UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
FORM 10-K/A
(Amendment No. 1)
 
 
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the fiscal year ended December 31, 2017
 
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from                        to                      
 
Commission File Number 0-31927
 
 
 
VERIFYME, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
 
Nevada
 
23-3023677
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 75 S. Clinton Avenue Rochester, NY  14604
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s telephone number, including area code: (585) 736-9400
 
Securities registered pursuant to Section 12(b) of the Act:
 
None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.001 par value
 
1
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☐  or No   ☒
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ☐  or No   ☒
 
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   ☒  or No   ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes   ☒  or No   ☐
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer
 
☐
  
Accelerated filer
 
☐
 
 
 
 
Non-accelerated filer
 
☐   (Do not check if a smaller reporting company)
  
Smaller reporting company
 
☒
       
Emerging Growth
Company
☐
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐  or No   ☒
 
The aggregate market value of the common stock held by non-affiliates of the registrant was $1,941,452 as of June 30, 2017 based o n the price in which the common stock of the registrant was last sold as reported by the OTCQB. Shares of common stock held by each current executive officer and director and by each person who is known by the registrant to own 5% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not a conclusiv e determination for other purposes.
 
The registrant had 84,896,325 shares of common stock outstanding as of the close of business on April 12, 2018.
   
 
2
 
DOCUMENTS INCORPORATED BY REFERENCE
 
NONE
 
 
 
EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on April 16, 2018 (the “2017 Annual Report”). We are filing this Amendment to i) add the Company’s Report of Independent Registered Public Accounting Firm for the year ended December 31, 2016 and ii) edit applicable dates and page numbers of the financial statements to reflect the filing of this Amendment.

Except as described above, no other changes have been made to the 2017 Annual Report. The 2017 Annual Report continues to speak as of the date of filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the 2017 Annual Report other than as expressly indicated in this Amendment.
 
VERIFYME, INC.
 
FORM 10-K ANNUAL REPORT
Year Ended December 31, 2017

 
 
 
 
Page
 
PART I
 
 
 
 
Item 1.
 
4
  
Item 1A.
 
24
  
Item 1B.
 
24
  
Item 2.
 
24
  
Item 3.
 
24
  
Item 4.
 
24
  
 
 
 
PART II
 
 
 
 
Item 5.
 
25
  
Item 6.
 
26
  
Item 7.
 
27
  
Item 7A.
 
38
  
Item 8.
 
38
  
Item 9.
 
39
  
Item 9A.
 
39
  
Item 9B.
 
40
  
 
 
 
PART III
 
 
 
 
Item 10.
 
40
  
Item 11.
 
40
  
Item 12.
 
40
  
Item 13.
 
40
  
Item 14.
 
40
  
 
 
 
PART IV
 
 
 
 
Item 15.
 
40
  
Item 16.
  41  
 
 
PART I
 
 
ITEM 1.  BUSINESS .
 
Overview

 VerifyMe, Inc. (the “Company,” “VerifyMe,” “we,” “us,” or “our”) is a technology pioneer in the brand protection/anti-counterfeiting industry. The Company was formed as LaserLock Technologies, Inc., in Nevada on November 10, 1999.  For the last three years the Company has been engaged in researching, developing, and monetizing products in the brand protection and anti-counterfeiting industry. This broad market encompasses identifying and preventing counterfeiting of physical and material goods and products, as well as identifying counterfeiting in digital transactions. We have the ability to deliver security solutions for identification and authentication of people, products and packaging in a variety of applications in the security field for both digital and physical transactions. Our products can be used to print, secure and covertly serialize labels and packaging for brand owners, manage and issue secure credentials, including national identifications, passports, driver licenses and access control credentials, as well as comprehensive authentication security software to securely process digital financial transactions, provide secure physical and logical access to facilities, computer networks, internet sites and mobile applications.
 
The challenges associated with digital access control and identity theft are problems that are highly relevant in the world today. Consumers, citizens, employees, governments and employers demand comprehensive solutions that are reliable but not intrusive. The current widespread use of passwords and personal identification numbers, or PINs for authentication has proven to be unsecure and inadequate. Individuals increasingly expect anywhere-anytime experiences—whether they are making purchases, creating financial transactions, banking, crossing borders, accessing services or logging into online accounts or corporate resources. They expect those experiences to ensure the protection of their privacy and to provide uncompromising confidentiality.
 
Our physical technologies we own enable businesses to reconstruct their overall approaches to security—from brand protection and counterfeit identification to employee or customer monitoring. Potential applications of our technologies are available in different types of products and industries—e.g., banking,  gaming, apparel, tobacco, fragrances, food, beverages, event and transportation tickets, driver’s licenses, insurance cards, passports, computer software, and credit cards. We can generate sales through licenses of our technology and through direct sales of our technology to global brand owners, label and packaging printers.
 
Our physical technologies involve the utilization of invisible and/or color changing inks, which are compatible and printed with today’s digital and standard printing presses. The inks may be used with certain printing systems such as digital, offset, flexographic, silkscreen, gravure, inkjet and laser. Based upon our experience, we believe that the ink technologies may be incorporated into most existing manufacturing processes.
 
In February 2018, we entered into a reseller agreement with a global label manufacturer (the “GLM”). This particular label printer has major brand owners as clients which can utilize our technologies to protect their product labels and packaging from counterfeiting and product diversion. This label printer owns and operates printers and manufacturing equipment which can implement the Company’s technology. This reseller also has manufacturing facilities around the globe.
 
In March 2018 we entered into a strategic partnership with S-One Labels & Packaging, a division of S-One Holdings Corporation (“S-One”). S-One provides companies with product and sales channels, technical and marketing support, digital development support, and distribution channels through the other companies which have partnered with S-One. S-One will provide the Company with global sales, distribution, and promotion support for the Company’s products and will employ a representative that will be solely dedicated to promoting the Company’s products. Under the terms of the Company’s agreement with S-One, S-One will act as a sales and marketing contractor for the Company’s printed products and services on a global basis and will assist the Company in fulfilling the Company’s obligations under the Company’s signed current and future reseller agreements with global and domestic print providers and brand owners.
 
 
Physical Security Technology
 
In September of 2017 we announced a five-year contract with the Indigo Division of HP Inc. (NYSE: HPQ ) ("HP Indigo") a global printing technology leader.  HP Indigo is a leader in manufacturing digital printing presses.  These presses print both static and variable high-quality images such as personalized labels and packaging for major brand owners.  Our technology was tested and approved by HP Indigo for use on the HP Indigo 6000 series press models.

This press is mainly used to print labels and packaging for major world-wide brand owners.  HP Indigo and VerifyMe incorporate VerifyMe's pigment products with HP Indigo's ElectroInk to be used for packaging, label authentication, anti-counterfeiting, anti-diversion and covert item level serialization for supply chain and distribution security.

This solution will be marketed as RainbowSecure™ powered by HP Indigo and sold globally by VerifyMe to HP Indigo customers. The solution includes a HP Indigo security ElectroInk as well as VerifyMe's readers and authentication tools that can be used in conjunction with the security ElectroInk. Both companies will provide support to HP Indigo customers that use the RainbowSecure™ solution on HP Indigo's digital printing presses.

The HP Security ElectroInk containing RainbowSecure™ is in an ink canister that is mounted into the digital Indigo printing press along with the other traditional ink stations.  Since the HP Indigo is a digital press, the VerifyMe RainbowSecure™ technology prints covert serialization numbers, codes or images either fixed or variable mainly on labels and packaging which are revealed when using VerifyMe’s hand-held authentication devices.
 
As an add-on track and trace feature of our RainbowSecure™ covert imaging, VerifyMe has contracted with Micro Focus International PLC (NYSE:MFGP), a global software developer to utilize their visible QR code system called Global Protected Authentication System (“GPAS”) which is printed on labels and packaging along with our covert RainbowSecure™ to store our hidden covert serial number in the cloud for product diversion investigators to authenticate with a proprietary app on a mobile device.  The Micro Focus “GPAS” Global Product Authentication Service allows customers to use their smartphone to scan a product’s QR code or send the code via a text message. Immediate results help verify whether the product is real or counterfeit. This helps save customers from potential physical harm and businesses from facing lawsuits, loss of revenue and brand erosion.  In addition to the anti-counterfeiting image, the Micro Focus Track and Trace software has a “Big Data” gathering system with real-time analytics which geographically locate and identify counterfeiting activity by using an easily configured rules engine.  VerifyMe’s covert or invisible RainbowSecure™ system works as an extra layer of protection for the GPAS system.  When a professional product investigator scans the Micro Focus visible QR code with a special app on a smart phone it brings him to the VerifyMe secure cloud application to see what the hidden serialization number printed by the HP Indigo is for that particular label or package.  The product investigator then uses the VerifyMe RainbowSecure™ reading device to compare the hidden serialization number against the cloud number to prove authenticity.
 
Under the contract with Micro Focus, VerifyMe has a re-seller agreement where VerifyMe sells the combined Micro Focus GPAS system with our RainbowSecure™ identifier under the name VeriPAS tm .
 
Under the terms of the Company’s; agreement with the GLM, the GLM will be able to create and print labeling containing the VerifyMe RainbowSecure™ ink technology.
 
HP has their own QR code track and trace system called, “HP Link Technology”.  HP Link competes with the Micro Focus GPAS system.  VerifyMe is in early discussions to build a similar covert serialization number layer utilized in the Micro Focus GPAS system into HP Indigo’s Link system.
 
 
We believe that the physical technologies we own, coupled with our new five-year contract with HP Indigo we will enable brand owners to securely prevent counterfeiting and alleviate the brand owner’s liability from counterfeit knockoffs which physically harm consumers.  Our covert technologies give the brand owner the ability to prove that the product causing an issue is authentic or made by a counterfeiter.
 
In addition to packaging and labels our physical security printing technologies can be applied to authenticate important credentials such as driver’s licenses, plastics, metal, apparel, birth certificates, immigration documents, gaming, apparel, currency, event and transportation tickets, passports, computer software, and credit cards. With our new partnerships described in this annual report (the “Annual Report”), our goal is to generate revenue through licenses and royalties of our technology and through direct sales of our technology.
 
Anti-Counterfeiting Technologies and Products
 
Recent developments in copying and printing technologies have made it easier to counterfeit a wide variety of documents and products.  We have broken the current state of counterfeiting into two types.  The first type is what we call “Traditional Counterfeiting” These include mainly paper type documents and instruments such as bank checks, birth certificates, credentials, identification documents, stock certificates, currency, lottery tickets, credit cards, driver’s licenses, event and transportation tickets, coupons, and travelers’ checks.  As you can see most of the Traditional Counterfeiting targets are mainly paper type instruments which can be traditionally copied, scanned, color copied, hand drawn, etc. by both professional and consumers alike.  The other type of counterfeiting we call “Modern Counterfeiting”.  Although Traditional Counterfeiting targets are extremely important and cause mainly financial harm, “Modern Counterfeiting” targets on the other hand are much more sophisticated.  Both organized crime, consumers, small and large businesses and even governments partake in Modern Counterfeiting.  Modern Counterfeiting consists of the actual counterfeiting of major brand owner’s products such as expensive luxury items like jewelry, purses, military items (sabotage), drug manufacturing, consumables like tobacco, alcohol, golf clubs and even food and beverages.  Not only is the packaging and labeling counterfeited, the actual products are counterfeited.  The modern counterfeiter has become the scourge of the earth.  There are even reports of whole companies being counterfeited.  People are getting sick and sometimes even killed with counterfeit cough syrup, watered down cancer drugs and even toothpaste containing poisonous substances.
 
Not only are consumers at risk, brand owners are also at risk.  Normally brand owners feel a financial impact when someone is selling or diverting their products by counterfeiters.  The financial impact seems to be the lesser of the risk factors.  The additional more impactful risk facing brand owners and drug manufacturers is the liability issue.  A brand owner may be called to a court room to prove that a product is authentic or counterfeit to avoid major liability exposure in the form of judgements and fines as well as the extremely severe negative marketing exposure for such issues.
 
Brand owners do not want their products published as the name of a product that injured or harmed a consumer.  Our covert RainbowSecure™ technology can be utilized by brand owners to authenticate products, labels and packaging in those circumstances.  We believe that losses and liability from such counterfeiting is increasing substantially with improvements in counterfeiting technology as well as the proliferation of highly skilled and well-funded counterfeiters.  It is therefore imperative that all brand owners, beverages, food and drug manufacturers utilize the best counterfeit prevention technologies available for their products.
 
 
We believe that our physical and material goods anti-counterfeit technologies may be useful to businesses desiring to authenticate a wide variety of materials and products. The best solution for brand owners and manufacturers is to layer as many technologies as they can to protect their products.  Our technologies include (1) a technology utilizing invisible ink taggant that can be revealed by use of a special calibrated laser light for authentication purposes, (2) an ink technology, which allows invisible codes to be printed and (3) a color changing technology that is activated by certain types of lights. All of those technologies cannot be copied or scanned by the counterfeiter.  We believe the useful life of our technologies on a label or package is at least 20 years.  Our technologies can be printed on labels and packaging and can also be applied to metals, plastics and textiles. Other possible variations of our laser-based technology involve multiple color responses from a common laser, visible marks of one color that turn another color with a second laser, or visible and invisible marks that turn into a multicolored image. These technologies provide users with the ability to authenticate products and detect counterfeit documents. Applications include the authentication of documents having intrinsic value, such as currency, checks, travelers’ checks, gift certificates and event tickets, and the authentication of product labeling and packaging. When applied to product labeling and packaging, our technologies can be used to detect counterfeit products with labels and/or in packaging that do not contain the authenticating marks invisibly printed on the packaging or labels of legitimate products, as well as to combat product diversion (i.e., the sale of legitimate products through unauthorized distribution channels or in unauthorized markets). We believe that our technologies also could be used in a manner that permits manufacturers and distributors to track the movement or pinpoint geographically where counterfeiting of products is occurring.  We can track and trace from production to ultimate consumption when coupled with our VeriPAS tm proprietary software.
 
Due to a recently signed contract with HP Indigo and Micro Focus, VerifyMe RainbowSecure™ technology can now be printed variably on high-speed, high-quality labels and packaging.  Our technology cannot be seen by the human eye and requires special authentication equipment to see in labels and packaging which can be authenticated via a secure cloud process.  Brand owners can not only prove the authenticity of a product, but it can also prevent product diversion and enhance track and trace operations which generates business intelligence as to where counterfeiting is occurring around the globe.  These contracts give the Company the ability to secure, protect and identify the labels and packages of drugs, cosmetics, food, beverages and all other consumable products.  We are now working with HP Indigo to roll out the technology to their 6000 series Indigo owners.  Micro Focus is also now marketing our combined track and trace solution. S-One will also provide VerifyMe with a global and sales and marketing reach for this solution.

Physical and Material Goods Anti-Counterfeit Industry — Overview

The U.S. is projected to remain the largest single consumer of security services and products in the world. One of the most important new areas of expansion is in the area of authentication, which is the act of confirming that objects such as currency, passports, casino chips, credit cards, stock certificates, pharmaceuticals, stamps, identification cards, lottery tickets, and so forth, are real and not forgeries. With the advent of new technologies, including the color copier and other printing technologies and templates and the availability of the Internet, counterfeiters have had access to technologies which make it easier to produce counterfeit items. Counterfeiters are often located in foreign nations where counterfeiting is subject to little or no viable threat of prosecution.
 
While some currency and credit cards have introduced holograms, seals, and embedded strips in order to add a level of protection, most such methodologies are expensive and, in some cases involve a time-consuming production process. In other instances, such as when printing cigarette tax stamps or hundreds of millions of pieces used in a popular restaurant chain’s contest game pieces, the authentication process must be extremely inexpensive and easy to use or it will not be cost effective. Currently many national currencies lack a sufficient layer of protection to deter counterfeiting and can easily be counterfeited. 

 
Two major trends

Major shifts are occurring in how counterfeit products enter the hands of consumers. First, many consumers are purchasing counterfeit products online.

According to the International Trademark Association, $460 billion worth of counterfeit goods were bought and sold last year. Not surprisingly, much of it happened online.

A new study from Red Points, a brand-protection firm based in Barcelona, Spain, shines a light into this shadowy realm. Using data generated by its custom-built web crawlers that search for fake merchandise on behalf of its 200 clients, Red Points compiled a Top 10 list of sites where counterfeit goods are most frequently bought and sold.  In fact, six of the 10 sites on the list are headquartered in the Far East—China in particular, which has a long-standing reputation for counterfeit production and what you might call a relaxed attitude toward intellectual property.
 
 
The Red Points’ study also identified the most commonly counterfeited goods. As it turns out, the most knocked-off item isn’t a designer handbag, but sneakers.

Second, biometric technology is becoming increasingly popular which can tie individuals to their documents and transactions. VerifyMe has multi-factor technology using biometrics in their digital verification technology. Credit card manufactures are working on a fingerprint activated card.  Apple has added both fingerprint and face recognition capture technology for access and transactions. The Company’s entry into the biometrics technology business is further described under the section “Digital Technology”.

A report commissioned by the International Trademark Association and the International Chamber of Commerce, said the global economic value of counterfeiting and piracy could reach $2.3 trillion by 2022. The global value of the counterfeit market in 2015 stood at $1.7 trillion. A February 2017 report, by research firm Frontier Economics, said the wider social, investment and criminal enforcement costs could take the total to $4.2 trillion, leaving at risk about 5.4 million "legitimate jobs". A recent report by the U.N. Office on Drugs and Crime says, “counterfeit goods and fraudulent medicines pose a serious risk to public health and safety”.

While deaths and sickness have been reported from key foods such as baby milk powder in Asia, the full human toll as a result of fake mechanical, food and medicines is unclear.

The UNODC and the World Customs Organization estimate 75 percent of counterfeit products seized worldwide in 2010 were manufactured in East Asia, mostly in China.
 
Counterfeiting is a continuously evolving economic crime. It presents companies, governments and individuals with a unique set of problems and has become a sophisticated network of counterfeiting.  Counterfeiting devalues corporate reputations, hinders investment, and imposes costs upon many people every year.

The Size of the Market Opportunity

The global anti-counterfeit packaging market was estimated at $107.26 Billion in 2016 and is projected to reach $206.57 Billion by 2021, at a compound annual growth rate of 14.0%. The base year considered for the study is 2015 with the market size projected from 2016 to 2021 based on a report by marketsandmarkets.com.
 
Based on Technology, the label and packaging market has been segmented as follows:
•
Coding & printing technology (Track and Trace)
•
RFID
•
Hologram
•
Security labels
•
Packaging design
•
Others (digital mass sterilization, digital mass encryption, and surveillance technologies)
 
The anti-counterfeiting industry is segmented into four general categories: (i) Optical technologies - use of light, i.e. holograms; (ii) Electronic - magnetic strips and smart cards; (iii) Biotechnologies - uses characteristics of biological proteins such as antibodies, enzymes and DNA; and (iv) Chemical technologies - includes photochromic (or light-reactive) and thermochromic (or heat-reactive) inks.

We operate in the chemical technologies and security ink sectors of the industry. Products in this industry change color when exposed to either heat or light and revert to their original color when exposed again. Generally, the effect is reversible as often as required. Inks have also been developed that are invisible to the human eye, but which can be read by bar-code scanners. These have been used in the fragrance and pharmaceutical industries to authenticate products. Other reactive inks change color when brought into contact with specific substances, such as ink from a felt-tipped pen.
 
 
The anticounterfeit packaging industry is segmented into the following:
•
Coding
•
Printing technology (Identifiers)
•
Radio Frequency Identification (“RFID”)
•
Hologram
•
Security labels
•
Packaging design
•
Others (digital mass sterilization, digital mass encryption, and surveillance technologies)

We operate in the coding & printing technology, security labels segments in the anti-counterfeit packaging industry.
 
Recent developments in printing technologies have made it easier to counterfeit a wide variety of documents. Lottery tickets, gift certificates, event and transportation tickets and travelers’ checks are all susceptible to counterfeiting, and we believe that losses from such counterfeiting have increased substantially due to improvements in technology. Counterfeiting has long caused losses to manufacturers of brand name products, and we believe that these losses have increased as the counterfeiting of labeling and packaging has become easier.
 
The Organization for Economic Cooperation and Development based on its recently published study in 2016, estimates that global trade related counterfeiting accounts for 2.5% of world trade or approximately $461 billion. They also conclude that millions of consumers are risking their lives by using unsafe and ineffective counterfeit products unknowingly.
 
Identification Cards and Secure Documents
 
Governments are increasingly vulnerable to counterfeiting, terrorism and other security threats at least in part because currencies, identity and security cards and other official documents can be counterfeited with relative ease. For instance, Havocscope, a company that collects black market intelligence and identifies security threats, reports that the value of counterfeit identification and passports in the United States is approximately $100 million. Governments must also enforce the various anti-counterfeiting and anti-piracy regimes of their respective jurisdictions which becomes increasingly difficult with the continued expansion of global trade. To highlight the size of the problem, in April 2012 the European Parliament estimated that of the 6.5 million biometric passports in circulation in France, between 500,000 and one million are counterfeit, having been obtained using counterfeit documents. Our overt and covert ink pigment platform can provide secure, forensic, and cost-effective anti-counterfeiting, anti-piracy and identification solutions to local, state, and federal governments as well as the defense contractors and the other companies that do business with them. Our pigment solution cans be used for many types of identification and official documents, such as:
 
•
Passports;
•
Permanent resident, or “green” cards and visas;
•
Drivers’ Licenses;
•
Social Security cards;
•
Military identification cards;
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National transportation cards;
•
Security cards for access to sensitive physical locations; and
•
other important identity cards, official documents and security-related cards.
 

Pharmaceuticals
 
The pharmaceutical industry faces major problems relative to counterfeit, diluted, or falsely labeled drugs that make their way through healthcare systems worldwide, posing a health threat to patients and a financial threat to producers and distributors. Counterfeit prescription pharmaceuticals are a growing trend, widely recognized as a public health risk and a serious concern to public health officials, private companies, and consumers. The National Association of Boards of Pharmacy estimates that counterfeit drugs account for 1–2% of all drugs sold in the United States. The World Health Organization (“WHO”) estimates the annual worldwide “take” from counterfeit drugs to be £13 billion (approximately $20 billion USD), a figure that is expected to double by the end of this decade. In some countries, counterfeit prescription drugs comprise as much as 70% of the drug supply and have been responsible for thousands of deaths, according to the WHO. Counterfeit pharmaceuticals are estimated to be a billion-dollar industry, though some estimate it to be much larger. In 2012, the WHO reported that in over 50% of cases, medicines purchased over the Internet from illegal sites that conceal their physical address have been found to be counterfeit. According to the WHO, counterfeiting can apply to both branded and generic products and counterfeit pharmaceuticals may include products with the correct ingredients but fake packaging, with the wrong ingredients, without active ingredients or with insufficient active ingredients.
 
Based on this growing threat, many countries have started to address vulnerabilities in the supply chain by enacting legislation which, among other things, requires the implementation of a comprehensive system designed to combat counterfeit, diluted or falsely labelled pharmaceuticals.  These systems are often referred to as serialization, or in the United States as e-Pedigree (electronic pedigree).  One jurisdiction that has enacted such regulations is California, which passed legislation requiring all “dangerous drugs” (defined as all prescription drugs) that are distributed in California must be serialized and have an electronic pedigree by January 1, 2016 and with limited exceptions cannot be sold by a pharmacy without a pedigree after July 1, 2017.

We believe that ePedigree and serialization requirements will likely be implemented in all aspects of the pharmaceutical supply chain, from the manufacturer to the packager, wholesaler, distributor and final dispensing entity. The ePedigree provides an “audit trail,” or documented evidence, to help to identify and catch counterfeiting and diversion. Serialization requires manufacturers, or third-party packagers in some virtual supply chains, to establish and apply to the smallest saleable unit package or immediate container a “unique identification number.” In some cases, drug makers are spending as much as 8-10% of a medicine pack’s total production cost only on solutions to protect it from duplication and counterfeiting, according to company executives. Our unique pigments embedded in the ink of a unique serialized barcode can provide a layered security foundation for a customer solution in this market.

The Federal Drug Administration (“FDA”) is currently implementing Title II of the Drug Quality and Security Act, entitled the “Drug Supply Chain Security Act.” This regulation requires drug manufactures to add product identifiers, such as our RainbowSecure™ technology as well as our VeriPAS tm track and trace system, to certain prescription drug packages beginning in November 2017. Re-packagers must begin adding product identifiers in November 2018. We plan on selling directly to the pharmaceutical industry and their printers. We will also engage third party marketing and sales companies to present our solutions to the drug and pharmaceutical industry. The FDA intends to continue implementing the Drug Supply Chain Security Act to ensure that a full electronic identification system for prescription drugs is implemented by 2023.

Consumer Products
 
Counterfeit items are a significant and growing problem with all kinds of consumer-packaged goods, especially in the luxury retail and apparel industries.  Our unique ink pigments can be incorporated in dyes and used by manufacturers in these industries to combat counterfeiting and piracy of actual physical goods. Our pigments expressed as inks can also be used on packaging, as well to track products that have been lost in transit, whether misplaced or stolen.
 
 
Food and Beverage
 
Counterfeit food threats are becoming more common as supply chains become more global and as imaging and manufacturing technology become more accessible. Numerous reports of counterfeit foods have been reported, including long-grain rice labelled and sold as basmati rice, Spanish olive oil bottled and sold as Italian olive oil, and mixtures of industrial solvents and alcohol sold as vodka. Although many of these stories have emerged from the U.K. and Europe, the fake-food problem is also relevant in the United States.
 
The National Center for Food Protection and Defense estimates that Americans pay $10 billion to $15 billion annually for fake food — often due to product laundering, dilution and intentionally false labeling. We believe our pigments and authentication tools can help in the battle against counterfeit foods and beverages.
 
Printing and Packaging
 
Counterfeiting in packaging has greatly intensified in recent years, causing concerns for consumers and financial concern for businesses worldwide.  Billions of dollars per year are at stake for companies as they seek ways to ensure that the products sold with their logos and branding are authorized and authentic. The proliferation of counterfeiting requires brand owners and their converter/printer partners to work together to create a multi-layered protection plan so that their packaging and labels protect their brands and deter those trying to profit at their (and their reputation’s) expense.
 
Counterfeiters have become so good at their unlawful activity that spotting the difference between legitimate and counterfeit products can be daunting. Counterfeiters have many ways to subvert legitimate brands. These may include taking an out-of-date product and selling it in packaging and labels that have been forged; sometimes, the packaging, labels and product itself are all counterfeited. Counterfeiters might also use legitimate packaging coupled with fake products. We believe our pigment security systems are a cost-effective solution for printer and packagers and are easily integrated into their existing manufacturing process.
 
The Opportunity
 
As counterfeiting continues to increase and losses to manufacturers and others continue to escalate, we believe that those entities will seek better technologies to minimize their exposure. These technologies, however, must also be cost-effective, easy to integrate, and highly resistant to counterfeiting themselves. We offer products in two related market segments. We offer security Ink taggants in the Anti-Counterfeiting/Authentication Industry and we offer a software product called VeriPAS tm in the identifier/track and trace industry.

Track and Trace Solutions Market worth 3.93 Billion USD by 2023
According to a report prepared and published by Marketandmarkets.com, the track and trace solutions market is projected to reach USD 3.93 Billion by 2023 from USD 1.65 Billion in 2018, at a compound annual growth rate of 18.9%.

Our Solutions  
In the areas of authentication and serialization of physical goods, we offer clients the following products as anti-counterfeit systems:
·
RainbowSecure™
·
SecureLight™
·
SecureLight+™
·
Authentication tools
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VeriPAS tm Global Product Identifier, Track and Trace System
 
 
RainbowSecure™ technology was our first technology to be patented. It combines an invisible ink with a proprietary tuned laser to enable counterfeit products to be exposed. It has been widely accepted in the gaming industry, where the technology has been used by casinos to protect their chips, dice, and playing cards from fraud.

In 2017, VerifyMe signed a five-year contract with HP Indigo to print this technology on packages and labels on their 6000 series digital Presses.  In January 2018, VerifyMe signed a contract with Micro Focus to use RainbowSecure™ in their Global Product Authentication, Track and Trace system (software). The technology also features a unique double layer of security which remains entirely covert at all times and provides licensees with additional protection. RainbowSecure™ is particularly well-suited to closed and controlled environments, such as casinos that want to verify transactions within a specific area, labels, packaging, textiles, plastics and metal products which need authentication.
  
SecureLight™  technology was developed as a result of our investment in new proprietary color changing inks that could penetrate broader markets and result in far greater revenues. During the past nine years, we have refined our technologies and their applications, and now have what we believe to be the easiest, most cost effective and efficient authentication technologies available in the world today. Our technology, known as SecureLight™, takes advantage of the new ubiquitous energy efficient fluorescent lighting to change the color of ink, resulting in hundreds of new applications ranging from credit cards to driver’s licenses, passports, stock certificates, clothing labels, currency, ID cards, and tax stamps. The technologies can also be used to protect apparel, pharmaceuticals, and virtually any other physical product.

SecureLight+™  technology combines the covert characteristics of RainbowSecure and the overt characteristics of SecureLight. This provides a solution which can be authenticated in two different ways - by proprietary tuned laser devices, and also by anyone with fluorescent lighting including end consumers.

VeriPAS tm Technology combines the covert identifier of RainbowSecure™ with the Micro Focus Track and Trace software which provides brand owners geographical business intelligence on counterfeiting as well as the ability to authenticate labels, packaging and products.
 
Authentication tools  have been developed which we can sell to customers in conjunction with pigments and are tuned to authenticate the unique frequency of each batch. This will allow for customers to instantly authenticate items with a customized beeper which will only positively identify a product bearing their unique anti-counterfeit solution. This authentication is provided in the form of an LED indicator, a camera device which reveals the hidden serialization numbers and codes on a viewing screen and audible beeping device when placed on a label, product or package containing the RainbowSecure™ technology.
 
Raw Material Suppliers
 
Our security pigments are manufactured from naturally occurring inorganic rare earth materials. The manufacturing process includes both chemical and mechanical elements. In many cases, we produce pigments that are unique to a customer or product line. This uniqueness can be achieved through a variety of techniques, including custom formulation or combination of our proprietary pigments and/or incorporation of other specialized taggants.
 
There are many manufacturers of these types of specialized pigments and we intend to maintain multiple simultaneous relationships to ensure ample sources of supply.
 
 
Distribution
 
We provide pigment mixing instructions for the specific uses of each client based on their existing equipment and processes. We maintain policies and procedures to monitor, track and log access to and disposition of all pigment. Our customers are also required to agree to and implement these policies and procedures.
 
Digital Authentication Technologies and Products
 
We believe accurate identification of human beings in electronic transactions, also known as Digital Identity Management, will continue to be a large and rapidly growing market. In today’s world the need for verification of the unique identity of human beings participating in those transactions has become more important as governments and banks are beginning to acknowledge these as valid financial transactions. In general, every electronic transaction has a least two actors – a subject and a relying party. The relying party has a business need to eliminate or reduce risk associated with the identification of the subject.
 
Electronic financial theft and electronic theft of private information make headlines almost every day. According to a 2018 Identity Fraud Study released by Javelin Strategy & Research $16.8 billion was stolen from 16.7 million U.S. consumers in 2017. The majority of this harm can be traced to weak authentication systems, such as Username/Password, yet these weak systems continue to be used in most of the world’s transactional systems. Cybersecurity is a growing threat requiring continuously evolving forms of electronic security.
 
Historically, stronger authentication solutions, such as biometric, two-factor and multi-factor solutions have been difficult to use and expensive to deploy and operate. The extraordinary proliferation of smart phones and tablets provide an infrastructure for disruptive solutions that leverage the mobile nature of these devices and the multi-sensor computing capabilities.
 
VerifyMe Authenticator is a digital identity management software platform that provides extensible authentication mechanisms that can be dynamically invoked to achieve a specified degree of identity assurance. The Authenticator platform incorporates a risk engine that associates individual risk parameters and scores with every unique authentication mechanism. The risk engine then generates aggregate risk scores based on the specific combination of individual authentication mechanisms used to confirm the identity of the human being.
 
We are now enhancing this product and getting it ready for deployment into the financial services industry.  We cannot assure you we will generate any revenues from these efforts.

Digital Authentication Technology

We believe that the digital technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from identity and authentication to the management of legacy passwords and PINs. We empower our customers to take advantage of the full capabilities of smart mobile devices and provide solutions that are both simple to use and deliver the highest level of security. These solutions can be applied to corporate networks, financial services, e-gov services, digital wallets, mobile payments, entertainment, subscription services, and social media.

The challenges associated with digital access control and identity theft are problems that are highly relevant in the world today. Consumers, citizens, employees, governments and employers demand comprehensive solutions that are timely, reliable but not intrusive. The current widespread use of passwords and personal identification numbers, or PINs for authentication has proven to be unsecure and inadequate. Individuals increasingly expect anywhere-anytime experiences—whether they are making purchases, crossing borders, accessing services or logging into online accounts or corporate resources. They expect those experiences to ensure the protection of their privacy and to provide uncompromising confidentiality.
 
 
Verification is the front door of all access and transactions. The most fundamental action is to identify “who the person is and how you identify yourself” We feel our VerifyMe digital authentication is the building block that answers that question. Our VerifyMe Verification technology ensures that users are who they say they are.  Our technology becomes their virtual credentials which are protected from fraud and theft.  There are literally hundreds of millions of identities stolen annually. It is absolutely crucial to know which users have the right to access particular information or transaction, and whether or not unauthorized users have been prevented from accessing those same critically important items.

In today’s world we have global workforces, customers, systems and data.  Unfortunately, we have the same global sophisticated cybercrime.   Therefore, vetting users and access also means asking important questions about authentication, such as which authentication method is most appropriate given a resource, channel or specific risk factor.

We believe that our digital verification technology meets user expectations for ease of use, privacy and overall experiences especially in financial and healthcare enterprises. For connected organizations, the authentication process is like the front door. To users, it’s important not only to smoothly reach the systems or data they need, but to know that their own account access and data is secured. Authentication is crucial, but it needs to be frictionless to avoid frustrating users whether they are customers, partners, or employees.

Passwords are no longer enough - In isolation, passwords are a brittle measure. It has been proven time and time again that even strong credentials can be stolen, cracked or coaxed from end users. Given today’s threat landscape, good security requires strong authentication practices, one of which is multi-factor authentication (“MFA”). Our MFA system requires no passwords at all.

By using multiple independent factors VerifyMe’s verification system significantly increases the effort that cybercriminals must exert to break in and access the protected transaction or data.  Also attempts that fail for lack of additional factors raises immediate red flags to end users and their financial or data system administrators.

Additionally, our multi-factor authentication does not use tokens or complicated, tiered passwords.  Our digital technologies involve the utilization of multiple authentication mechanisms, some of which we own.  These mechanisms include biometric factors, knowledge factors, possession factors and location factors.   Biometric factors include facial recognition with liveness detection, finger print and voice recognition.  Knowledge factors include a personal gesture swipe and a safe and panic color choice.  Possession factor includes devices that the user has in their possession such as a smartphone, smart watch, and other wearable computing devices.  The location factor geo-locates the user during a secure login.  We surround these authentication mechanisms with proprietary systems that improve the usability and the security of the solutions. Our solutions allow the assessment and quantification of risk using a sophisticated patented heuristic scoring mechanism.  We have specialized systems that perform ‘liveness’ detection to insure the subject of authentication is in fact a live human being. We have software systems that introduce learning capabilities into our solutions to improve the ease of use and flexibility.

In summation we believe that by using a host of factors and our proprietary scoring system gives a 99% assurance that the person behind the transaction is the person they say they are.

The digital technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from identity and authentication to the management of legacy passwords and PINs. We empower our customers to take advantage of the full capabilities of smart mobile devices and provide solutions that are both simple to use and deliver the highest level of security.
 
Our digital multi-factor verification software solutions can be applied to:
·
Cryptocurrencies
·
Blockchain Authentication
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Corporate Networks
·
Digital Drop Box Access
 
 
·
Physical Access
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Banking
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Financial Transaction Services
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Medical
·
Gaming
·
Retail
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Notary
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Digital Wallets
·
Legal
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Government (e-gov services)
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Military
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Pharmaceutical
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Immigration
·
Entertainment
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Social Media
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Mobile Payments
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Subscription services
·
Employee Time Systems
 
  Digital Authentication Industry Background
 
The growth in internet banking and internet commerce and the increasing use and reliance upon proprietary or confidential information that is remotely accessible by many users by businesses, government and educational institutions, has made information security a paramount concern. We believe that enterprises are seeking solutions that will continue to allow them to expand access to data and financial assets while maintaining network security.
 
A vendor in the user authentication market delivers on-premises software/hardware or a cloud-based service that makes real-time authentication decisions for users who utilize an arbitrary endpoint device (that is, not just Windows PCs or Macs) to access one or more applications, systems or services in a variety of use cases. Where appropriate to the authentication methods supported, a vendor in this market also delivers client-side software or hardware that end users utilize to make those real-time authentication decisions.
  
The market is mature, with several vendors offering products that have been continuously offered during the past three decades (although ownership has changed over that time). However, new methods and vendors continue to emerge, with the most rapid growth occurring within the past decade in response to the changing market needs for different trade-offs among trust, user experience and total cost of ownership. The greater adoption of user authentication over a wider variety of use cases, the impact of mobile, cloud and big data analytics, and the emergence of innovative methods continue to be disruptive.
 
While over 100 authentication vendors currently operate in the market, the vast majority deliver two-factor authentication solutions. Even the few vendors that market biometric solutions simply combine them with a password for two-factor security.
 
Internet and Enterprise Security.   With the advent of personal computers and distributed information systems in the form of wide area networks, intranets, local area networks and the Internet, as well as other direct electronic links, many organizations have implemented applications to enable their workforce and third parties, including vendors, suppliers and customers, to access and exchange data and perform electronic transactions. As a result of the increased number of users having direct and remote access to such enterprise applications, data and financial assets have become increasingly vulnerable to unauthorized access and misuse.
 
 
Individual User Security.   In addition to the need for enterprise-wide security, the proliferation of personal computers, personal digital assistants and mobile telephones in both the home and office settings, combined with widespread access to the Internet, have created significant opportunities for electronic commerce by individual users such as electronic bill payment, home banking and home shopping.
 
