Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

Cautionary Note Regarding Forward-Looking Statements

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

Our actual results and financial condition may differ materially from those expressed or implied in such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.

For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and our other filings with the Securities and Exchange Commission (the "SEC"). All forward-looking statements in this report are made only as of the date hereof or as indicated and represent our views as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise, except as required by law.

Overview

VerifyMe, Inc. ("VerifyMe," the "Company," "we," "us," or "our"), is a logistics company that specializes in time and temperature sensitive products, as well as providing brand protection and enhancement solutions. Prior to 2026, we reported two operating segments: Precision Logistics and Authentication. We are not actively pursuing authentication business but continue servicing existing customers. As of January 1, 2026, the Authentication segment falls below segment reporting quantitative thresholds, and is therefore not required to be presented as a separate reportable segment. As a result, beginning in 2026, we changed our internal reporting to the chief operating decision maker who is our Chief Executive Officer, and combined Precision Logistics and Authentication into a single segment, leaving Precision Logistics. This represents a reduction in the number of reportable segments by aggregation, not a re-labeling. Through our Precision Logistics segment, we provide a value-added service for sensitive parcel management driven by a proprietary software platform that provides predictive analytics from key metrics such as pre-shipment weather analysis, flight-tracking, sort volumes, and traffic, delivered to customers via a secure portal. The portal provides real-time visibility into shipment transit and last-mile events which is supported by a service center.

The Precision Logistics segment specializes in predictive analytics for optimizing delivery of time and temperature sensitive perishable products. We manage complex industry-specific shipping logistic processes that require critical time, temperature control, and handling to prevent spoilage and delayed delivery times and brand impairment. Utilizing predictive analytics from multiple data sources including flight-tracking, weather, traffic, major carrier feeds, and time of day data, we provide our clients an end-to-end vertical approach for their most critical service delivery needs. Using our proprietary IT platform, we provide real-time information and analysis to mitigate supply chain flow interruption, as well as delivering last-mile resolution for key markets, including the perishable healthcare and food industries.

Through our proprietary PeriTrack® customer dashboard, we provide an integrated tool that gives our customers an in-depth look at their shipping activities and allows them access to critical information in support of the specific needs of the supply chain stakeholders. We offer post-delivery services such as customized reporting for trend analysis, system performance reports, power outage maps, and other tailored reports.

Precision Logistics generates revenue from two business service models.

·

ProActive Service - clients pay us directly for carrier service coupled with our proactive logistics assistance.

·

Premium Services - clients use our shipping monitoring, predictive analytics, or exception management services. Shippers use their own transportation rates, provided and charged directly by their carrier, with our added services charged (i) directly by the carrier, under a "white label" arrangement, which we refer to as our Premium service, or (ii) by us, which we refer to as our Direct Premium service. These services include customer web portal access, weather monitoring, temperature control, full-service center support, and last mile resolution.

As discussed in the section "Partnerships" below, we ceased providing ProActive services to our prior carrier partner in September 2025. In February 2026, we ceased providing Premium services to our prior carrier partner. While we no longer provide ProActive and Premium services to our prior carrier partner, we continue to provide Direct Premium services to our customers who use our prior carrier partner for their shipping needs.

Beginning in September 2025, we began providing ProActive services to our new Strategic Partner. In June 2026, we began offering Premium and Direct Premium services to the customers of our Preferred Shipping Partner.

Products: The Precision Logistics segment includes the following bundled services as part of our service offerings to our customers:

·

PeriTrack®: Our proprietary PeriTrack® customer dashboard was developed utilizing our extensive logistics operational knowledge. This integrated web portal tool gives our customers an in-depth look at their shipping activities based on real-time data. The PeriTrack® dashboard was designed to provide critical information in support of the specific needs of supply chain stakeholders and gives our customer resolution specialists a 360° view of shipping activity. PeriTrack® features tools tailored for shippers of perishable goods, which includes the In-Transit Shipment Tracker. This tool provides details on the unique shipper's in-transit shipments, with the ability to select and analyze data on individual shipments.

