198 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section states that it is "Not Applicable," indicating no material market risk disclosures for the period - The Company has no material quantitative and qualitative disclosures about market risk for the period199 ITEM 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025200 Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025201 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings The Company reported no legal proceedings for the period - There are no legal proceedings to report204 ITEM 1A. Risk Factors The Company disclosed a new risk factor related to its non-compliance with Nasdaq's minimum bid price rule, which could lead to delisting and negatively impact its stock and ability to raise capital - The Company is not in compliance with Nasdaq's Minimum Bid Price Rule ($1 per share) as of April 3, 2025, risking delisting206 - Potential delisting could negatively impact common stock market price and liquidity, reduce capital raising ability, and lead to loss of business partner confidence and institutional investor interest207208 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the issuance of common stock for consulting services under an unregistered exemption and details the Company's share repurchase program activities during the quarter - On June 30, 2025, 60,000 common shares were issued for consulting services under a Section 4(a)(2) exemption207 Share Repurchase Program (in thousands) | Period | Total Shares Purchased | Average Price Paid per Share | Total Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | | :----- | :--------------------- | :--------------------------- | :------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | 04/01/2025-04/30/2025 | - | - | - | $483 | | 05/01/2025-05/31/2025 | 89,992 | $0.74 | 89,992 | $417 | | 06/01/2025-06/30/2025 | 111,494 | $0.78 | 111,494 | $330 | | Total | 201,486 | $0.76 | 201,486 | $330 | - The share repurchase program, extended through December 31, 2025, allows for repurchases up to $0.5 million at prices not exceeding $1.00 per share214 ITEM 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities for the period - There were no defaults upon senior securities210 ITEM 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable to the Company211 ITEM 5. Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the three months ended June 30, 2025 - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during Q2 2025212 ITEM 6. Exhibits This section lists the exhibits filed with the 10-Q report, including amended bylaws, certifications, and XBRL documents - The exhibits include amended bylaws, CEO/CFO certifications (Sarbanes-Oxley Act), and XBRL instance and taxonomy documents213 SIGNATURES - The report was signed by Adam Stedham, CEO and President, and Jennifer Cola, CFO, on August 13, 2025217