The continued reliance by most enterprises on passwords and PINs has resulted in daily identity theft and data breaches, with massive attacks being announced almost every week. The companies that have been attacked and compromised private data include top brands in finance, retail, entertainment, technology and governments.
 
Strong Authentication Market

A strong authentication market has emerged, initially led by two-factor authentication solutions. Two-factor authentication solutions combine a password with a second factor, which typically involves proving possession of some object, which may include a one-time password token that generates rotating secret codes, a telephone via a callback or a SMS message, or an email address via emailing a secret code.
 
The global MFA market was valued at $4.05 billion in 2015 and is predicted to reach more than $13.59 billion by 2022 as three-, four- and five-factor authentication systems gain prominence. Part of this growth can be attributed to the rise of biometric security services, such as fingerprint, retina and facial scanning. A recent report found that all authentication methods using more than two factors included some form of biometric scanning.

Currently, 90% of the MFA market belongs to two-factor authentication. These “standard” methods include passwords, hardware tokens and PINs, although some systems do employ a secondary biometric scan. With a predicated compound annual growth rate of 19.67 percent over the next three years, however, it’s clear that the other 10 percent — and the  biometric technology needed to support them — will play a large role. As it stands, three-factor authentication is mostly used in bank lockers and immigration, while four- and five-step methods only make an appearance in high-level government operations. Part of the problem is cost since it’s often prohibitive for a small business to roll out full facial recognition or install high-level fingerprint scanners.
 
Password Manager/Digital Wallet Market
 
Until companies figure out a better way to protect their data in the cloud, we believe that the best solution is to enforce higher security with password managers.  Password managers provide tools to encrypt text files that can store passwords that are not Web based, such as Windows and Outlook passwords, Lotus Notes passwords, administration passwords including local and domain accounts, BIOS passwords, encrypted hard drive passwords, cell phone and voicemail passwords and iPad and iPhone passwords.  Password managers promise greater security while improving the user experience.
 
The best password managers sync to the cloud across all dominant platforms and require multi-factor authentication. There are currently no password managers that utilize more than two-factor authentication and none that incorporate additional biometric mechanisms.
 
The Opportunity
 
As identity theft and data breaches continue to increase and losses to service providers and individuals continue to escalate, we see both enterprises and consumers seeking better solutions to protect their interests. These solutions must be cost effective, easy to integrate, and simple to use.
 
 
According to the November 2016 market research report prepared by www.marketsandmarkets.com, the biometric system market size is expected to increase from USD 10.74 billion in 2015 to USD 32.73 billion by 2022, at a compound annual growth rate of 16.79% between 2016 and 2022. Any transaction or action which requires authentication of an individual is a potential opportunity for a strong multi-factor solution such as VerifyMe Authenticator. This is a very large market opportunity, within which we are focused on four specific segments:
 
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Subscription services market, where revenue is commonly lost due to multiple individuals sharing user credentials to access information and services;

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Online gaming market, where financial transactions are performed and geo-location is very important to maintaining compliance with state/country regulations;

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Financial services market, where there is a large financial risk to identity theft and fraud, including banking, purchases, mobile payments, and digital wallets

·
Access control market, where the identity of individuals is key to allow access to buildings as well as digital access to data
 
·
Social Media Market to identify people versus robots or imposters
 
Our Solution
 
VerifyMe Authenticator delivers an electronic authentication solution for identifying individual human beings. When subject attempts to access an internet resource and asserts an identity, VerifyMe Authenticator attempts to authenticate the asserted identity. It does this utilizing multiple strong authentication mechanisms, involving at least three independent factors. VerifyMe Authenticator can deliver identity assurance consistent with National Institute of Standards and Technology (NIST) Level 4 authentication requirements as specified in Special Publication 800-63-1.
  
VerifyMe Authenticator is based around mobile apps that incorporate a password manager and single sign on capability. In addition to facilitating strong authentication during the logon process to the enterprise resource or service, VerifyMe Authenticator also lets the user conveniently integrate and protect all of their legacy username and passwords.
 
Fast and Easy to Use
 
VerifyMe Authenticator replaces passwords and PINs with a quick, intuitive and user-friendly interface. Our customers can authenticate end users in multiple ways (multi-factor) in the same timeframe as a conventional password login. The service is platform agnostic (available for IOS, Android, Mac and PC), and scalable for use on wearable personal devices.
 
Support for Any Authentication Method
 
VerifyMe Authenticator has the ability to authenticate individuals using facial recognition, fingerprint, voice scanning, retina scanning, swipe pattern recognition, location detection and approved IP detection. We believe that Authenticator can provide the highest levels of confidence, security and account protection to a businesses’ customers, all within seconds. VerifyMe Authenticator are not limited to specific authentication factors. Our platform can support any available authentication mechanism, including those that require policy-driven mechanisms.  We are continuing to add new authentication mechanisms, including mechanisms suitable for wearable devices and new biometrics.
 
 
Multi-Factor Confidence Scores
 
Depending on the desired level of confidence, different online and mobile application accounts can require varying quality scores. As the desired level of security increases, so does the required quality score to complete a sign-in transaction. As the quality score increases, additional authentication factors are added to the sign-in process.
 
Secure Platform, Easy to Integrate
 
VerifyMe Authenticator can be delivered either as managed service from our secure cloud or as licensed software which can be operated with existing infrastructure.  VerifyMe Authenticator also features the following benefits:

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Available to be white-labeled and integrated into existing digital platforms;
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Non-Stop, audited, monitored, private cloud service;
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Three independent, fault tolerant, redundant data centers;
•
Global load balancing and traffic management;
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High level commercial API’s can be integrated in hours; and
•
Complete audit information, including fresh biometrics.
 
The three factors VerifyMe Authenticator utilize include, but are not limited to, the following:
 
Factor 1  – Something you have – a possession device – typically this is a registered mobile device, which we can authenticate either via SMS or email round robin protocol.
 
Factor 2  – Something you know – a knowledge factor – we currently utilize a color gesture swipe. This requires the subject to confirm their secret color and appropriately connect dots on a matrix consistent with their registered gesture pattern.
 
Factor 3  – Something you are – we utilize facial recognition to authenticate images captured in real-time using the registered devices built in camera, with images that were stored in the subject’s profile during registration.
 
Our platform can be distinguished from competitors in that it is not limited to any of the above authentication mechanisms; VerifyMe Authenticator currently supports many more authentication mechanisms and we intend to continue expanding this list.  For example, our platform is not limited to facial recognition as a biometric mechanism. It currently supports voice, fingerprint and other mechanisms.
 
In addition, VerifyMe Authenticator includes a risk-scoring engine that is able to enforce complex, customer specific authentication policies and shield them from the underlying complexity of evaluating multiple, independent authentication mechanisms. This risk engine allows us to constantly add new authentication mechanisms as they emerge. We see the emerging market of wearable devices as providing new authentication mechanisms that will be very simple and reliable for the end-user. Because our risk engine insulates the enterprise from the complexity of having to interface with all these different platforms, they are available to benefit from and insure their customers can utilize these devices to their full potential.
 
VerifyMe Authenticator is platform agnostic (available for IOS, Android, Mac, Linux and Windows) and scalable for use on wearable personal devices. The digital platform is an enterprise solution, which combines multiple independent authentication factors and can also determine geo-location utilizing a number of mechanisms including GPS, cell tower triangulation and IP/WIFI address. Because the service utilizes biometrics and liveness detection, it eliminates the possibility that users might share their authentication credentials, or that user accounts can be accessed by other individuals. The combination of biometrics and geo-location provides extremely strong transactional evidence, making it nearly impossible for an end-user to refute having been part of a transaction.
 
 
The VerifyMe Authenticator technology requires additional research and development efforts to produce the full array of features described above.  We do not presently have sufficient working capital to resolve certain functionality issues affecting this technology.
 
Our Technology
 
Intellectual property is important to our business. Our current patent portfolio consists of 11 granted US patents and two US patent applications pending. In addition, 6 patent applications were abandoned.  The company plans on filing for reinstatement on at least 3 of the abandoned patent applications.
 
We have attempted to achieve sufficient flexibility in our products and technologies so as to provide cost-effective solutions to a wide variety of counterfeiting problems. We intend to generate revenues primarily by selling pigment to manufacturers who incorporate our technologies into their manufacturing processes and their products as well as through licensing fees where we are providing unique or custom solutions.

Our Intellectual Property
 
Intellectual property is important to our business. Our current patent portfolio consists of 11 granted patents. While some of our granted patents are commercially ready, we believe that others may have commercial application in the future but will require additional capital and/or a strategic partner in order to reach the potential markets. All of our patents are related to the inventions described above. Our patents expire between the years 2019 and 2037.

It is cost prohibitive to file patents worldwide.  We continue to develop new anti-counterfeiting technologies and we apply for patent protection for these technologies in countries with the most market potential and strong patent enforcement tools.  When a new product or process is developed, we may seek to preserve the economic benefit of the product or process by applying for a patent in each jurisdiction in which the product or process is likely to be exploited.
 
The granting of a patent does not prevent a third party from seeking a judicial determination that the patent is invalid. Such challenges to the validity of a patent are not uncommon and can be successful. There can be no assurance that a challenge will not be filed to one or more of our patents, if granted, and that if filed, such a challenge will not be successful.

We believe that the physical technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from counterfeit identification to employee or customer monitoring. In addition to packaging and labels our physical security printing technologies can be applied to authenticate important credentials such as driver’s licenses, plastics, metal, apparel, birth certificates, immigration documents, gaming, apparel, currency, event and transportation tickets, passports, computer software, and credit cards. We can generate revenue through licenses and royalties of our technology and through direct sales of our technology.

Research and Development
 
We have been involved in research and development since our inception and intend to continue our research and development activities, funds permitting. Until January 1, 2013, our research and development focused on pigment technologies. Since January 1, 2013, we have allocated research and development efforts between digital and pigment technologies. We hope to expand our technology into new areas of implementation and to develop unique customer applications. We spent approximately $.1 million and $0.3 million on research and development during the years ended December 31, 2017 and 2016.
 
 
Our Revenue Model
 
To date, we have not generated significant revenue. VerifyMe has three potential revenue streams.
  
RainbowSecure™ We believe that our recent contract with HP Indigo will create demand for our RainbowSecure™ and VeriPAS tm products.  Working with HP Indigo and S-One Labels and Packaging, we are creating a co-marketing programs to effectively reaches all 6000 series HP Indigo owners.   We also will reach out to brand owners and make them aware of our physical security solutions which can provide brand owners counterfeit prevention protection. We intend to generate revenues primarily by collecting license fees based on usage fees generated from HP Indigo 6000 series users as well as non-digital press technology usage.  Our revenue is derived utilizing a royalty rate based on the volume of a particular label or package printed with our RainbowSecure™ technology e.g. a royalty on each impression. We also have revenue that will be generated with the sales of authentication devices from manufacturers who incorporate our technologies into their manufacturing processes and user authentication protocols, as well as through the sale of pigments to be incorporated in inks and dyes and the sale of authentication tools.

Our VeriPAS tm technology product is an identifier, track and trace system which generates revenue from a contracted usage fee per impression rate based on the number of labels and packages printed with the technology.

Our VerifyMe Digital Authentication technology is a software system.  The revenue to be generated from this product will be in the form of a contracted per transaction fee and or a monthly service fee.

Sales and Marketing Strategy:

Physical Security Technology Marketing Strategy
 
Due to our 2017 signed five-year contract with HP Indigo we plan on marketing directly with HP Indigo 6000 series owners as well as the label and packaging printing industry including both traditional and digital printers and users to address their clients’ needs for our covert serialization. Those printers will market and resell our technologies to both current and future brand owner clients.

Currently the only HP Indigo model approved for the use of our technology is the HP Indigo 6000.  We plan on working with HP Indigo to expand the number of HP Indigo Models that can utilize our technology.

In addition to the printing industry we will be marketing directly to all brand owners who utilize labels and packaging for their products. Brand owners can be licensed directly by VerifyMe and direct their personal printer to print their labels and packaging with the VerifyMe printing technologies.  The brand owner will therefore pay their royalties directly to VerifyMe based on the number of labels and packages units that their printer applied the technology to.
  
In addition, VerifyMe will engage third parties to market, sell and support our physical security technologies on a global basis for a contracted fee based on their sales.  Our targeted third parties will already have a successful track record in supporting HP Indigo owners as well as traditional printing clients.
  
As discussed above, in March 2018 we entered into a strategic partnership with S-One. S-One will provide the VerifyMe with global sales, distribution, and promotion support for the Company’s products and will employ a representative that will be solely dedicated to promoting the Company’s products. Under the terms of the Company’s agreement with S-One, S-One will act as a sales and marketing contractor for the Company’s printed products and services on a global basis and will assist the Company in fulfilling the Company’s obligations under the Company’s signed current and future reseller agreements with various global and domestic print providers and brand owners.
 
 
The FDA is currently implementing Title II of the Drug Quality and Security Act, entitled the “Drug Supply Chain Security Act.” This regulation requires drug manufactures to add product identifiers, such as our RainbowSecure™ technology as well as our VeriPAS tm track and trace system, to certain prescription drug packages beginning in November 2017. Re-packagers must begin adding product identifiers in November 2018.  We will also engage third party marketing and sales companies to present our solutions to the drug and pharmaceutical industry. The FDA intends to continue implementing the Drug Supply Chain Security Act to ensure that a full electronic identification system for prescription drugs is implemented by 2023.

Another marketing out-reach is that our track and trace partner, Micro Focus is contracted to cross sell our technologies as part of their Global Product Authentication System called “GPAS”.  We are also contracted with Micro Focus to re-sell their GPAS product with our RainbowSecure™ technology under our own trademarked name, VeriPAS tm which stands for VerifyMe Global Product Authentication System.

An additional marketing strategy is to incorporate our technology into the high-speed inkjet hardware that traditional Flexo and Commercial Printers use to add a variable data feature for their clients.

Some of the major brand segments that need our type of label, packaging and serialization identifier products are:
 
Consumer Product Security
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Pharmaceuticals
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Food
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Beverages
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Luxury goods
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Cosmetics
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Alcohol
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Auto parts
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Aviation parts
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Any other label/ packaging requirements
 
 
Documents of Value
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Currency
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Stock certificates and bonds
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Event tickets
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Lottery tickets

 
Homeland Security
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Passports
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ID cards
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Driver’s licenses
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Visas
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Container seals
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Pallet security

 
Military
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Uniforms
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Weapons
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Ammunition
 
 
Product Diversion Tracking
·
Pharmaceuticals
·
Apparel/licensed merchandise
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Cosmetics and fragrances
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Watches and jewelry

 
Financial Services and Products
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Consumer login credentials
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Online transaction approval
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Credit cards
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Bank checks
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Financial documents/promissory notes

 
We plan for our sales and marketing strategy to include an outreach program and sales programs that tailor the product to the governmental body or merchant, as well as key partnerships with authorities and merchants whose products or audiences can be complementary to our own. In particular, we will focus on building relationship with key partners who can deliver our products to their existing and prospective customers in target markets - i.e., printer/packagers, plastic card manufacturers and financial services intermediaries.

Digital VerifyMe Authenticator Technology Marketing Strategy

Our VerifyMe Authenticator Digital software technology will be marketed directly to potential clients through the use of demonstrations and trade shows.

Our initial targeted market segment is the financial services industry.  This includes both the traditional banking and crypto financial transaction industries.  Our second targeted market segment will be the healthcare industry.  The third targeted market is the gaming industry.   The fourth target market segment we will market to will be governments.  Governments can be both foreign and domestic as well as federal, state and local levels.

All of these market outreaches will be made directly by the Company and we are also going to use third party marketing vendors who specialize in software sales.
 
Competition

The market for protection from counterfeiting, diversion, theft and forgery is a mature more than 25-year old industry dominated by a number of large, well-established companies, particularly in the area of traditional overt security technologies where repeating static produced images are commonly used. This is due to the fact that security printing for currency production began in Europe over a century ago and has resulted in the establishment of old-line security printers which have branched out into brand and product protection as well. In North America, brand protection products, such as tamper-resistant packaging, security labels, and anti-theft devices are readily available and utilized on a widespread basis. In recent years, however, demand has increased for more sophisticated overt and covert security technologies with a strong desire for technologies that can provide variable images and data. Competitors can be segregated into the following groups: (i) Security Ink Manufacturers. These are generally well-established companies such as SICPA and Sun Chemical, whose core business is manufacturing and selling printing inks; (ii) System Integrators. These companies have often evolved from other sectors in the printing industry, mainly security printing manufacturers, technology providers, or packaging and label manufacturers. These companies offer a range of security solutions, enabling them to provide a complete suite of solutions tailored to the customer’s specific needs and requirements. The companies in this space include 3M, DuPont, Honeywell, and Avery Dennison; (iii) System Consultancy Groups. These companies offer a range of technologies from several different providers and tailor specific solutions to end-users; (iv) Traditional Authentication Technology Providers. These purveyors include companies like American Banknote Holographics, Crown Roll Leaf and Digimarc, which provide holograms and digital watermarking, respectively; (v) Product Diversion Tracking Providers. Applied DNA Sciences Next-Generation Technology Providers LLC falls into this group, along with several companies such as Applied DNA Sciences, Authentix, DNA Technologies, and Identif, Kodak Traceless, which provide on-product and in-product tagging technologies; (vi) Traditional Security Printers. This group includes traditional security printers such as Thomas de la Rue, Canadian Banknote, and Banknote Corporation or America, and Portals, whose core products are printing the world’s currencies; and (vii) Biometric Solution Providers. These companies offer biometric authentication capabilities to be integrated with existing mobile device authentication, such as OT-Morpho and ImageWare Systems.
 
 
To compete effectively, we are seeking to establish key relationships with major digital solution equipment and distribution providers such as we have done with HP Indigo.  While leveraging these relationships, we still expect that we will need to expend significant resources in technology and marketing. Many of our competitors have substantially greater financial, human and other resources than we have. As a result, we may not have sufficient resources to develop and market our services to the market effectively.

We expect competition with our products and services to continue and intensify in the future. We believe competition in our principal markets is primarily driven by:

•
product performance, features and liability;
•
price; new laws and regulations;
•
product innovation and timing of new product introductions;
•
ability to develop, maintain and protect proprietary products and technologies;
•
sales and distribution capabilities;
•
technical support and service;
•
brand loyalty;
•
applications support; and
•
breadth of product line.

If a competitor develops superior technology or cost-effective alternatives to our products, our business, financial condition and results of operations could be significantly harmed.

Major Customers/Vendors
 
During the years ended December 31, 2017 and 2016, between one and three customers accounted for 100% of total sales.  Generally, a substantial percentage of the Company's sales has been made to a small number of customers and is typically on an open account basis.
 
In 2018, the company announced 2 re-seller contracts for its RainbowSecure™ technology.  One of these contracts was with a global billion $ label printer.  The company also signed a similar contract for its RainbowSecure™ technology with a leading RFID technology label group.  Both of these customers have clients in the consumer products industry.

 
On September 6, 2017, we announced a five-year contract with HP to supply HP Indigo Digital press ink canisters containing our technology pigment for use by HP Indigo digital press owners who print our security feature on labels and packages for their brand owners.

On January 17, 2018 we announced a cross re-selling agreement with Micro Focus, a public global software developer.  Micro Focus will be offering our technology to their track and trace clients requiring an identifier to accompany Micro Focuses Track and Trace system.  VerifyMe also can sell GPAS which is printed on labels and packaging along with our covert to store our hidden covert serial number in the cloud for product diversion investigators to authenticate with a proprietary app on a mobile device.
 
In March 2018 we entered into a strategic partnership with S-One Labels & Packaging, a division of S-One Holdings Corporation (“S-One”). S-One provides companies with product and sales channels, technical and marketing support, digital development support, and distribution channels through the other companies which have partnered with S-One. S-One will provide the VerifyMe with global sales, distribution, and promotion support for the Company’s products and will employ a representative that will be solely dedicated to promoting the Company’s products. Under the terms of the Company’s agreement with S-One, S-One will act as a sales and marketing contractor for the Company’s printed products and services on a global basis and will assist the Company in fulfilling the Company’s obligations under the Company’s signed current and future reseller agreements with various global and domestic print providers and brand owners.
 
 
During the years ended December 31, 2017 and 2016, we purchased 100% of our pigment from one vendor.

VerifyMe utilizes multiple vendors including the pigment vendor for engineered RainbowSecure™ authentication devices.

Facilities
Our principal offices are located at 75 S. Clinton Avenue, Suite 1525 Rochester, NY  14604.

We believe that our office is suitable and adequate for our current needs.

We do not own or operate, and have no plans to establish, any manufacturing facilities.

Employees

As of March 31, 2018, we had one full time employee Chief Executive Officer and three outside contractors, including our Chief Operating Officer and our Chairman.
 
ITEM 1A. RISK FACTORS

Not applicable for smaller reporting companies.  

ITEM 1B.  UNRESOLVED STAFF COMMENTS .
 
None.
 
ITEM 2.  PROPERTIES .
 
Our principal offices are currently located at 75 S. Clinton Avenue, Suite 1525 Rochester, NY 14604 which we rent on a non-contractual basis for approximately $1,000 per month.

ITEM 3.  LEGAL PROCEEDINGS.
 
From time to time, the Company may be a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this Annual Report the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.
 
ITEM 4.  MINE SAFETY DISCLOSURES .
 
Not applicable.
 
 
PART II
 
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .
 
Our common stock is quoted on the OTCQB under the trading symbol “VRME”. The following table sets forth the range of high and low bid prices of our common stock for the periods indicated as reported by the OTCQB, Inc. Until recently, there was only sporadic and intermittent trading activity of our common stock. The quoted prices represent only prices between dealers on each trading day as submitted from time to time by certain of the securities dealers wishing to trade in our common stock, do not reflect retail mark-ups, mark-downs or commissions, and may differ substantially from prices in actual transactions.
 
Fiscal Year Ended December 31, 2017
 
High
   
Low
 
Quarter ended March 31, 2017
 
$
0.15
   
$
0.06
 
Quarter ended June 30, 2017
 
$
0.12
   
$
0.046
 
Quarter ended September 30, 2017
 
$
0.15
   
$
0.035
 
Quarter ended December 31, 2017
 
$
0.27
   
$
0.06
 

Fiscal Year Ended December 31, 2016
 
High
   
Low
 
Quarter ended March 31, 2016
 
$
2.50
   
$
0.435
 
Quarter ended June 30, 2016
 
$
0.75
   
$
0.09
 
Quarter ended September 30, 2016
 
$
0.44
   
$
0.07
 
Quarter ended December 31, 2016
 
$
0.39
   
$
0.10
 
 
 
Common Stockholders
 
As of March 19, 2018, our shares of common stock were held by approximately 1,366 stockholders of record.
 
Dividend Policy
 
We have never declared or paid a cash dividend. At this time, we do not anticipate paying dividends in the foreseeable future. The declaration and payment of dividends is subject to the discretion of our board of directors (the “Board”) and will depend upon our earnings (if any), our financial condition, and our capital requirements.  Additionally, state law may restrict us from paying dividends.
 
Recent Sales of Unregistered Securities

We have previously disclosed all sales of securities without registration under the Securities Act of 1933 other than the following:

As previously discussed in the Company’s filing on January 25, 2018, on Form 8-K, the Company approved a private placement offering (the “Offering”) with a maximum offering amount of $2,643,000 and had raised $2,635,343 from the sale of shares of common stock and warrants. Each unit sold in the Offering cost $50,000 and consisted of 715,000 shares of common stock and 715,000 five-year warrants exercisable at $0.15 per share. The Company authorized one additional investment of $50,000 in 2018. The Offering has raised a total of $2,685,343. All units sold in the Offering were exempt from registration under Section 4(a)(2) of the Securities Exchange Act of 1933 and Rule 506(b) thereunder as transactions not involving a public offering.
 

On February 13, 2018, the Company authorized the issuance of 240,000 shares of the Company’s restricted common stock to a consultant. All shares were exempt from registration under Section 4(a)(2) of the Securities Exchange Act of 1933 and Rule 506(b) thereunder as transactions not involving a public offering.
 
On February 20, 2018, the Company authorized a 30-day warrant reduction program (the “Program”) permitting warrant holders of the Company’s outstanding $0.15 warrants are eligible to exercise their warrants for $0.10 (the “Reduced Price”) under the terms of the Program. As of April 11, 2018, the Company has received total gross proceeds of $1,542,224 from the exercise of warrants under the Program at the Reduced Price. All of the securities under the Program were sold in offerings exempt from registration under Section 4(a)(2) of the Securities Exchange Act of 1933 and Rule 506(b) thereunder as transactions not involving a public offering. The Company has extended the Program for two additional 30-day time periods. The Program is set to expire on May 22, 2018.

Equity compensation plan information

During 2013, the Board adopted, and our shareholders approved, a new comprehensive incentive compensation plan (the “2013 Plan”) which served as the successor incentive compensation plan to a 2003 Stock Option Plan covering (i) 20,000,000 new shares of our common stock, plus (ii) the number of shares of our common stock subject to outstanding grants under the 2003 Plan as of the date of the 2013 Annual Meeting, plus (iii) the number of shares of our common stock remaining available for issuance under the 2003 Plan.

The 2013 Plan covers 22,013,530 outstanding options and no longer will be used for future grants.

On November 14, 2017, the Company adopted the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) which provides for the issuance of awards covering 13 million shares of common stock under the 2017 Plan. Awards granted under the 2017 Plan may be Incentive Stock Option, Non-Qualified Stock Options, Stock Appreciation Rights, or Restricted Stock Units which are awarded to all employees, consultants and directors of the Company.

Equity compensation plan information as of December 31, 2017

 

(a)
(b)
(c)
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
Equity compensation
plans approved by
security holders*
  22,013,530
$0.11
  n/a
Equity compensation
plans not approved
by security holders
 0
n/a
  13,050,000
Total
  22,013,530
$0.11
  13,050,000

* As of December 31, 2017, under the 2013 Plan and 2017 Plan.

  ITEM 6.  SELECTED FINANCIAL DATA .
 
Not applicable.
 
 
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operation and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. The following should be read in conjunction with our annual financial statements contained elsewhere in this Annual Report.
 
Overview

VerifyMe is a technology pioneer in the anti-counterfeiting industry. This broad market encompasses counterfeiting of physical and material goods and products, as well as counterfeiting of identity in digital transactions. We can deliver security solutions for identification and authentication of people, products and packaging in a variety of applications in the security field for both digital and physical transactions. Our products can be used to manage and issue secure credentials, including national identifications, passports, driver licenses and access control credentials, as well as comprehensive authentication security software to secure physical and logical access to facilities, computer networks, internet sites and mobile applications.
 
The challenges associated with digital access control and identity theft are problems that are highly relevant in the world today. Consumers, citizens, employees, governments and employers demand comprehensive solutions that are reliable but not intrusive. The current widespread use of passwords or PINs for authentication has been proven insecure and inadequate. Individuals increasingly expect anywhere-anytime experiences—whether they are making purchases, crossing borders, accessing services or logging into online accounts or corporate resources. They expect those experiences to ensure the protection of their privacy and to provide uncompromising confidentiality.
 
We believe that the digital technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from identity and authentication to the management of legacy passwords and PINs. We empower our customers to take advantage of the full capabilities of smart mobile devices and provide solutions that are both simple to use and deliver the highest level of security. These solutions can be applied to corporate networks, financial services, e-gov services, digital wallets, mobile payments, entertainment, subscription services, and social media.
 
Brand owners, government agencies, professional associations, and others all share in the challenge of responding to counterfeit goods and product protection issues. Counterfeit goods span across multiple industries including currency, passports, ID cards, pharmaceuticals, apparel, accessories, music, software, food, beverages, tobacco, automobile and airplane parts, consumer goods, toys and electronics. Described by the U.S. Federal Bureau of Investigation as the crime of the twenty-first century, product counterfeiting accounts for an estimated 2.5% of global trade or $461 billion and wreaks dire global health, safety and economic consequences on individuals, corporations, government and society.
 
We believe that the physical technologies we own will enable businesses and consumers to reconstruct their overall approaches to security—from counterfeit identification to employee or customer monitoring. Potential applications of our technologies are available in different types of products and industries—e.g., gaming, apparel, tobacco, fragrances, pharmaceuticals, event and transportation tickets, driver’s licenses, insurance cards, passports, computer software, and credit cards. We generate sales through licenses of our technology or through direct sales of our technology.
 
 
Our physical technologies involve the utilization of invisible and color changing inks, which are compatible with today’s printing presses. The inks may be used with certain printing systems such as offset, flexographic, silkscreen, gravure, and laser. Based upon our experience, we believe that the ink technologies may be incorporated into existing manufacturing processes. We believe that some of our patents may have non-security applications, and we are attempting to commercialize these opportunities.
 
Our digital technologies involve the utilization of multiple authentication mechanisms, some of which we own and some of which we license.  These mechanisms include biometric factors, knowledge factors, possession factors and location factors.   Biometric factors include facial recognition with liveness detection, finger print and voice recognition.  Knowledge factors include a personal gesture swipe and a safe and panic color choice.  Possession factor includes devices that the user has in their possession such as a smartphone, smart watch, and other wearable computing devices.  The location factor geo-locates the user during a secure login.  We surround these authentication mechanisms with proprietary systems that improve the usability and the security of the solutions. Our solutions allow the assessment and quantification of risk using a sophisticated heuristic scoring mechanism.  We have specialized systems that perform ‘liveness’ detection to insure the subject of authentication is in fact a live human being. We have systems that introduce learning capabilities into our solutions to improve the ease of use and flexibility.
 
  Results of Operations
 
Comparison of the Years Ended December 31, 2017 and 2016
 
The following discussion analyzes our results of operations for the years ended December 31, 2017 and 2016. The following information should be considered together with our financial statements for such periods and the accompanying notes thereto.
 
Revenue/Net Loss
 
We have not generated significant revenue since our inception. For the years ended December 31, 2017 and 2016, we generated revenues of $0 and $37,055, respectively. Our net loss was $3,385,340 for the year ended December 31, 2017, a decrease of $1,739,085 from a net loss of $1,646,255 for the year ended December 31, 2016.  Net loss excluding non-cash charges was $1,005,635 for the year ended December 31, 2017, an improvement of $592,903 from a net loss of $1,598,538 for the year ended December 31, 2016, primarily as a result of cost conservation measures, which included reducing the number of employees and salary reductions.
 
Cost of Sales
 
For the years ended December 31, 2017 and 2016, we incurred proprietary technology costs of sales of $0 and $24,363. Cost of sales was lower for the year end December 31, 2017, since we had no sales during the year.
 
General and Administrative Expenses
 
General and administrative expenses were $1,689,883 for the year ended December 31, 2017 compared to $1,010,648 for the year ended December 31, 2016, an increase of $679,235. The increase is attributable primarily to increased non-cash stock-based compensation for consultants of approximately $139,800 and an increase of a non-cash charge of $277,032 related to common stock and warrants issued for services.
    
Legal and Accounting
 
Legal and accounting fees decreased $167,512 to $246,520 for the year ended December 31, 2017 from $414,032 for the year ended December 31, 2016. The decrease in legal and accounting fees related to cost containment measures implemented in the last quarter of 2016. 
 
 
Payroll Expenses
 
Payroll expenses decreased to $767,257 for the year ended December 31, 2017 from $1,789,303 for the year ended December 31, 2016, a decrease of $1,022,046. The majority of the decrease was the result of reduced sales and marketing payroll expenses during the year ended December 31, 2016.
 
Research and Development
 
Research and development expenses decreased $122,136 to $128,044 for the year ended December 31, 2017 from $250,180 for the year ended December 31, 2016. 

Sales and Marketing
 
Sales and marketing expenses for the year ended December 31, 2017 were $3,800 as compared to $282,867 for the year ended December 31, 2016, a decrease of $279,067. The increase was related to deferred compensation costs for consultants hired at the end of 2015, for which the expense was incurred primarily in 2016.
 
Interest Expense
 
During the year ended December 31, 2017, we incurred interest expense of $218,316, as compared to $12,871 for the year ended December 31, 2016, an increase of $205,445.  The increase in interest expense relates primary to the non-cash amortization of note discount of $174,517.

Loss on Settlement of Related Party Notes Payable

During the year ended December 31, 2017, we settled related party notes payable outstanding as of June 30, 2017, by issuing common stock and warrants to issue common stock exercisable at $0.15.  The fair value of the warrants resulted in a non-cash loss on settlement of related party notes payable of $331,912 compared to $0 for the year ended December 31, 2016.
 
Change in Fair Value of Warrants
 
During the year ended December 31, 2017, the change in the fair value of warrants was $0, as compared to $3,357,149 for the year ended December 31, 2016. This change resulted from the Company’s adoption of ASU 2017-11.  See Note 1 to the Notes accompanying the Financial Statements.

Change in Fair Value Embedded Derivative Liability
 
During the year ended December 31, 2017, the change in fair value of the embedded derivative liability was $0, as compared to $698,303 for the year ended December 31, 2016. This change resulted from the Company’s adoption of ASU 2017-11.  See Note 1 to the Notes accompanying the Financial Statements.

Fair Value of Warrants in Excess of Consideration for Convertible Preferred Stock

During the year ended December 31, 2017, the excess of consideration for warrants issued for convertible stock resulted in a loss of $0 compared to $1,949,517 for the year ending December 31, 2016.
 
Liquidity and Capital Resources

Net cash used in operating activities decreased by $408,790 to $935,918 for the year ended December 31, 2017 as compared to $1,344,708 for the year ended December 31, 2016.  The decrease resulted primarily from operational changes discussed previously.
 
    
Net cash used in investing activities was $2,650 for the year ended December 31, 2017, compared to $0 for the year ended December 31, 2016. 
 
Net cash provided by financing activities increased by $245,725 to 1,608,925 for the year ended December 31, 2017 from $1,363,200 for the year ended December 31, 2016.  Cash provided by financing activities during the year ended December 31, 2017, consisted primarily of the private placement held during the year. Financings during the year ended December 31, 2016 related to our Series C and Series D Convertible Preferred Stock offerings which raised $1,284,200 and bridge loans of $79,000.
   
Since our inception, we have focused on developing and implementing our business plan. Our business plans are dependent on our ability to raise capital through private placements of our common stock and/or preferred stock, through the possible exercise of outstanding options and warrants, through debt financing and/or through future public offering of our securities. As of March 31, 2018, we had cash resources of approximately $2,376,000. Our existing cash resources are sufficient to sustain our operations during the next twelve months, however we may need to raise additional funds in the future in order to expand our business. While we have met our working capital needs since 2017 with funds supplied by and through our directors, we cannot assure you they will continue funding us if we need additional capital, or if they do, how dilutive the financing will be.
 
Off-Balance Sheet Arrangements

As of December 31, 2017, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
 
Critical Accounting Policies
 
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 1 of the Notes to our financial statements included elsewhere herein. We have identified below the accounting policies that are of importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.
 
Stock-based Compensation
We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), 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 value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.
 
We account for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, we determine the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measurable.
 
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. Any stock options issued to non-employees are recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each period.
 
 
Recently Issued Accounting Pronouncements
 
Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this Annual Report.

Cautionary Note Regarding Forward Looking Statements

This Annual Report includes forward-looking statements including statements regarding liquidity, anticipated cash flows, future capital-raising activity, and the development of anti-counterfeiting technologies. All statements other than statements of historical facts contained in this Annual Report, including statements regarding our future financial position, anticipated future revenues, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” elsewhere in this Annual Report. Other sections of this Annual Report may include additional factors which could adversely affect our business and financial performance. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following Risk Factors before deciding whether to invest in our Company. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of the common stock could decline.

Risks Relating to Our Business


Because our management team has experienced turnover in recent periods, it may be difficult to evaluate our existing future prospects and the risk of success or failure of our business.
 

We have had numerous changes to our Board and executive officer roles in recent years. To provide stability and guidance, our founder, Norman Gardner, returned to the Company  in 2017 and became Chairman and interim Chief Executive Officer (“CEO”). Patrick White was appointed as President and CEO of the Company effective August 15, 2017 with Mr. Gardner remaining as Chairman and a consultant to the Company . As a result of the turnover, it may be more difficult to project whether we will be successful in growing our business even if we are able to raise capital.

Our success depends on the efforts, abilities and continued service of Patrick White, our President and CEO, and if we are unable to continue to retain the services of Mr. White, we may not be able to continue our operations.
 
Our success depends to a significant extent upon the continued service of Patrick White, our President and CEO.  On August 15, 2017, we entered into a two-year employment agreement with Mr. White. Loss of the services of Mr. White and any negative market or industry perception arising from the loss of such services could significantly harm our business, future prospects and the price of our common stock. We do not maintain key-person insurance on the life of Mr. White.
 
If we cannot expand our operations, or if we cannot manage our growth effectively, we may not become profitable.
 
Businesses which grow rapidly often have difficulty managing their growth. If we successfully obtain financing, we intend to grow rapidly and we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and your investment could be lost.

Our competitors in the anti-counterfeiting industry have much greater financial resources than we do and more functional technology offerings than we currently have. Therefore, we may not be able to successfully compete with them.
 
The market for protection from counterfeiting, diversion, theft and forgery is a mature 25-year-old industry dominated by a number of large, well-established companies, as described under “Competition,” above. To compete effectively, we will need to expend significant resources in technology and marketing. Each of our competitors has substantially greater financial, human and other resources than we have. As a result, we may not have sufficient resources to develop and market our services effectively, if at all. Further, as described below, our primary digital technology is not currently fully functional. If we cannot bring this product to functionality, we may not be able to compete in the key digital sector, which will harm our operating results.

If our technologies do not work as anticipated once we achieve meaningful sales, we will not be successful.

While we believe that we have world class technologies and major businesses have tested our ink technology in trials, our ink business is just on the verge of market acceptance and without material sales and feedback from customers, we cannot be certain that if we increase revenue, we will be successful.

If our technology cannot be used to successfully prevent counterfeiting, we may not be able to generate material revenue.

Our market is characterized by new and evolving technologies. Counterfeiting is constantly evolving in order to create items which appear to be legitimate and evade regulations which would seize counterfeit items and penalize counterfeiters. In order to stay competitive our technologies will need to be sufficiently complex so that they cannot be reproduced or copied by counterfeiters. If we are unable to develop and integrate effective anti-counterfeiting technologies to address the increasingly sophisticated technological needs of our customers in a timely and cost-effective manner, we may not be successful in preventing counterfeiting and we may not be able to generate material revenue.
 