·

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

·

Pre-Transit Service: We help clients prepare their products for shipments by advising clients on packaging requirements for various types of perishable products. Each product type requires its own particular packaging to protect it during shipment, and we utilize our extensive knowledge and research to provide our customers with packaging recommendations to meet their unique needs.

·

Post-Delivery: We provide customized reporting for trend analysis, system performance reports, power outage maps, and many other reports to help our customers improve their processes and customer service outcomes.

·

Weather/Traffic Service: We have full-time meteorologists on staff to monitor weather. A package may experience a variety of weather conditions between the origin and destination, and our team actively monitors these conditions to maximize the number of timely and safely transmitted shipments. Similarly, traffic and construction also create unpredictable delays which our team works diligently to mitigate. If delays or other issues occur, we inform clients and work with them to proactively resolve such shipment issues.

Recent Developments

Nasdaq Delisting Notice

On April 17, 2026, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC ("Nasdaq") indicating that, based on the closing bid price of our common stock for 30 consecutive business days, we no longer meet Nasdaq Listing Rule 5550(a)(2), which requires listed companies to maintain a minimum bid price of at least $1 per share (the "Minimum Bid Price Rule"). The Nasdaq Listing Rules provided us a compliance period of 180 calendar days, or until October 14, 2026, in which to regain compliance with the Minimum Bid Price Rule. See the "Risk Factors" section in this report.

Merger Agreement

On February 11, 2026, we entered into the Merger Agreement with the Merger Sub and Open World. Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will merge with and into Open World, Merger Sub will cease to exist and Open World will become our wholly-owned subsidiary. At the Effective Time, (i) each holder of ordinary shares of Open World outstanding immediately prior to the Effective Time (excluding holders of Excluding Shares and Dissenting Shares, as defined in the Merger Agreement) will be entitled to receive the number of shares of our common stock, based on the Exchange Ratio, (ii) each investor in Open World SAFEs outstanding immediately prior to the Effective Time will be entitled to receive a right to a number of shares of our common stock based on the Exchange Ratio and (iii) any outstanding option to purchase shares of Open World shall be converted into an option to purchase the number of shares of our common stock based on the Exchange Ratio.

Immediately following the Closing, our pre-Closing stockholders are expected to collectively retain approximately 10% of the post-Closing aggregate number of shares of our common stock and holders of Open World ordinary shares and Open World SAFEs will receive as merger consideration newly issued shares of our common stock representing approximately 87.75% of the post-Closing aggregate number of shares of our common stock and "Maxim Group", financial advisor to Open World, will hold approximately 2.25% of the post-Closing aggregate number of shares of our common stock (to the extent any portion of the advisory fee due to Maxim Group by OpenWorld exceeding the required upfront cash fee, if any, is paid in shares of common stock of the combined company and assuming a $200 million enterprise value for the combined company pursuant to the M&A Advisory Agreement between Maxim Group and Open World dated October 26, 2025).

The Merger Agreement contains customary representations, warranties and covenants, including, among others, (i) covenants requiring each of us and Open World to conduct its business in the ordinary course during the period between the execution of the Merger Agreement and the Closing or earlier termination of the Merger Agreement, subject to certain exceptions, (ii) covenants prohibiting us and Open World from engaging in certain kinds of transactions during such period (without the prior written consent of the other), and (iii) a covenant restricting us and Open World from activities relating to the soliciting, initiating, encouraging, inducing or facilitating the communication, making, submission or announcement of any alternative acquisition proposals or inquiries.