Because we are relying on our small management team, we lack business development resources which may hurt our ability to increase revenue.

We have a small management team that is focused on sales. In addition, our Chairman who is not involved in sales handles operational matters, legal compliance, board relationships and shareholder relations. Because we have only two officers dedicated to business development, we lack the resources to grow beyond certain levels. We cannot assure you that we will generate cash flow from operations or from a financing which will enable us to grow our revenues.
 
If we are unable to hire an experienced sales team, or our partners are not successful, we may not be able to generate material revenue.

Presently our personnel consist of one employee and three contractors.  Our agreement with the GLM includes sales support. Our potential customers are large companies which do not impulsively enter into large contracts.  Accordingly, we may be required to hire sales persons.  If our management team, The GLM and any sales persons we hired are unsuccessful, we may be unable to generate material revenue.

If we cannot manage our growth effectively, we may not become profitable.

Businesses which grow rapidly often have difficulty managing their growth. Our staff presently consists of one employee and three contractors. If we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able to manage our growth effectively or successfully. Our failure to meet these challenges could cause us to lose money, and your investment could be lost.
  
In order to market our digital technology, we need to resolve certain functionality issues but we do not presently have resources to engage in research and development activities.

Our VerifyMe Authenticator technology, described above, does not presently function as intended. Due to our lack of operating capital, we have been unable to invest in the research and development needed to bring this product to full functionality. Further, we cannot guarantee that even with sufficient financial resources we would be able to make this product fully functional, or that if functional, it would appeal to customers. If we cannot make the product function, or if it is not appealing to customers, we will not be able to compete in the digital technology sector, and our business may be unable to generate sufficient revenues to be profitable.

A small number of customers account for all of our revenue, and the loss of any of these customers would have a material adverse impact on our operating results and cash flows.

Historically, we have derived a significant portion of our revenue from a limited number of customers. Our revenue in 2017 was nominal. Any termination of a business relationship with, or a significant sustained reduction in business received from, one or more of these customers could have a material adverse effect on our operating results and cash flows.
 

Our future growth will depend upon the success of our strategic partners who integrate our solutions into their product offerings.

We rely on strategic partnerships with larger companies which integrate our technologies into their product offerings. This distribution strategy leaves us largely dependent upon the success of our partners. In 2017, we signed a five-year contract with HP Indigo to print RainbowSecure™ technology on packages and labels on their 6000 series digital presses.  In January of 2018, we signed a contract with Micro Focus to use RainbowSecure™ in their Global Product Authentication, Track and Trace system (software). If our strategic partners who include our technology in their products cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technology, or these partners are unsuccessful in their efforts, expanding deployment of our technology our business and future growth would be materially and adversely affected.

If we fail to protect or enforce our intellectual property rights, or if the costs involved in protecting and defending these rights are prohibitively high, our business and operating results may suffer.
 
Our trade secrets, copyrights, trademarks, domain names and other product rights are critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We may enter into confidentiality and invention assignment agreements with our employees and contractors and confidentiality agreements with parties with whom we conduct business to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others. It may be expensive and cost prohibitive to file patents worldwide and we may be financially required to file patents in select countries where we see the greatest potential for our technologies.
 
As management deems appropriate, we will pursue the registration of our domain names, trademarks, and service marks in the United States and in certain locations outside the United States as we grow and launch our products. We will seek to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process that is expensive and time-consuming and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our innovations through increased patent filings that are expensive and time-consuming and may not result in issued patents that can be effectively enforced. The Leahy-Smith America Invents Act (“the Leahy-Smith Act”) was adopted in September 2011. The Leahy-Smith Act includes several significant changes to United States patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. One of the key provisions of this law, changing the U.S. patent registry from a “first to invent” to a “first inventor to file” system, has only been effective since March 2013, and the effects of this change on small businesses like ours are not yet clear. It is remains possible that the Leahy-Smith Act and its implementation will increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents, all of which could harm our business.

 
If we are required to sue third parties who we allege are violating our intellectual property rights, or if we are sued for violating a third party’s patents or other intellectual property rights, we may incur substantial expenses, and we could incur substantial damages, including amounts we cannot afford to pay.

Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others. Patent and intellectual property litigation is extremely expensive and beyond our ability to pay.  While third parties do, under certain circumstances, finance litigation for companies that file suit, we cannot assure you we could find a third party to finance any claim we choose to pursue.  Moreover, third parties do not finance companies that are sued.  Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and enhance our intellectual property rights, our business and operating results may be harmed.
 
From time to time, we may face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors and inactive entities. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict. As the result of any court judgment or settlement we may be obligated to cancel the launch of a new feature or product, stop offering certain features or products, pay royalties or significant settlement costs, purchase licenses or modify our products and features while we develop substitutes.  
 

Evolving regulations concerning data privacy may result in increased regulation and different industry standards, which could prevent us from providing our current products to our users, or require us to modify our products, thereby harming our business.

The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet and mobile platforms have recently come under increased public scrutiny, and civil claims alleging liability for the breach of data privacy have been asserted against companies. The U.S. government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with users in Europe. Various government and consumer agencies have also called for new regulation and changes in industry practices. In addition, our business could be adversely affected if laws or regulations are adopted, interpreted, or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our website, products, features or our privacy policy. Such changes may require us to modify our products and features, possibly in a material manner, and may limit our ability to develop new products and features that make use of the data that our users voluntarily share with us or that We are, and will continue to be, dependent on certain third party vendors for the supply of raw materials and key services, and any disruptions in the supply of these materials or services could adversely affect our results of operations.
 
Because we are, and will continue to be, dependent on certain third-party vendors for key services, we are vulnerable to disruptions in the supply of these services which are beyond our control, and which could harm our operations.

 
We are relying upon our business partners to assist us including the GLM and S-One. These partners are larger companies any may not necessarily have the same goals as employees although they have key relationships, management, and staff support and greater financial resources than we do. We currently depend on a single vendor of pigment for the inks we sell, and we may continue to be dependent on a small number of third party suppliers in the future including services relating to our electronic technology. We cannot be certain that any of these providers will be willing or able to meet our evolving needs. If our partners, vendors, or service providers fail to meet their obligations, provide poor, inaccurate or untimely service, or we are unable to make alternative arraignments for the supply of these services, we may fail, in turn, to provide our services or to meet our obligations to our users and our business, financial condition and operating results could be materially and adversely affected.

Risks Relating to Our Common Stock

Failure to implement and maintain effective internal controls over financial reporting could result in material misstatements in our financial statements, which could require us to restate financial statements, cause investors to lose confidence in our reported financial information and could have an adverse effect on our stock price.

Our management determined that as of December 31, 2017, our internal control over financial reporting had a material weakness related to lack of segregation of duties resulting from staff reductions due to cost containment measures.  We have not yet been able to remediate the material weakness related to our internal control over financial reporting.
 

Additional material weaknesses in our internal control over financial reporting may be identified in the future.  Any failure to maintain existing or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. If we are unable to effectively remediate material weaknesses in a timely manner, investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

As a result of our recent financings we are obligated to issue a substantial number of additional shares of common stock, which will dilute our present shareholders.
    
From June 2017 to January 2018, we engaged in a series of private placement transactions issuing $2,683,211 worth of common stock and warrants to accredited investors. This transaction caused us to issue a total of 38,378,011 shares of common stock and 38,378,011 warrants exercisable at $0.15 to investors. For a period of 30-days, beginning on February 20, 2018, holders of our $0.15 warrants were able to exercise their warrants at a reduced exercise price of $0.10 per warrant share. The Program has been extended to May 22, 2018. As of the date of this Annual Report, we issued 15,322,583 shares of common stock upon exercise of warrants. In the future, we may grant additional options, warrants and convertible securities. The exercise, conversion or exchange of options, warrants or convertible securities, including for other securities, will dilute the percentage ownership of our shareholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may be expected to exercise or convert such options, warrants and convertible securities at a time when we would be able to obtain additional equity capital on terms more favorable than such securities or when our common stock is trading at a price higher than the exercise or conversion price of the securities. The exercise or conversion of outstanding warrants, options and convertible securities will have a dilutive effect on the securities held by our shareholders. We have in the past, and may in the future, exchange outstanding securities for other securities on terms that are dilutive to the securities held by other shareholders not participating in such exchange.
    
Because our common stock is subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and market price.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTCQB is presently less than $5.00 per share and therefore we are considered a “penny stock” according to SEC rules. Further, we do not expect our stock price to rise above $5.00 in the immediate future. The “penny stock” designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.

Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors to purchase and sell or otherwise make it difficult to sell shares of penny stocks. The “penny stock” designation may continue to have a depressive effect upon our common stock price.

Due to factors beyond our control, our stock price may be volatile.

Any of the following factors could affect the market price of our common stock:

•
Our failure to generate increasing material revenues;
•
Cancellation of key contracts;
•
Regulatory changes including new laws and rules which adversely affect companies in our line of business;
•
Our public disclosure of the terms of any financing which we consummate in the future;
•
Our failure to become profitable;
•
Our failure to raise working capital;
•
Any acquisitions we may consummate;
•
Announcements by us or our competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments;
 
 
•
Changes in our management;
•
Our failure to meet financial forecasts we or broker-dealers publicly disclose;
•
The sale of large numbers of shares of common stock which we may register in the future;
•
Short selling activities; or
•
Changes in market valuations of similar companies.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.

Our common stock may be affected by limited trading volume and price fluctuations, which could adversely impact the value of our common stock.

Until recently, there has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our shareholders sell substantial amounts of our outstanding common stock, preferred stock, convertible notes issuable upon the exercise of outstanding warrants or other convertible securities, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. The shares of our restricted common stock will be freely tradable upon the earlier of: (i) effectiveness of any registration statement covering such shares and (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act.

Because we may issue preferred stock without the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire us and could depress our stock price .

In general, our Board may issue, without a vote of our shareholders, one or more additional series of preferred stock that have more than one vote per share, although the Company’s ability to designate and issue preferred stock is currently restricted by covenants under our agreements with prior investors. Without these restrictions, our Board could issue preferred stock to investors who support us and our management and give effective control of our business to our management. Additionally, issuance of preferred stock could block an acquisition resulting in both a drop in our stock price and a decline in interest of our common stock. This could make it more difficult for shareholders to sell their common stock. This could also cause the market price of our common stock shares to drop significantly, even if our business is performing well.

If two of our principal shareholders were to act together they would likely control our Company and might be able to act to the detriment of minority shareholders.

Mr. Laurence J. Blickman, a director, through an affiliated trust and other indirect holdings, holds a number of shares of common stock and warrants to purchase common stock which, if exercised, would make him the beneficial owner of over 20% of ou r outstanding common stock. Mr. Blickman has exercised a number of his warrants since the beginning of 2018. Mr. Blickman has historically been very supportive of our Company and continues to be involved with the company. However, investors should be aware that Mr. Blickman would be able to exert a significant amount of control over our management and affairs and all matters requiring shareholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing our change in control and might affect the market price of our common stock.
 

Additionally, Mr. Carl Berg, a director and associate of Mr. Blickman, holds a number of shares of common stock which make him the beneficial owner of over 14% of our outstanding common stock. Investors should be aware that Mr. Berg would be able to exert a significant amount of control over our management and affairs and all matters requiring shareholder approval, including significant corporate transactions.

If Messrs. Blickman and Berg were to act together, they would likely control our Company and they could take action to the detriment of shareholders.

If our common stock becomes subject to a “chill” imposed by the Depository Trust Company, or DTC, your ability to sell your shares may be limited.

The DTC acts as a depository or nominee for street name shares that investors deposit with their brokers. DTC in the last several years has increasingly imposed a chill or freeze on the deposit, withdrawal and transfer of common stock of issuers whose common stock trades on the tiers of the OTC Markets. Depending on the type of restriction, a chill or freeze can prevent shareholders from buying or selling shares and prevent companies from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period of time (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed against our common stock again in the future, if it were your ability to sell your shares would be limited. In such event, your investment will be adversely affected.

Because we cannot raise capital from conventional bank financing, shareholders will be diluted in the future as a result of the issuance of additional securities.

To meet our working capital needs, we expect to issue additional shares of common stock or securities convertible, exchangeable or exercisable into common stock from time to time, which could result in substantial dilution to investors. Investors should anticipate being substantially diluted based upon the current condition of the capital and credit markets and their impact on small companies.

Because we may not be able to attract the attention of major brokerage firms, it could have a material impact upon the price of our common stock.

It is not likely that securities analysts of major brokerage firms will provide research coverage for our common stock since these firms cannot recommend the purchase of our common stock under the penny stock rules referenced in an earlier risk factor. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It may also make it more difficult for us to attract new investors at times when we require additional capital.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .
 
Not required.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .
 
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report beginning on page F-1 located immediately after the signature page.
 
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .
 
As disclosed in the Company’s Form 8-K filed on December 1, 2017, the Audit Committee of the Company approved the dismissal of Morison Cogen LLP (“Former Auditor”) as the Company’s independent registered public accountant on November 27, 2017.
 
During the Company’s two most recent fiscal years, and through the date of their dismissal: (i) there were no disagreements (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and the Former Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of the Former Auditor would have caused the Former Auditor to make reference to the subject matter of the disagreement in connection with its reports on the Company’s consolidated financial statements for such years, and (ii) there were no “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). A copy of the Former Auditor’s letter, dated November 27, 2017, is attached as Exhibit 16.1 to this Form 10-K.

ITEM 9A.  CONTROLS AND PROCEDURES .
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our management conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2016 using criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that our internal controls over financial reporting were not effective as of December 31, 2017 based on a finding of a material weakness related to a lack of segregation of duties, resulting from staff reductions in accordance with cost containment measures. We have taken measures to improve segregation of duties and the overall effectiveness of internal controls by outsourcing certain functions of the accounting department and by forming an Audit Committee.  If we are able to obtain additional funding in the future, we intend to hire sufficient staff to enable an appropriate level of segregation of duties and to provide appropriate controls surrounding the financial reporting function.
 
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report in this Annual Report.

Disclosure Controls and Procedures
 
As of December 31, 2017, our management carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017, 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.
 
 
Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION.
 
None.
 
PART III
 
The information required in Items 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference to the Company’s definitive proxy statement for the 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of December 31, 2017.
 
 
PART IV
 
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .

 
 
 
 
 
 
 
 
 
 
Filed or
 
 
 
 
Incorporated by Reference
 
Furnished
Exhibit No.
 
Exhibit Description
 
Form
 
Date
 
Number
 
Herewith
3.1(i)
 
 
10-Q
 
August 19, 2015
 
3.1
 
 
3.2(ii)
 
 
8-K
 
August 15, 2017
 
3.1
 
 
4.1
 
 
8-K
 
June 18, 2015
 
3.2
 
 
4.2
 
 
8-K
 
June 18, 2015
 
3.3
 
 
10.1
 
 
10-K
 
April 12, 2017
 
10.15
 
 
10.2
 
 
10-K
 
April 12, 2017
 
4.2
 
 
10.3
 
 
8-K
 
November 20, 2017
 
10.1
 
 
10.4
 
 
8-K
 
May 31, 2017
 
10.1
 
 
10.5
 
 
10-Q
 
May 15, 2017
 
10.1
 
 
10.6
 
 
10-Q
 
May 15, 2017
 
10.2
 
 
10.7
 
 
10-Q
 
May 15, 2017
 
10.3
 
 
10.8
 
 
10-Q
 
May 15, 2017
 
10.4
 
 
10.9
 
 
10-Q
 
May 15, 2017
 
10.5
 
 
10.10
 
 
10-Q
 
May 15, 2017
 
10.6
 
 
10.11
 
 
10-Q
 
May 15, 2017
 
10.7
 
 
10.12
 
 
10-Q
 
May 15, 2017
 
10.8
 
 
10.13
 
 
10-Q
 
May 15, 2017
 
10.9
 
 
 
 
10.14
 
 
8-K
 
May 1, 2017
 
10.1
 
 
10.15
 
 
8-K
 
May 1, 2017
 
10.2
 
 
10.16
 
 
8-K
 
February 10, 2016
 
10.1
 
 
10.17
 
 
 
 
 
 
 
 
Filed
10.1 8
 
 
 
 
 
 
 
 
Filed
10. 19
 
 
 
 
 
 
 
 
Filed
10.2 0
 
 
 
 
 
 
 
 
Filed
10.2 1
 
 
 
 
 
 
 
 
Filed
10.2 2
 
 
8-K
 
June 18, 2015
 
10.6
 
 
10.2 3
 
 
8-K
 
June 18, 2015
 
10.7
 
 
10.2 4
 
 
8-K
 
April 29, 2016
 
10.1
 
 
10.2 5
 
 
8-K
 
April 29, 2016
 
10.2
 
 
10.2 6
 
 
8-K
 
April 29, 2016
 
10.3
 
 
10.2 7
 
 
8-K
 
May 2, 2016
 
10.1
 
 
10.2 8
 
 
 
 
 
 
 
 
Filed
10. 29
 
 
 
 
 
 
 
 
Filed
10.3 0
 
 
 
 
 
 
 
 
Filed
10.3 1
 
 
 
 
 
 
 
 
Filed
10.3 2
 
 
 
 
 
 
 
 
Filed
16.1
 
 
8-K
 
December 1, 2017
 
16.1
 
 
31.1
 
 
 
 
 
 
 
 
Filed
31.2
 
 
 
 
 
 
 
 
Filed
32.1
 
 
 
 
 
 
 
 
Furnished**
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
Filed
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
Filed
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
Filed
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
Filed
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
Filed
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
Filed
 
*
Management contract or compensatory plan or arrangement.
**
This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
 
+            Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplemental to the Securities and Exchange Commission staff upon request.
 
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to VerifyMe, Inc., at the address on the cover page of this report, Attention: Corporate Secretary.
 
ITEM 16. FORM 10-K SUMMARY

Not applicable.
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
 
 
 
 
 
 
By:
/s/ Patrick White
 
 
 
Patrick White
Chief Executive Officer
 
 
 
Date: April 17, 2018
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
 
 
 
 
 
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Patrick White
 
Chief Executive Officer
 
April 17, 2018
Patrick White
 
( Principal Executive Officer )
 
 
 
 
 
 
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ James S. Cardwell
 
Chief Financial Officer
 
April 17, 2018
James S. Cardwell
 
( Principal Financial Accounting
Officer )
 
 
 
 
INDEX TO
FINANCIAL STATEMENTS

CONTENTS
 
 
 
PAGE
 
 
 
 
 
 
F-1
 
       
  F-2  
 
 
 
 
 
F-3
 
 
 
 
 
 
F-4
 
 
 
 
 
 
F-5
 
 
 
 
 
 
F-6
 
 
 
 
 
 
F-7 to F-30
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of
VerifyMe, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of VerifyMe, Inc. (the “Company”) as of December 31, 2017, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2018.
Houston, Texas
April 16, 2018
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
VerifyMe, Inc.


We have audited the accompanying balance sheet of VerifyMe, Inc. as of December 31, 2016 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of VerifyMe, Inc. as of December 31, 2016, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant losses and experienced negative cash flow from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ MORISON COGEN LLP

Blue Bell, Pennsylvania
April 12, 2017
 
 
VerifyMe, Inc.
Balance Sheets
 
    
Year Ended
 
    
December 31, 2017
   
December 31, 2016
 
             
             
ASSETS
           
             
CURRENT ASSETS
           
Cash and cash equivalents
 
$
693,001
   
$
22,644
 
Prepaid expenses and other current assets
   
18,668
     
9,425
 
Inventory
   
-
     
17,093
 
TOTAL CURRENT ASSETS
   
711,669
     
49,162
 
                 
OTHER ASSETS
               
Patents and Trademarks, net of accumulated amortization of
               
$237,331 and $194,236 as of December 31, 2017 and December 31, 2016
   
191,507
     
231,952
 
                 
                 
TOTAL ASSETS
 
$
903,176
   
$
281,114
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
 
$
923,202
   
$
867,436
 
Notes payable net of discount of $0 and $60,931, as of December 31, 2017 and December 31, 2016
   
50,000
     
68,069
 
Common stock payable – related party
   
122,478
         
Embedded derivative liability
   
-
     
228,718
 
Warrant liability
   
-
     
394,744
 
TOTAL CURRENT LIABILITIES
   
1,095,680
     
1,558,967
 
                 
STOCKHOLDERS' DEFICIT
               
Series A Convertible Preferred Stock, $.001 par value, 37,564,767 shares
               
  authorized; 324,778 shares issued and outstanding as of December 31, 2017 and
         
  397,778 shares issued and outstanding as of December 31, 2016
   
325
     
398
 
                 
Series B Convertible Preferred Stock, $.001 par value; 85 shares
               
  authorized; 0.92 shares issued and outstanding as of December 31, 2017 and
         
  December 31, 2016
   
-
     
-
 
                 
Series C Convertible Preferred Stock, $.001 par value; 7,500,000 shares
               
  authorized, 0 shares issued and outstanding as of December 31, 2017 and
         
  1,912,500 issued and outstanding as of December 31, 2016
   
-
     
1,913
 
                 
Series D Convertible Preferred Stock, $.001 par value;  6,000,000
               
  shares authorized; 0 shares issued and outstanding as of December 31, 2017
         
  and 166,750 issued and outstanding as of December 31, 2016
   
-
     
167
 
                 
Common stock of $.001 par value; 675,000,000 authorized; 53,873,872 and 8,681,236
issued, 53,523,332 and 8,330,696 shares outstanding as of December 31, 2017 and
December 31, 2016
   
53,522
     
8,331
 
                 
Additional paid in capital
   
56,198,126
     
40,469,272
 
 
               
Treasury stock at cost (350,540 shares at December 31, 2017 and  December 31, 2016)
   
(113,389
)
   
(113,389
)
                 
Accumulated deficit
   
(56,331,088
)
   
(41,644,545
)
                 
STOCKHOLDERS' DEFICIT
   
(192,504
)
   
(1,277,853
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
903,176
   
$
281,114
 
 
The accompanying notes are an integral part to these financial statements.
 
 
VerifyMe, Inc.
Statements of Operations
 
 
  
 
Year Ended
 
  
 
December 31, 2017
   
December 31, 2016
 
 
           
 
           
NET REVENUE
           
Sales
 
$
-
   
$
37,055
 
TOTAL NET REVENUE
   
-
     
37,055
 
 
               
COST OF SALES
   
-
     
24,363
 
 
               
GROSS PROFIT
   
-
     
12,692
 
 
               
OPERATING EXPENSES
               
General and administrative (a)
   
1,689,883
     
1,010,648
 
Legal and accounting
   
246,520
     
414,032
 
Payroll expenses (a)
   
767,257
     
1,789,303
 
Research and development
   
128,044
     
250,180
 
Sales and marketing
   
3,800
     
282,867
 
Total Operating expenses
   
2,835,504
     
3,747,030
 
 
               
LOSS BEFORE OTHER INCOME (EXPENSE)
   
(2,835,504
)
   
(3,734,338
)
 
               
OTHER (EXPENSE) INCOME
               
Interest expenses
   
(218,316
)
   
(12,871
)
Loss on settlement of related party notes payable
   
(331,912
)
   
-
 
Other income
   
392
     
-
 
Loss on disposition of fixed assets
   
-
     
(4,981
)
Change in fair value of warrants
   
-
     
3,357,149
 
Change in fair value of embedded derivative liability
   
-
     
698,303
 
Fair value of warrants in excess of consideration for convertible preferred stock
   
-
     
(1,949,517
)
 
   
(549,836
)
   
2,088,083
 
 
               
NET LOSS
 
$
(3,385,340
)
 
$
(1,646,255
)
 
               
Deemed dividend on convertible preferred shares
   
(596,878
)
   
-
 
 
               
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
 
$
(3,982,218
)
 
$
(1,646,255
)
 
               
LOSS PER SHARE
               
BASIC
 
$
(0.14
)
 
$
(0.24
)
DILUTED
 
$
(0.14
)
 
$
(0.24
)
 
               
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
               
BASIC
   
28,244,361
     
6,860,955
 
DILUTED
   
28,244,361
     
6,860,955
 
 
(a)
Includes share based compensation of $1,800,181 and $1,405,877 for the years ended December 31, 2017 and 2016, respectively.
 
The accompanying notes are an integral part to these financial statements.
 
 
VerifyMe, Inc.
Statements of Changes in Stockholders’ Deficit
For the Years Ended December 31, 2017 and 2016
 
   
Series A
   
Series B
 
Series C
 
Series D
                                           
   
Convertible
   
Convertible
 
Convertible
 
Convertible
                                           
   
Preferred
   
Preferred
 
Preferred
 
Preferred
   
Common
                               
   
Stock
   
Stock
 
Stock
 
Stock
   
Stock
   
Additional
                         
   
Number of
         
Number of
       
Number of
       
Number of
         
Number of
         
Paid-In
   
Treasury
   
Deferred
   
Accumulated
       
   
Shares
   
Amount
         
Amount
 
Shares
   
Amount
 
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Stock
   
Compensation
   
Deficit
   
Total
 
Balance at December 31, 2015
   
441,938
   
$
442
     
1.00
   
$
-
         
-
         
-
     
5,977,030
   
$
5,977
   
$
39,779,414
   
$
(113,389
)
 
$
(1,842,334
)
 
$
(39,998,290
)
 
$
(2,168,180
)
 
                                                                                                               
Conversion of Series A Convertible Preferred Stock
   
(44,160
)
   
(44
)
   
-
     
-
         
-
         
-
     
883,200
     
883
     
(839
)
   
-
     
-
     
-
     
-
 
Conversion of Series B Convertible Preferred Stock
                   
(0.08
)
   
-
         
-
         
-
     
647,983
     
675
     
(675
)
   
-
     
-
     
-
     
-
 
Sale of Series C Convertible Preferred Stock
                                   
3,087,500
     
3,088
         
-
     
1,231,912
     
-
     
-
     
-
     
-
     
-
     
1,235,000
 
Stock issuance costs
                                                               
(17,500
)
   
-
     
-
     
-
     
-
     
-
     
(17,500
)
Conversion of Series C Convertible Preferred Stock
                                   
(1,175,000
)
   
(1,175
)
   
166,750
     
167
     
1,175,000
     
1,175
     
-
     
-
     
-
     
-
     
-
 
Stock on embedded derivative liability
                                                                   
350,500
                                             
350,500
 
Sale of Series D Convertible Preferred Stock
   
-
     
-
     
-
     
-
             
-
             
-
                     
66,533
     
-
     
-
     
-
     
66,700
 
Deemed dividend distribution
   
-
     
-
     
-
     
-
             
-
             
-
                     
(1,277,521
)
   
-
     
-
     
-
     
(1,277,521
 
Issuance of stock for services
   
-
     
-
     
-
     
-
             
-
             
-
     
32,983
     
33
     
20,742
     
-
     
-
     
-
     
20,775
 
Issuance of restricted stock for services
   
-
     
-
     
-
     
-
             
-
             
-
     
40,000
     
40
     
(40
)
   
-
     
-
     
-
     
-
 
Forfeiture of restricted stock units
   
-
     
-
     
-
     
-
             
-
             
-
     
(452,500
)
   
(452
     
(1,069,256
)
   
-
     
1,069,708
     
-
     
-
 
Warrants issued in conjunction with notes payable                   
                   
-
     
-
             
-
             
-
     
-
     
-
     
69,500
     
-
     
-
     
-
     
69,500
 
Fair value of stock options and warrants
                                                                   
-
     
-
     
1,405,877
     
-
     
-
     
-
     
1,405,877
 
Decrease in fair value of restricted stock units
                                                                   
-
     
-
     
(89,375
)
   
-
     
89,375
     
-
     
-
 
Amortization of deferred compensation
                                                                   
-
     
-
     
-
     
-
     
683,251
     
-
     
683,251
 
Net loss
                                                                                   
-
     
-
     
-
     
(1,646,255
)
   
(1,646,255
)
                                                                                                                         
Balance at December 31, 2016   
   
397,778
     
398
     
0.92
             
1,912,500
     
1,913
     
166,750
     
167
     
8,330,696
     
8,331
     
40,469,272
     
(113,389
)
           
(41,644,545
)
   
(1,277,853
)
Cumulative adjustment related to change in accounting principle (Note 1, Change in Accounting Principle)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
11,924,665
             
-
     
(11,301,203
)
   
623,462
 
Adjusted balance at January 1, 2017
   
397,778
     
398
     
0.92
     
-
     
1,912,500
     
1,913
     
166,750
     
167
     
8,330,696
     
8,331
     
52,393,937
     
(113,389
)
   
-
     
(52,945,748
)
   
(654,391
)
Conversion of Series A Convertible Preferred Stock
   
(73,000
)
   
(73
)
   
-
     
-
     
-
     
-
     
-
     
-
     
1,460,000
     
1,460
     
(1,387
)
   
-
     
-
     
-
     
-
 
Conversion of Series C Convertible Preferred Stock
   
-
     
-
             
-
     
(1,912,500
)
   
(1,913
)
   
-
     
-
     
4,767,858
     
4,768
     
(2,855
)
   
-
     
-
     
-
     
-
 
Conversion Preferred C - Warrants
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
6,175,000
     
6,175
     
(6,175
)
                           
-
 
Conversion of Series D Convertible Preferred Stock
 
-
     
-
     
-
     
-
     
-
     
-
     
(166,750
)
   
(167
)
   
496,429
     
496
     
(329
)
   
-
     
-
     
-
     
-
 
Conversion Preferred D - Warrants
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,985,716
     
1,986
     
(1,986
)
                           
-
 
Sale of common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
19,451,575
     
19,452
     
1,340,798
     
-
     
-
     
-
     
1,360,250
 
Sale of common stock - Past issuances
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
503,432
     
503
     
(503
)
                           
-
 
Stock Based Compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,050,372
     
2,050
     
137,758
             
-
             
139,808
 
Stock issuance costs
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
             
-
     
(32,325
)
   
-
     
-
     
-
     
(32,325
)
Conversion of related party notes payable and accrued
interest into common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
4,402,079
     
4,402
     
601,133
     
-
     
-
     
-
     
605,535
 
Discount on warrants issued in conjunction with
related party notes payable
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
113,586
     
-
     
-
     
-
     
113,586
 
Fair value of stock option
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,295,741
     
-
     
-
     
-
     
1,295,741
 
Restricted Stock units and awards
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,175,000
     
2,175
     
64,650
     
-
     
-
     
-
     
66,825
 
Deemed dividend distribution on issuance of common
stock for conversion of Series C and Series D
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(596,878
)
                           
(596,878
)
Accretion of deemed dividend distribution on issuance
of common stock for conversion of Series C and Series D
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
596,878
                             
596,878
 
Common stock and warrants issued for services
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,725,175
     
1,724
     
296,083
                             
297,807
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(3,385,340
)
   
(3,385,340
)
Balance at December 31, 2017
   
324,778
   
$
325
     
0.92
   
$
-
     
-
   
$
-
     
-
   
$
-
     
53,523,332
   
$
53,522
   
$
56,198,126
   
$
(113,389
)
         
$
(56,331,088
)
 
$
(192,504
)
 
The accompanying notes are an integral part to these financial statements.
 
 
VerifyMe, Inc.
Statements of Cash Flows
 
 
 
Year Ended
 
 
 
December 31, 2017
   
December 31, 2016
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(3,385,340
)
 
$
(1,646,255
)
Adjustments to reconcile net loss to net cash used in
               
 operating activities:
               
Loss on sale of fixed assets
   
-
     
4,980
 
Stock based compensation
   
139,808
     
-
 
Fair value of options issued in exchange for services
   
1,295,741
     
1,405,877
 
Fair value of restricted stock units and awards issued in exchange for services
   
66,825
     
-
 
Common stock and warrants issued for services
   
297,807
     
20,775
 
Accretion of discount on notes payable
   
-
     
8,569
 
Amortization of debt discount
   
174,517
         
Interest rolled into principal
   
30,000
         
Loss on conversion of related party notes payable and accrued interest
   
331,912
     
-
 
Change in fair value of warrant liability
   
-
     
(1,407,631
)
Change in fair value of embedded derivative liability
           
(698,303
)
Amortization and depreciation
   
43,095
     
30,199
 
Amortization of deferred compensation
   
-
     
683,251
 
Series B Preferred Stock issue for licensing fees
   
-
     
-
 
(Increase) decrease in assets
               
Accounts receivable
   
-
     
-
 
Inventory
   
17,093
     
11,594
 
Prepaid expenses and other current assets
   
(9,243
)
   
(9,425
)
Increase in liabilities
               
Accounts payable and accrued expenses
   
61,867
     
251,661
 
Net cash used in operating activities
   
(935,918
)
   
(1,344,708
)
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of Patents
   
(2,650
)
   
-
 
 
   
-
     
-
 
Net cash provided by investing activities
   
(2,650
)
   
-
 
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from issuance of notes payable
           
79,000
 
Proceeds from issuance of related party notes payable
   
281,000
     
-
 
Proceeds from sale of Series C Convertible Preferred Stock
           
1,235,000
 
Stock issuance costs
           
(17,500
)
Proceeds from sale of Series D Convertible Preferred Stock
           
66,700
 
Proceeds from sale of common stock
   
1,327,925
     
-
 
Net cash provided by financing activities
   
1,608,925
     
1,363,200
 
 
               
NET INCREASE  IN CASH AND
               
CASH EQUIVALENTS
   
670,357
     
18,492
 
 
               
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
   
22,644
     
4,152
 
 
               
CASH AND CASH EQUIVALENTS - END OF PERIOD
 
$
693,001
   
$
22,644
 
 
               
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid during the year for:
               
Interest
 
$
-
   
$
-
 
Income taxes
 
$
-
   
$
-
 
 
               
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
               
 
               
Cumulative effect of adoption of ASU 2017-11
 
$
623,462
   
$
-
 
Series A Convertible Preferred Stock converted to common stock
 
$
1,460
   
$
883
 
Series B Convertible Preferred Stock converted to common stock
 
$
-
   
$
675
 
Series C Convertible Preferred Stock converted to common stock
 
$
4,768
   
$
1,175
 
Series D Convertible Preferred Stock converted to common stock
 
$
496
   
$
-
 
Conversion Preferred C - warrants into common stock
 
$
6,175
   
$
-
 
Conversion Preferred D - warrants into common stock
 
$
1,986
   
$
-
 
Security deposit offset against accounts payable
 
$
-
   
$
37,197
 
Accretion of discount on preferred stock as deemed dividend distribution
 
$
-
   
$
1,277,521
 
Deemed dividend distribution on issuance of common stock for conversion of Series C and Series D
 
$
596,878
   
$
-
 
Revaluation of restricted stock units additional paid in capital and deferred compensation
 
$
-
   
$
89,375
 
Forfeited restricted common stock
 
$
-
   
$
1,069,708
 
Revaluation of embedded derivative liability upon conversion of Series C Convertible Preferred Stock
 
$
-
   
$
350,500
 
Conversion of related party notes payable and accrued interest into common stock
 
$
273,623
   
$
-
 
Common stock payable for conversion of related party notes payable and accrued interest
 
$
122,478
   
$
-
 
Warrants issued as discount to related party notes payable
 
$
113,586
   
$
69,500
 
Sale of common stock - past issuances
 
$
503
   
$
-
 
 
The accompanying notes are an integral part to these financial statements.
 
 
VerifyMe, Inc.
Notes to the Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business


The Company 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 per share (the “Common Stock”), is traded on the over-the-counter market and quoted on the OTCQB.

The Company is a technology pioneer in the anti-counterfeiting industry. This broad market encompasses counterfeiting of physical and material goods and products, as well as counterfeiting of identity in digital transactions. The Company is able to deliver security solutions for identification and authentication of people, products and packaging in a variety of applications in the security field for physical transactions and owns digital patents which are in the same field. The products can be used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials, as well as comprehensive authentication security software to secure physical and logical access to facilities, computer networks, internet sites and mobile applications.
 
The Company’s activities are subject to significant risks and uncertainties, including the need to secure additional funding to further develop the Company’s patents.
 
Basis of Presentation
 
The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

In July 2017, the FASB issued ASU 2017-11. Part I relates to the accounting for certain financial instruments with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. In the case where the exception from derivative accounting does not apply, warrants must be accounted for as a liability and recorded at fair value at the date of grant and re-valued at the end of each reporting period.
 
The Company’s warrants and embedded conversion feature on its preferred stock (see Notes 8 and 9) include anti-dilution provisions characterized as down round features and have previously been accounted for as liabilities, with the fair value of the liabilities remeasured at each reporting date and the change in liabilities recorded as other non-operating income or loss. The Company had recorded a “Warrant liability” and “Embedded derivative liability” of $623,462, in the aggregate, and gain on the change in fair value of warrants and embedded derivative liability of $11,301,203, in the aggregate, in its “Accumulated deficit” as reported in its Balance Sheets for the year ended December 31, 2016 relating to the warrant liability and embedded derivative liability.

Except for the down round features in the warrants and embedded conversion feature, the warrants and embedded conversion feature would have been classified in equity under the guidance in Subtopic 815-40 and therefore qualify for the scope exception in ASU 2017-11. As permitted, the Company elected to adopt the accounting principles prescribed by ASU 2017-11 for the year ending December 31, 2017 and has recorded a cumulative-effect adjustment stemming from a change in accounting principle in its financial statements for the year ended December 31, 2017 measured retrospectively to the beginning of 2017. The cumulative effect adjustment appears at the beginning of 2017 in the Company’s Statement of Changes in Stockholders Deficit. The results of operations for the Company for year ended December 31, 2017 reflects application of the change in accounting principle from the beginning of 2017.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The following table details the impact stemming from the cumulative effect of the change in accounting principle on the Company’s Consolidated Balance Sheets as of the beginning of 2017.

Balance Sheet Accounts Impacted by
Warrants and Embedded Derivative
Liability
 
As
Previously
Reported
December
31, 2016
   
Cumulative
Effect
Adjustment at
the Beginning
of 2017
   
Reported after the
Effect of a Change
in Accounting
Principle at the
Beginning of 2017
 
Embedded derivative liability
 
$
228,718
   
$
(228,718
)
 
$
-
 
Warrant liability
   
394,744
     
(394,744
)
   
-
 
Additional paid in capital
   
40,469,272
     
11,924,665
     
52,393,937
 
Accumulated deficit
   
(41,644,545
)
   
(11,301,203
)
   
(52,945,748
)

Because the Company has retroactively applied the change in accounting principle discussed above to the beginning of 2017, the Company is no longer reporting warrant derivative gains or losses for the warrants and embedded conversion feature beginning in 2017. Amounts reported for periods ending on or prior to December 31, 2016 have not been adjusted.

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.

Comprehensive Income

The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220, “Comprehensive Income,” in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Fair Value of Financial Instruments
 
The Company’s financial instruments consist of accounts receivable, accounts payable and accrued expenses, notes payable, embedded derivative liability and warrant liability. 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 approximate 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
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
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.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and certificates of deposit and commercial paper with original maturities of 90 days or less to be cash or cash equivalents.
 
Concentration of Credit Risk Involving Cash and Cash Equivalents

The Company’s cash and cash equivalents are held at one financial institution. At times, the Company’s deposits may exceed Federal Deposit Insurance Corporation (FDIC) coverage limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.

Inventory

Inventory principally consists of penlights and pigments and is stated at the lower of cost (determined by the first-in, first-out method) or market.
 
Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, principally five to seven years. Maintenance and repairs of property are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations.

Patents and Trademarks

The current patent portfolio consists of 11 granted US patents, and two US patent applications pending. Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 17 to 20 years.
 
Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets in accordance with ASC 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets.
 
Deferred Financing Costs

Costs incurred in securing long-term debt are deferred and amortized, as a charge to interest expense, over the term of the related debt.  In the case of long-term debt modifications, the Company follows the guidance provided by ASC 470-50, “Debt – Modification and Extinguishments.”
 
Notes Payable with detachable warrants

In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options,” the proceeds of notes payable with detachable stock purchase warrants have been allocated between the two based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.  The portion allocated to the warrants has been accounted for as a discount to the notes payable, and amortized over the term of the notes.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
Derivative Instruments

The Company evaluates its convertible debt, Preferred Stock, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with FASB ASC 480, “Distinguish by Liabilities from Equity” (FASB ASC 480), and FASB ASC 815, “Derivatives and Hedging” (“FASB ASC 815”). The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability. The change in fair value is recorded in the Statement of Operations as a component of other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
 
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
 
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified as liabilities at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

Revenue Recognition
 
In accordance with FASB ASC 605, “Revenue Recognition,” the Company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) collectability of the revenue is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales, consisting mainly of pigments and penlights, upon shipment to the customer. Royalty revenue is recognized upon receipt of notification from a customer that the Company’s product has been used in the customer’s production process.

Income Taxes

The Company follows FASB ASC 740, “Income Taxes,” when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Tax years from 2013 through 2016 remain subject to examination by major tax jurisdictions.

Stock-based Payments
 
The Company accounts 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. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.
 
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees” (“FASB ASC 505-50”). Under FASB ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measurable.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
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 the Company 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.

 
Advertising Costs
 
Advertising costs are expensed as incurred. Advertising costs were approximately $550 and $0 for the years ended December 31, 2017 and 2016 and are included in sales and marketing expenses.
 
Research and Development Costs
 
In accordance with FASB ASC 730, research and development costs are expensed when incurred. Research and development costs for the years ended December 31, 2017 and 2016 were $128,044 and $250,180.
 
Basic and Diluted Net Income per Share of Common Stock

The Company follows 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 years presented, common stock equivalents, including preferred stock, stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share were the same.
 
For the year ended December 31, 2017 and 2016, 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 years presented.
 
For the year ended December 31, 2017 there were approximately 68,612,000 anti-dilutive shares consisting of 32,292,000 relating to warrants, 22,013,000 relating to options and 14,307,000 relating to preferred share agreements.  For the year ended December 31, 2016 there were approximately 22,531,000 anti-dilutive shares consisting of 9,216,000 relating to warrants, 3,282,000 relating to options and 10,033,000 relating to preferred share agreements.
 
Segment Information

The Company is organized and operates as one operating segment wherein the Company’s patented technologies are utilized to address counterfeiting issues. In accordance with FASB ASC 280, “Segment Reporting” (“FASB ASC 280”), the chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Since the Company operates in one segment and provides one group of similar products, all financial segment and product line information required by FASB ASC 280 can be found in the financial statements.

Recently Adopted Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15,  Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . The amendments in this Update provide guidance about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  The amendments were adopted as of December 31, 2016, see Note 2 for management’s evaluation and disclosure.

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-11,“ Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”). Part I relates to the accounting or certain financial instruments with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down Round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. An entity still is required to determine whether instruments would be classified as equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. ASU 2017-11 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted and may be applied on a retrospective basis, including in an interim period. The Company early adopted ASU 2017-11 during the interim period ended December 31, 2017 and retrospectively applied the adoption from January 1, 2017 (see Note 1, Change in Accounting Principle).
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
Recently Issued Accounting Pronouncements Not Yet Adopted as of December 31, 2017

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effective dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
 
The FASB issued several updates on Topic 606 “Revenue from Contracts with Customers”, including:
 
•
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”
•
ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).”
•
ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.”
•
ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF (Emerging Issue Task Force) Meeting.”
•
ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.”
•
ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”
•
ASU 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842). Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.”
  
The standards provide companies with a single model for use in accounting for revenue arising from contracts with customers that supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, to be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company has adopted this guidance effective January 1, 2018, as required.
 
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This update was issued to clarify certain narrow aspects of guidance concerning the recognition of financial assets and liabilities established in ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This includes an amendment to clarify that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair valuation method in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all identical or similar investments of the same issued. The update is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years beginning after June 15, 2018. The Company has adopted ASU 2016-01 on its financial statements and related disclosures as of January 1, 2018.
    
 
VerifyMe, Inc.
Notes to the Financial Statements
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). In January 2018, the FASB issued ASU 2018-01, which provides additional implementation guidance on the previously issued ASU 2016-02. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The Company does not plan to elect early adoption for this pronouncement.  The Company is currently evaluating the impact of adoption of ASU 2016-02 and does not expect any material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement of cash flows. The standard provides guidance on the classification of the following items: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows. The Company is required to adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interim period. The Company has adopted this guidance effective January 1, 2018, as required.
 
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation” (Topic 718): Scope of Modification Accounting. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718 Compensation-Stock Compensation. An entity should account for the effects of a modification unless all the following are met: 1. The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. 2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. 3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The ASU is effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. The Company has adopted this guidance effective January 1, 2018, as required.
      
NOTE 2 – PROPERTY AND EQUIPMENT
 
Equipment consists of the following:

   
Year ended December 31,
 
   
2017
   
2016
 
Software, furniture and fixtures
 
$
200,000
   
$
200,000
 
Equipment
   
3,223
     
3,223
 
Total
   
203,223
     
203,223
 
Less: accumulated depreciation
   
(203,223
)
   
(203,223
)
Balance
 
$
-
   
$
-
 
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
Depreciation of property and equipment was $0 and $2,856 for the years ended December 31, 2017 and 2016.

 
NOTE 3 – PATENTS AND TRADEMARKS
     
The current patent portfolio consists of 11 granted patents.  Accordingly, costs associated with the registration and legal defense of these patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 17 to 19 years. During the years ended December 31, 2017 and 2016, the Company capitalized $2,650 and $200,100 of patent costs and trademarks. Amortization and impairment expense for patents and trademarks was 30,406 and $24,707 for the years ended December 31, 2017 and 2016.
 
NOTE 4 – INCOME TAXES
 
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2017 and 2016 is as follows (in thousands) :

   
Year Ended December 31
 
US
 
2017
   
2016
 
             
Income before income taxes
 
$
(3,385
)
 
$
(1,646
)
Taxes under statutory US tax rates
   
(1,202
)
   
(576
)
Increase (decrease) in taxes resulting from:
               
Increase (decrease) in valuation allowance
   
1,346
     
1,391
 
Foreign tax rate differential
               
Non-deductible changes in derivative liability and share based transactions
   
1
     
(716
)
State taxes
   
(145
)
   
(99
)
Income tax expense
 
$
-
 
 
$
-
 

The increase in the Company's net increase in the valuation allowance was caused by continued net operating losses from ongoing operations.
 
     
VerifyMe, Inc.
Notes to the Financial Statements
   
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities consist of the following:
 
   
December 31,
 
   
2017
   
2016
 
US
           
Net operating loss
 
$
7,035
   
$
13,263
 
Share based compensation
   
1,800
     
5,165
 
Reserves and accruals
           
12
 
Gross deferred tax assets
   
8,835
     
18,440
 
                 
Less valuation allowance
   
(8,835
)
   
(18,275
)
Total deferred tax assets
   
-
     
165
 
                 
Deferred tax liabilities:
               
Amortization of acquired intangibles
   
-
     
(165
)
Total deferred tax liabilities
   
-
     
(165
)
Net deferred tax assets / (liabilities)
 
$
-
   
$
-
 

 
As of December 31, 2017, the Company had federal and state net operating loss carry forwards of $32.0 million and $5.9 million, respectively that may be offset against future taxable income, subject to limitation under IRC Section 382, which begin to expire in 2019.  No tax benefit has been reported in the December 31, 2017 or 2016 consolidated financial statements due to the uncertainty surrounding the realizability of the benefit, based on a more likely than not criteria and in consideration of available positive and negative evidence.

 
Utilization of the net operating losses (NOL) carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code (IRC) of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. At the time of closing the books, the Company had not yet completed a study to determine the extent of the limitation.

The Company applied the "more-likely-than-not" recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2017 and December 31, 2016, respectively.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the consolidated balance sheets and has not recognized interest and/or penalties in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2017 and 2016.

The Company is subject to taxation in the United States and various state jurisdictions. The Company’s tax years from inception are subject to examination by the United States and state taxing authorities due to the carryforward of unutilized NOLs.
 
     
VerifyMe, Inc.
Notes to the Financial Statements
     
On December 22, 2017, the United States enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”).  The Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the corporate tax rate from 35% to 21%.  The Tax Act reduced the U.S. corporate income tax rate reduction to 21% becomes effective January 1, 2018. The Company re-measured its deferred tax assets and liabilities as of December 31, 2017, applying the reduced corporate income tax rate and recorded a provisional decrease to the deferred tax assets and liabilities of  $ 6.2 million, with a corresponding adjustment to the valuation allowance.

There are no taxes payable as of December 31, 2017 or December 31, 2016.
 

 
NOTE 5– NOTES PAYABLE

Notes payable consists of the following as of December 31:

   
Year ended December 31,
 
   
2017
   
2016
 
Series A notes payable; interest at 8% per annum; principal and
accrued interest due at maturity in October 2011 (past due)
 
$
50,000
   
$
50,000
 
Notes payable; interest rate at 5% per annum; principal and
accrued interest due at maturity on June 30, 2017
   
-
     
79,000
 
Less: unamortized discount
   
-
     
(60,931
)
Net
   
50,000
     
68,069
 
Less: current portion
   
(50,000
)
   
(68,069
)
Balance
 
$
-
   
$
-
 
 
At December 31, 2017 and 2016 accrued interest on notes payable was $33,667 and $29,668.
 
On October 28, 2009 the Company issued an unsecured note payable for $50,000. The note and accrued interest at 8% per annum were due in full in October 2011. The note and accrued interest at 8% per annum were due in full in October 2011.  The holder has never demanded payment.

 
During the fourth quarter of 2016, the Company issued notes payable in the amount of $79,000 in addition to 3,950,000 warrants to purchase the Company’s common stock at $0.40 and have a term of five years.  The notes bear interest at the rate of 5% per annum and are due on June 30, 2017.  In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options,” the proceeds of notes payable with detachable stock purchase warrants have been allocated between the two based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.  The portion allocated to the warrants has been accounted for as a discount to the notes payable and amortized over the term of the notes.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The warrants were valued using the Black-Scholes option pricing model, with the following assumptions: no dividend yield, expected volatility of 194.6% to 197.5%, risk free interest rate of 1.26% to 2.03% and expected lives of five years.  The fair value of the warrants was $729,035, of which $69,500 was allocated to the notes payable as discount to the notes payable.

 
On January 24, 2017 and January 31, 2017, the Company issued notes payable to a director of the board in the amount of $20,000, in addition to warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.40 per share and a term of five years. The notes bear interest at the rate of 10% per annum and are due on June 30, 2017. In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options,” the proceeds of notes payable with detachable stock purchase warrants have been allocated between the two based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.  The warrants were valued at $15,896 fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants.  The warrant values were treated as a discount to the value of the note payable in accordance with FASB ASC 835-30-25, Recognition and were accreted over the term of the note payable for financial statement purposes. 
 
On February 13, 2017, the Company issued a note payable to a director of the board in the amount of $100,000 in addition to a warrant to purchase 5,000,000 shares of the Company’s common stock at an exercise price of $0.40 per share and a term of five years. The notes bear no interest and are due on June 30, 2017. In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options,” the proceeds of notes payable with detachable stock purchase warrants have been allocated between the two based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.  The warrants were valued at $76,390 fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants.  The warrant values were treated as a discount to the value of the note payable in accordance with FASB ASC 835-30-25, Recognition and were accreted over the term of the note payable for financial statement purposes. 

On March 28, 2017, the Company issued a note payable to a director of the board in the amount of $25,000 in addition to a warrant to purchase 1,250,000 shares of the Company’s common stock at an exercise price of $0.40 per share and a term of five years. The notes bear no interest and are due on June 30, 2017. In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options,” the proceeds of notes payable with detachable stock purchase warrants have been allocated between the two based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.  The warrants were valued at $21,300 fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants.  The warrant values were treated as a discount to the value of the note payable in accordance with FASB ASC 835-30-25, Recognition and were accreted over the term of the note payable for financial statement purposes. 
 
On April 13, 2017, the Company issued notes payable to a director of the board in the principal amount of $10,000 in exchange for a loan bearing no interest maturing June 30, 2017.
 
On April 26, 2017, the Company issued a secured promissory note (the “Note”) to a relative of director of the board in the principal amount of $30,000 in exchange for a loan bearing 10% interest maturing October 31, 2017. The Note is secured by a first lien on all assets of the Company in accordance with a security agreement entered into in connection with the Note. In the event the Company completes a financing of at least $750,000 prior to maturity of the Note, the principal of the Note will automatically convert into a number of shares of common stock of the Company equivalent to an investment of $60,000 under the terms of such financing. In the event of such a conversion or a voluntary prepayment by the Company, the Company will also pay six months of interest payments on the $60,000 principal of the Note.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
In May 2017, the Company issued notes payable to a director of the board in the principal amount of $60,000 in exchange for a loan bearing no interest maturing June 30, 2017.
 
In June 2017, the Company issued notes payable to a director of the board in the principal amount of $36,000 in exchange for a loan bearing no annual interest maturing June 30, 2017.

On June 30, 2017, all of these notes payable (including the Note) amounting to $360,000 and converting at $390,000 plus accrued interest of $6,101, except for the $50,000 note payable from 2009, were converted into 6,151,762 shares of the Company’s common stock and warrants to purchase 6,151,762 shares of the Company’s common stock at an exercise price of $0.15, with a term of five years.  As of December 31, 2017, from the 6,151,762 shares of common stock and 6,151,762 warrants to purchase shares of the Company, 4,402,079 shares of common stock and 4,402,079 shares of warrants had been issued to convert $270,000 principal (including the Note) and $3,623 accrued interest.

The fair value of the warrants issued in connection with the settlement of the notes payable were valued at $605,535 resulting in a Loss on settlement of related party notes payable of $331,912 included in the Statement of Operations.  An increase of $30,000 in the Note principal upon conversion was included in Interest expenses in the Statement of Operations.

As of December 31, 2017, 1,749,683 shares of common stock and 1,749,683 of warrants issuable upon conversion for $120,000 principal and $2,478 accrued interest had not yet been issued and as such the amount has been recorded as Common Stock payable included on the Balance Sheets.

As of December 31, 2017, and December 31, 2016, accrued interest on notes payable was $33,667 and $29,968, respectively. Interest expense including accretion of debt discount for the year ended December 31, 2017 and 2016 was $218,316 and $12,871.
 
 
NOTE 6 – CONVERTIBLE PREFERRED STOCK
 
The Company has outstanding Series A Preferred Stock (the “Series A”) and Series B Preferred Stock (the “Series B”). As of December 31, 2017, there were 37,564,767 authorized and 324,778 outstanding shares of Series A and 85 authorized and 0.92 outstanding shares of Series B. Each share of Series A and B has limited voting rights, is entitled to participate with the common stock on liquidation and holders of Series A and B have beneficial ownership limitations.

 
Series A Convertible Preferred Stock
 
On March 10, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.
 
On June 1, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.
 
On August 23, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.
 
During the year ended December 31, 2017, 73,000 shares of Series A Convertible Preferred Stock were converted into 1,460,000 shares of the Company’s Common Stock.
 
Series B Convertible Preferred Stock
 
On March 17, 2016, 0.03 shares of Series B Convertible Preferred Stock were converted into 291,780 shares of the Company’s common stock.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
On October 5, 2016, 0.05 shares of Series B Convertible Preferred Stock were converted into 383,203 shares of the Company’s common stock.

During the year ended December 31, 2017, there were no conversions of Series B Convertible Preferred Stock into shares of the Company’s common stock.

Series C Convertible Preferred Stock
 
The Series C Convertible Preferred Stock (the “Series C”) described below converted on June 30, 2017 and a Certificate of Withdrawal for the Series C Certificate of Designation was subsequently filed.

On February 9, 2016, the Company issued 2,587,500 shares of Series C, par value $0.001 per share, at a purchase price of $0.40 per share with gross proceeds to the Company of $1,035,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 2,587,500 shares of the Company’s common stock at an exercise price of $0.40 per share. Further, as a part of the same offering, on February 29, 2016, the Company issued 500,000 shares of Series C, at a purchase price of $0.40 per share with gross proceeds to the Company of $200,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 500,000 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series C is convertible into one share of common stock. The Series C provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to future corporate events or otherwise, including, for a proscribed period of time, upon the issuance of securities at a price that is less than the exercise price of the Series C.
 
The 3,087,500 warrants associated with the Series C were classified as a liability since they are subject to anti-dilutive adjustments outlined in the warrant agreement and valued at a fair market value of $1,767,576 at February 9, 2016 and February 29, 2016. In addition, the warrants must be revalued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2017 and 2016, the fair value of the warrants was $0 and $285,290.

In addition, the Company incurred stock issuance costs of $17,500 related to the issuance of Series C.
 
On May 30, 2017, the Company entered into Securities Exchange Agreements (the “Agreements”) with the holders of approximately 87% of the outstanding shares of the Company’s 0% Series C and the holders of 100% of the outstanding shares of the Company’s 0% Series D Convertible Preferred Stock (the “Series D”) and certain warrants to purchase the Company’s common stock held by the Series C and Series D holders. The effectiveness of the Agreements was contingent upon the Company raising at least $500,000 in a debt or equity financing transaction which closed on June 30, 2017. Pursuant to the Agreements, the holders exchanged each share of Series C for 2.857 shares of common stock and each warrant for two shares of common stock. The Agreements also eliminate a covenant in the Securities Purchase Agreements with the Series C and Series D investors which adversely affects the Company’s ability to issue securities and incur debt.
 
On July 19, 2017, the Company authorized the withdrawal of the Certificates of Designation for Series C and Series D and on July 13, 2017, the Company ratified the authorization to issue shares of common stock to the holders of Series C and Series D.
 
On May 2, 2016, 487,500 shares of Series C were converted into 487,500 shares of the Company’s Common Stock.
 
On May 3, 2016, 125,000 shares of Series C were converted into 125,000 shares of the Company’s Common Stock.
 
On May 5, 2016, 353,000 shares of Series C were converted into 353,000 shares of the Company’s Common Stock.
 
On June 6, 2016, 84,500 shares of Series C were converted into 84,500 shares of the Company’s Common Stock.
 
On October 14, 2016, 125,000 shares of Series C were converted into 125,000 shares of the Company’s Common Stock.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
On April 14, 2017, 375,000 shares of Series C were converted into 375,000 shares of the Company’s Common Stock.
 
On June 30, 2017, pursuant to the Agreement, 1,537,500 shares of Series C were converted into 4,392,858 shares of the Company’s Common Stock; 3,087,500 shares of warrants were converted into 6,175,000 shares of the Company’s Common Stock, out of which 230,000 shares was issued to a director of the Board . $473,604 deemed dividend to Series C holders was recorded in conjunction with the transaction.
 
Series D Convertible Preferred Stock
 
The Series D described below converted on June 30, 2017 and a Certificate of Withdrawal Series D Certificate of Designation was subsequently filed.

On October 24, 2016, the Company issued 166,750 shares of Series D, par value $0.001 per share, at a purchase price of $0.40 per share to a director of the board with gross proceeds to the Company of $66,700. In connection with the sale of the Series D, the Company issued to the purchasers warrants to purchase in the aggregate 667,000 shares of the Company’s common stock at an exercise price of $0.40 per share.  Each share of Series D is convertible into one share of common stock. The Series D provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to future corporate events or otherwise, including, for a proscribed period of time, upon the issuance of securities at a price that is less than the exercise price of the Series D.
 
The 667,000 warrants associated with the Series D were classified as a liability since they are subject to anti-dilutive adjustments outlined in the warrant agreement and valued at a fair market value of $181,942 at October 24, 2016. In addition, the warrants must be revalued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2017, and 2016, the fair value of the warrants was $0 and $64,137.

As noted, above, on May 30, 2017, the Company entered into Agreements with the holders of approximately 87% of the outstanding shares of the Company’s Series C and certain warrants to purchase the Company’s common stock held by the Series C holders. The Company had an oral agreement with the holder of the outstanding shares of the Company’s Series D to convert the Series D when the Series C converted. On July 13, 2017, the Company issued the Series D holder 2,482,145 shares of common stock upon conversion of the Series D and exchange of warrants issued with the Series D.
 
On June 30, 2017, 166,750 shares of Series D were converted into 496,429 shares of the Company’s Common Stock; 667,000 shares of warrants were converted into 1,985,716 shares of the Company’s Common Stock. $123,274 deemed dividend to Series D holders was recorded in conjunction with the transaction. 

 
NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Liabilities
 
For purposes of determining whether certain instruments are derivatives for accounting treatment, the Company follows the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.
 
Liabilities measured at fair value on a recurring basis are summarized as follows:

   
December 31, 2017
   
December 31, 2016
 
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Embedded derivative liability related
to beneficial conversion option
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
228,718
   
$
228,718
 
Derivative liability related to fair
value of warrants
   
-
     
-
     
-
     
-
     
-
     
-
     
394,744
     
394,744
 
Total
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
623,462
   
$
623,462
 
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 inputs:

   
Total
 
Balance, January 1, 2016
 
$
1,802,375
 
Series C embedded derivative fair value, February 2016
   
1,235,000
 
Effect of conversion of Series C Preferred Stock on embedded derivative liability
   
(350,500
)
Series C warrant liability fair value, February 2016
   
1,767,576
 
Series D embedded derivative fair value, October 2016
   
42,521
 
Series D warrant liability fair value, October 2016
   
181,942
 
Change in fair value of derivative liabilities
   
(4,055,452
)
Balance, December 31, 2016
   
623,462
 
Cumulative adjustments related to change in accounting principle, January 1, 2017
   
(623,462
)
Balance, December 31, 2017
 
$
-
 

The Company has no assets that are measured at fair value on a recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis during the year ended December 31, 2016.
 
As of December 31, 2016, some of the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings. These Common Stock purchase warrants did not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using Black-Scholes and the following assumptions:

   
December 31, 2017
   
December 31, 2016
 
Closing trade price of Common Stock
 
$
-
   
$
0.11
 
Effective Series C Preferred Stock Conversion Price
   
-
     
-
 
Effective Series D Preferred Stock Conversion Price
   
-
     
-
 
Intrinsic value of conversion option per share
 
$
-
   
$
0.11
 

   
December 31, 2017
   
December 31, 2016
 
Annual Dividend Yield
   
-
     
0.0%
 
Expected Life (Years)
   
-
     
1.5 – 2.8
 
Risk-Free Interest Rate
   
-
     
1.2% - 1.5%
 
Expected Volatility
   
-
     
215.8% - 234.1%
 


Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term of these warrants. The Company had no reason to believe future volatility over the expected remaining life of these warrants was likely to differ materially from historical volatility. The expected life was based on the remaining contractual term of the warrants. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the warrants.

 
NOTE 8 – STOCKHOLDERS’ EQUITY
 
For the years ended December 31, 2017 and 2016, the Company expensed $6,750 and $683, 251 relative to Restricted Stock Units.
 
For the years ended December 31, 2017 and 2016, the Company expensed $ 60,075 and $0 relative to Restricted Stock awards.
 
On February 8, 2016, the Company issued 23,500 shares of Common stock to a consultant.  The shares were valued at $15,275 based on the closing stock price of the Company’s stock price on February 8, 2016 of $0.65 per share.  The value of the shares was expensed immediately.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
On May 24, 2016, the Company issued 9,483 shares of Common stock to a consultant as a finder’s fee for an employee.  The shares were value at $5,500 based on the closing stock price of the Company’s common stock on March 11, 2016 per the agreement.  The value of the shares was expensed immediately.

On September 8, 2017, the Company entered into a consulting agreement stipulating partial payment in restricted common stock.  As of December 31, 2017, 120,000 shares have been issued.  These shares were valued at the closing price of the Company’s common stock as they became due for a total of $12,000 for the year ended December 31, 2017.

During the year ended December 31, 2017, the Company also issued 1,605,175 shares of common stock and 1,605,175 shares of warrants to two directors of the Board for services already rendered under consulting agreements. The 1,605,175 shares of warrants have an exercise price of $0.15 per share and a term of five years. The common stock and warrants were valued and expensed for $285,807.

On August 9, 2017, the Company granted 300,000 shares of restricted common stock to each of six non-employee directors and one attorney vesting quarterly over one. The common stock was measured at fair value at the grant date and expensed based on the vesting schedule.  Common stock related to the Company’s attorney were revalued as of the year end.  During the year ended December 31, 2017, $60,075 compensation expense was recorded. As of December 31, 2017, there is $84,105 unrecognized compensation cost related to these shares of restricted common stock.

During 2017, 19,451,575 shares of common stock and 19,451,575 shares of warrants to purchase common stock were issued for gross proceeds of $1,360,250 from the sale of units with each unit consisting of 715,000 shares of common stock and 715,00 five-year warrants exercisable at $0.15 per share.  Legal costs related to this offering amounted to $32,325 and were recorded in Additional Paid In Capital.  Net proceeds related to the sale of common stock were $1,327,925 for the year ended December 31, 2017.
 
In connection with the sale of common stock noted above, 8,712,275 shares were issued and 8,712,275 warrants to purchase common stock were issued for gross proceeds of $609,250 to directors of the Board and relatives of the directors of the Board.

 
During 2017, 75,000 Restricted Stock Units were vested in relation to a consulting service agreement and a total of $6,750 was expensed.

During 2017, 2,050,372 shares were issued as stock-based compensation with a total non-cash expense of $139,808.  Of this amount 371,800 shares were issued to a director of the Board, for a total non-cash expense of $22,308.

During 2017, 503,432 shares were issued for sale of common stock in prior years.  Of this amount, 479,901 related to two members of the Board.

 
NOTE 9 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS
 
On December 17, 2003, the Company created the 2003 Stock Option Plan (the “2003 Plan”). Under the 2003 Plan, the Company is authorized to grant options to purchase up to 18,000,000 shares of common stock to the Company’s employees, officers, directors, consultants, and other agents and advisors. As of December 31, 2016, options to purchase 11,765 shares of common stock have been issued and are unexercised, under the 2003 Plan. 

During 2013, the Company adopted a new incentive 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 of up to an aggregate of 20,000,000 shares of common stock.  The 2013 Plan is intended to permit 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-Statutory Stock Options.  

On November 14, 2017, the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “Plan”) which covers the potential issuance of 13 million shares of common stock. The Plan provides that directors, officers, employees, and consultants of the Company will be eligible to receive equity incentives under the Plan at the discretion of the Board or the Board’s Compensation Committee. The Board’s Compensation Committee may adopt rules and regulations to carry out the terms of the Plan. The Plan terminates on November 14, 2027 unless sooner terminated.
 
The 2017 Plan is administered by a committee of the Board (“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.

On November 14, 2017, the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan, which covers the potential issuance of 13 million shares of common stock. The Plan provides that directors, officers, employees, and consultants of the Company will be eligible to receive equity incentives under the Plan at the discretion of the Board or the Board’s Compensation Committee. The Board’s Compensation Committee may adopt rules and regulations to carry out the terms of the Plan. The Plan terminates on November 14, 2027 unless sooner terminated.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
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 for which an employee may exercise
  
Incentive Stock Options under all plans of the Company shall not exceed $1,000,000 per calendar year. If any employee shall have the right to exercise any options in excess of $100,000 during any calendar year, the options in excess of $100,000 shall be deemed to be Non-Statutory Stock Options, including prices, duration, transferability and limitations on exercise.
  
The Company issued Non-Statutory Stock Options pursuant to contractual agreements with non-employees. Options granted under the agreements are expensed when the related service or product is provided.
 
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 judgments.

On February 29, 2016, the Company issued options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.57 per share, with a term of five years, to the former Chairman of the Board. The fair value of options issued was $53,731. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 202.9%, risk-free interest rate of 1.22% and expected option life of five years.  The options were being expensed over the Board Chairman’s remaining service terms as that is shorter than the vesting terms.  The former Chairman of the Board resigned on December 1, 2016 and therefore, forfeited the unvested options and the Company did not reverse any expense related to these options.
 
On March 10, 2016, the Company issued options to purchase 150,000 shares of the Company’s Common Stock at an exercise price of $0.56 per share, with a term of five years, to an employee. The fair value of options issued was $82,113. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 202.9%, risk-free interest rate of 1.45% and expected option life of five years. The options were being expensed over the vesting terms for the employee.  The employee was terminated during 2016 and expense related to the options of $2,281 was reversed.

 
On March 24, 2016, the Company issued options to purchase 50,000 shares of Common Stock at an exercise price of $0.43 per share, with a term of five years, to a consultant, which vest immediately. The fair value of options issued was $21,068. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 203.1%, risk-free interest rate of 1.39% and expected option life of five years. The options were expensed immediately.

On December 21, 2016, the Company issued 890,000 options in aggregate to purchase shares of the Company’s common stock to the Board of Directors, the CFO and an employee at an exercise price of $0.11, expiring in ten years and vesting immediately.  In conjunction with this issuance the Board of Directors, the CFO and an employee forfeited 789,706 options.    The fair value of the options issued was $133,411.  All of the options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 324.6%, risk-free interest rate of 2.55% and expected option life of ten years. The options were expensed immediately.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
On December 22, 2016, the Company issued 1,300,000 options in aggregate to purchase shares of the Company’s common stock, to the Board of Directors, the CFO and an employee at an exercise price of $0.25, expiring in ten years and vesting immediately.  The fair value of the options issued was $148,070.  All of the options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 324.7%, risk-free interest rate of 2.55% and expected option life of ten years. The options were expensed immediately.
 
During the year ended December 31, 2017, 19,950,000 options were granted a weighted average exercise price of $0.07 with a term of five years.  Of the 19,950,000 options, 450,000 options were issued to a director with a three month vesting period, 10,000,000 to the Chairman of the Board vesting immediately, 7,000,000 were issued to the Chief Executive Officer of which 5,000,000 vested immediately and 2,000,000 vest over a period of two years and 2,000,000 were issued to a director vesting over a six month period. In February 2017, the Company also issued 500,000 options to purchase common stock to a consultant which vested immediately.

 
During the year ended December 31, 2017, 769,111 options were forfeited from employees no longer with the Company and 450,000 options were forfeited by a director of the Company.

For the years ended December 31, 2017 and 2016, the Company expensed $1,295,741 and $1,355,992 with respect to the options.
 
As of December 31, 2017, there was $116,832 unrecognized compensation cost related to outstanding stock options expected to vest over the weighted average of 0.9 years.

The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted during the years ended December 31, 2017 and 2016:
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Risk Free Interest Rate
 
 
1.90%
 
 
 
2.41%
 
Expected Volatility
 
 
199.20%
 
 
 
310.0%
 
Expected Life (in years)
 
 
5.0
 
 
 
9.4
 
Dividend Yield
 
 
0%
 
 
 
0%
 
Weighted average estimated fair value of
 
 
 
 
 
 
 
 
options during the period
 
$
0.07
 
 
$
0.18
 
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The following table summarizes the activities for the Company’s stock options for the year ended December 31, 2017 and 2016:

 
 
Options Outstanding
 
 
           
Weighted -
     
 
           
Average
     
 
           
Remaining
 
Aggregate
 
 
       
Weighted-
 
Contractual
 
Intrinsic
 
 
 
Number of
   
Average
 
Term
 
Value
 
 
 
Shares
   
Exercise Price
 
(in years)
 
 (1)
 
 
                   
Balance as of December 31, 2015
   
2,157,353
   
$
1.80
         
 
                       
Granted
   
2,490,000
     
0.24
         
Exercised
   
(7,843
)
   
0.05
         
Forfeited/cancelled
   
(308,235
)
   
(0.06
)
       
 
                       
Balance December 31, 2016
   
3,282,647
   
$
0.52
         
 
                       
Granted
   
19,950,000
   
$
0.07
         
Forfeited/cancelled
   
(1,219,117
)
 
$
0.48
         
 
                       
Balance December 31, 2017
   
22,013,529
   
$
0.11
     
4.8
     
 
                               
Exercisable at December 31, 2017
   
19,346,862
   
$
0.12
     
4.8
   
$
3,480,567
 
 
                               
                                 
 
(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.  During the years ended December 31, 2017 and 2016, the aggregate intrinsic value of options exercised under the Company’s stock option plans was $3,480,567 and less than $1,000, respectively.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The following table summarizes the activities for the Company’s unvested stock options for the year ended December 31, 2017:
 
 
Unvested Options
 
 
   
Weighted -
 
 
   
Average
 
 
   
Grant
 
 
Number of Unvested
 
Date Exercise Price
 
 
Options
     
Balance December 31, 2016
   
-
   
$
-
 
 
               
Granted
   
19,950,000
     
0.07
 
 
               
Vested
   
(16,833,333
)
   
0.07
 
 
               
Cancelled/forfeited/expired
   
(450,000
)
   
0.08
 
 
               
Balance December 31, 2017
   
2,666,667
   
$
0.06
 
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The following table summarizes the activities for the Company’s warrants for the year ended December 31, 2017 and 2016:

 
 
Warrants Outstanding
 
 
 
Number of
Shares
   
Weighted-
Average
Exercise
Price
   
Weighted -
Average
Remaining
Contractual
Term
in years)
   
Aggregate
Intrinsic
Value
(in 000's)
(1)
 
Balance, December 31, 2015
   
1,414,893
   
$
9.67
     
 
     
 
 
Expired
   
(2,941
)
   
0.85
     
 
     
 
 
Granted
   
7,804,500
     
0.39
     
 
     
 
 
 
                           
 
 
Balance, December 31, 2016
   
9,216,452
   
$
1.82
     
 
     
 
 
Issued
   
33,080,629
     
0.20
           
 
 
Cancelled/Forfeited
   
(10,004,500
)
   
0.40
     
 
     
 
 
 
                   
 
     
 
 
Balance, December 31, 2017
   
32,292,580
   
$
0.30
     
4.30
         
 
                               
Exercisable at December 31, 2017
   
32,292,580
   
$
0.30
     
4.30
   
$
3,345
 
 
(1)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.27 for our common stock on December 31, 2017.
 
 
 
All warrants were vested on the date of grant.

During the year ended December 31, 2017, 3,087,500 warrants to purchase common stock with an exercise price of $0.40 were cancelled and converted into 6,175,000 common stock in connection with the conversion of Series C preferred stock.  See Note 6.

During the year ended December 31, 2017, 667,000 warrants to purchase common stock with an exercise price of $0.40 were cancelled and converted into 1,985,716 common stock in connection with the conversion of Series D preferred stock.  See Note 6.

During the year ended December 31, 2017, the Company issued 19,451,575 warrants to purchase common stock with an exercise price of $0.15 in connection to the sale of units occurring during the year.  See Note 9.

During the year ended December 31, 2017, the Company issued 4,402,079 warrants to purchase common stock with an exercise price of $0.15 in connection with the settlement or related party note payables.  See Note 5.
 
During the year ended December 31, 2017, a director was issued and then cancelled 6,250,000 warrants to purchase common stock in connection with the settlement of the related party note payable. See Note 5.

During the year ended December 31, 2017, a director was issued 1,000,000 warrants to purchase common stock at an exercise price of $0.40 in connection with the issuance of notes payable. See Note 5.

During the year ended December 31, 2017, the Company issued 1,976,975 warrants to directors of the Board to purchase common stock at an exercise price of $0.15 in connection with services provided. See Note 9.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
NOTE 10 – OPERATING LEASES
 
For the year ended December 31, 2017 and 2016, total rent expense under leases amounted to $12,674 and $11,835. At December 31, 2017, the Company was not obligated under any non-cancelable operating leases.
 
 
NOTE 11 – MAJOR CUSTOMERS/VENDORS

During the year ended December 31, 2017 there were no sales and during the year ended December 31, 2016, one customer accounted for 100.0% of total sales.  Generally, a substantial percentage of the Company's sales has been made to a small number of customers and is typically on an open account basis.

During the years ended December 31, 2017 and 2016, we purchased 100.0% of our pigment from one vendor.
 
 
VerifyMe, Inc.
Notes to the Financial Statements
 
NOTE 12 – SUBSEQUENT EVENTS
 
In 2017 the Company authorized a private placement with a maximum offering amount of $2,100,000 allowing investors to purchase units consisting of 715,000 shares of common stock and 715,000 five-year warrants exercisable at $0.15 per share.  In January 2018 the Company’s Board of Directors increased the size of the private placement by an additional beyond the $2,100,000 limit. After the reporting period and as of the date of this filing, the Company has raised gross proceeds of $1,145,343 for purchase of 16,370,311 shares of common stock and 16,370,311 shares of warrants. As of April 12, 2018, the Company has issued 15,769,711 shares and 15,769,711 warrants to purchase common stock at the exercise price of $0.15 per share, in connection with this private placement. The remaining 600,600 shares will be issued in the second quarter of 2018.
 