The Merger Agreement also requires us, in cooperation with the Open World, to prepare and file with the SEC a registration statement on Form S-4 that will contain a proxy statement relating to our stockholder meeting to be held in connection with the Merger (the "Registration Statement") and pursuant to which our shares of common stock will be registered under the Securities Act of 1933, as amended (the "Securities Act"), to be issued by virtue of the Merger and the contemplated transactions thereunder. We shall use our reasonable best efforts to (i) cause the Registration Statement to comply with applicable rules and regulations promulgated by the SEC, (ii) cause the Registration Statement to become effective as promptly as practicable, and (iii) keep the Registration Statement effective as long as is necessary to consummate the Merger and the contemplated transactions thereunder. In addition, under the Merger Agreement, the parties agreed to other customary provisions including (i) obtaining requisite stockholder approval to consummate the Merger and the contemplated transactions thereunder, (ii) obtaining regulatory approvals from relevant governmental authorities, (iii) indemnifying our directors and officers for a period of six years following the Closing, (iv) completing certain disclosure obligations required by the SEC and listing requirements promulgated by the Nasdaq Capital Market ("Nasdaq"), (v) electing or appointing to the positions of officers and directors of Company and the surviving corporation certain persons designated by Open World, and (vi) executing employment agreements between us and Adam Stedham and Jennifer Cola.

Pursuant to Merger Agreement, we have also agreed to enter into a Registration Rights Agreement and an Exchange Agent Agreement in forms reasonably acceptable to us and Open World at Closing.

Closing of the Merger is subject to various customary closing conditions. Each party's obligations to effect the Merger and otherwise consummate the contemplated transactions thereunder are conditioned upon (i) the effectiveness of the Registration Statement on Form S-4, (ii) expiration or termination of applicable regulatory waiting periods, (iii) no restraints from any governmental authority preventing the consummation of the contemplated transactions under the Merger Agreement, (iv) us and Open World obtaining the respective requisite stockholder votes to consummate the transactions contemplated by the Merger Agreement, (v) us causing our PeriShip subsidiary to terminate its current credit facility, (vi) us effectuating a reverse stock split upon the request of Open World, (vii) Nasdaq's approval of our Nasdaq listing application for the post-Merger entity, (viii) receipt of written approval of the Merger by the Cayman Islands Trade and Business Licensing Board, and (ix) execution of the Registration Rights Agreement. Our and Merger Sub's obligations to effect the Merger and otherwise consummate the contemplated transactions thereunder are further conditioned upon customary closing conditions. Open World's obligations to effect the Merger and otherwise consummate the contemplated transactions thereunder are further conditioned upon customary closing conditions as well as (i) us having Closing Net Cash, as defined in the Merger Agreement, of no less than $1 million, and (ii) our common stock having not been delisted from Nasdaq.

In connection with and subject to the Closing of the Merger, outstanding time-based and performance-based restricted stock awards and restricted stock units held by certain of our employees and directors at Closing will accelerate and vest, regardless of any performance conditions, at the Effective Time.

At the Closing of the Merger, pursuant to the Merger Agreement, each of David Edmonds, Marshall Geller, Howard Goldberg, and Adam Stedham are expected to resign as directors of our Board of Directors.

On April 15, 2026, we entered into the First Amendment , effective as of April 13, 2026 pursuant to which the outside date in the Merger Agreement was extended from June 30, 2026 to August 31, 2026.

On June 4, 2026, we entered into the Second Amendment, effective as of June 4, 2026, pursuant to which the definition of Fully Diluted Company Shares in the Merger Agreement was revised to include the aggregate number of Open World ordinary shares issuable in connection with any existing agreement to issue Equity Interests (as such term is defined in the Merger Agreement) of Open World.

On August 10, 2026, we entered into the Third Amendment, effective as of August 10, 2026, pursuant to which the outside date set forth in the Merger Agreement was extended from August 31, 2026 to October 31, 2026.

The foregoing description of the Merger Agreement, First Amendment, and Second Amendment does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the full text of the Merger Agreement, First Amendment, and Second Amendment.

Opportunities

Traditionally, most shipping businesses utilize the carrier's data platform for tracking which generally informs the shipping enterprise, and their customers, when a package is in transit, when a package has been delivered, and some level of detail of the path which a package traveled. We believe taking the data feeds from a carrier and adding real-time visibility with predictive analytics and the human intervention factor of our service center agents give us a competitive advantage against other third-party platforms that solely rely on the carrier's data feeds. We utilize a variety of input sources beyond the carrier's data feed. Our proprietary "Predictive Analytics" technology is fed real-time meteorology data, traffic and road construction data, and power grid information to help predict issues before they happen. If an alert is created the shipper and our service center agents work to address the issue saving the perishable product from spoiling, while saving the shipper significant costs and reducing the need to replace products that are no longer viable. We have meteorologists on staff that track world-wide weather patterns to address predicted issues before they happen. We believe the company has two significant areas of opportunity. First, our services are specifically designed to address the needs of small and medium-sized health care, agriculture, food and beverage companies. Second, the pharmaceutical and healthcare industries represent significant opportunities due to the enhanced tracking and customer service associated with distribution of these products. We are focusing our sales emphasis on those industries and discovering other industries that need a "high touch", "white glove" exception management team.

Building logistics infrastructure is a capital-intensive process as the investment is locked in for a considerably long period. Due to the current economic environment, and our cost competitive offering, we believe companies may opt to outsource their precision logistics services to reduce their operational costs. The outsourcing of supply chain related and other logistics operations to service providers such as ours allows companies to improve the efficiency of their businesses by focusing their resources on core competencies. We believe outsourcing this function to our Precision Logistics segment provides the ideal solution for all parties involved.

Partnerships

On August 26, 2025, our prior carrier partner, notified providers, including PeriShip Global, that it would be providing preferred shipping services through its own internal platform and that the providers would no longer be approved as preferred shippers effective September 24, 2025. As such, PeriShip Global is no longer a preferred shipper for our prior carrier partner and our Precision Logistics segment ceased providing ProActive services to our prior carrier partner's customers in September 2025. We continued to provide Premium services to our prior carrier partner until we ceased providing Premium services in February 2026. While we no longer provide ProActive and Premium services to our prior carrier partner, we continue to provide Direct Premium services to our customers who use our prior carrier partner for their shipping needs.

On September 24, 2025, we began offering ProActive services to the customers of an alternative Preferred Shipping Partner. In June 2026, we began offering Premium and Direct Premium services to the customers of our Preferred Shipping Partner.

Current Economic Environment

We have seen a softening in demand for some services related to high-end perishable items which seem to be impacted by reduced discretionary spending by U.S. consumers. In response to uncertainty in the global market and lower demand some carriers have implemented strategies to address a potential global recession. Additional changes in U.S. or international trade policy, along with continued uncertainty surrounding such policies, could lead to further weakened business conditions. Additionally, inflation and uncertainty and instability in the global economy and geopolitical events such as the war in Iran and unrest in areas of the world that are dependent upon fuel production can negatively affect transportation costs and further reduce consumer spending leading to fewer goods being transported globally. We can provide no assurances that a decline in discretionary consumer spending for these or any reasons will not have a negative impact on our revenues and results of operations.

Seasonality

We typically experience seasonal fluctuations in our net revenues from sales in our Precision Logistics segment. Revenues from sales are generally higher in the fourth quarter than in other quarters due to increased holiday shipments. While the fourth quarter is historically our highest revenue quarter, revenues from ProActive services declined in the quarter ended December 31, 2025 as compared to the quarter ended December 31, 2024 due to the previously disclosed loss of our prior carrier partner as a shipping supplier integrating our service offerings, and larger shippers not wanting to change shipping suppliers during the peak season. We anticipate that the historical seasonality trends of the business will return in 2026. The seasonality of our business may cause fluctuations in our quarterly operating results.

Results of Operations

Comparison of the three months ended June 30, 2026, and 2025

The following discussion analyzes our results of operations for the three months ended June 30, 2026 and 2025.