In relation to the above mentioned private placement, gross proceeds of $365,343 were received and 5,230,611 shares were issued to three directors of the Company and one director of the Company exercised warrants resulting in an issuance of 104,876 shares.
 
In January 2018, the Chairman of the Board of Directors, made a cashless exercise of options related to services in 2017, amounting to an issuance of 4,027,778 shares.
 
On January 30, 2018, the Company authorized a 30-day offer, beginning on February 20, 2018, to the holders of the Company’s outstanding warrants exercisable at $0.15 to exercise their warrants at $0.10.  This authorization was since extended until May 22, 2018.
 
As of April 12, 2018, the Company has received gross proceeds of $1,532,258, in relation to the reduced warrant exercise program and has issued 7,201,583 shares and intends to complete the issuance of the remaining shares related to the gross proceeds of 8,121,000 shares in the second quarter of 2018.  Included in the above amounts are gross proceeds of $907,598 from two directors of the Company attributing to 9,075,983 shares of which 3,355,983 shares have been issued as of the filing date.
 
On February 17, 2018, Carl Berg was appointed to the Board of Directors and granted 300,000 shares of restricted common stock vesting quarterly over one-year subject to continued service as of each applicable vesting date. Also on March 13, 2018, the Company approved an amendment to a Consulting Agreement with Keith Goldstein, the Chief Operating Officer extending it for one year in exchange for a grant of 1,000,000 options exercisable at approximately $0.21 per share.
 
On February 2018, 20,000 shares of Series A Convertible Preferred Stock were converted into 400,000 shares of the Company’s Common Stock.
 
In March 2018, 0.0706 shares of Series B Convertible Preferred Stock were converted into 599,362 shares of Common Stock and transferred to two Directors of the Company.
 
On March 31, 2018, the Company entered into a Confidential Settlement Agreement (the “Settlement Agreement”) with Paul Klapper, a member of the Company’s Board of Directors, Stephen Silver, PFK Development Group, Ltd. (“PFKD”) and certain other parties named in the Settlement Agreement. Pursuant to the terms of the Settlement Agreement, the Company (i) paid a total of $500,000 (the “Settlement Amount”) to PFKD and Mr. Silver and (ii) issued them each 500,000 shares of the Company’s common stock (the “Settlement Shares”). The Settlement Agreement provides for cancellation as of March 31, 2018 of certain revenue sharing agreements between the Company and each of Mr. Klapper, Mr. Silver and PFKD, and terminates the Company’s obligation to issue warrants to purchase 3.7 million shares of the Company’s common stock at an exercise price of $0.40 per share.
 
Mr. Klapper joined the Board of Directors on July 14, 2017 and resigned as of March 31, 2018.
 
VerifyMe, Inc.
Notes to the Financial Statements
 
The Settlement Shares were issued pursuant to a Stock Purchase Agreement entered into in connection with the closing of the Settlement Agreement. The Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with certain parties named therein with respect to the Settlement Shares and certain other shares of the Company’s common stock specified in the Registration Rights Agreement and the Settlement Agreement.
 
In January 2018, the Company issued 1,749,683 shares to Mr. Klapper relating to the Note payable conversion that took place in June 2017.  See Note 5.
 
On March 28, 2018, the Company accelerated the vesting of 150,000 shares of restricted common stock owned by Mr.  Klapper. See Note 6.
 
In April 2018, a Consultant of the Company exercised their warrants at an exercise price of $0.01 for gross proceeds of $1,000 resulting in an issuance of 100,000 shares.
 
In 2018, the Company issued 120,000 shares in connection with a Consulting Services Agreement for services performed in 2018.
 
 
F-30
Exhibit 10.17
 
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of ______________, 2017 (the “Effective Date”), between VerifyMe, Inc., a Nevada corporation (the “Company”), and Patrick White (the “Executive”).

WHEREAS, in its business, the Company has acquired and developed certain trade secrets both as defined by applicable law and the common law, including, but not limited to, proprietary processes, sales methods and techniques, and other like confidential business and technical information, including but not limited to, technical information, design systems, pricing methods, pricing rates or discounts, processes, procedures, formulas, designs of computer software, or improvements, or any portion or phase thereof, whether patented, or not, or unpatentable, that is of any value whatsoever to the Company, as well as information relating to the Company’s Services (as defined), information concerning proposed new Services, market feasibility studies, proposed or existing marketing techniques or plans (whether developed or produced by the Company or by any other person or entity for the Company), other Confidential Information, as defined in Section 9(a), and information about the Company’s executives, officers, and directors, which necessarily will be communicated to the Executive by reason of his employment by the Company; and

WHEREAS, the Company has strong and legitimate business interests in preserving and protecting its investment in the Executive, its trade secrets and Confidential Information, and its substantial, significant, or key, relationships with vendors, and Students and Professors, each, as defined below, whether actual or prospective; and

WHEREAS, the Company desires to preserve and protect its legitimate business interests further by restricting competitive activities of the Executive during the term of this Agreement and for a reasonable time following the termination of this Agreement; and

WHEREAS, the Company desires to continue to employ the Executive and to ensure the continued availability to the Company of the Executive’s services, and the Executive is willing to accept such employment and render such services, all upon and subject to the terms and conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth in this Agreement, and intending to be legally bound, the Company and the Executive agree as follows:

1.            Representations and Warranties .  The Executive hereby represents and warrants to the Company that he (i) is not subject to any non-solicitation or non-competition agreement affecting his employment with the Company (other than any prior agreement with the Company), (ii) is not subject to any confidentiality or nonuse/nondisclosure agreement affecting his  employment with the Company (other than any prior agreement with the Company), and (iii) has brought to the Company no trade secrets, confidential business information, documents, or other personal property of a prior employer.  The Executive and the Company agree that this Agreement replaces that certain Consulting Agreement between the Executive and the Company dated____________, 2017.
 
1
 
2.            Term of Employment .

(a)            Term .  The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company for a period of two years commencing as of the Effective Date (such period, as it may be extended or renewed, the “Term”), unless sooner terminated in accordance with the provisions of Section 6.  The Term shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term.

(b)            Continuing Effect .  Notwithstanding any termination of this Agreement, at the end of the Term or otherwise, the provisions of Sections 6(e), 7, 8, 9, 10, 12 15, 18, 19, and 22 shall remain in full force and effect and the provisions of Section 9 shall be binding upon the legal representatives, successors and assigns of the Executive.

3.            Duties .

(a)            General Duties .  The Executive shall serve as the Chief Executive Officer of the Company, with duties and responsibilities that are customary for such an executive. The Executive shall report to the Company’s Board of Directors (the “Board”).  The Executive shall also perform services for such subsidiaries of the Company as may be necessary.  The Executive shall use his best efforts to perform his duties and discharge his responsibilities pursuant to this Agreement competently, carefully and faithfully. In determining whether or not the Executive has used his best efforts hereunder, the Executive’s and the Company’s delegation of authority and all surrounding circumstances shall be taken into account and the best efforts of the Executive shall not be judged solely on the Company’s earnings or other results of the Executive’s performance, except as specifically provided to the contrary by this Agreement.  The Company shall appoint the Executive to the Board of the Company for no additional compensation.

(b)            Devotion of Time .  Subject to the last sentence of this Section 3(b), the Executive shall devote such time, attention and energies to the affairs of the Company and its subsidiaries and affiliates as are necessary to perform his duties and responsibilities pursuant to this Agreement.  The Executive shall not enter the employ of or serve as a consultant to, or in any way perform any services with or without compensation to, any other persons, business, or organization, without the prior consent of the Board.  Notwithstanding the above, the Executive shall be permitted to devote a limited amount of his time, to professional, charitable or similar organizations, including, but not limited to, serving as a non-executive director or an advisor to a board of directors, committee of any company or organization provided that such activities do not interfere with the Executive’s performance of his duties and responsibilities as provided hereunder.

(c)            Location of Office .  The Executive’s principal business office shall be in the Rochester, New York metropolitan area. The Company shall, subject to approval of the Board, lease an office for the Executive as soon as practicable.  However, the Executive’s job responsibilities shall include all business travel necessary for the performance of his job including travel as may be required.
 
2
 
(d)            Adherence to Inside Information Policies .  The Executive acknowledges that the Company is publicly-held and, as a result, has implemented inside information policies designed to preclude its executives and those of its subsidiaries from violating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of any duty owed to the Company, or any third party.  The Executive shall promptly execute any agreements generally distributed by the Company to its employees requiring such employees to abide by its inside information policies.

4.            Compensation and Expenses .

(a)            Salary .  For the services of the Executive to be rendered under this Agreement, the Company shall pay the Executive an annual salary of $200,000 (the “Base Salary”), less such deductions as shall be required to be withheld by applicable law and regulations payable in accordance with the Company’s customary payroll practices.  The Executive’s Base Salary shall be reviewed at least annually by the Board and the Board may, but shall not be required to, increase the Base Salary during the Term.  However, the Executive’s Base Salary may not be decreased during the Term.

(b)            Expenses .  In addition to any compensation received pursuant to this Section 4, the Company will reimburse or advance funds to the Executive for all reasonable documented travel (including travel expenses incurred by the Executive related to his travel to the Company’s other offices), entertainment and miscellaneous expenses incurred in connection with the performance of his duties under this Agreement, provided that the Executive properly provides a written accounting of such expenses to the Company in accordance with the Company’s practices.  Such reimbursement or advances will be made in accordance with policies and procedures of the Company in effect from time to time relating to reimbursement of, or advances to, its executive officers.

5.            Benefits .

(a)            Paid Time Off .  For each 12-month period during the Term, the Executive shall be entitled to four weeks of Paid Time Off without loss of compensation or other benefits to which he is entitled under this Agreement, to be taken at such times as the Executive may select and the affairs of the Company may permit. Any unused days will be carried over to the next 12 month period.

(b)            Fringe Benefit and Perquisites .  During the Term, the Executive shall be entitled to fringe benefits and perquisites consistent with the practices of the Company, and to the extent the Company provides similar benefits or perquisites (or both to similarly situated executives of the Company).  Notwithstanding the foregoing, during the Term, the Company shall provide the Executive with health insurance covering the Executive and his spouse.
 
3
 
(c)            Employee Benefits .  During the Term, the Executive shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Company, as in effect from time to time (collectively, “Employee Benefit Plans”), on a basis which is no less favorable than is provided to other similarly situated executives of the Company, to the extent consistent with applicable law and the terms of the applicable Employee Benefit Plans.  The Company reserves the right to amend or cancel any Employee Benefit Plans at any time in its sole discretion, subject to the terms of such Employee Benefit Plan and applicable law.

(d)            Business Expenses .  The Executive shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures.

6.            Terminatio n.

(a)            Death or Disability .  Except as otherwise provided in this Agreement, this Agreement shall automatically terminate upon the death or disability of the Executive.  For purposes of this Section 6(a), “disability” shall mean (i) the Executive is unable to engage in his customary duties by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months; (ii) the Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company; or (iii) the Executive is determined to be totally disabled by the Social Security Administration.  Any question as to the existence of a disability shall be determined by the written opinion of the Executive’s regularly attending physician (or his guardian) (or the Social Security Administration, where applicable). In the event that the Executive’s employment is terminated by reason of Executive’s death or disability, the Company shall pay the following to the Executive or his personal representative: (i) any accrued but unpaid Base Salary for services rendered to the date of termination, (ii) accrued but unpaid expenses required to be reimbursed under this Agreement, (iii) any earned but unpaid bonuses for any prior period and his annual bonus prorated to date of termination (to the extent the Compensation Committee has set a formula and it can be calculated), and (v) all equity awards previously granted to the Executive under the Incentive Plan or similar plan shall thereupon become fully vested, and the Executive or his legally appointed guardian, as the case may be, shall have up to two years from the date of termination to exercise all such previously granted options, provided that in no event shall any option be exercisable beyond its term.  The Executive (or his estate) shall receive the payments provided herein at such times as he would have received them if there was no death or disability.  Additionally, if the Executive’s employment is terminated because of disability, any benefits (except perquisites) to which the Executive may be entitled pursuant to Section 5(b) hereof shall continue to be paid or provided by the Company, as the case may be, for one year, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Executive was entitled pursuant to Section 5(b) hereof are subject to 409A of the Code, the Executive shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).
 
4
 
(b)            Termination by the Company for Cause or by the Executive Without Good Reason .  The Company may terminate the Executive’s employment pursuant to the terms of this Agreement at any time for Cause (as defined below) by giving the Executive written notice of termination.  Such termination shall become effective upon the giving of such notice.  Upon any such termination for Cause, or in the event the Executive terminates his employment with the Company without Good Reason (as defined in Section 6(c)), then the Executive shall have no right to compensation, or reimbursement under Section 4, or to participate in any Executive benefit programs under Section 5, except as may otherwise be provided for by law, for any period subsequent to the effective date of termination.  For purposes of this Agreement, “Cause” shall mean: (i) the Executive is convicted of, or pleads guilty or nolo contendere to, a felony related to the business of the Company; (ii) the Executive, in carrying out his duties hereunder, has acted with gross negligence or intentional misconduct resulting, in any case, in material harm to the Company; (iii) the Executive misappropriates Company funds or otherwise defrauds the Company including a material amount of money or property; (iv) the Executive breaches his fiduciary duty to the Company resulting in material profit to him, directly or indirectly; (v) the Executive materially breaches any agreement with the Company and fails to cure such breach within 10 days of receipt of notice, unless the act is incapable of being cured; (vi) the Executive breaches any provision of Section 8 or Section 9; (vii) the Executive becomes subject to a preliminary or permanent injunction issued by a United States District Court enjoining the Executive from violating any securities law administered or regulated by the Securities and Exchange Commission; (viii) the Executive becomes subject to a cease and desist order or other order issued by the Securities and Exchange Commission after an opportunity for a hearing; (ix) the Executive refuses to carry out a resolution adopted by the Company’s Board at a meeting in which the Executive was offered a reasonable opportunity to argue that the resolution should not be adopted; or (x) the Executive abuses alcohol or drugs in a manner that interferes with the successful performance of his duties.

(c)            Termination by the Company Without Cause, Termination by Executive for Good Reason or Automatic Termination Upon a Change of Control or at the end of a Term after the Company provides notice of Non-Renewal .

(1)            This Agreement may be terminated: (i) by the Executive for Good Reason (as defined below), (ii) by the Company without Cause, (iii) upon any Change of Control event as defined in Treasury Regulation Section 1.409A-3(i)(5) provided, that, within 12 months of the Change of Control event (A) the Company terminates the Executives employment or changes his title as Chief Executive Offer, or (B) the Executive terminates his employment or (iv) at the end of a Term after the Company provides the Executive with notice of non-renewal.
 
5
 
(2)            In the event this Agreement is terminated by the Executive for Good Reason or by the Company without Cause, the Executive shall be entitled to the following:

(A)            any accrued but unpaid Base Salary for services rendered to the date of termination;

(B)            any accrued but unpaid expenses required to be reimbursed under this Agreement;

(C)            a payment equal to 12 months of the then Base Salary (“Severance Amount”);

(D)            the Executive or his legally appointed guardian, as the case may be, shall have up to one  year from the date of termination to exercise all such previously granted options, provided that in no event shall any option be exercisable beyond its Term;

(E)            all equity awards previously granted to the Executive under the Incentive Plan or similar plan shall thereupon become fully vested; and

(F)            any benefits (except perquisites) to which the Executive was entitled pursuant to Section 5(b) hereof shall continue to be paid or provided by the Company, as the case may be, for six months, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Executive was entitled pursuant to Section 5(b) hereof are subject to 409A of the Code, the Executive shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).

(3)            In the event of a Change of Control during the Term, the Executive, subject to the termination of employment or change in title as outlined in Section 6(c)(1), shall be entitled to receive each of the provisions of Section 6(c)(2)(A) – (F) above except the Severance Amount shall equal to 18 months of the then Base Salary and the benefits under Section 6(c)(2)(F) shall continue for an 18 month period provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits under Section 6(c)(2)(F) are subject to 409A of the Code, the Executive shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).  The Executive shall receive 100% of the existing Target Bonus, if any, for that fiscal year, when the Change of Control occurs.

(4)            In the event this Agreement is terminated at the end of a Term after the Company provides the Executive with notice of non-renewal and the Executive remains employed until the end of the Term, the Executive shall be entitled to the following:

(A)            any accrued but unpaid Base Salary for services rendered to the date of termination;
 
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(B)            any accrued but unpaid expenses required to be reimbursed under this Agreement;

(C)            the Executive or his legally appointed guardian, as the case may be, shall have up to two years from the date of termination to exercise all such previously granted options, provided that in no event shall any option be exercisable beyond its Term; and

(D)            any benefits (except perquisites) to which the Executive was entitled pursuant to Section 5(b) hereof shall continue to be paid or provided by the Company, as the case may be, for six months, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Executive was entitled pursuant to Section 5(b) hereof are subject to 409A of the Code, the Executive shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).

Provided , however , that the Executive shall only be entitled to receive each of the provisions of this Section 6(c)(4)(A)-(E) if the Executive is willing and able (i) to execute a new agreement providing terms and conditions substantially similar to those in this Agreement and (ii) to continue providing such services, and therefore, the Company’s non-renewal of the Term will be considered an “involuntary separation from service” within the meaning of Treasury Regulation Section 1.409A-1(n).

(5)            In the event of a termination for Good Reason, without Cause, or non-renewal by the Company, the payment of the Severance Amount shall be made at the same times as the Company pays compensation to its employees over the applicable monthly period and any other payments owed under Section 6(c) shall be promptly paid.  Provided , however , that any balance of the Severance Amount remaining due on the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)) after the end of the tax year in which the Executive’s employment is terminated or the Term ends shall be paid on the last day of the applicable 2½ month period.  The payment of the Severance Amount and the acceleration of vesting shall be conditioned on the Executive signing an Agreement and General Release (in the form which is attached as Exhibit A ) which releases the Company or any of its affiliates (including its officers, directors and their affiliates) from any liability under this Agreement or related to the Executive’s employment with the Company provided that (x) the payment of the Severance Amount is made on or before the 90th day following the Executive’s termination of employment; (y) such Agreement and General Release is executed by the Executive, submitted to the Company, and the statutory period during which the Executive is entitled to revoke the Agreement and General Release under applicable law has expired on or before that 90th day; and (z) in the event that the 90 day period begins in one taxable year and ends in a second taxable year, then the payment of the Severance Amount shall be made in the second taxable year.  Upon any Change of Control event, all payments owed under Section 6(c)(3) shall be paid immediately.
 
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The term “Good Reason” shall mean: (i) a material diminution in the Executive’s authority, duties or responsibilities due to no fault of the Executive other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law; (ii) the Company no longer maintains or operates an office in the Rochester, New York metropolitan  area; (iii) the Company requires the Executive to change his principal business office as defined in Section 3(c) to a location other than the Rochester, New York metropolitan  area, or (iv) any other action or inaction that constitutes a material breach by the Company under this Agreement.  Prior to the Executive terminating his employment with the Company for Good Reason, the Executive must provide written notice to the Company, within 30 days following the Executive’s initial awareness of the existence of such condition, that such Good Reason exists and setting forth in detail the grounds the Executive believes constitutes Good Reason.  If the Company does not cure the condition(s) constituting Good Reason within 30 days following receipt of such notice, then the Executive’s employment shall be deemed terminated for Good Reason.

(d)            Any termination made by the Company under this Agreement shall be approved by the Board.

(e)            Upon (1) voluntary or involuntary termination of the Executive’s employment or (2) the Company’s request at any time during the Executive's employment, the Executive shall (i) provide or return to the Company any and all Company property, including keys, key cards, access cards, security devices, employer credit cards, network access devices, computers, cell phones, smartphones, manuals, work product, thumb drives or other removable information storage devices, and hard drives, and all Company documents and materials belonging to the Company and stored in any fashion, including but not limited to those that constitute or contain any Confidential Information or work product, that are in the possession or control of the Executive, whether they were provided to the Executive by the Company or any of its business associates or created by the Executive in connection with his employment by the Company; and (ii) delete or destroy all copies of any such documents and materials not returned to the Company that remain in the Executive’s possession or control, including those stored on any non-Company devices, networks, storage locations and media in the Executive’s possession or control.

7.            Indemnification .  As provided in an Indemnification Agreement previously entered into between the Company and the Executive, a copy of which is annexed as Exhibit B , the Company shall indemnify the Executive, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of him being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company.  The Company shall provide, at its expense, directors and officers insurance for the Executive in amounts and for a term consistent with industry standards.
 
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8.            Non-Competition Agreement .

(a)            Competition with the Company . Until termination of his employment and for a period of one year commencing on the date of termination, the Executive (individually or in association with, or as a shareholder, director, officer, consultant, employee, partner, joint venturer, member, or otherwise, of or through any person, firm, corporation, partnership, association or other entity) shall not, directly or indirectly, compete with the Company (which for the purpose of this Agreement also includes any of its subsidiaries or affiliates) by acting as an officer (or comparable position) of, owning an interest in, or providing services to any entity within any metropolitan area in the United States or other country in which the Company was actually engaged in business as of the time of termination of employment or where the Company reasonably expected to engage in business within three months of the date of termination of employment.  For purposes of this Agreement, the term “compete with the Company” shall refer to any business activity in which the Company was engaged as of the termination of the Executive’s employment or reasonably expected to engage in within three months of termination of employment; provided , however , the foregoing shall not prevent the Executive from (i) accepting employment with an enterprise engaged in two or more lines of business, one of which is the same or similar to the Company’s business (the “Prohibited Business”) if the Executive’s employment is totally unrelated to the Prohibited Business, (ii) competing in a country where as of the time of the alleged violation the Company has ceased engaging in business, or (iii) competing in a line of business which as of the time of the alleged violation the Company has either ceased engaging in or publicly announced or disclosed that it intends to cease engaging in; provided , further , the foregoing shall not prohibit the Executive from owning up to five percent of the securities of any publicly-traded enterprise provided as long as the Executive is not a director, officer, consultant, employee, partner, joint venturer, manager, or member of, or to such enterprise, or otherwise compensated for services rendered thereby.

(b)            Solicitation of Customers . During the periods in which the provisions of Section 8(a) shall be in effect, the Executive, directly or indirectly, will not seek nor accept Prohibited Business from any Customer (as defined below) on behalf of any enterprise or business other than the Company, refer Prohibited Business from any Customer to any enterprise or business other than the Company or receive commissions based on sales or otherwise relating to the Prohibited Business from any Customer, or any enterprise or business other than the Company.  For purposes of this Agreement, the term “Customer” means any person, firm, corporation, partnership, limited liability company, association or other entity to which the Company or any of its affiliates sold or provided goods or services during the 24-month period prior to the time at which any determination is required to be made as to whether any such person, firm, corporation, partnership, limited liability company, association or other entity is a Customer, or who or which was approached by or who or which has approached an employee of the Company for the purpose of soliciting business from the Company or the third party, as the case may be.  Provided, however, the goods or services must be competitive in some respect to the Company’s business during such time

(c)            Solicitation of Employees .   During the period in which the provisions of Section 8(a) and (b) shall be in effect, the Executive agrees that he shall not, directly or indirectly, request, recommend or advise any employee of the Company to terminate his or her employment with the Company, for the purposes of providing services for a Prohibited Business, or solicit for employment or recommend to any third party the solicitation for employment of any individual who was employed by the Company or any of its subsidiaries and affiliates at any time during the one year period preceding the Executive’s termination of employment.
 
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(d)            Non-disparagement .   The Executive agrees that, after the end of his employment, he will refrain from making, in writing or orally, any unfavorable comments about the Company, its operations, policies, or procedures that would be likely to injure the Company’s reputation or business prospects; provided , however , that nothing herein shall preclude the Executive from responding truthfully to a lawful subpoena or other compulsory legal process or from providing truthful information otherwise required by law.

(e)            No Payment .  The Executive acknowledges and agrees that no separate or additional payment will be required to be made to him in consideration of his undertakings in this Section 8, and confirms he has received adequate consideration for such undertakings.

(f)            References .  References to the Company in this Section 8 shall include the Company’s subsidiaries and affiliates.

9.            Non-Disclosure of Confidential Information .

(a)            Confidential Information .  For purposes of this Agreement, “Confidential Information” includes, but is not limited to, trade secrets under any applicable statute or the common law, processes, policies, procedures, techniques, designs, drawings, know-how, show-how, technical information, specifications, computer software and source code, information and data relating to the development, research, testing, costs, marketing, and uses of the Services (as defined herein), the Company’s budgets and strategic plans, and the identity and special needs of Customers vendors, and suppliers, subjects and databases, data, and all technology relating to the Company’s businesses, systems, methods of operation, and Customer  lists and information, solicitation leads, marketing and advertising materials, methods and manuals and forms, all of which pertain to the activities or operations of the Company, the names, home addresses and all telephone numbers and e-mail addresses of the Company’s directors, employees, officers, executives, former executives, and Customer contacts.  . Confidential Information also includes, without limitation, Confidential Information received from the Company’s subsidiaries and affiliates.  For purposes of this Agreement, the following will not constitute Confidential Information (i) information which is or subsequently becomes generally available to the public through no act or fault of the Executive, (ii) information set forth in the written records of the Executive prior to disclosure to the Executive by or on behalf of the Company which information is given to the Company in writing as of or prior to the date of this Agreement, and (iii) information which is lawfully obtained by the Executive in writing from a third party (excluding any affiliates of the Executive) who lawfully acquired the confidential information and who did not acquire such confidential information or trade secret, directly or indirectly, from the Executive or the Company or its subsidiaries or affiliates and who has not breached any duty of confidentiality. As used herein, the term “Services” shall include all services offered for sale and marketed by the Company during the Term.
 
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(b)            Legitimate Business Interests .  The Executive recognizes that the Company has legitimate business interests to protect and as a consequence, the Executive agrees to the restrictions contained in this Agreement because they further the Company’s legitimate business interests.  These legitimate business interests include, but are not limited to (i) trade secrets; (ii) valuable confidential business, technical, and/or professional information that otherwise may not qualify as trade secrets, including, but not limited to, all Confidential Information; (iii) substantial, significant, or key relationships with specific prospective or existing Customers, vendors or suppliers; (iv) Customer  goodwill associated with the Company’s business; and (v) specialized training relating to the Company’s technology, Services, methods, operations and procedures.  Notwithstanding the foregoing, nothing in this Section 9(b) shall be construed to impose restrictions greater than those imposed by other provisions of this Agreement.

(c)            Confidentiality .  During the Term of this Agreement and following termination of employment, for any reason, the Confidential Information shall be held by the Executive in the strictest confidence and shall not, without the prior express written consent of the Company, be disclosed to any person other than in connection with the Executive’s employment by the Company.  The Executive further acknowledges that such Confidential Information as is acquired and used by the Company or its subsidiaries or affiliates is a special, valuable and unique asset.  The Executive shall exercise all due and diligent precautions to protect the integrity of the Company’s Confidential Information and to keep it confidential whether it is in written form, on electronic media, oral, or otherwise.  The Executive shall not copy any Confidential Information except to the extent necessary to his employment nor remove any Confidential Information or copies thereof from the Company’s premises except to the extent necessary to his employment.  All records, files, materials and other Confidential Information obtained by the Executive in the course of his employment with the Company are confidential and proprietary and shall remain the exclusive property of the Company.  The Executive shall not, except in connection with and as required by his performance of his duties under this Agreement, for any reason use for his own benefit or the benefit of any person or entity other than the Company or disclose any such Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever without the prior express written consent of an executive officer of the Company (excluding the Executive).

(d)            References .  References to the Company in this Section 9 shall include the Company’s subsidiaries and affiliates.

(e)            Whistleblowing .  Nothing contained in this Agreement shall be construed to prevent the Executive from reporting any act or failure to act to the Securities and Exchange Commission or other governmental body or prevent the Executive from obtaining a fee as a “whistleblower” under Rule 21F-17(a) under the Securities Exchange Act of 1934 or other rules or regulations implemented under the Dodd-Frank Wall Street Reform Act and Consumer Protection Act.

10.            Equitable Relief .

(a)            The Company and the Executive recognize that the services to be rendered under this Agreement by the Executive are special, unique and of extraordinary character, and that in the event of the breach by the Executive of the terms and conditions of this Agreement or if the Executive, without the prior express consent of the Board, shall leave his employment for any reason and/or take any action in violation of Section 8 and/or Section 9, the Company shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction referred to in Section 10(b) below, to enjoin the Executive from breaching the provisions of Section 8 and/or Section 9.
 
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(b)            Any action arising from or under this Agreement must be commenced only in the appropriate state or federal court located in New York County, New York.  The Executive and the Company irrevocably and unconditionally submit to the exclusive jurisdiction of such courts and agree to take any and all future action necessary to submit to the jurisdiction of such courts.  The Executive and the Company irrevocably waive any objection that they now have or hereafter may have to the laying of venue of any suit, action or proceeding brought in any such court and further irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  Final judgment against the Executive or the Company in any such suit shall be conclusive and may be enforced in other jurisdictions by suit on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and the amount of any liability of the Executive or the Company therein described, or by appropriate proceedings under any applicable treaty or otherwise.

11.            Conflicts of Interest .  While employed by the Company, the Executive shall not, unless approved by the Board, directly or indirectly:

(a)            participate as an individual in any way in the benefits of transactions with any of the Company’s Customers or vendors, including, without limitation, having a financial interest in the Company’s Customers or vendors, or making loans to, or receiving loans, from, the Company’s Customers or  vendors;

(b)            realize a personal gain or advantage from a transaction in which the Company has an interest or use information obtained in connection with the Executive’s employment with the Company for the Executive’s personal advantage or gain; or

(c)            accept any offer to serve as an officer, director, partner, consultant, manager with, provide services to or to be employed by, a person or entity which does business with the Company.
 
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12.            Inventions, Ideas, Processes, and Designs .  All inventions, ideas, processes, programs, software, and designs (including all improvements) (i) conceived or made by the Executive during the course of his employment with the Company (whether or not actually conceived during regular business hours) and for a period of six months subsequent to the termination (whether by expiration of the Term or otherwise) of such employment with the Company, and (ii) related to the business of the Company, shall be disclosed in writing promptly to the Company and shall be the sole and exclusive property of the Company, and the Executive hereby assigns any such inventions to the Company.  An invention, idea, process, program, software, or design (including an improvement) shall be deemed related to the business of the Company if (a) it was made with the Company’s funds, personnel, equipment, supplies, facilities, or Confidential Information, (b) results from work performed by the Executive for the Company, or (c) pertains to the current business or demonstrably anticipated research or development work of the Company.  The Executive shall cooperate with the Company and its attorneys in the preparation of patent and copyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to the Company.  The decision to file for patent or copyright protection or to maintain such development as a trade secret, or otherwise, shall be in the sole discretion of the Company, and the Executive shall be bound by such decision. The Executive hereby irrevocably assigns to the Company, for no additional consideration, the Executive’s entire right, title and interest in and to all work product and intellectual property rights, including the right to sue, counterclaim and recover for all past, present and future infringement, misappropriation or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit the Company's rights, title or interest in any work product or intellectual property rights so as to be less in any respect than the Company would have had in the absence of this Agreement.  If applicable, the Executive shall provide as a schedule to this Agreement, a complete list of all inventions, ideas, processes, and designs, if any, patented or unpatented, copyrighted or otherwise, or non-copyrighted, including a brief description, which he made or conceived prior to his employment with the Company and which therefore are excluded from the scope of this Agreement. References to the Company in this Section 12 shall include the Company, its subsidiaries and affiliates.
 
13.            Indebtedness .  If, during the course of the Executive’s employment under this Agreement, the Executive becomes indebted to the Company for any reason, the Company may, if it so elects, and if permitted by applicable law, set off any sum due to the Company from the Executive and collect any remaining balance from the Executive unless the Executive has entered into a written agreement with the Company.

14.            Assignability .  The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, provided that such successor or assign shall acquire all or substantially all of the securities or assets and business of the Company.  The Executive’s obligations hereunder may not be assigned or alienated and any attempt to do so by the Executive will be void.

15.            Severability .

(a)            The Executive expressly agrees that the character, duration and geographical scope of the non-competition provisions set forth in this Agreement are reasonable in light of the circumstances as they exist on the date hereof.  Should a decision, however, be made at a later date by a court of competent jurisdiction that the character, duration or geographical scope of such provisions is unreasonable, then it is the intention and the agreement of the Executive and the Company that this Agreement shall be construed by the court in such a manner as to impose only those restrictions on the Executive’s conduct that are reasonable in the light of the circumstances and as are necessary to assure to the Company the benefits of this Agreement.  If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included herein because taken together they are more extensive than necessary to assure to the Company the intended benefits of this Agreement, it is expressly understood and agreed by the parties hereto that the provisions of this Agreement that, if eliminated, would permit the remaining separate provisions to be enforced in such proceeding shall be deemed eliminated, for the purposes of such proceeding, from this Agreement.
 
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(b)            If any provision of this Agreement otherwise is deemed to be invalid or unenforceable or is prohibited by the laws of the state or jurisdiction where it is to be performed, this Agreement shall be considered divisible as to such provision and such provision shall be inoperative in such state or jurisdiction and shall not be part of the consideration moving from either of the parties to the other.  The remaining provisions of this Agreement shall be valid and binding and of like effect as though such provisions were not included.

16.            Notices and Addresses .  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar receipted delivery, or next business day delivery to the addresses detailed below (or to such other address, as either of them, by notice to the other may designate from time to time), or by e-mail delivery (in which event a copy shall immediately be sent by FedEx or similar receipted delivery), as follows:
 
To the Company:
Norman Gardner
Chief Executive Officer
VerifyMe, Inc.

With a copy to:
Nason, Yeager, Gerson White & Lioce, P.A.
3001 PGA Blvd., Suite 305
Palm Beach Gardens, Florida 33410
Attention: Michael D. Harris, Esq.
Email:  mharris@nasonyeager.com

To the Executive:
_________________________
Email:
17.            Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.

18.            Attorneys’ Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and expenses (including such fees and costs on appeal).

19.            Governing Law .  This Agreement shall be governed or interpreted according to the internal laws of the State of New York without regard to choice of law considerations and all claims relating to or arising out of this Agreement, or the breach thereof, whether sounding in contract, tort, or otherwise, shall also be governed by the laws of the State of Delaware without regard to choice of law considerations.
 
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20.            Entire Agreement .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.

21.            Section and Paragraph Headings .  The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

22.            Section 409A Compliance .

(a)            This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), or an exemption thereunder.  This Agreement shall be construed and administered in accordance with Section 409A.  Notwithstanding any other provision of this Agreement to the contrary, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption.  Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service (including a voluntary separation from service for good reason that is considered an involuntary separation for purposes of the separation pay exception under Treasury Regulation 1.409A-1(n)(2)) or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible.  For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment.  Any payments to be made under this Agreement upon a termination of employment shall only be made if such termination of employment constitutes a “separation from service” under Section 409A.  Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Executive on account of non-compliance with Section 409A.

(b)            Notwithstanding any other provision of this Agreement, if at the time of the Executive's termination of employment, the Executive is a "specified employee", determined in accordance with Section 409A, any payments and benefits provided under this Agreement that constitute "nonqualified deferred compensation" subject to Section 409A (e.g., payments and benefits that do not qualify as a short-term deferral or as a separation pay exception) that are provided to the Executive on account of the Executive’s separation from service shall not be paid until the first payroll date to occur following the six-month anniversary of the Executive's termination date ("Specified Employee Payment Date").  The aggregate amount of any payments that would otherwise have been made during such six-month period shall be paid in a lump sum on the Specified Employee Payment Date without interest and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.  If the Executive dies during the six-month period, any delayed payments shall be paid to the Executive's estate in a lump sum upon the Executive's death.
 
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(c)            To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:

(1)            the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;

(2)            any reimbursement of an eligible expense shall be paid to the Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and

(3)            any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.

(d)            In the event the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code at the time of the Executive’s separation from service, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to Section 409A as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (i) six months and one day after the Executive’s separation from service, or (ii) the Executive’s death (the “Six Month Delay Rule”).

(1)            For purposes of this subparagraph, amounts payable under the Agreement should not provide for a deferral of compensation subject to Section 409A to the extent provided in Treasury Regulation Section 1.409A-1(b)(4) (e.g., short-term deferrals), Treasury Regulation Section 1.409A-1(b)(9) (e.g., separation pay plans, including the exception under subparagraph (iii)), and other applicable provisions of the Treasury Regulations.

(2)            To the extent that the Six Month Delay Rule applies to payments otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of the Six Month Delay Rule, and the balance of the installments shall be payable in accordance with their original schedule.

(3)            To the extent that the Six Month Delay Rule applies to the provision of benefits (including, but not limited to, life insurance and medical insurance), such benefit coverage shall nonetheless be provided to the Executive during the first six months following his separation from service (the “Six Month Period”), provided that, during such Six-Month Period, the Executive pays to the Company, on a monthly basis in advance, an amount equal to the Monthly Cost (as defined below) of such benefit coverage.  The Company shall reimburse the Executive for any such payments made by the Executive in a lump sum not later than 30 days following the sixth month anniversary of the Executive’s separation from service.  For purposes of this subparagraph, “Monthly Cost” means the minimum dollar amount which, if paid by the Executive on a monthly basis in advance, results in the Executive not being required to recognize any federal income tax on receipt of the benefit coverage during the Six Month Period.
 
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(e)            The parties intend that this Agreement will be administered in accordance with Section 409A.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A.  The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

(f)            The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A but do not satisfy an exemption from, or the conditions of, such Section.

[Signature Page To Follow]
 
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IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date and year first above written.
 
   
VerifyMe, Inc.
     
     
     
 
By:
 
 
Norman Gardner
Chief Executive Officer
       
 
 
   
Executive:
     
     
     
     
     
Patrick White
 

 
 
 

 
Exhibit A
General Release Agreement
 
 
Exhibit B
Indemnification Agreement








Exhibit 10.18
VerifyMe, Inc.
75 S. Clinton Ave, Suite 510
Rochester, NY 14604

 
 
September 5, 2017
 


 
Mr. Howard Goldberg
____________________
____________________
 
Re:
Compensation Agreement

Dear Mr. Goldberg:
 
This letter agreement (the “Agreement”) confirms our understanding and agreement through which, in consideration of the securities issued to you under this Agreement, you agree to terminate your prior agreement(the “Prior Agreement”).  As consideration for entering into this Agreement, the Company shall issue you $100,000 of units in its current private placement.  You agree to execute and deliver the investment letter in the form annexed as Exhibit A .  The $100,000 is comprised of the following sums due you:
 
·
$5,250 per month that you are entitled to for services rendered, and to be rendered useless, for a period of 11 months starting on February 1, 2017;
·
$10,750 due to Norman Gardner as accrued compensation;
·
one-half of a loan made by ______________, which was valued at $31,500 as of its June 30, 2017 conversion date; and
·
Stock options.
 
Because you are still required to perform services through the end of the year, 75,075 shares of common stock and 75,075 warrants shall vest on the last day of each month beginning September 2017 through December 2017, subject to your continuing to provide services as a consultant to the Company.

The Prior Agreement is null and void.

Please execute a copy of this Agreement evidencing your intent to be bound.
 
 
Sincerely yours,
 
     
     
     
     
 
Patrick White
 
 
Chief Executive Officer
 
 
__________________
__________________
Page 2
 
 
I hereby agree to the foregoing:



 
By:
 
   


Howard Goldberg   
 
 
 
Exhibit A
 
Form of Investment Letter


See attached.



 
 
 
 
[Letterhead]




_________________, 2017



 
Re:
VerifyMe / Stock Issuance
 
Dear Sirs:

This will confirm my representation to you and my agreement with you in connection with my acquisition of 1,430,000 shares of common stock (the “Common Stock”) of VerifyMe, Inc., a Nevada corporation (the “Company”).

1.            Prior to my acquisition of these Shares, I have reviewed the operations of the Company and in this connection the Company offered me access to the same information concerning it which would be contained in a prospectus meeting the requirements of Section 10 to the Securities Act of 1933 (“Securities Act”), Section 517.061(11)(a)3 of the Florida Securities and Investor Protection Act (“Florida Act”) and Rule 3E-500.05 thereunder, and other applicable state securities laws.  In connection therewith, I furnished you with information, upon which you have relied, in support of my advice to you that I am a substantial investor and able to bear the risk of the loss of my entire investment.  In addition, I have the knowledge and experience in business matters so that I am capable of evaluating the merits and risks involved with my acquisition of the Shares.  Alternatively, in making such acquisition I relied upon the advice of ____________ as to the appropriateness of such investment and such person has the knowledge and experience in business matters so as to be capable of evaluating the merits and risks involved with the acquisition of the Shares.

2.            I have acquired the Shares for my own account.  You have advised me that the transfer of the Shares to me will not be registered under the Securities Act, and applicable state securities laws, and that in not registering the Shares you have relied upon my representations to you set forth in this letter.  The Shares were acquired by me for my own account for investment and not with a view to, or for resale in connection with, the distribution thereof.  I have no present intention of reselling or distributing them after any period of time.  I do not have any contract, undertaking, agreement or arrangement with any person to sell or transfer to such persons or to any third person any of the Shares.  My acquisition of the Shares for investment is consistent with my financial needs.

3.            I shall make no disposition at any time of any of the Shares in contravention of the provisions of the Securities Act and applicable state securities laws.
 
 
September 5, 2017
Page 2

4.            I shall make no disposition of any of the Shares unless and until (i) notice of the proposed disposition shall have been given to the Company and (ii) the Company shall have received the written opinion of its counsel to the effect that (a) the proposed disposition will not be in contravention of any of the registration provisions of the Securities Act and applicable state securities laws or (b) appropriate action necessary for compliance with the registration provisions of the Securities Act and  applicable state securities laws has been taken.

5.            I hereby authorize the Company to imprint an appropriate restrictive legend on the certificates representing the Shares acquired by me.

6.            [Please initial one]   I represent to the Company that I am ______am not_____ an accredited investor for one of the reasons on the attached Exhibit A.

 
 
Sincerely yours,
 
     
     
     
     
 
[Print Name]
 
 
 
EXHIBIT A


 
 
 
 
Exhibit 10.19

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (the “Agreement”) is entered into as of September 1, 2017 (the “Effective Date”), between VerifyMe, Inc., a Nevada corporation (the “Company”), and Keith Goldstein (the “Consultant”).

WHEREAS, in its business, the Company has acquired and developed certain trade secrets both as defined by applicable law and the common law, including, but not limited to, proprietary processes, sales methods and techniques, and other like confidential business and technical information, including but not limited to, technical information, design systems, pricing methods, pricing rates or discounts, processes, procedures, formulas, designs of computer software, or improvements, or any portion or phase thereof, whether patented, or not, or unpatentable, that is of any value whatsoever to the Company, as well as information relating to the Company’s Services (as defined), information concerning proposed new Services, market feasibility studies, proposed or existing marketing techniques or plans (whether developed or produced by the Company or by any other person or entity for the Company), other Confidential Information, as defined in Section 9(a), and information about the Company’s executives, officers, and directors, which necessarily will be communicated to the Consultant by reason of his employment by the Company; and

WHEREAS, the Company has strong and legitimate business interests in preserving and protecting its investment in the Consultant, its trade secrets and Confidential Information, and its substantial, significant, or key, relationships with vendors Customers, as defined, whether actual or prospective; and

WHEREAS, the Company desires to preserve and protect its legitimate business interests further by restricting competitive activities of the Consultant during the term of this Agreement and for a reasonable time following the termination of this Agreement; and

WHEREAS, the Company desires to continue to employ the Consultant and to ensure the continued availability to the Company of the Consultant’s services, and the Consultant is willing to accept such employment and render such services, all upon and subject to the terms and conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth in this Agreement, and intending to be legally bound, the Company and the Consultant agree as follows:

1.               Representations and Warranties .  The Consultant hereby represents and warrants to the Company that he (i) is not subject to any non-solicitation or non-competition agreement affecting his employment with the Company (other than any prior agreement with the Company), (ii) is not subject to any confidentiality or nonuse/nondisclosure agreement affecting his  employment with the Company (other than any prior agreement with the Company), and (iii) has brought to the Company no trade secrets, confidential business information, documents, or other personal property of a prior employer.
 
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2.               Term .
 
(a)            Term .  The Company hereby retains the Consultant, and the Consultant hereby agrees to perform consulting services with the Company for a period of six months commencing as of the Effective Date (such period, as it may be extended or renewed, the “Term”), unless sooner terminated in accordance with the provisions of Section 6.
 

(b)            Continuing Effect .  Notwithstanding any termination of this Agreement, at the end of the Term or otherwise, the provisions of Sections 6(e), 7, 8, 9, 10, 12 15, 16, 17, 18, shall remain in full force and effect and the provisions of Section 9 shall be binding upon the legal representatives, successors and assigns of the Consultant.
 
3.               Duties .
 
(a)            General Duties .  The Consultant shall serve as Chief Operating Officer with duties and responsibilities that are customary for such an executive including, but not limited to, setting up sales and sales support operations for Company products and digital technologies; implementing, maintaining, and utilizing telemarketing to develop sales opportunities for the Company; performing, implementing, and supporting all required functions under the Company’s agreement with Hewlett-Packard; providing the Company with analysis and recommendations on future mergers and acquisitions; providing insight and recommendations for new propriety technology and the improvement of the Company’s existing proprietary technologies; maintaining Company materials and assets; conducting future research and development for the Company’s websites; and completing any and all other duties as may be delegated to the consultant by the Company’s Chief Executive Officer (the “CEO”) and the Board of Directors (the “Board”).  e . The Consultant shall report to the CEO. The Consultant shall also perform services for such subsidiaries of the Company as may be necessary. The Consultant shall use his best efforts to perform his duties and discharge his responsibilities pursuant to this Agreement competently, carefully and faithfully. In determining whether or not the Consultant has used his best efforts hereunder, the Consultant’s and the Company’s delegation of authority and all surrounding circumstances shall be taken into account and the best efforts of the Consultant shall not be judged solely on the Company’s earnings or other results of the Consultant’s performance, except as specifically provided to the contrary by this Agreement.
 
(b)            Devotion of Time .  The Consultant shall devote such time, attention and energies to the affairs of the Company and its subsidiaries and affiliates as are necessary to perform his duties and responsibilities pursuant to this Agreement .
 
(c)            Adherence to Inside Information Policies .  The Consultant acknowledges that the Company is publicly-held and, as a result, has implemented inside information policies designed to preclude its executives and those of its subsidiaries from violating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of any duty owed to the Company, or any third party.  The Consultant shall promptly execute any agreements generally distributed by the Company to its employees requiring such employees to abide by its inside information policies.
 
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(d)            Location.   The Consultant shall perform his duties remotely. The Company shall provide the Consultant with Regus meeting space, as needed by the Consultant, to conduct business on behalf of the Company.
 
4.               Compensation and Expenses .
 
(a)            Fees .  For the services of the Consultant to be rendered under this Agreement, the Company shall pay the Consultant a monthly fee of $10,000 payable in equal installments on the first and 16 th calendar days (or the next business day) of each month.
 
(b)            Expenses .  In addition to any compensation received pursuant to this Section 4, the Company will reimburse or advance funds to the Consultant for all reasonable documented travel (including travel expenses incurred by the Consultant related to his travel to the Company’s  offices), entertainment and miscellaneous expenses incurred in connection with the performance of his duties under this Agreement, provided that the Consultant properly provides a written accounting of such expenses to the Company in accordance with the Company’s practices.  Such reimbursement or advances will be made in accordance with policies and procedures of the Company in effect from time to time relating to reimbursement of, or advances to, its executive officers and employees.
 
(c)            Benefits .   The Consultant shall be not be entitled to any benefits offered to the Company’s executive officers. In lieu of benefits, the Company shall pay him $1,2000 per month beginning January 1, 2018.
 
(d)            Option Grant .  To provide the Consultant with an appropriate incentive,  the Company, subject to Executive Committee approval,  grants the Consultant 2,000,000 non-plan five-year stock options exercisable at $0.04, subject to execution of the Company’s standard Stock Option Agreement. The stock options shall vest quarterly over a __-year period.
 
(e)            Sales Commission . The Company shall pay the Consultant a four percent commission on any sales made by the Consultant on behalf of the Company. Sales shall be calculated based upon the cash basis of accounting rather than accrual. The sales commission shall be payable on the 30 th day of each month based upon payments received in the prior month.
 
5.               Termination .
 
(a)            Termination by Expiration . This Agreement shall automatically terminate on February 28, 2017, unless extended in writing by the Company and the Consultant.
 
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(b)            Death or Disability .  Except as otherwise provided in this Agreement, this Agreement shall automatically terminate upon the death or disability of the Consultant.  For purposes of this Section 6(b), “disability” shall mean (i) the Consultant is unable to engage in his customary duties by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months; (ii) the Consultant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company; or (iii) the Consultant is determined to be totally disabled by the Social Security Administration.  Any question as to the existence of a disability shall be determined by the written opinion of the Consultant’s regularly attending physician (or his guardian) (or the Social Security Administration, where applicable). In the event that the Consultant’s employment is terminated by reason of Consultant’s death or disability, the Company shall pay the following to the Consultant or his personal representative: (i) any accrued but unpaid consulting fees for services rendered to the date of termination, and (ii) accrued but unpaid expenses required to be reimbursed under this Agreement.  The Consultant (or his estate) shall receive the payments provided herein at such times as he would have received them if there was no death or disability.  Additionally, if this Agreement is terminated because of disability, any benefits (except perquisites) to which the Consultant may be entitled pursuant to Section 5(b) hereof shall continue to be paid or provided by the Company, as the case may be, for one year, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Consultant was entitled pursuant to Section 5(b) hereof are subject to 409A of the Code, the Consultant shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).
 
(c)            Termination by the Company for Cause .  The Company may terminate the Consultant pursuant to the terms of this Agreement at any time for Cause (as defined below) by giving the Consultant written notice of termination.  Such termination shall become effective upon the giving of such notice.  Upon any such termination for Cause, the Consultant shall have no right to compensation, or reimbursement under Section 4, for any period subsequent to the effective date of termination.  For purposes of this Agreement, “Cause” shall mean: (i) the Consultant is convicted of, or pleads guilty or nolo contendere to, a felony; (ii) the Consultant, in carrying out his duties hereunder, has acted with gross negligence or intentional misconduct resulting, in any case, in material harm to the Company; (iii) the Consultant misappropriates Company funds or otherwise defrauds the Company in a matter involving a material amount of money or property; (iv) the Consultant breaches his fiduciary duty to the Company resulting in material profit to him, directly or indirectly; (v) the Consultant materially breaches any agreement with the Company and fails to cure such breach within 10 days of receipt of notice, unless the act is incapable of being cured; (vi) the Consultant breaches any provision of Section 6 or Section 7; (vii) the Consultant becomes subject to a preliminary or permanent injunction issued by a United States District Court enjoining the Consultant from violating any securities law administered or regulated by the Securities and Exchange Commission; (viii) the Consultant becomes subject to a cease and desist order or other order issued by the Securities and Exchange Commission after an opportunity for a hearing; (ix) the Consultant refuses to carry out a resolution adopted by the Company’s Board at a meeting in which the Consultant was offered a reasonable opportunity to argue that the resolution should not be adopted; or (x) the Consultant abuses alcohol or drugs in a manner that interferes with the successful performance of his duties.
 
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(d)            Termination by the Company without Cause . This Agreement may be terminated: (i) by the Company without Cause pursuant to the terms of this Agreement by giving the Consultant written notice of termination.
 
(1)            In the event this Agreement is terminated by the Company without Cause, the Consultant shall be entitled to the following:
 
(A)            any accrued but unpaid consulting fees for services rendered to the date of termination;
 
(B)            any accrued but unpaid expenses required to be reimbursed under this Agreement;
 
 
(e)            Termination by the Consultant without Cause . This Agreement may be terminated: (i) by the Consultant without Cause pursuant to the terms of this Agreement by giving the Company written notice of termination.
 
(1)            In the event this Agreement is terminated by the Consultant without Cause, the Consultant shall be entitled to the following:
 
(A)            any accrued but unpaid consulting fees for services rendered to the date of termination;
 
(B)            any accrued but unpaid expenses required to be reimbursed under this Agreement;
 
 
6.               Non-Competition Agreement .
 
(a)            Competition with the Company . Until termination of this Agreement and for a period of one year commencing on the date of termination, the Consultant (individually or in association with, or as a shareholder, director, officer, consultant, employee, partner, joint venture, member, or otherwise, of or through any person, firm, corporation, partnership, association or other entity) shall not, directly or indirectly, compete with the Company (which for the purpose of this Agreement also includes any of its subsidiaries or affiliates) by acting as an officer (or comparable position) of, owning an interest in, or providing services to any entity within any metropolitan area in the United States or other country in which the Company was actually engaged in business as of the time of termination of this Agreement or where the Company reasonably expected to engage in business within three months of the date of termination of this Agreement.  For purposes of this Agreement, the term “compete with the Company” shall refer to any business activity in which the Company was engaged as of the termination of this Agreement or reasonably expected to engage in within three months of termination of this Agreement; provided , however , the foregoing shall not prevent the Consultant from (i) accepting employment or acting as a consultant to an enterprise engaged in two or more lines of business, one of which is the same or similar to the Company’s business (the “Prohibited Business”) if the Consultant’s services are totally unrelated to the Prohibited Business, (ii) competing in a country where as of the time of the alleged violation the Company has ceased engaging in business, or (iii) competing in a line of business which as of the time of the alleged violation the Company has either ceased engaging in or publicly announced or disclosed that it intends to cease engaging in; provided , further , the foregoing shall not prohibit the Consultant from owning up to five percent of the securities of any publicly-traded enterprise provided as long as the Consultant is not a director, officer, consultant, employee, partner, joint venture, manager, or member of, or to such enterprise, or otherwise compensated for services rendered thereby.
 
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(b)            Solicitation of Customers . During the periods in which the provisions of Section 6(a) shall be in effect, the Consultant, directly or indirectly, will not seek nor accept Prohibited Business from any Customer (as defined below) on behalf of any enterprise or business other than the Company, refer Prohibited Business from any Customer to any enterprise or business other than the Company or receive commissions based on sales or otherwise relating to the Prohibited Business from any Customer, or any enterprise or business other than the Company.  For purposes of this Agreement, the term “Customer” means any person, firm, corporation, partnership, limited liability company, association or other entity to which the Company or any of its affiliates sold or provided goods or services during the 24-month period prior to the time at which any determination is required to be made as to whether any such person, firm, corporation, partnership, limited liability company, association or other entity is a Customer, or who or which was approached by or who or which has approached an employee of the Company for the purpose of soliciting business from the Company or the third party, as the case may be.  Provided , however , the goods or services must be competitive in some respect to the Company’s business during such time.
 
(c)            Solicitation of Employees .   During the period in which the provisions of Section 6(a) and (b) shall be in effect, the Consultant agrees that he shall not, directly or indirectly, request, recommend or advise any employee of the Company to terminate his or her employment with the Company, for the purposes of providing services for a Prohibited Business, or solicit for employment or recommend to any third party the solicitation for employment of any individual who was employed by the Company or any of its subsidiaries and affiliates at any time during the one year period preceding the Consultant’s termination of employment.
 
(d)            Non-disparagement .   The Consultant agrees that, after the termination of this Agreement, he will refrain from making, in writing or orally, any unfavorable comments about the Company, its operations, policies, or procedures that would be likely to injure the Company’s reputation or business prospects; provided , however , that nothing herein shall preclude the Consultant from responding truthfully to a lawful subpoena or other compulsory legal process or from providing truthful information otherwise required by law.
 
(e)            No Payment .  The Consultant acknowledges and agrees that no separate or additional payment will be required to be made to him in consideration of his undertakings in this Section 8, and confirms he has received adequate consideration for such undertakings.
 
(f)            References .  References to the Company in this Section 6 shall include the Company’s subsidiaries and affiliates.
 
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7.               Non-Disclosure of Confidential Information .
 
(a)            Confidential Information .  For purposes of this Agreement, “Confidential Information” includes, but is not limited to, trade secrets under any applicable statute or the common law, patents, patent applications, processes, policies, procedures, techniques, designs, drawings, know-how, show-how, technical information, specifications, computer software and source code, information and data relating to the development, research, testing, costs, marketing, and uses of the Services (as defined herein), the Company’s budgets and strategic plans, and the identity and special needs of Customers vendors, subjects and databases, data, and all technology relating to the Company’s businesses, systems, methods of operation, and Customer lists and information, solicitation leads, marketing and advertising materials, methods and manuals and forms, all of which pertain to the activities or operations of the Company, the names, home addresses and all telephone numbers and e-mail addresses of the Company’s directors, employees, officers, executives, former executives, and Customer contacts.  Confidential Information also includes, without limitation, Confidential Information received from the Company’s subsidiaries and affiliates.  For purposes of this Agreement, the following will not constitute Confidential Information (i) information which is or subsequently becomes generally available to the public through no act or fault of the Consultant, (ii) information set forth in the written records of the Consultant prior to disclosure to the Consultant by or on behalf of the Company which information is given to the Company in writing as of or prior to the date of this Agreement, and (iii) information which is lawfully obtained by the Consultant in writing from a third party (excluding any affiliates of the Consultant) who lawfully acquired the confidential information and who did not acquire such confidential information or trade secret, directly or indirectly, from the Consultant or the Company or its subsidiaries or affiliates and who has not breached any duty of confidentiality. As used herein, the term “Services” shall include all services offered for sale and marketed by the Company during the Term.
 
(b)            Legitimate Business Interests .  The Consultant recognizes that the Company has legitimate business interests to protect and as a consequence, the Consultant agrees to the restrictions contained in this Agreement because they further the Company’s legitimate business interests.  These legitimate business interests include, but are not limited to (i) trade secrets; (ii) valuable confidential business, technical, and/or professional information that otherwise may not qualify as trade secrets, including, but not limited to, all Confidential Information; (iii) substantial, significant, or key relationships with specific prospective or existing Customers, vendors or suppliers; (iv) Customer  goodwill associated with the Company’s business; and (v) specialized training relating to the Company’s technology, Services, methods, operations and procedures.  Notwithstanding the foregoing, nothing in this Section 97b) shall be construed to impose restrictions greater than those imposed by other provisions of this Agreement.
 
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(c)            Confidentiality .  During the Term of this Agreement and following termination of this Agreement, for any reason, the Confidential Information shall be held by the Consultant in the strictest confidence and shall not, without the prior express written consent of the Company, be disclosed to any person other than in connection with the Consultant’s services for the Company.  The Consultant further acknowledges that such Confidential Information as is acquired and used by the Company or its subsidiaries or affiliates is a special, valuable and unique asset.  The Consultant shall exercise all due and diligent precautions to protect the integrity of the Company’s Confidential Information and to keep it confidential whether it is in written form, on electronic media, oral, or otherwise.  The Consultant shall not copy any Confidential Information except to the extent necessary to the performance of his services nor remove any Confidential Information or copies thereof from the Company’s premises except to the extent necessary.  All records, files, materials and other Confidential Information obtained by the Consultant in the course of his services as a consultant to the Company are confidential and proprietary and shall remain the exclusive property of the Company.  The Consultant shall not, except in connection with and as required by his performance of his duties under this Agreement, for any reason use for his own benefit or the benefit of any person or entity other than the Company or disclose any such Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever without the prior express written consent of an executive officer of the Company (excluding the Consultant).
 
(d)            References .  References to the Company in this Section 7 shall include the Company’s subsidiaries and affiliates.
 
(e)            Whistleblowing .  Nothing contained in this Agreement shall be construed to prevent the Consultant from reporting any act or failure to act to the Securities and Exchange Commission or other governmental body or prevent the Consultant from obtaining a fee as a “whistleblower” under Rule 21F-17(a) under the Securities Exchange Act of 1934 or other rules or regulations implemented under the Dodd-Frank Wall Street Reform Act and Consumer Protection Act.
 
8.               Equitable Relief .
 
(a)            The Company and the Consultant recognize that the services to be rendered under this Agreement by the Consultant are special, unique and of extraordinary character, and that in the event of the breach by the Consultant of the terms and conditions of this Agreement or if the Consultant, without the prior express consent of the Board, shall terminate this Agreement for any reason and/or take any action in violation of Section 6 and/or Section 7, the Company shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction referred to in Section 8(b) below, to enjoin the Consultant from breaching the provisions of Section 6 and/or Section 7.
 
(b)            Any action arising from or under this Agreement must be commenced only in the appropriate state court located in New York County, NY or federal court in New York County, NY.  The Consultant and the Company irrevocably and unconditionally submit to the exclusive jurisdiction of such courts and agree to take any and all future action necessary to submit to the jurisdiction of such courts.  The Consultant and the Company irrevocably waive any objection that they now have or hereafter may have to the laying of venue of any suit, action or proceeding brought in any such court and further irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  Final judgment against the Consultant or the Company in any such suit shall be conclusive and may be enforced in other jurisdictions by suit on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and the amount of any liability of the Consultant or the Company therein described, or by appropriate proceedings under any applicable treaty or otherwise.
 
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9.               Conflicts of Interest .  While acting as consultant to the Company, the Consultant shall not, unless approved by the Board, directly or indirectly:
 
(a)            participate as an individual in any way in the benefits of transactions with any of the Company’s Customers or vendors, including, without limitation, having a financial interest in the Company’s Customers or vendors, or making loans to, or receiving loans, from, the Company’s Customers or  vendors;
 
(b)            realize a personal gain or advantage from a transaction in which the Company has an interest or use information obtained in connection with the Consultant’s employment with the Company for the Consultant’s personal advantage or gain; or
 
(c)            accept any offer to serve as an officer, director, partner, consultant, manager with, provide services to or to be employed by, a person or entity which does business with the Company.
 
10.             Inventions, Ideas, Processes, and Designs .  All inventions, ideas, processes, programs, software, and designs (including all improvements) (i) conceived or made by the Consultant during the course of his services for the Company (whether or not actually conceived during regular business hours) and for a period of six months subsequent to the termination (whether by expiration of the Term or otherwise) of such services for the Company, and (ii) related to the business of the Company, shall be disclosed in writing promptly to the Company and shall be the sole and exclusive property of the Company, and the Consultant hereby assigns any such inventions to the Company.  An invention, idea, process, program, software, or design (including an improvement) shall be deemed related to the business of the Company if (a) it was made with the Company’s funds, personnel, equipment, supplies, facilities, or Confidential Information, (b) results from work performed by the Consultant for the Company, or (c) pertains to the current business or demonstrably anticipated research or development work of the Company.  The Consultant shall cooperate with the Company and its attorneys in the preparation of patent and copyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to the Company.  The decision to file for patent or copyright protection or to maintain such development as a trade secret, or otherwise, shall be in the sole discretion of the Company, and the Consultant shall be bound by such decision. The Consultant hereby irrevocably assigns to the Company, for no additional consideration, the Consultant’s entire right, title and interest in and to all work product and intellectual property rights, including the right to sue, counterclaim and recover for all past, present and future infringement, misappropriation or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit the Company's rights, title or interest in any work product or intellectual property rights so as to be less in any respect than the Company would have had in the absence of this Agreement.  If applicable, the Consultant shall provide as a schedule to this Agreement, a complete list of all inventions, ideas, processes, and designs, if any, patented or unpatented, copyrighted or otherwise, or non-copyrighted, including a brief description, which he made or conceived prior to his employment with the Company and which therefore are excluded from the scope of this Agreement. References to the Company in this Section 10 shall include the Company, its subsidiaries and affiliates.
 
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11.             Assignability .  The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, provided that such successor or assign shall acquire all or substantially all of the securities or assets and business of the Company.  The Consultant’s obligations hereunder may not be assigned or alienated and any attempt to do so by the Consultant will be void.
 
12.             Severability .
 
(a)            The Consultant expressly agrees that the character, duration and geographical scope of the non-competition provisions set forth in this Agreement are reasonable in light of the circumstances as they exist on the date hereof.  Should a decision, however, be made at a later date by a court of competent jurisdiction that the character, duration or geographical scope of such provisions is unreasonable, then it is the intention and the agreement of the Consultant and the Company that this Agreement shall be construed by the court in such a manner as to impose only those restrictions on the Consultant’s conduct that are reasonable in the light of the circumstances and as are necessary to assure to the Company the benefits of this Agreement.  If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included herein because taken together they are more extensive than necessary to assure to the Company the intended benefits of this Agreement, it is expressly understood and agreed by the parties hereto that the provisions of this Agreement that, if eliminated, would permit the remaining separate provisions to be enforced in such proceeding shall be deemed eliminated, for the purposes of such proceeding, from this Agreement.
 
(b)            If any provision of this Agreement otherwise is deemed to be invalid or unenforceable or is prohibited by the laws of the state or jurisdiction where it is to be performed, this Agreement shall be considered divisible as to such provision and such provision shall be inoperative in such state or jurisdiction and shall not be part of the consideration moving from either of the parties to the other.  The remaining provisions of this Agreement shall be valid and binding and of like effect as though such provisions were not included.
 
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13.            Notices and Addresses .  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar receipted delivery, or next business day delivery to the addresses detailed below (or to such other address, as either of them, by notice to the other may designate from time to time), or by e-mail delivery (in which event a copy shall immediately be sent by FedEx or similar receipted delivery), as follows:
 
To the Company:                   Patrick White
Chief Executive Officer
VerifyMe, Inc.
409 Boot Road,
Downingtown, PA 19335
Email: patrick@verifyme.com

With a copy to:                     Nason, Yeager, Gerson White & Lioce, P.A.
3001 PGA Blvd., Suite 305
Palm Beach Gardens, Florida 33410
Attention: Michael D. Harris, Esq.
Email: mharris@nasonyeager.com

To the Consultant:               Keith Goldstein
_________________________,
_________________________
Email:

14.            Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.
 
15.            Attorneys’ Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and expenses (including such fees and costs on appeal).
 
16.            Governing Law .  This Agreement shall be governed or interpreted according to the internal laws of the State of New York without regard to choice of law considerations and all claims relating to or arising out of this Agreement, or the breach thereof, whether sounding in contract, tort, or otherwise, shall also be governed by the laws of the State of New York without regard to choice of law considerations.
 
17.            Entire Agreement .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.
 
18.            Section and Paragraph Headings .  The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
 
[Signature Page To Follow]
 
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IN WITNESS WHEREOF, the Company and the Consultant have executed this Agreement as of the date and year first above written.

   
VerifyMe, Inc.
 
 
     
 
 
By:______________________________
         Patrick White
         Chief Executive Officer
 
 
       


   
Consultant:
     
 
 
 
______________________________
     Keith Goldstein
     
 

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FIRST AMENDMENT
 
TO
 
CONSULTING AGREEMENT
 

 
THIS FIRST AMENDMENT (“Amendment”), by and between VerifyMe, Inc. (the “Company”) and POC Advisory Group, LLC (the “Consultant”), is effective as of March 1, 2018 (the “Effective Date”).
 
WHEREAS, the Company and  the Consultant are parties to that certain Consulting Agreement dated as of September 1, 2017 (the “Consulting Agreement”);
 
WHEREAS, the Initial Term of the Consulting Agreement expired on March 1, 2018; and
 
WHEREAS, the Company and the Consultant desire to amend the Consulting Agreement to extend the Term, and make additional revisions in accordance with the terms set forth herein.
 
 
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and of the mutual benefits to be gained by the performance thereof, and for other good and valuable consideration, the respective receipt of which is hereby acknowledged by each of the parties hereto, the parties hereto agree as follows:
 
 
1.            Section 2 of the Consulting Agreement is deleted in its entirety and replaced with the following:
 
 
“ Term .
 
 
(a)
Initial Term . The Company hereby retains the Consultant, and the Consultant hereby agrees to perform consulting services for the Company for a period commencing as of September 1, 2017 and expiring on March 1, 2018 (the “Initial Term”).

 
(b)
Renewal Terms . In addition to the Initial Term, the Company and the Consultant may agree in writing to extend this Agreement for one or more additional terms (each, a “Renewal Term”, and together with the Initial Term, the “Term”) beginning on the last day of the Initial Term or the current Renewal Term, as the case may be. The parties hereby agree that the first Renewal Term shall be for a period beginning on March 1, 2018 and expiring on February 28, 2019 (the “First Renewal Term”) unless sooner terminated in accordance with the provisions hereof.”
 
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2.            Section 4(a) of the Consulting Agreement is deleted in its entirety and replaced with the following:

 
“ Fees . During the Initial Term, for the services of the Consultant to be rendered under this Agreement, the Company shall pay the Consultant a monthly fee of $10,000 payable on the first calendar day of each month. During the First Renewal Term, for the services of the Consultant to be rendered under this Agreement, the Company shall pay the Consultant a monthly fee of $12,500 payable on the first calendar day of each month”

 
3.            Section 4(d) of the Consulting Agreement is deleted in its entirety and replaced with the following:

 
“ Option Grant . As of September 1, 2017, the parties acknowledge and agree that the Company granted the Consultant 2,000,000 non-plan five-year stock options exercisable at $0.04, which stock options vested at the rate of 333,333 shares per month, and were subject to execution of the Company's standard Stock Option Agreement (which were to provide for cashless exercise).  During the First Renewal Term, to provide the Consultant with an appropriate incentive, the Company hereby grants to the Consultant subject to and in accordance with the Company’s 2017 Equity Incentive Plan, 1,000,000 five-year stock options exercisable at $0.2102.  The stock options shall vest as follows: (i) 500,000 shall vest upon execution of the First Amendment by both parties hereto; and (ii) 500,000 shall vest on February 28, 2019, subject to Consultant providing its consulting services to the Company through and including February 28, 2019 without breach of the terms and conditions of the Agreement, and with both subparts (i) and (ii) herein being subject to execution of the Company’s standard Stock Option Agreement (which shall provide for cashless exercise).  Provided, however, that in the event the Agreement is terminated by the Company, without Cause, the remaining 500,000 stock options provided for herein shall immediately vest in favor of Consultant as of such termination date.”

 
4.            Section 4(e) of the Consulting Agreement is hereby amended as follows:

 
The parties agree that as of the Effective Date of this Amendment, Consultant shall no longer be entitled to payment from the Company of any Sales Commission(s) as provided for in Section 4(e) of the Consulting Agreement.
 
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5.            Section 5(a) of the Consulting Agreement is deleted in its entirety and replaced with the following:
 
 
“Termination by Expiration.   This Agreement shall automatically terminate on February 28, 2019, unless extended in writing by the Company and the Consultant.”
 
6.            Section 5(c) of the Consulting Agreement is deleted in its entirety and replaced with the following:
 
 
“ Termination by the Company for Cause. The Company may terminate the Consultant pursuant to the terms of this Agreement at any time for Cause (as defined below) by giving the Consultant written notice of termination. Such termination shall become effective upon the giving of such notice. Upon any such termination for Cause, the Consultant shall have no right to compensation, or reimbursement under Section 4, for any period subsequent to the effective date of termination. For purposes of this Agreement, "Cause" shall mean the Consultant or any of its designees, including but not limited to Keith Goldstein: (i) are convicted of, or plead guilty or nolo contendere to, a felony; or (ii) in carrying out their duties hereunder, have acted with gross negligence or intentional misconduct resulting, in any case, in material harm to the Company;”
 
 
7.            Except as set forth in this Amendment, the parties hereby ratify, confirm and approve all of the provisions of the Consulting Agreement and agree to be bound by the terms thereof as fully set forth therein.
 

 
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IN WITNESS WHEREOF, this Amendment shall be effective as of the Effective Date.
 

 

 
 
 
COMPANY:
 
 
VerifyMe Inc.
 
 
 
By:________________________________
 
Name: Patrick White
 
Title:  CEO
 
Date:  03/13/18
 
 
 
CONSULTANT:
 
 
POC Advisory Group, LLC
 
 
 
By:________________________________
 
Name: Keith Goldstein
 
Title: Managing Member
 
Date: 03/13/18
   


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Exhibit 10.20
 
CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (the “Agreement”) is entered into as of _____________, 2017 (the “Effective Date”), between VerifyMe, Inc., a Nevada corporation (the “Company”), and ___________________ (the “Consultant”).

WHEREAS, in its business, the Company has acquired and developed certain trade secrets both as defined by applicable law and the common law, including, but not limited to, proprietary processes, sales methods and techniques, and other like confidential business and technical information, including but not limited to, technical information, design systems, pricing methods, pricing rates or discounts, processes, procedures, formulas, designs of computer software, or improvements, or any portion or phase thereof, whether patented, or not, or unpatentable, that is of any value whatsoever to the Company, as well as information relating to the Company’s Services (as defined), information concerning proposed new Services, market feasibility studies, proposed or existing marketing techniques or plans (whether developed or produced by the Company or by any other person or entity for the Company), other Confidential Information, as defined in Section 9(a), and information about the Company’s executives, officers, and directors, which necessarily will be communicated to the Consultant by reason of his employment by the Company; and

WHEREAS, the Company has strong and legitimate business interests in preserving and protecting its investment in the Consultant, its trade secrets and Confidential Information, and its substantial, significant, or key, relationships with vendors Customers, as defined, whether actual or prospective; and

WHEREAS, the Company desires to preserve and protect its legitimate business interests further by restricting competitive activities of the Consultant during the term of this Agreement and for a reasonable time following the termination of this Agreement; and

WHEREAS, the Company desires to continue to employ the Consultant and to ensure the continued availability to the Company of the Consultant’s services, and the Consultant is willing to accept such employment and render such services, all upon and subject to the terms and conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth in this Agreement, and intending to be legally bound, the Company and the Consultant agree as follows:

1.              Representations and Warranties .  The Consultant hereby represents and warrants to the Company that he (i) is not subject to any non-solicitation or non-competition agreement affecting his employment with the Company (other than any prior agreement with the Company), (ii) is not subject to any confidentiality or nonuse/nondisclosure agreement affecting his  employment with the Company (other than any prior agreement with the Company), and (iii) has brought to the Company no trade secrets, confidential business information, documents, or other personal property of a prior employer.
 

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2.              Term .
 
(a)             Term .  The Company hereby retains the Consultant, and the Consultant hereby agrees to perform consulting services with the Company for a period of three years commencing as of the Effective Date (such period, as it may be extended or renewed, the “Term”), unless sooner terminated in accordance with the provisions of Section 6.  The Term shall be automatically renewed for successive one-year terms unless notice of non-renewal is given by either party at least 30 days before the end of the Term.
 
(b)             Continuing Effect .  Notwithstanding any termination of this Agreement, at the end of the Term or otherwise, the provisions of Sections 6(e), 7, 8, 9, 10, 12 15, 18, 19, and 22 shall remain in full force and effect and the provisions of Section 9 shall be binding upon the legal representatives, successors and assigns of the Consultant.
 
3.              Duties .
 
(a)             General Duties .  The Consultant shall serve as an advisor to the Company’s senior management and act as Chief Executive Officer at times when that position is otherwise vacant, with duties and responsibilities that are customary for such an executive.  The Consultant shall report to the Company’s Chief Executive Officer and the Board of Directors (the “Board”).  The Consultant shall also perform services for such subsidiaries of the Company as may be necessary.  The Consultant shall use his best efforts to perform his duties and discharge his responsibilities pursuant to this Agreement competently, carefully and faithfully. In determining whether or not the Consultant has used his best efforts hereunder, the Consultant’s and the Company’s delegation of authority and all surrounding circumstances shall be taken into account and the best efforts of the Consultant shall not be judged solely on the Company’s earnings or other results of the Consultant’s performance, except as specifically provided to the contrary by this Agreement. Subject to the actions of the Company’s shareholders, the Company shall appoint the Consultant to the Board of the Company, and he shall serve as a director for no additional compensation.
 
(b)             Devotion of Time .  Subject to the last sentence of this Section 3(b), the Consultant shall devote such time, attention and energies to the affairs of the Company and its subsidiaries and affiliates as are necessary to perform his duties and responsibilities pursuant to this Agreement .
 
(c)             Adherence to Inside Information Policies .  The Consultant acknowledges that the Company is publicly-held and, as a result, has implemented inside information policies designed to preclude its executives and those of its subsidiaries from violating the federal securities laws by trading on material, non-public information or passing such information on to others in breach of any duty owed to the Company, or any third party.  The Consultant shall promptly execute any agreements generally distributed by the Company to its employees requiring such employees to abide by its inside information policies.
 
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4.              Compensation and Expenses .
 
(a)             Fees .  For the services of the Consultant to be rendered under this Agreement, the Company shall pay the Consultant a monthly fee of $12,500 payable on the first and 16 th calendar days (or the next business day) of each month. Provided, however, the fees shall accrue until the Company has raised at least $500,000 in its private placement offering currently being conducted (the “Offering”).
 