		Three Months Ended
		June 30,
		2026				2025
NET REVENUE		$	1,908			$	4,520
COST OF REVENUE			887				2,929
GROSS PROFIT			1,021				1,591
OPERATING EXPENSES
Management and technology			607				920
General and administrative			815				716
Research and development			-				5
Sales and marketing			155				272
Total Operating expenses			1,577				1,913
LOSS BEFORE OTHER INCOME			(556	)			(322	)
TOTAL OTHER INCOME, NET		$	51			$	31
NET LOSS		$	(505	)		$	(291	)

Revenue

Revenue decreased $2,612 thousand or 58% during the second quarter of 2026 compared to the second quarter of 2025. The decrease primarily relates to the termination of our agreement, effective September 24, 2025, with our prior carrier partner to offer our ProActive services which resulted in erosion of our customer base, as previously disclosed, compared to the same period in the prior year.

Gross Profit

Gross profit for the three months ended June 30, 2026, was $1,021 thousand, compared to $1,591 thousand for the three months ended June 30, 2025. The resulting gross margin was 54% for the three months ended June 30, 2026, compared to 35% for the three months ended June 30, 2025. The gross profit percentage increase relates to the mix of ProActive and Premium services provided during the current quarter.

Management and Technology

Management and technology expenses decreased by $313 thousand to $607 thousand for the three months ended June 30, 2026, compared to $920 thousand for the three months ended June 30, 2025. The decrease primarily relates to lower amortization of intangible assets as a result of the previously reported asset impairment in the third quarter of 2025, and a decrease in wages from reduced headcount.

General and Administrative Expenses

General and administrative expenses increased by $99 thousand to $815 thousand for the three months ended June 30, 2026, compared to $716 thousand for the three months ended June 30, 2025. The increase relates to an increase in legal expenses associated with the Company's proposed merger with Open World, partially offset by a decrease in stock compensation and wages.

Research and Development

Research and development expenses were $0 and $5 thousand for the three months ended June 30, 2026 and June 30, 2025, respectively.

Sales and Marketing

Sales and marketing expenses decreased by $117 thousand to $155 thousand for the three months ended June 30, 2026, compared to $272 thousand for the three months ended June 30, 2025. The decrease primarily relates to a decrease in headcount.

Interest Income, net

Interest income, net was $51 thousand for the three months ended June 30, 2026, compared to $32 thousand for the three months ended June 30, 2025. The increase primarily relates to interest earned from the ZenCredit promissory note, which matured on May 11, 2026 and was not renewed.

Net Loss

Net loss for the three months ended June 30, 2026 and 2025 was $505 thousand and $291 thousand, respectively. The increased loss primarily relates to the decrease in revenues resulting from the previously disclosed loss of the Company's former carrier partner. The resulting consolidated loss per share for the three months ended June 30, 2026, and three months ended June 30, 2025, was $0.04 and $0.02 per basic and diluted share, respectively.

Comparison of the six months ended June 30, 2026, and 2025

The following discussion analyzes our results of operations for the six months ended June 30, 2026 and 2025.

		Six Months Ended
		June 30,
		2026				2025
NET REVENUE		$	3,680			$	8,975
COST OF REVENUE			1,699				5,894
GROSS PROFIT			1,981				3,081
OPERATING EXPENSES
Management and technology			1,177				1,846
General and administrative			1,831				1,572
Research and development			-				10
Sales and marketing			296				568
Total Operating expenses			3,304				3,996
LOSS BEFORE OTHER INCOME			(1,323	)			(915	)
TOTAL OTHER INCOME, NET		$	139			$	53
NET LOSS		$	(1,184	)		$	(862	)

Revenue

Consolidated revenue decreased $5,295 thousand for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease primarily relates to the termination of the agreement, effective September 24, 2025, with our prior carrier partner to offer our ProActive services which resulted in erosion of our customer base, as previously disclosed, compared to the same period in the prior year.