(b)             Expenses .  In addition to any compensation received pursuant to this Section 4, the Company will reimburse or advance funds to the Consultant for all reasonable documented travel (including travel expenses incurred by the Consultant related to his travel to the Company’s  offices), entertainment and miscellaneous expenses incurred in connection with the performance of his duties under this Agreement, provided that the Consultant properly provides a written accounting of such expenses to the Company in accordance with the Company’s practices.  Such reimbursement or advances will be made in accordance with policies and procedures of the Company in effect from time to time relating to reimbursement of, or advances to, its executive officers and employees.
 
(c)            Benefits .   The Consultant shall not be an employee and therefore not entitled to any benefits the Company’s executive officers and employees may receive. The Company shall reimburse the Consultant for up to $1,000 per month for health insurance including Medicare premiums and other medical expenses.
 
(d)             Option Grant .  To provide the Consultant with an appropriate incentive and compensate him for his past services which were critical to the survival of the Company, the Company grants the Consultant a number of stock options equal to 10% of outstanding shares of common stock on a fully diluted basis following the Offering. In order to permit the Consultant to file a Form 4 with the Securities and Exchange Commission, the number of stock options shall be 10,000,000 exercisable at $0.07 per share; provided , however , the Consultant shall not exercise any options to the extent that such options exceed the 10% threshold. The stock options shall be fully vested upon execution of the Company’s standard Stock Option Agreement and shall be exercisable for five year, provided that in no event shall any option be exercisable beyond its term.
 
5.              Termination .
 
(a)             Death or Disability .  Except as otherwise provided in this Agreement, this Agreement shall automatically terminate upon the death or disability of the Consultant.  For purposes of this Section 6(a), “disability” shall mean (i) the Consultant is unable to engage in his customary duties by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months; (ii) the Consultant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company; or (iii) the Consultant is determined to be totally disabled by the Social Security Administration.  Any question as to the existence of a disability shall be determined by the written opinion of the Consultant’s regularly attending physician (or his guardian) (or the Social Security Administration, where applicable). In the event that the Consultant’s employment is terminated by reason of Consultant’s death or disability, the Company shall pay the following to the Consultant or his personal representative: (i) any accrued but unpaid consulting fees for services rendered to the date of termination, and (ii) accrued but unpaid expenses required to be reimbursed under this Agreement.  The Consultant (or his estate) shall receive the payments provided herein at such times as he would have received them if there was no death or disability.  Additionally, if this Agreement is terminated because of disability, any benefits (except perquisites) to which the Consultant may be entitled pursuant to Section 5(b) hereof shall continue to be paid or provided by the Company, as the case may be, for one year, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Consultant was entitled pursuant to Section 5(b) hereof are subject to 409A of the Code, the Consultant shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).

 
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(b)             Termination by the Company for Cause .  The Company may terminate the Consultant pursuant to the terms of this Agreement at any time for Cause (as defined below) by giving the Consultant written notice of termination.  Such termination shall become effective upon the giving of such notice.  Upon any such termination for Cause, the Consultant shall have no right to compensation, or reimbursement under Section 4, for any period subsequent to the effective date of termination.  For purposes of this Agreement, “Cause” shall mean: (i) the Consultant is convicted of, or pleads guilty or nolo contendere to, a felony related to the business of the Company; (ii) the Consultant, in carrying out his duties hereunder, has acted with gross negligence or intentional misconduct resulting, in any case, in material harm to the Company; (iii) the Consultant misappropriates Company funds or otherwise defrauds the Company in a matter involving a material amount of money or property; (iv) the Consultant breaches his fiduciary duty to the Company resulting in material profit to him, directly or indirectly; (v) the Consultant materially breaches any agreement with the Company and fails to cure such breach within 10 days of receipt of notice, unless the act is incapable of being cured; (vi) the Consultant breaches any provision of Section 8 or Section 9; (vii) the Consultant becomes subject to a preliminary or permanent injunction issued by a United States District Court enjoining the Consultant from violating any securities law administered or regulated by the Securities and Exchange Commission; (viii) the Consultant becomes subject to a cease and desist order or other order issued by the Securities and Exchange Commission after an opportunity for a hearing; (ix) the Consultant refuses to carry out a resolution adopted by the Company’s Board at a meeting in which the Consultant was offered a reasonable opportunity to argue that the resolution should not be adopted; or (x) the Consultant abuses alcohol or drugs in a manner that interferes with the successful performance of his duties.
 
(c)             Termination by the Company Without Cause or Automatic Termination Upon a Change of Control or at the end of a Term after the Company provides notice of Non-Renewal .
 
(1)             This Agreement may be terminated: (i) by the Company without Cause, (ii) upon any Change of Control event as defined in Treasury Regulation Section 1.409A-3(i)(5) provided, that, within one year of the Change of Control event (A) the Company terminates the Consultant or (B) the Consultant terminates this Agreement or ceases performing services or (iii) at the end of a Term after the Company provides the Consultant with notice of non-renewal.
 
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(2)             In the event this Agreement is terminated by the Company without Cause, the Consultant shall be entitled to the following:
 
(A)            any accrued but unpaid consulting fees for services rendered to the date of termination;
 
(B)            any accrued but unpaid expenses required to be reimbursed under this Agreement;
 
(C)            a payment equal to 12 months of consulting fees (“Severance Amount”); and
 
(D)            any benefits (except perquisites) to which the Consultant was entitled pursuant to Section 5(c) hereof shall continue to be paid or provided by the Company, as the case may be, for one year, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Consultant was entitled pursuant to Section 5(c) hereof are subject to 409A of the Code, the Consultant shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).
 
(3)             In the event of a Change of Control during the Term and  the Consultant terminates this Agreement within one year of the Change of Control, he shall be entitled to receive each of the provisions of Section 6(c)(2)(A) – (D) above except the Severance Amount shall equal to 18 months of consulting fees and the benefits under Section 6(c)(2)(F) shall continue for an 18 month period provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits under Section 6(c)(2)(F) are subject to 409A of the Code, the Consultant shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).
 
(4)             In the event this Agreement is terminated at the end of a Term after the Company provides the Consultant with notice of non-renewal and the Consultant remains as a consultant until the end of the Term, the Consultant shall be entitled to the following:
 
(A)            any accrued but unpaid consulting fees for services rendered to the date of termination;
 
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(B)            any accrued but unpaid expenses required to be reimbursed under this Agreement; and
 
(C)            any benefits to which the Consultant was entitled pursuant to Section 5(c) hereof shall continue to be paid or provided by the Company, as the case may be, for six months, subject to the terms of any applicable plan or insurance contract and applicable law provided that such benefits are exempt from Section 409A of the Code by reason of Treasury Regulation 1.409A-1(a)(5) or otherwise.  In the event all or a portion of the benefits to which the Consultant was entitled pursuant to Section 5(c) hereof are subject to 409A of the Code, the Consultant shall not be entitled to the benefits that are subject to Section 409A of the Code subsequent to the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)).
 
Provided , however , that the Consultant shall only be entitled to receive each of the provisions of this Section 6(c)(4) if the Consultant is willing and able (i) to execute a new agreement providing terms and conditions substantially similar to those in this Agreement and (ii) to continue providing such services, and therefore, the Company’s non-renewal of the Term will be considered an “involuntary separation from service” within the meaning of Treasury Regulation Section 1.409A-1(n).

(5)             In the event of a termination without Cause, the payment of the Severance Amount shall be made at the same times as the Company pays consulting fees under this Agreement and any other payments owed under Section 6(c) shall be promptly paid.  Provided , however , that any balance of the Severance Amount remaining due on the “applicable 2 ½ month period” (as such term is defined under Treasury Regulation Section 1.409A-1(b)(4)(i)(A)) after the end of the tax year in which the Consultant is terminated or the Term ends shall be paid on the last day of the applicable 2½ month period.
 
(d)             Any termination made by the Company under this Agreement shall be approved by the Board.
 
(e)             Upon (1) voluntary or involuntary termination of this Agreement or (2) the Company’s request at any time, the Consultant shall (i) provide or return to the Company, all Company documents and materials belonging to the Company and stored in any fashion, including but not limited to those that constitute or contain any Confidential Information or work product, that are in the possession or control of the Consultant, whether they were provided to the Consultant by the Company or any of its business associates or created by the Consultant in connection with his services for the Company; and (ii) delete or destroy all copies of any such documents and materials not returned to the Company that remain in the Consultant’s possession or control, including those stored on any non-Company devices, networks, storage locations and media in the Consultant’s possession or control.
 
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6.              Non-Competition Agreement .
 
(a)             Competition with the Company . Until termination of this Agreement and for a period of one year commencing on the date of termination, the Consultant (individually or in association with, or as a shareholder, director, officer, consultant, employee, partner, joint venture, member, or otherwise, of or through any person, firm, corporation, partnership, association or other entity) shall not, directly or indirectly, compete with the Company (which for the purpose of this Agreement also includes any of its subsidiaries or affiliates) by acting as an officer (or comparable position) of, owning an interest in, or providing services to any entity within any metropolitan area in the United States or other country in which the Company was actually engaged in business as of the time of termination of this Agreement or where the Company reasonably expected to engage in business within three months of the date of termination of this Agreement.  For purposes of this Agreement, the term “compete with the Company” shall refer to any business activity in which the Company was engaged as of the termination of this Agreement or reasonably expected to engage in within three months of termination of this Agreement; provided , however , the foregoing shall not prevent the Consultant from (i) accepting employment or acting as a consultant to an enterprise engaged in two or more lines of business, one of which is the same or similar to the Company’s business (the “Prohibited Business”) if the Consultant’s services are totally unrelated to the Prohibited Business, (ii) competing in a country where as of the time of the alleged violation the Company has ceased engaging in business, or (iii) competing in a line of business which as of the time of the alleged violation the Company has either ceased engaging in or publicly announced or disclosed that it intends to cease engaging in; provided , further , the foregoing shall not prohibit the Consultant from owning up to five percent of the securities of any publicly-traded enterprise provided as long as the Consultant is not a director, officer, consultant, employee, partner, joint venture, manager, or member of, or to such enterprise, or otherwise compensated for services rendered thereby.
 
(b)             Solicitation of Customers . During the periods in which the provisions of Section 8(a) shall be in effect, the Consultant, directly or indirectly, will not seek nor accept Prohibited Business from any Customer (as defined below) on behalf of any enterprise or business other than the Company, refer Prohibited Business from any Customer to any enterprise or business other than the Company or receive commissions based on sales or otherwise relating to the Prohibited Business from any Customer, or any enterprise or business other than the Company.  For purposes of this Agreement, the term “Customer” means any person, firm, corporation, partnership, limited liability company, association or other entity to which the Company or any of its affiliates sold or provided goods or services during the 24-month period prior to the time at which any determination is required to be made as to whether any such person, firm, corporation, partnership, limited liability company, association or other entity is a Customer, or who or which was approached by or who or which has approached an employee of the Company for the purpose of soliciting business from the Company or the third party, as the case may be.  Provided, however, the goods or services must be competitive in some respect to the Company’s business during such time
 
(c)             Solicitation of Employees .   During the period in which the provisions of Section 8(a) and (b) shall be in effect, the Consultant agrees that he shall not, directly or indirectly, request, recommend or advise any employee of the Company to terminate his or her employment with the Company, for the purposes of providing services for a Prohibited Business, or solicit for employment or recommend to any third party the solicitation for employment of any individual who was employed by the Company or any of its subsidiaries and affiliates at any time during the one year period preceding the Consultant’s termination of employment.
     
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(d)             Non-disparagement .   The Consultant agrees that, after the termination of this Agreement, he will refrain from making, in writing or orally, any unfavorable comments about the Company, its operations, policies, or procedures that would be likely to injure the Company’s reputation or business prospects; provided , however , that nothing herein shall preclude the Consultant from responding truthfully to a lawful subpoena or other compulsory legal process or from providing truthful information otherwise required by law.
    
(e)             No Payment .  The Consultant acknowledges and agrees that no separate or additional payment will be required to be made to him in consideration of his undertakings in this Section 8, and confirms he has received adequate consideration for such undertakings.
 
(f)              References .  References to the Company in this Section 8 shall include the Company’s subsidiaries and affiliates.
 
7.              Non-Disclosure of Confidential Information .
 
(a)             Confidential Information .  For purposes of this Agreement, “Confidential Information” includes, but is not limited to, trade secrets under any applicable statute or the common law, patents, patent applications, processes, policies, procedures, techniques, designs, drawings, know-how, show-how, technical information, specifications, computer software and source code, information and data relating to the development, research, testing, costs, marketing, and uses of the Services (as defined herein), the Company’s budgets and strategic plans, and the identity and special needs of Customers vendors, subjects and databases, data, and all technology relating to the Company’s businesses, systems, methods of operation, and Customer lists and information, solicitation leads, marketing and advertising materials, methods and manuals and forms, all of which pertain to the activities or operations of the Company, the names, home addresses and all telephone numbers and e-mail addresses of the Company’s directors, employees, officers, executives, former executives, and Customer contacts.  Confidential Information also includes, without limitation, Confidential Information received from the Company’s subsidiaries and affiliates.  For purposes of this Agreement, the following will not constitute Confidential Information (i) information which is or subsequently becomes generally available to the public through no act or fault of the Consultant, (ii) information set forth in the written records of the Consultant prior to disclosure to the Consultant by or on behalf of the Company which information is given to the Company in writing as of or prior to the date of this Agreement, and (iii) information which is lawfully obtained by the Consultant in writing from a third party (excluding any affiliates of the Consultant) who lawfully acquired the confidential information and who did not acquire such confidential information or trade secret, directly or indirectly, from the Consultant or the Company or its subsidiaries or affiliates and who has not breached any duty of confidentiality. As used herein, the term “Services” shall include all services offered for sale and marketed by the Company during the Term.
 
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(b)             Legitimate Business Interests .  The Consultant recognizes that the Company has legitimate business interests to protect and as a consequence, the Consultant agrees to the restrictions contained in this Agreement because they further the Company’s legitimate business interests.  These legitimate business interests include, but are not limited to (i) trade secrets; (ii) valuable confidential business, technical, and/or professional information that otherwise may not qualify as trade secrets, including, but not limited to, all Confidential Information; (iii) substantial, significant, or key relationships with specific prospective or existing Customers, vendors or suppliers; (iv) Customer  goodwill associated with the Company’s business; and (v) specialized training relating to the Company’s technology, Services, methods, operations and procedures.  Notwithstanding the foregoing, nothing in this Section 9(b) shall be construed to impose restrictions greater than those imposed by other provisions of this Agreement.
 
(c)             Confidentiality .  During the Term of this Agreement and following termination of this Agreement, for any reason, the Confidential Information shall be held by the Consultant in the strictest confidence and shall not, without the prior express written consent of the Company, be disclosed to any person other than in connection with the Consultant’s services for the Company.  The Consultant further acknowledges that such Confidential Information as is acquired and used by the Company or its subsidiaries or affiliates is a special, valuable and unique asset.  The Consultant shall exercise all due and diligent precautions to protect the integrity of the Company’s Confidential Information and to keep it confidential whether it is in written form, on electronic media, oral, or otherwise.  The Consultant shall not copy any Confidential Information except to the extent necessary to the performance of his services nor remove any Confidential Information or copies thereof from the Company’s premises except to the extent necessary.  All records, files, materials and other Confidential Information obtained by the Consultant in the course of his services as a consultant to the Company are confidential and proprietary and shall remain the exclusive property of the Company.  The Consultant shall not, except in connection with and as required by his performance of his duties under this Agreement, for any reason use for his own benefit or the benefit of any person or entity other than the Company or disclose any such Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever without the prior express written consent of an executive officer of the Company (excluding the Consultant).
 
(d)             References .  References to the Company in this Section 9 shall include the Company’s subsidiaries and affiliates.
 
(e)             Whistleblowing .  Nothing contained in this Agreement shall be construed to prevent the Consultant from reporting any act or failure to act to the Securities and Exchange Commission or other governmental body or prevent the Consultant from obtaining a fee as a “whistleblower” under Rule 21F-17(a) under the Securities Exchange Act of 1934 or other rules or regulations implemented under the Dodd-Frank Wall Street Reform Act and Consumer Protection Act.
 
8.              Equitable Relief .
 
(a)             The Company and the Consultant recognize that the services to be rendered under this Agreement by the Consultant are special, unique and of extraordinary character, and that in the event of the breach by the Consultant of the terms and conditions of this Agreement or if the Consultant, without the prior express consent of the Board, shall terminate this Agreement for any reason and/or take any action in violation of Section 8 and/or Section 9, the Company shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction referred to in Section 10(b) below, to enjoin the Consultant from breaching the provisions of Section 8 and/or Section 9.
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(b)             Any action arising from or under this Agreement must be commenced only in the appropriate state court located in Montgomery County, PA or federal court in Philadelphia, PA.  The Consultant and the Company irrevocably and unconditionally submit to the exclusive jurisdiction of such courts and agree to take any and all future action necessary to submit to the jurisdiction of such courts.  The Consultant and the Company irrevocably waive any objection that they now have or hereafter may have to the laying of venue of any suit, action or proceeding brought in any such court and further irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  Final judgment against the Consultant or the Company in any such suit shall be conclusive and may be enforced in other jurisdictions by suit on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and the amount of any liability of the Consultant or the Company therein described, or by appropriate proceedings under any applicable treaty or otherwise.
 
9.              Conflicts of Interest .  While acting as consultant to the Company, the Consultant shall not, unless approved by the Board, directly or indirectly:
 
(a)             participate as an individual in any way in the benefits of transactions with any of the Company’s Customers or vendors, including, without limitation, having a financial interest in the Company’s Customers or vendors, or making loans to, or receiving loans, from, the Company’s Customers or  vendors;
 
(b)             realize a personal gain or advantage from a transaction in which the Company has an interest or use information obtained in connection with the Consultant’s employment with the Company for the Consultant’s personal advantage or gain; or
 
(c)             accept any offer to serve as an officer, director, partner, consultant, manager with, provide services to or to be employed by, a person or entity which does business with the Company.
 
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10.            Inventions, Ideas, Processes, and Designs .  All inventions, ideas, processes, programs, software, and designs (including all improvements) (i) conceived or made by the Consultant during the course of his services for the Company (whether or not actually conceived during regular business hours) and for a period of six months subsequent to the termination (whether by expiration of the Term or otherwise) of such services for the Company, and (ii) related to the business of the Company, shall be disclosed in writing promptly to the Company and shall be the sole and exclusive property of the Company, and the Consultant hereby assigns any such inventions to the Company.  An invention, idea, process, program, software, or design (including an improvement) shall be deemed related to the business of the Company if (a) it was made with the Company’s funds, personnel, equipment, supplies, facilities, or Confidential Information, (b) results from work performed by the Consultant for the Company, or (c) pertains to the current business or demonstrably anticipated research or development work of the Company.  The Consultant shall cooperate with the Company and its attorneys in the preparation of patent and copyright applications for such developments and, upon request, shall promptly assign all such inventions, ideas, processes, and designs to the Company.  The decision to file for patent or copyright protection or to maintain such development as a trade secret, or otherwise, shall be in the sole discretion of the Company, and the Consultant shall be bound by such decision. The Consultant hereby irrevocably assigns to the Company, for no additional consideration, the Consultant’s entire right, title and interest in and to all work product and intellectual property rights, including the right to sue, counterclaim and recover for all past, present and future infringement, misappropriation or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit the Company's rights, title or interest in any work product or intellectual property rights so as to be less in any respect than the Company would have had in the absence of this Agreement.  If applicable, the Consultant shall provide as a schedule to this Agreement, a complete list of all inventions, ideas, processes, and designs, if any, patented or unpatented, copyrighted or otherwise, or non-copyrighted, including a brief description, which he made or conceived prior to his employment with the Company and which therefore are excluded from the scope of this Agreement. References to the Company in this Section 10 shall include the Company, its subsidiaries and affiliates.
 
11.            Indebtedness .  If, during the course of the Consultant’s services under this Agreement, the Consultant becomes indebted to the Company for any reason, the Company may, if it so elects, and if permitted by applicable law, set off any sum due to the Company from the Consultant and collect any remaining balance from the Consultant unless the Consultant has entered into a written agreement with the Company.
 
12.            Assignability .  The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, provided that such successor or assign shall acquire all or substantially all of the securities or assets and business of the Company.  The Consultant’s obligations hereunder may not be assigned or alienated and any attempt to do so by the Consultant will be void.
 
13.            Severability .
 
(a)             The Consultant expressly agrees that the character, duration and geographical scope of the non-competition provisions set forth in this Agreement are reasonable in light of the circumstances as they exist on the date hereof.  Should a decision, however, be made at a later date by a court of competent jurisdiction that the character, duration or geographical scope of such provisions is unreasonable, then it is the intention and the agreement of the Consultant and the Company that this Agreement shall be construed by the court in such a manner as to impose only those restrictions on the Consultant’s conduct that are reasonable in the light of the circumstances and as are necessary to assure to the Company the benefits of this Agreement.  If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included herein because taken together they are more extensive than necessary to assure to the Company the intended benefits of this Agreement, it is expressly understood and agreed by the parties hereto that the provisions of this Agreement that, if eliminated, would permit the remaining separate provisions to be enforced in such proceeding shall be deemed eliminated, for the purposes of such proceeding, from this Agreement.
 
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(b)             If any provision of this Agreement otherwise is deemed to be invalid or unenforceable or is prohibited by the laws of the state or jurisdiction where it is to be performed, this Agreement shall be considered divisible as to such provision and such provision shall be inoperative in such state or jurisdiction and shall not be part of the consideration moving from either of the parties to the other.  The remaining provisions of this Agreement shall be valid and binding and of like effect as though such provisions were not included.
 
14.            Notices and Addresses .  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar receipted delivery, or next business day delivery to the addresses detailed below (or to such other address, as either of them, by notice to the other may designate from time to time), or by e-mail delivery (in which event a copy shall immediately be sent by FedEx or similar receipted delivery), as follows:


 
To the Company: 
Scott McPherson
Chief Financial Officer
VerifyMe, Inc.
409 Boot Road,
Downingtown, PA 19335
Email: samcpherson@mcphersoncpa.com

 
With a copy to: 
Nason, Yeager, Gerson White & Lioce, P.A.
3001 PGA Blvd., Suite 305
Palm Beach Gardens, Florida 33410
Attention: Michael D. Harris, Esq.
Email: mharris@nasonyeager.com

 
To the Consultant: 
________________________
________________________
________________________
Email: _____________________

15.            Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.
 
16.            Attorneys’ Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and expenses (including such fees and costs on appeal).
 
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17.            Governing Law .  This Agreement shall be governed or interpreted according to the internal laws of the State of Pennsylvania without regard to choice of law considerations and all claims relating to or arising out of this Agreement, or the breach thereof, whether sounding in contract, tort, or otherwise, shall also be governed by the laws of the State of Pennsylvania without regard to choice of law considerations.
 
18.            Entire Agreement .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.
 
19.            Section and Paragraph Headings .  The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
 
20.            Section 409A Compliance .
 
(a)             This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), or an exemption thereunder.  This Agreement shall be construed and administered in accordance with Section 409A.  Notwithstanding any other provision of this Agreement to the contrary, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption.  Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service (including a voluntary separation from service for good reason that is considered an involuntary separation for purposes of the separation pay exception under Treasury Regulation 1.409A-1(n)(2)) or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible.  For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment.  Any payments to be made under this Agreement upon a termination of this Agreement shall only be made if such termination constitutes a “separation from service” under Section 409A.  Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Consultant on account of non-compliance with Section 409A.
 
(b)             Notwithstanding any other provision of this Agreement, if at the time of the termination of this Agreement, the Consultant is considered a "specified employee", determined in accordance with Section 409A, any payments and benefits provided under this Agreement that constitute "nonqualified deferred compensation" subject to Section 409A (e.g., payments and benefits that do not qualify as a short-term deferral or as a separation pay exception) that are provided to the Consultant on account of the Consultant’s separation from service shall not be paid until the first payroll date to occur following the six-month anniversary of the Consultant's termination date ("Specified Employee Payment Date").  The aggregate amount of any payments that would otherwise have been made during such six-month period shall be paid in a lump sum on the Specified Employee Payment Date without interest and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.  If the Consultant dies during the six-month period, any delayed payments shall be paid to the Consultant's estate in a lump sum upon the Consultant's death.
 
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(c)             To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:
 
(1)             the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;
 
(2)             any reimbursement of an eligible expense shall be paid to the Consultant on or before the last day of the calendar year following the calendar year in which the expense was incurred; and
 
(3)             any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.
 
(d)             In the event the Company determines that the Consultant is considered a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code at the time of the Consultant’s separation from service, then to the extent any payment or benefit that the Consultant becomes entitled to under this Agreement on account of the Consultant’s separation from service would be considered deferred compensation subject to Section 409A as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (i) six months and one day after the Consultant’s separation from service, or (ii) the Consultant’s death (the “Six Month Delay Rule”).
 
(1)             For purposes of this subparagraph, amounts payable under the Agreement should not provide for a deferral of compensation subject to Section 409A to the extent provided in Treasury Regulation Section 1.409A-1(b)(4) (e.g., short-term deferrals), Treasury Regulation Section 1.409A-1(b)(9) (e.g., separation pay plans, including the exception under subparagraph (iii)), and other applicable provisions of the Treasury Regulations.
 
(2)             To the extent that the Six Month Delay Rule applies to payments otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of the Six Month Delay Rule, and the balance of the installments shall be payable in accordance with their original schedule.
 
(3)             To the extent that the Six Month Delay Rule applies to the provision of benefits (including, but not limited to, life insurance and medical insurance), such benefit coverage shall nonetheless be provided to the Consultant during the first six months following his separation from service (the “Six Month Period”), provided that, during such Six-Month Period, the Consultant pays to the Company, on a monthly basis in advance, an amount equal to the Monthly Cost (as defined below) of such benefit coverage.  The Company shall reimburse the Consultant for any such payments made by the Consultant in a lump sum not later than 30 days following the sixth month anniversary of the Consultant’s separation from service.  For purposes of this subparagraph, “Monthly Cost” means the minimum dollar amount which, if paid by the Consultant on a monthly basis in advance, results in the Consultant not being required to recognize any federal income tax on receipt of the benefit coverage during the Six Month Period.
 
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(e)             The parties intend that this Agreement will be administered in accordance with Section 409A.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A.  The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.
 
(f)             The Company makes no representation or warranty and shall have no liability to the Consultant or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A but do not satisfy an exemption from, or the conditions of, such Section.
 
[Signature Page To Follow]
 
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IN WITNESS WHEREOF, the Company and the Consultant have executed this Agreement as of the date and year first above written.

 
VerifyMe, Inc.
 
       
       
       
       
 
By:
   
   
Larry Schafran
Director & Member of Executive
Committee
 
       
       
 
Consultant:
 
       
       
       
       
     
 
 
[Print Name and Title] 
 

 
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Exhibit 10.21

CFO CONSULTING AGREEMENT

CFO CONSULTING AGREEMENT dated as of January ___, 2018 (this “Agreement”), between VerifyMe, Inc., a Nevada corporation (the “ Company ”), and James S. Cardwell (the “ Consultant ”).

WHEREAS, the Board of Directors of the Company desires to engage Consultant to provide consulting services, upon the terms and subject to the conditions hereinafter set forth; and

WHEREAS, the Consultant has agreed to provide such consulting services, upon the terms and subject to the conditions hereinafter set forth;

WHEREAS, the Company has agreed to and entered into a separate consulting service agreement for pre-audit services and SEC compliance services with The CFO Squad LLC dated January 9, 2018 (the “CFO Squad Agreement”);

NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows:

1.
Independent Consultant. The Company, through the action of its Board of Directors (the “ Board ”), hereby engages the Consultant, and the Consultant will serve the Company, as a consultant. During the term of this Agreement, the Consultant will serve as the non-employee chief financial officer (“CFO”) of the Company on a part-time basis. The Company confirms that the Consultant has been duly appointed as the CFO of the Company and will remain as an executive officer of the Company during the term of this Agreement.

2.
Duties, Term, and Compensation. The Consultant’s duties, term of engagement, compensation and provisions for payment thereof are detailed in the attached Exhibit A, which may be amended in writing from time to time by the Consultant and agreed to by the Company, and which collectively are hereby incorporated by reference.

3.
Expenses. During the term of this Agreement, the Consultant shall bill and the Company shall reimburse the Consultant for all reasonable and approved out-of-pocket expenses which are incurred in connection with the performance of the duties hereunder.

4.
Confidentiality. The Consultant acknowledges that during the engagement he will have access to and become acquainted with various trade secrets, inventions, innovations, processes, information, records and specifications owned or licensed by the Company and/or used by the Company in connection with the operation of its business including, without limitation, the Company’s business and product processes, methods, customer lists, accounts and procedures. The Consultant agrees that he will not disclose any of the aforesaid, directly or indirectly, or use any of them in any manner, either during the term of this Agreement or at any time thereafter, except as required in the course of this engagement with the Company. All files, records, documents, blueprints, specifications, information, letters, notes, media lists, original artwork/creative, notebooks, and similar items relating to the business of the Company, whether prepared by the Consultant or otherwise coming into his possession, shall remain the exclusive property of the Company. The Consultant shall not retain any copies of the foregoing without the Company’s prior written permission. Upon the expiration or earlier termination of this Agreement, or whenever requested by the Company, the Consultant shall immediately deliver to the Company all such files, records, documents, specifications, information, and other items in his possession or under his control.

5.
Conflicts of Interest; Non-hire Provision. The Consultant represents that he is free to enter into this Agreement, and that this engagement does not violate the terms of any agreement between the Consultant and any third party. Further, the Consultant, in rendering his duties shall not utilize any invention, discovery, development, improvement, innovation, or trade secret in which he does not have a proprietary interest. During the term of this agreement, the Consultant shall devote as much of his productive time, energy and abilities to the performance of his duties hereunder as is necessary to perform the required duties in a timely and productive manner. The Company acknowledges that this Agreement only obligates the Consultant to serve a limited percent of his working time with the Company, that the Consultant has numerous other commitments. The Consultant is expressly free to perform services for other parties while performing services for the Company and is permitted to be employed by The CFO Squad LLC.
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6.
Indemnification and D&O Insurance: The Company agrees to defend, indemnify (including, without limitation, by providing for the advancement of expenses and reasonable attorneys’ fees) and hold harmless the Consultant for any and all acts taken or omitted to be taken by the Consultant hereunder (except for bad faith, gross negligence or willful misconduct) as if the Consultant was an officer of the Company as provided in the charter and bylaws of the Company in accordance with the same terms, conditions, limitations, standards, duties, rights and obligations as an officer. The provisions of this Section shall survive any termination of this Agreement. In addition, until the five (5) year anniversary of the termination or expiration of this Agreement, the Company shall maintain in effect liability insurance coverage for the Consultant (as an insured person) with respect to his service under this Agreement, on the same or more favorable terms and conditions (from the perspective of the Consultant) as under the liability insurance policies of the Company in effect as of the date of this Agreement.

7.
Merger. This Agreement shall automatically terminate upon the merger or consolidation of the Company into or with any other entity.

8.
Termination. Either party may terminate this Agreement at any time by thirty (30) days written notice by either party, but shall automatically terminate after thirty (30) days if for any reason the Company has terminated its CFO Squad Agreement for Pre-Audit Services and SEC Compliance Services.

9.
Independent Consultant. This Agreement shall not render the Consultant an employee, partner, agent of, or joint venturer with the Company for any purpose. The Consultant is and will remain an independent Consultant in his relationship to the Company. The Company shall not be responsible for withholding taxes with respect to the Consultant’s compensation hereunder. The Consultant shall have no claim against the Company hereunder or otherwise for vacation pay, sick leave, retirement benefits, social security, worker’s compensation, health or disability benefits, unemployment insurance benefits, or employee benefits of any kind.

10.
Successors and Assigns. All of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, if any, successors, and assigns.

11.
Choice of Law. The laws of the state of New York shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereto.

12.
Arbitration. Any controversies arising out of the terms of this Agreement or its interpretation shall be settled in New York, New York in accordance with the rules of the American Arbitration Association, and the judgment upon award may be entered in any court having jurisdiction thereof.

13.
Headings. Section headings are not to be considered a part of this Agreement and are not intended to be a full and accurate description of the contents hereof.

14.
Waiver. Waiver by one party hereto of breach of any provision of this Agreement by the other shall not operate or be construed as a continuing waiver.

15.
Assignment. The Consultant shall not assign any of his rights under this Agreement, or delegate the performance of any of his duties hereunder, without the prior written consent of the Company.

16.
Notices. Any and all notices, demands, or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if personally served, or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If such notice or demand is served personally, notice shall be deemed constructively made at the time of such personal service. If such notice, demand or other communication is given by mail, such notice shall be conclusively deemed given five days after deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as follows:

If to the Consultant:      
 
   
   
   
 
 
If to the Company:                VerifyMe, Inc.
Attn: Patrick White, President / CEO
75 S. Clinton Ave, Suite 510
Rochester, NY 14604
patrick@verifyme.com

Any party hereto may change its address for purposes of this paragraph by written notice given in the manner provided above.

17.
Modification or Amendment. No amendment, change or modification of this Agreement shall be valid unless in writing signed by the parties hereto.

18.
Entire Understanding. This document and any exhibit attached constitute the entire understanding and agreement of the parties, and any and all prior agreements, understandings, and representations are hereby terminated and canceled in their entirety and are of no further force and effect.

19.
Unenforceability of Provisions. If any provision of this Agreement, or any portion thereof, is held to be invalid and unenforceable, then the remainder of this Agreement shall nevertheless remain in full force and effect.

IN WITNESS WHEREOF the undersigned have executed this Agreement as of the day and year first written above. The parties hereto agree that facsimile signatures shall be as effective as if originals.


VerifyMe, Inc.
       
         
         
By:
   
By:
 
         
Date:
   
Date:
 
 
Patrick White
     
Its:
President & CEO
     
   
   
Exhibit A
    
DUTIES, TERM, AND COMPENSATION

DUTIES:
The Consultant will perform all duties typically required of a Chief Financial Officer, including, but not limited to accounting oversight, preparation of quarterly and annual financial statements to be filed with the SEC, filings required on Forms 8-K, 10-Q and 10-K and such other filings as may be required and coordination with VerifyMe Inc’s independent public accountants with respect to quarterly reviews and annual audits.
   
He will report directly to Patrick White, President and CEO and to any other party designated by Patrick White in connection with the performance of the duties under this Agreement and shall fulfill any other duties reasonably requested by the Company and agreed to by the Consultant.

TERM:
This engagement shall commence upon execution of this Agreement and shall continue in full force and effect for a period of one (1) year. The agreement may only be extended thereafter by mutual agreement, unless terminated earlier by operation of and in accordance with this Agreement.

COMPENSATION:

As compensation for the services rendered pursuant to this Agreement, Company shall pay Consultant one thousand ($1,000) dollars upon signing and for each every per month thereafter payable on the first business day of each month provided the Company has engaged and continues to engage The CFO Squad LLC under the CFO Squad Agreement to provide Pre-Audit Services and SEC Compliance services.
 

 

Exhibit 10.28
 
AMENDED SECURITIES PURCHASE AGREEMENT


THIS AMENDED SECURITIES PURCHASE AGREEMENT (the “Agreement”) is entered into as of this ___ day of __________, 2017 (the “Effective Date”) by and between the parties on the signature page to this Agreement (each, a “Purchaser”), and VerifyMe, Inc., a Nevada corporation (“VRME” or the “Company”) (collectively, the Purchaser and VRME are the “Parties”).

WHEREAS, this Agreement contemplates a transaction in which the Purchaser will purchase from VRME, and VRME will sell to the Purchaser Units of common stock and warrants on a $500,000 minimum and $2,100,000 maximum basis on the terms contained below; and

WHEREAS, the Company has sold more the minimum amount of Units and wishes to proceed without any escrow of funds.

NOW, THEREFORE, in consideration of the mutual promises contained herein, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

1.            Sale and Purchase .  VRME agrees to sell, and the Purchaser agrees to purchase, a number of Units set forth on the Purchaser’s signature page, each Unit consisting of 715,000 shares of common stock and 715,000 five-year Warrants, the form of which is annexed as Exhibit A.

2.            Representations and Warranties of VRME .  As an inducement to the Purchaser to enter into this Agreement and consummate the transaction contemplated hereby, VRME hereby makes the following representations and warranties, each of which is true and correct in all material respects on the date hereof and will be true and correct in all material respects on the closing date:

2.1            Organization .  VRME is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada and is duly authorized to conduct business as currently conducted.

2.2            Authority .  VRME has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement constitutes the valid and legally binding obligation of VRME, enforceable in accordance with its terms. The execution, delivery, and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by VRME.

2.3            Non-Contravention .  The execution and delivery of this Agreement by VRME and the observance and performance of the terms and provisions contained herein do not constitute a violation or breach of any applicable law, or any provision of any other contract or instrument to which VRME is a party or by which it is bound, or any order, writ, injunction, decree, statute, rule, by-law or regulation applicable to VRME.

2.4            Litigation .  There are no actions, suits, or proceedings pending or, to the best of VRME’s knowledge, threatened, which could in any manner restrain or prevent VRME from effectually and legally selling the Securities pursuant to the terms and provisions of this Agreement.
 
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2.5            Brokers’ Fees .  VRME has no liability or obligation to pay fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.
 
2.6            Reporting Company .  VRME is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934 (the “Exchange Act”) and has a class of common stock registered pursuant to Section 12(g) of the Exchange Act.
 
2.7            SEC Reports . VRME has filed with the SEC all reports required to be filed since January 1, 2016.  None of the reports filed with the SEC contained any material statements which were not true and correct or omitted to state any statements of material fact necessary in order to make the statements made not misleading.

2.8            Outstanding Securities .  All issued and outstanding shares of capital stock and equity interests in VRME have been duly authorized and validly issued and are fully paid and non-assessable.

2.9            No Material Adverse Change .  Since April 12, 2017 (filing date of the last Form 10-K), there has not been individually or in the aggregate a Material Adverse Change with respect to VRME. For the purposes of this Agreement, “Material Adverse Change” means any event, change or occurrence which, individually or together with any other event, change, or occurrence, could result in a material adverse change on VRME or material adverse change on its business, assets, financial condition, or results of operations. Provided , however , a Material Adverse Change does not exist solely because (i) there are changes in the economy, credit markets or capital markets, or (ii) changes generally affecting the industry in which VRME operates.
 