Gross Profit

Consolidated gross profit for the six months ended June 30, 2026, was $1,981 thousand, compared to $3,081 thousand for the six months ended June 30, 2025. The resulting gross margin was 54% for the six months ended June 30, 2026, compared to 35% for the six months ended June 30, 2025. The gross profit percentage increase relates to the mix of ProActive and Premium services provided during the current period, and process improvements previously implemented to increase ProActive services margins.

Management and Technology

Management and technology expenses decreased by $669 thousand to $1,177 thousand for the six months ended June 30, 2026, compared to $1,846 thousand for the six months ended June 30, 2025. The decrease primarily relates to lower amortization of intangible assets as a result of the previously reported asset impairment in the third quarter of 2025, and a decrease in wages from reduced headcount.

General and Administrative Expenses

General and administrative expenses increased by $259 thousand to $1,831 thousand for the six months ended June 30, 2026, compared to $1,572 thousand for the six months ended June 30, 2025. The increase relates to legal expenses associated with the Company's proposed merger with Open World, partially offset by a decrease in stock compensation and wages.

Research and Development

Research and development expenses were $0 thousand and $10 thousand for the six months ended June 30, 2026, and 2025, respectively.

Sales and Marketing

Sales and marketing expenses decreased by $272 thousand to $296 thousand for the six months ended June 30, 2026, compared to $568 thousand for the six months ended June 30, 2025. The decrease primarily relates to a decrease in headcount.

Interest Income, net

Net interest income was $139 thousand for the six months ended June 30, 2026, compared to net interest income of $54 thousand for the six months ended June 30, 2025. The increase primarily relates to interest earned from the ZenCredit promissory note, which matured on May 11, 2026 and was not renewed.

Net Loss

Consolidated net loss for the six months ended June 30, 2026, and 2025 was $1,184 thousand and $862 thousand, respectively. The increased loss primarily relates to the decrease in revenues resulting from the previously disclosed loss of the Company's former carrier partner. The resulting consolidated loss per share for the six months ended June 30, 2026, and six months ended June 30, 2025, was $0.09 and $0.07 per basic and diluted share, respectively.

Liquidity and Capital Resources

Cash used in operations was $1,002 thousand during the six months ended June 30, 2026, compared to $306 thousand provided by operations during the six months ended June 30, 2025. The increase in cash used in operating activities was primarily attributable to lower revenue and gross profit following the previously disclosed termination of our former partner agreement, as well as increased legal and other expenses related to the proposed merger with OpenWorld.

Cash provided by investing activities was $1,768 thousand during the six months ended June 30, 2026, compared to $332 thousand used in investing activities during the six months ended June 30, 2025. The increase was primarily attributable to the collection of the ZenCredit promissory note receivable on May 11, 2026.

Cash used in financing activities during the six months ended June 30, 2026, was $27 thousand, compared to cash provided by financing activities during the six months ended June 30, 2025, of $3,270 thousand. The change was primarily attributable to one-time proceeds received from the exercise of warrants during the six months ended June 30, 2025, with no comparable proceeds received in 2026.

On August 8, 2025, we entered into the Loan Agreement with ZenCredit. Pursuant to the Loan Agreement, we agreed to loan ZenCredit up to $2 million and on August 11, 2025, we loaned ZenCredit $2 million in exchange for a promissory note issued pursuant to the Loan Agreement. On May 11, 2026, our $2.0 million promissory note issued under our Loan Agreement with ZenCredit matured and became due and payable. On May 11, 2026, we received from ZenCredit our principal balance of $2.0 million plus our final quarterly interest payment of $80 thousand, and we reversed a credit loss reserve of $12 thousand.

On January 13, 2025, we entered into an Inducement Letter Agreement with an institutional investor and holder of existing warrants to purchase up to 1,461,896 shares of our common stock for $4.7 million in gross proceeds. The existing warrants were originally issued on April 14, 2022, with an exercise price of $3.215 per share, and became exercisable six months following issuance. Pursuant to the Inducement Letter Agreement, the holder agreed to exercise the existing warrants for cash at the exercise price of $3.215 per share in consideration for our agreement to issue a new unregistered warrant to purchase up to an aggregate of 1,461,896 shares of common stock at an exercise price of $4.00 per share. The new warrant was immediately exercisable upon issuance and has a term of five and one-half years from the issuance date.

The Company recognized the fair value of the new warrants, calculated using the Black-Scholes option pricing model, as $3,971 thousand. The transaction was treated as an equity issuance, and the fair value of the new warrants was recorded in additional paid-in capital. Direct transaction costs totaling approximately $352 thousand, including legal fees and placement agent commissions, were also recorded as a reduction to additional paid-in capital.

On August 25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory notes for the aggregate principal amount of $1,100 thousand of which $475 thousand was purchased by related parties including certain members of management and the Board of Directors. As of December 31, 2025, $400 thousand was held by related parties. The notes are subordinated unsecured obligations of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears on February 25 and August 25 of each year, beginning on February 25, 2024. The notes will mature on August 25, 2026, unless earlier converted or repurchased at a conversion price of $1.15 per share of common stock. The Company may not redeem the notes prior to the maturity date. For the year ended December 31, 2025, interest expense related to the convertible debt was $61 thousand. As of January 21, 2025, $350 thousand was converted to common stock, none of which was related parties. As of June 30, 2026, the amount outstanding on the convertible debt was $750 thousand and included in Convertible note and Convertible note related party on the accompanying Consolidated Balance Sheets.

On September 22, 2022, we entered into the PNC Facility with PNC Bank, National Association. The PNC Facility includes a $1 million RLOC. The RLOC has no scheduled payments of principal until maturity, and bears interest per annum at a rate equal to the sum of Daily SOFR plus 2.85% with monthly interest payments. The RLOC is guaranteed by the Company and secured by the assets of PeriShip Global and the Company. On August 8, 2025, the Company extended the line of credit to September 30, 2026. As of June 30, 2026, $0 was outstanding on the RLOC.

The PNC Facility included a four-year Term Note for $2 million which matured in September of 2026 and required equal quarterly payments of principal and interest. The Term Note incurred interest per annum at a rate equal to the sum of Daily SOFR plus 3.1%. The PNC Facility is guaranteed by VerifyMe and secured by the assets of PeriShip Global and VerifyMe. As of January 21, 2025, the Term Note was paid in full and no future principal payments are due.

In connection with the Merger Agreement, we have agreed that PeriShip Global will not utilize the PNC Facility or RLOC from the execution of the Merger Agreement. Additionally, we have agreed that at least three business days prior to closing of the Merger to cause PeriShip Global to use its reasonable best efforts to obtain and deliver to Open World, a customary payoff letter with respect to the PNC Facility. As such, we do not expect to be able to utilize the PNC Facility or RLOC unless the Merger is not completed pursuant to the terms of the Merger Agreement.

We believe that our cash and cash equivalents, together with the proceeds from the warrant inducement and loan agreement, will fund our operations for the next 12 months including expected capital expenditures.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. Management has determined that there are no critical accounting estimates that require disclosure.

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

Revenue Recognition

We recognize revenue based on the principals established in the Financial Accounting Standards Board Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers. The timing of revenue recognition, billings and cash collections results in unbilled revenue (contract assets) and deferred revenue (contract liabilities) on the consolidated balance sheets. Amounts charged to our clients become billable according to the contract terms, which usually consider the delivery completion. Unbilled amounts will generally be billed and collected within 30 days but typically no longer than 60 days. When we advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within twelve months. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the six-month period ended June 30, 2026, were not materially impacted by any other factors.

Applying the practical expedient in ASC Topic 606, we recognize the incremental costs of obtaining contracts (sales commissions) as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. As of June 30, 2026, we did not have any capitalized sales commissions.

Recently Adopted Accounting Pronouncements

Recently adopted accounting pronouncements are discussed in Note 1 - Summary of Significant Accounting Policies in the notes accompanying the financial statements.