 
 
3.            Representations and Warranties of the Purchaser .  As an inducement to VRME to enter into this Agreement and to consummate the transactions contemplated hereby, the Purchaser hereby makes the following representations and warranties, each of which is true and correct in all material respects on the date hereof and will be true and correct in all material respects on the closing date:

3.1            Authority .  The Purchaser has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms. The execution, delivery, and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by the Purchaser.

3.2            Non-Contravention . The execution and delivery of this Agreement by the Purchaser and the observance and performance of the terms and provisions of this Agreement on the part of the Purchaser to be observed and performed will not constitute a violation of applicable law or any provision of any contract or other instrument to which the Purchaser is a party or by which it is bound, or any order, writ, injunction, decree statute, rule or regulation applicable to it.
 
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3.3            Litigation There are no actions, suits, or proceedings pending or, to the best of the Purchaser’s knowledge, threatened, which could in any manner restrain or prevent the Purchaser from effectually and legally purchasing the Securities pursuant to the terms and provisions of this Agreement.

3.4            Brokers’ Fees .  The Purchaser has no liability or obligation to pay fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

3.5            Information .  The Purchaser has relied solely on the reports of VRME filed with the SEC, other publicly available information and other written and electronic information prepared by VRME in making its decision to purchase the Securities. The Purchaser acknowledges that the purchase of the Securities entails a high degree of risk, including the risks highlighted in the risk factors contained in filings by VRME with the SEC including its annual report on Form 10-K for the year ended December 31, 2016, and the Risk Factors contained in the Term Sheet. The Purchaser represents that it has had an opportunity to ask questions and receive answers from VRME regarding the terms and conditions of this Agreement and the reasons for this offering, the business prospects of VRME, the risks attendant to VRME’s business, and the risks relating to an investment in VRME. The Purchaser acknowledges the receipt (without exhibits) of or access to the reports filed with SEC at www.sec.gov which includes VRME’s reports referred to in this Section 3.5.

3.6            Investment .  The Purchaser is acquiring the Securities for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distribution or selling the same, and, except as contemplated by this Agreement, and has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof.  The Purchaser understands that the Securities may not be sold, transferred or otherwise disposed of without registration under the Securities Act of 1933 (the “Act”) or an exemption therefrom, and that in the absence of an effective registration statement covering the Securities or an available exemption from registration under the Act, the Securities must be held indefinitely.

3.7            Restricted Securities .  The Purchaser understands that the Securities have not been registered under the Act in reliance on an exemption from registration under the Act pursuant to Section 4(a)(2) thereof and Rule 506 thereunder and the Securities will bear a restrictive legend.

3.8            Investment Experience .  The Purchaser represents that it is an “accredited investor” within the meaning of the applicable rules and regulations promulgated under the Act, for one of the reasons on the attached Exhibit C to this Agreement. The Purchaser represents and acknowledges that (i) it is experienced in evaluating and investing in private placement transactions in similar circumstances, (ii) it has such knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of the investment in the Securities, (iii) it is able to bear the substantial economic risks of an investment the Securities for an indefinite period of time, (iv) it has no need for liquidity in such investment, (v) it can afford a complete loss of such investment, and (vi) it has such knowledge and experience in financial, tax and business matters so as to enable it to utilize the information made available to it in connection with the offering of the Securities to evaluate the merits and risks of the purchase of the Securities and to make an informed investment decision with respect thereto.
 
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3.9            No General Solicitation .  The offer to sell the Securities was directly communicated to the Purchaser by VRME.  At no time was the Purchaser presented with or solicited advertisement, articles, notice or other communication published in any newspaper, television or radio or presented at any seminar or meeting, or any solicitation by a person not previously known to the undersigned in connection with the communicated offer.

4.            Survival of Representations and Warranties and Agreements .  All representations and warranties of the Parties contained in this Agreement shall survive the closing.

5.            Indemnification .

5.1            Indemnification Provisions for Benefit of the Purchaser .  In the event VRME breaches any of its representations, warranties, and/or covenants contained herein, and provided that the Purchaser makes a written claim for indemnification against VRME, then VRME agrees to indemnify the Purchaser from and against the entirety of any losses, damages, amounts paid in settlement of any claim or action, expenses, or fees including court costs and reasonable attorneys' fees and expenses.

5.2            Indemnification Provisions for Benefit of VRME .  In the event the Purchaser breaches any of its representations, warranties, and/or covenants contained herein, and provided that VRME makes a written claim for indemnification against the Purchaser, then the Purchaser agrees to indemnify VRME from and against the entirety of any losses, damages, amounts paid in settlement of any claim or action, expenses, or fees including court costs and reasonable attorneys' fees and expenses.

6.            Post-Closing Covenants . The Parties agree as follows with respect to the period following the closing:

6.1            General.   In case at any time after the closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as the other Party may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefore under Section 5).

6.2            Company .  VRME hereby covenants that, after the closing, VRME will, at the request of Purchaser, execute, acknowledge and deliver to the Purchaser without further consideration, all such further assignments, conveyances, consents and other documents, and take such other action, as the Purchaser may reasonably request (a) to transfer to, vest and protect in the Purchaser and its right, title and interest in the Securities, and (b) otherwise to consummate or effectuate the transactions contemplated by this Agreement.

7.            Expenses .  Except as otherwise provided in this Agreement, all Parties hereto shall pay their own expenses, including legal and accounting fees, in connection with the transactions contemplated herein.

8.            Severability .  In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.
 
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9.            Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.

10.          Benefit .  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.  Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the Parties or their respective heirs, successors and assigns any rights, remedies, obligations, or other liabilities under or by reason of this Agreement.

11.          Notices and Addresses . All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar overnight next business day delivery, or by email followed by overnight next business day delivery, as follows:

If to the Company:
VerifyMe, Inc.
837 Lindy Lane
Bala Cynwyd, PA 19004
Telephone: (610) 688-1952
Attention: Chief Executive Officer
Email: ngardner@verifyme.com

With a copy (for informational purposes only) to:
 
Nason Yeager Gerson White & Lioce, P.A.,
3001 PGA Boulevard, Suite 305
Palm Beach Gardens, FL 33410
Telephone:  (561) 471-3507
Attention: Michael D. Harris, Esq.
E-Mail: mharris@nasonyeager.com

If to the Purchaser:
The address set forth on the signature page attached hereto.

or to such other address as any of them, by notice to the other may designate from time to time.

12.          Attorney's Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or arbitration proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to a reasonable attorney's fee, including the fees on appeal, costs and expenses.

13.          Governing Law .  This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided therein or performance shall be governed or interpreted according to the laws of the State of Nevada
 
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14.          Oral Evidence .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against whom enforcement or the change, waiver discharge or termination is sought.

15.          Assignment .   No Party hereto shall assign its rights or obligations under this Agreement without the prior written consent of the other Party.

16.          Section Headings .  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.



[Signature Page Attached]
 
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IN WITNESS WHEREOF the parties hereto have set their hand and seals as of the above date.

 
VERIFYME, INC.:
       
       
       
 
By:  
     
 
  Norman Gardner,
 
  Chief Executive Officer
     
     
       
 
PURCHASER:
       
       
       
 
By:  
     
  (Print Name and Title) 
   
   
   
 
Address:  
   
       
     
 
Email: 
   
     
 
Tax ID of Purchaser:   
 
 
 
 
Amount Invested: $__________________.($50,000 per Unit)
 
 
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Exhibit 10.29
 
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), OR ANY OTHER SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD OR TRANSFERRED OR OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF COUNSEL TO THE ISSUER OF THESE SECURITIES, SUCH REGISTRATION UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS IS NOT REQUIRED.
 

Date: _______, 2017

 
$ 0.15 WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF VERIFYME, INC.
 
THIS IS TO CERTIFY that, for value received, _________________, its successors and assigns (the “Holder”), is entitled to purchase, subject to the terms and conditions hereinafter set forth, _______ shares of VerifyMe, Inc., a Nevada corporation (the “Company”) common stock, $0.001 par value per share (“Common Stock”), and to receive  certificates for the Common Stock so purchased.  The exercise price of this Warrant is $0.15   per share, subject to adjustment as provided below (the “Exercise Price”).
 
1.            Exercise Period and Vesting.   This Warrant is vested and shall be exercisable at any time by the Holder beginning on the date listed above (the “Issuance Date”), and ending at 5:00 p.m., New York, New York time, on the date that is the fifth anniversary of the date of this Warrant (the “Exercise Period”).  This Warrant will terminate automatically and immediately upon the expiration of the Exercise Period.

2.            Exercise of Warrant; Cashless Exercise .
(a)    Exercise .  This Warrant may be exercised, in whole or in part, at any time and from time to time during the Exercise Period.  Such exercise shall be accomplished by tender to the Company of an amount equal to the Exercise Price multiplied by the number of underlying shares being purchased (the “Purchase Price”), by wire transfer or by certified check or bank cashier’s check, payable to the order of the Company, or by a cashless exercise as provided in Section 2(b).  As a condition of exercise, the Holder shall where applicable execute a customary investment letter and accredited investor questionnaire.  The Holder’s right to exercise this Warrant is subject to compliance with any applicable laws and rules including Section 5 of the Securities Act of 1933.

(b)   Cashless Exercise .  Provided , however , the Holder may exercise this Warrant by surrendering such number of shares of Common Stock received upon exercise of this Warrant with an aggregate Fair Market Value (as defined below) equal to the Purchase Price, as described in the following paragraph (a “Cashless Exercise”).
 
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If the Holder elects to conduct a Cashless Exercise, the Company shall cause to be delivered to the Holder a certificate or certificates representing the number of shares of Common Stock computed using the following formula:
  
X = Y (A-B)
  A
Where:
X = the number of shares of Common Stock to be issued to the Holder;

Y = the portion of the Warrant (in number of shares of Common Stock) being exercised by the Holder (at the date of such calculation);

A = the Fair Market Value (as defined below) of one share of Common Stock; and

B = Exercise Price (as adjusted to the date of such calculation).
   
For purposes of this Warrant, Fair Market Value shall mean: (i) if the principal trading market for such securities is a national securities exchange, or the OTCQB (or a similar system then in use), the average of the last five reported sales prices on the principal market the last five trading days immediately prior to such Exercise Date (as defined in Section 2(c) below); or (ii) if (i) is not applicable, and if bid and ask prices for shares of Common Stock are reported by the principal trading market, the average of the high bid and low asked prices so reported for the trading day immediately prior to such Exercise Date.  Notwithstanding the foregoing, if there is no last reported sales price or bid and ask prices, as the case may be, for the day in question, then Fair Market Value shall be determined as of the latest day prior to such day for which such last reported sales price or bid and asked prices, as the case may be, are available, unless such securities have not been traded on an exchange or in the over-the-counter market for 30 or more days immediately prior to the day in question, in which case the Fair Market Value shall be determined in good faith by and reflected in a formal resolution of the board of directors of the Company.

(c)   Upon receipt of the Purchase Price in Section 2(a) or the shares of Common Stock in Section 2(b), together with presentation and surrender to the Company of this Warrant with an executed subscription form in substantially the form attached hereto as Exhibit A (the “Subscription”), the Company will deliver to the Holder, as promptly as possible, a certificate or certificates representing the shares of Common Stock so purchased, registered in the name of the Holder or its transferee (as permitted under Section 3 below).  With respect to any exercise of this Warrant, the Holder will for all purposes be deemed to have become the holder of record of the number of shares of Common Stock purchased hereunder on the date a properly executed Subscription and payment of the Purchase Price is received by the Company (the “Exercise Date”), irrespective of the date of delivery of the certificate evidencing such shares, except that, if the date of such receipt is a date on which the stock transfer books of the Company are closed, such person will be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.  Fractional shares of Common Stock will not be issued upon the exercise of this Warrant.  In lieu of any fractional shares that would have been issued but for the immediately preceding sentence, the Holder will be entitled to receive cash equal to the current market price of such fraction of a share of Common Stock on the trading day immediately preceding the Exercise Date.  In the event this Warrant is exercised in part, the Company shall issue a New Warrant (defined below) to the Holder covering the aggregate number of shares of Common Stock as to which this Warrant remains exercisable for.  The Company acknowledges and agrees that this Warrant was issued on the Issuance Date.
 
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3.            Transferability and Exchange .

(a)   This Warrant, and the Common Stock issuable upon the exercise hereof, may not be sold, transferred, pledged or hypothecated unless the Company shall have been provided with an opinion of counsel reasonably satisfactory to the Company that such transfer is not in violation of the Securities Act of 1933 (the “Securities Act”), and any applicable state securities laws.  Subject to the satisfaction of this condition, this Warrant and the underlying shares of Common Stock if not eligible to be sold under Rule 144 of the Securities Act shall be transferable from time to time by the Holders upon written notice to the Company.  If this Warrant is transferred, in whole or in part, the Company may request the transferee to sign an investment letter and shall, upon surrender of this Warrant to the Company, deliver to each transferee a Warrant evidencing the rights of such transferee to purchase the number of shares of Common Stock that such transferee is entitled to purchase pursuant to such transfer.  The Company may place a legend similar to the legend at the top of this Warrant on any replacement Warrant and on each certificate representing shares issuable upon exercise of this Warrant or any replacement Warrants. Only registered Holder may enforce the provisions of this Warrant against the Company.  A transferee of the original registered Holder becomes a registered Holder only upon delivery to the Company of the original Warrant and an original Assignment, substantially in the form set forth in Exhibit B attached hereto.

(b)   This Warrant is exchangeable upon its surrender by the Holder to the Company for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of shares as may be designated by the Holder at the time of such surrender (not to exceed the aggregate number of shares underlying this Warrant).

4.            Adjustments to Exercise Price and Number of Shares Subject to Warrant .  The Exercise Price and the number of shares of Common Stock purchasable upon the exercise of this Warrant are subject to adjustment from time to time upon the occurrence of any of the events specified in this Section 4.  For the purpose of this Section 4, “Common Stock” means shares now or hereafter authorized of any class of common stock of the Company, however designated, that has the right to participate in any distribution of the assets or earnings of the Company without limit as to per share amount (excluding, and subject to any prior rights of, any class or series of preferred stock).

(a)   In case the Company shall (i) pay a dividend or make a distribution in shares of Common Stock to holders of shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of its shares of Common Stock other securities of the Company, then the Exercise Price in effect at the time of the record date for such dividend or on the effective date of such subdivision, combination or reclassification, and/or the number and kind of securities issuable on such date, shall be proportionately adjusted so that the Holder of the Warrant thereafter exercised shall be entitled to receive the aggregate number and kind of shares of Common Stock (or such other securities other than Common Stock) of the Company, at the same aggregate Exercise Price, that, if such Warrant had been exercised immediately prior to such date, the Holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification.  Such adjustment shall be made successively whenever any event listed above shall occur.
 
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(b)   In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of cash, evidences of indebtedness or assets, or subscription rights or warrants, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Fair Market Value per share of Common Stock on such record date, less the amount of cash so to be distributed or the Fair Market Value (as determined in good faith by, and reflected in a formal resolution of, the board of directors of the Company) of the portion of the assets or evidences of indebtedness so to be distributed, or of such subscription rights or warrants, applicable to one share of Common Stock, and the denominator of which shall be the Fair Market Value per share of Common Stock.  Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed.  When determining Fair Market Value of the Company’s Common Stock, Fair Market Value shall mean: (i) if the principal trading market for such securities is a national securities exchange including The Nasdaq Stock Market, or the OTCQB (or a similar system then in use), the last reported sales price on the principal market the trading day immediately prior to such record date; or (ii) if subsection (i) is not applicable, and if bid and ask prices for shares of Common Stock are reported by the principal trading market or the OTC Markets, the average of the high bid and low ask prices so reported for the trading day immediately prior to such record date.  Notwithstanding the foregoing, if there is no last reported sales price or bid and ask prices, as the case may be, for the day in question, then Fair Market Value shall be determined as of the latest day prior to such day for which such last reported sales price or bid and ask prices, as the case may be, are available, unless such securities have not been traded on an exchange or in the over-the-counter market for 30 or more days immediately prior to the day in question, in which case the Fair Market Price shall be determined in good faith by, and reflected in a formal resolution of, the board of directors of the Company.
    
(c)   Notwithstanding any provision herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price; provided , however , that any adjustments which by reason of this Section 4(c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  All calculations under this Section 4 shall be made to the nearest cent or the nearest one-hundredth of a share, as the case may be.

(d)   In the event that at any time, as a result of an adjustment made pursuant to Section 4(a) above, the Holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 4, and the other provisions of this Warrant shall apply on like terms to any such other shares.
 
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(e)   If the Company merges or consolidates into or with another corporation or entity, or if another corporation or entity merges into or with the Company (excluding such a merger in which the Company is the surviving or continuing corporation and which does not result in any reclassification, conversion, exchange, or cancellation of the outstanding shares of Common Stock), or if all or substantially all of the assets or business of the Company are sold or transferred to another corporation, entity, or person, then, as a condition to such consolidation, merger, or sale (any a “Transaction”), lawful and adequate provision shall be made whereby the Holder shall have the right from and after the Transaction to receive, upon exercise of this Warrant and upon the terms and conditions specified herein and in lieu of the shares of the Common Stock that would have been issuable if this Warrant had been exercised immediately before the Transaction, such shares of stock, securities, or assets as the Holder would have owned immediately after the Transaction if the Holder had exercised this Warrant immediately before the effective date of the Transaction.

(f)   In case any event shall occur as to which the other provisions of this Section 4 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, the Company shall effect such adjustment, on a basis consistent with the essential intent and principles established in this Section 4, as may be necessary to preserve, without dilution, the purchase rights represented by this Warrant.  No adjustment shall be required if the Company issues any Common Stock or Common Stock equivalents where the Common Stock is sold at, or the Common Stock equivalent is convertible into, exercisable for or exchangeable for,  a price, less than the Exercise Price.

5.            Registration Rights .

(a)   No Registration Under the Securities Act . Issuance of this Warrant has not been registered under the Securities Act.  When exercised, the stock certificates shall bear the following legend unless one year has elapsed since the date of issuance of this Warrant.

“The securities represented by this certificate have not been registered under the Securities Act of 1933 (the “Securities Act”), and may not be offered for sale or sold except pursuant to (i) an effective registration statement under the Securities Act, or (ii) an opinion of counsel to the issuer of these securities that an exemption from registration under the Securities Act is available.”
 
6.            Reservation of Shares .  The Company agrees at all times to reserve and hold available out of its authorized but unissued shares of Common Stock the number of shares of Common Stock issuable upon the full exercise of this Warrant.  The Company further covenants and agrees that all shares of Common Stock that may be delivered upon the exercise of this Warrant will, upon delivery, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the purchase thereof hereunder.
 
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7.            Notices to Holder .  Upon any adjustment of the Exercise Price (or number of shares of Common Stock issuable upon the exercise of this Warrant) pursuant to Section 4, the Company shall promptly thereafter cause to be given to the Holder written notice of such adjustment.  Such notice shall include the Exercise Price (and/or the number of shares of Common Stock issuable upon the exercise of this Warrant) after such adjustment, and shall set forth in reasonable detail the Company’s method of calculation and the facts upon which such calculations were based.  Where appropriate, such notice shall be given in advance and included as a part of any notice required to be given under the other provisions of this Section 7.

In the event of (a) any fixing by the Company of a record date with respect to the holders of any class of securities of the Company for the purpose of determining which of such holders are entitled to dividends or other distributions, or any rights to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities or property, or to receive any other right, (b) any capital reorganization of the Company, or reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets or business of the Company to, or consolidation or merger of the Company with or into, any other entity or person, or (c) any voluntary or involuntary dissolution or winding up of the Company, then and in each such event the Company will give the Holder a written notice specifying, as the case may be (i) the record date for the purpose of such dividend, distribution, or right, and stating the amount and character of such dividend, distribution, or right; or (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, conveyance, dissolution, liquidation, or winding up is to take place and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such capital stock or securities receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for securities or other property deliverable upon such event.  Any such notice shall be given at least 10 days prior to the earliest date therein specified.
 
8.            No Rights as a Shareholder .  This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company, nor to any other rights whatsoever except the rights herein set forth. Provided , however , the Company shall not enter into any merger agreement in which it is not the surviving entity, or sell all or substantially all of its assets unless the Company shall have first provided the Holder with 20 days’ prior written notice.

9.            Additional Covenants of the Company .  For so long as the Common Stock is listed for trading or trades on any national securities exchange or is quoted on any over the counter market, the Company shall, upon issuance of any shares of Common Stock for which this Warrant is exercisable, at its expense, promptly obtain and maintain the listing or qualifications for trading or quotation of such shares to the extent required.

The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934 for so long as and to the extent that such requirements apply to the Company.
 
The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant.  Without limiting the generality of the foregoing, the Company (a) shall comply with Section 6 of this Agreement and have available sufficient shares of Common Stock to be issued from time to time upon exercise of this Warrant except as provided in Section 6, (b) will not increase the par value of any shares of Common Stock issuable upon exercise of this Warrant above the amount payable therefor upon such exercise, and (c) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable stock.
 
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10.            Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the Company, the Holder and their respective successors and permitted assigns.

11.            Notices .  The Company agrees to maintain a ledger of the ownership of this Warrant (the “Ledger”).  Any notice hereunder shall be given by Federal Express or other overnight delivery service for delivery on the next business day if to the Company, at its principal executive office and, if to the Holder, to his address shown in the Ledger of the Company; provided , however , that either the Company or the Holder may at any time on three days’ written notice to the other designate or substitute another address where notice is to be given.  Notice shall be deemed given and received after a Federal Express or other overnight delivery service is delivered to the carrier.

12.            Severability .  Every provision of this Warrant is intended to be severable.  If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the remainder of this Warrant.

13.            Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of Nevada  without giving effect to the principles of choice of laws thereof.

14.            Attorneys’ Fees.  In any action or proceeding brought to enforce any provision of this Warrant, the prevailing party shall be entitled to recover reasonable attorneys’ fees in addition to its costs and expenses and any other available remedies.

15.            Entire Agreement.  This Warrant (including the Exhibits attached hereto) constitutes the entire understanding between the Company and the Holder with respect to the subject matter hereof, and supersedes all prior negotiations, discussions, agreements and understandings relating to such subject matter.

 

(Signature Page Follows)
 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above.
  
 
VerifyMe, Inc.
     
     
     
 
By:
 
 
Norman Gardner, Chairman
 
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Exhibit A
SUBSCRIPTION FORM

(To be Executed by the Holder to Exercise the Rights To Purchase Common Stock Evidenced by the Within Warrant)
   
The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby notifies the Company that it is exercising this warrant pursuant to:  [ please check one]
 
________ Section 1 - Cash Exercise
________ Section 2 - Cashless Exercise
   
       
Section 1 - Cash Exercise . If Section 1 is selected above, please complete the following:

I am exercising my right to purchase all of the shares of Common Stock which I am entitled to purchase under this warrant. The number of shares of Common Stock is __________.

I am exercising my right to purchase ________ shares of Common Stock, and request that the Company deliver to me or as I shall designate below a new Warrant representing the right to purchase _______ shares of Common Stock.
    
    
I am making payment of the full exercise price for such shares at an Exercise Price per share of $_______ as provided for in such Warrant. The total exercise price payable is $___________. Such payment takes the form of (check applicable box or boxes):

___ $__________ in certified or official bank check payable to the order of the Company; or
___ $__________ by wire transfer of immediately available funds  
         
Section 2 - Cashless Exercise . If Section 2 is selected above, please complete the following:
  
The current Fair Market Value of the shares of Common Stock, as defined in this Warrant, is $___________.

I am exercising my right to purchase ___________ shares of Common Stock, being the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

I am exercising my right to purchase _________ shares of Common Stock, and requesting that the Company deliver to me or as I shall request a new Warrant representing the right to purchase _______ shares of Common Stock.
     
  
Note - if a Holder choosing to use the Cashless Exercise option provided for in Section 2 of this Warrant is using a combination of cash and cashless means to make payment of the Warrant Exercise Price payable by such Holder, such Holder shall attach a separate schedule which provides such Holder’s calculation of the amount of cash being paid, and the number of shares of Common Stock being delivered as payment.  Any such cash component takes form of (check applicable box or boxes):    
   
___ $__________ in certified or official bank check payable to the order of the Company; or
___ $__________ by wire transfer of immediately available funds
  
Exhibit. A
 
I request that a certificate for the Common Stock be issued in the name of the undersigned and be delivered to the undersigned at the address stated below.  If the Common Stock is not all of the shares purchasable pursuant to the Warrant, I request that a new Warrant of like tenor for the balance of the remaining shares purchasable thereunder be delivered to me at the address stated below.

In connection with the issuance of the Common Stock, if the Common Stock may not be immediately publicly sold, I hereby represent to the Company that I am acquiring the Common Stock for my own account for investment and not with a view to, or for resale in connection with, a distribution of the shares within the meaning of the Securities Act of 1933 (the “Securities Act”).

I am______ am not ______ [ please initial one ] an accredited investor for at least one of the reasons on Exhibit A-1 to the Warrant.  If the SEC has amended the rule defining the definition of accredited investor, I acknowledge that as a condition to exercise the Warrant, the Company may request updated information regarding the Holder’s status as an accredited investor.  My exercise of the Warrant shall be in compliance with the applicable exemptions under the Securities Act and applicable state law

I understand that if at this time the Common Stock has not been registered under the Securities Act, I must hold such Common Stock indefinitely unless the Common Stock is subsequently registered and qualified under the Securities Act or is exempt from such registration and qualification.  I shall make no transfer or disposition of the Common Stock unless (a) such transfer or disposition can be made without registration under the Securities Act by reason of a specific exemption from such registration and such qualification, or (b) a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition.  I agree that each certificate representing the Common Stock delivered to me shall bear substantially the same as set forth on the front page of the Warrant.

I further agree that the Company may place stop transfer orders with its transfer agent same effect as the above legend.  The legend and stop transfer notice referred to above shall be removed only upon my furnishing to the Company of an opinion of counsel to the Company to the effect that such legend may be removed.

Date:
 
 
Signed:
 
 
 
 
Print Name: 
 
     
Address:
 
         
Date:
 
 
Signed:
 
   
 
Print Name: 
 
     
Address:
 
 
Exhibit. A
 
Exhibit A-1
  
For Individual Investors Only :
 
1.            A person who has an individual net worth, or combined net worth (with his or her spouse) who has, in excess of $1,000,000.  For purposes of this question, “net worth” means the excess of total assets at fair market value, including all real property except the investor’s primary residence, home furnishings and automobiles, over total liabilities. For purposes of calculating “net worth”, (i) the primary residence shall not be included as an asset, (ii) to the extent that the indebtedness that is secured by the primary residence is in excess of the fair market value of the primary residence, the excess amount shall be included as a liability, and (iii) if the amount of outstanding indebtedness that is secured by the primary residence exceeds the amount outstanding 60 days prior to the execution of this investment letter, other than as a result of the acquisition of the primary residence, the amount of that increase in indebtedness shall be included as a liability.

2a. A person who had individual income (exclusive of any income attributable to the person’s spouse) of more than who has $200,000 in each of the two most recently completed years and who reasonably expects to have an individual income in excess of $200,000 this year.

2b. Alternatively, a person, who with his or her spouse, has joint income in excess of $300,000 in each applicable year.

3. A director or executive officer of the Company.

Other Investors :
 
4. Any bank as defined in Section 3(a)(2) of the Securities Act of 1933 (“Securities Act”) whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; insurance company as defined in Section 2(13) of the Securities Act; investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000, or if a self-directed plan, with investment decisions made solely by persons that are accredited investors.

5. A private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940.
 
Exhibit. A-1
 
6. An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.  
    
7. A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Securities Act.
 
8. An entity in which all of the equity owners are accredited investors.
  
Exhibit. A-1
   
Exhibit B
ASSIGNMENT

(To be Executed by the Holder to Effect Transfer of the Attached Warrant)

For Value Received __________________________ hereby sells, assigns and transfers to _________________________ the Warrant attached hereto and the rights represented thereby to purchase _________ shares of Common Stock in accordance with the terms and conditions hereof, and does hereby irrevocably constitute and appoint ___________________________ as attorney to transfer such Warrant on the books of the Company with full power of substitution.

Dated:
   
Signed:
   
Please print or typewrite
name and address of
assignee:
Please insert Social Security
or other Tax Identification
Number of Assignee:
  
  
Dated:
   
Signed:
   
Please print or typewrite
name and address of
assignee:
Please insert Social Security
or other Tax Identification
Number of Assignee:
 

Exhibit. B
Exhibit 10.30
 
CONFIDENTIAL SETTLEMENT AGREEMENT

This Confidential Settlement Agreement (the “ Settlement Agreement ”) is entered into as of March 31, 2018 by and among VerifyMe, Inc., a Nevada corporation (the “ Company ”),  Laurence J. Blickman (“ Blickman ”) Paul F. Klapper (“ Klapper ”), Stephen H. Silver, individually and as Trustee of the Stephen H. Silver Revocable Trust (“ Silve r”), PFK Development Group, Ltd. (“ PFKD ”), PFK Acquisition Group II, LLC (“ PFKA ”), Clydesdale Partners, LLC (“ Clydesdale ”), and Clydesdale Partners II, LLC (“ Clydesdale II ” and, together with PFKA and Clydesdale, the “ Funds ”) (the “ Parties ” and each individually a “ Party ”).
 
WHEREAS, the Company and PFKD have entered into that certain Revenue Sharing Agreement, dated September 1, 2014 and attached hereto as Schedule 1 (the “ Klapper Revenue Sharing Agreement ”);
 
WHEREAS, the Company and Stephen H. Silver have entered into that certain Revenue Sharing Agreement, dated September 1, 2014 and attached hereto as Schedule 2 (the “ Silver Revenue Sharing Agreement ” and, together with the Klapper Revenue Sharing Agreement, the “ Revenue Sharing Agreements ”);
 
WHEREAS, pursuant to the Revenue Sharing Agreements, the Company agreed to pay to each of PFKD and Silver a 5% commission arising from certain revenue the Company may generate in the future;
 
WHEREAS, pursuant to loans made by certain parties, the Company agreed to issue Klapper and/or the Funds warrants to purchase up to Three Million Seven Hundred Thousand (3,700,000) shares of the Company’s common stock, par value $0.001 (“ Common Stock ”) at an exercise price of $0.40 per share (the “ Warrants ”);
 
WHEREAS, the Warrants have not been issued;
 
WHEREAS, Blickman is a director of the Company and an investor in the Funds; and
 
WHERAS, disputes have arisen as to whether Klapper agreed to cancel the Warrants in exchange for valid consideration and whether the Revenue Sharing Agreements were issued in accordance with applicable laws.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual promises set forth below, the sufficiency of which is hereby acknowledged, the Parties agree as follows:
 
1.            Effective Date .  The Effective Date of this Settlement Agreement will be the date this Settlement Agreement is executed by all the Parties.
 
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2.            Termination of Revenue Sharing Agreements; Cancellation of Warrants .   The Revenue Sharing Agreements shall be terminated, and the Warrants shall be cancelled, in full as of the Effective Date without any liability to the Company.
 
3.            Settlement Terms .   On the Effective Date, the Company shall pay Five Hundred Thousand Dollars ($500,000) (the “ Settlement Amount ”) to PFKD and Silver and issue them One Million (1,000,000) shares of Common Stock (the “ Settlement Shares ”).  The Settlement Amount shall be paid in accordance with the instructions set forth on Schedule 3 attached hereto and the Settlement Shares shall be issued on the Effective Date by delivery in accordance with Schedule 3 .  In connection with the issuance of the Settlement Shares, on the Effective Date, the Company, Clydesdale and Silver shall execute a Stock Purchase Agreement and the Company, the Funds and Silver shall execute a Registration Rights Agreement in the forms attached hereto as Exhibits A and B with respect to the Settlement Shares.
 
4.            Registration of Shares . Pursuant to the Registration Rights Agreement, the Company will file a registration statement on Form S-1 (the “ Registration Statement ”) with the Securities and Exchange Commission on or before the earlier of (i) fifteen (15) days following the filing of the Company’s Annual Report on Form 10-K (which includes Part III) for the fiscal year ended December 31, 2017, or (ii) April 30, 2018, and use commercially reasonable efforts to register the Settlement Shares, the shares of Common Stock listed on Schedule 4 attached hereto as having been purchased less than twelve (12) months ago, and the other shares of Common Stock listed on Schedule 4 that will be distributed by the Funds to their investors pursuant to Section 6 below.
 
5.            Confirmation of Currently Owned Stock and Warrants .   The Parties hereby agree that, immediately prior to the Effective Date, the shares of Common Stock and the warrants and options to purchase shares of the Common Stock (excluding the Warrants, as defined above) owned by Klapper, PFKD, the Funds, Silver and members of Silver’s family are as set forth on Schedule 4 attached hereto. Within ten (10) days after the Effective Date, the Company will: (a) issue any previously unissued or incorrectly issued shares, warrants or options as set forth on Schedule 4 , including, without limitation, all shares issuable upon the exercise of such warrants and options that are exercised prior to the Effective Date, with all such shares that are no longer subject to the Rule 144 holding period being issued as unlegended shares, and (b) subject to delivery of the share certificates to the Company’s stock transfer agent, cause the stock transfer agent to replace the certificates for all outstanding shares listed on Schedule 4 that are no longer subject to the Rule 144 holding period with unlegended certificates for such shares (or otherwise remove the legend from such certificates).  For the purposes of this Section 5, shares are not subject to the Rule 144 holding period (i) twelve (12) months after payment in the case of a person who is not (and has not for the past three months been) an affiliate of the Company, or (ii) three (3) months after a person ceases to be a director of the Company.
 
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6.              Distribution of Common Stock and Warrants .   Within ten (10) days after the Effective Date, each of the Funds shall take the necessary steps to distribute all of the shares of the Common Stock (including any Settlement Shares held by such Fund, other than 166,667 Settlement Shares that will first be transferred to an unrelated third party), and all of the warrants to purchase shares of the Common Stock, held by such Fund to such Fund’s investors, pro rata in accordance with the amounts of such investors’ respective investments in such Fund, and direct the Company to reissue such shares and warrants in the names of such investors.  Such distribution and direction shall be effected by means of the letters attached hereto as Exhibit C .  The Company shall promptly transfer such shares and warrants to such investors at the Company’s sole expense, subject for each Fund investor to providing a taxpayer identification number and other reasonable information requested by the transfer agent of the Company.
 
7.             Board of Directors .  As of the Effective Date,   Klapper will resign from the Company’s Board of Directors.  In conjunction with Klapper’s resignation, the Company will issue a press release thanking him for his service on the Company’s Board of Directors and announcing the amicable settlement of all prior disputes between Klapper and the Company.
 
8.              Mutual Releases . As of the Effective Date, each of the Parties and the other signatories thereto shall sign the General Release in the form attached to this Settlement Agreement as Exhibit D .
 
9.              Blickman Investments . By signing this Settlement Agreement, Klapper and each of the respective Funds acknowledges that Blickman, directly or indirectly, owns the membership interests in the Funds set forth on Schedule 5 attached hereto.
 
10.            No Admission of Wrongdoing .  The Parties deny that they engaged in any wrongdoing, breached any contract, or violated any applicable duty or rule (statutorily, common law, or otherwise) in connection with the matters contemplated in this Settlement Agreement.  Nothing in this Settlement Agreement shall be construed as an admission by any of the Parties of any fault, wrongdoing or liability whatsoever.  Neither this Settlement Agreement, nor any of its terms, shall be offered by any of the Parties in evidence in any arbitral, civil, criminal, administrative, or other proceeding as a concession or admission of fault, wrongdoing or liability.  Nothing in this Section 10, however, shall prevent any Party from using or offering this Settlement Agreement in evidence in any proceeding to enforce and/or effectuate the terms of this Settlement Agreement.
 
11.            Governing Law/Jurisdiction .   This Settlement Agreement and any dispute arising out of or relating to this Settlement Agreement shall in all respects be governed by and construed in accordance with the laws of the State of Nevada, without regard to any rules or principles governing conflicts of laws.  The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of Nevada for any dispute arising out of or relating to this Settlement Agreement, and agree that any action to enforce the terms of this Settlement Agreement shall be brought in the courts of the State of Nevada, Clark County, or in the United States District Court for the District of Nevada.
 
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12.            Representation by Counsel/Independent Review : The Parties warrant that they have the requisite experience and sophistication to understand, interpret, and agree to the particular language of the provisions hereof.  In addition, the Parties warrant that they were each fully advised by counsel with respect to its rights and obligations and with respect to the execution of this Settlement Agreement.
 
13.            Interpretation . In the event of an ambiguity in or dispute regarding the interpretation of this Settlement Agreement, the interpretation of this Settlement Agreement shall not be resolved by any rule of interpretation providing for interpretation against the party who causes the uncertainty or against the draftsman, and all Parties expressly agree that in the event of an ambiguity in or dispute regarding the interpretation of this Settlement Agreement, this Settlement Agreement will be interpreted as if each Party participated equally in the drafting.  No Party may offer in evidence or otherwise use, for purposes of suggesting any interpretation of this Settlement Agreement, any prior drafts of this Settlement Agreement.
 
14.            Entire Agreement .   This Settlement Agreement, together with the Schedules and Exhibits hereto, constitutes the entire understanding and agreement among the Parties with respect to the matters addressed herein, and supersedes any prior written or oral agreements, representations, warranties or statements.  No other representations, covenants, undertakings, or prior or contemporaneous agreements or understandings, oral or written, regarding such matters which are not specifically contained or incorporated herein by reference shall be deemed in any way to bind the Parties except as set forth in this Settlement Agreement and the Schedules and Exhibits hereto. To the extent that there is any inconsistence or ambiguity between the terms of any of the Exhibits and this Settlement Agreement, the terms of this Settlement Agreement shall prevail.
 
15.            Attorneys’ Fees. Except as otherwise expressly provided herein, the Parties shall bear their own attorneys’ fees and costs. In the event any action is instituted with respect to or arising out of this Settlement Agreement, the prevailing Party shall be entitled to an award of reasonable attorneys’ fees and costs, including expert fees and costs.
 
16.            Binding Effect .   This Settlement Agreement shall be binding upon, and inure to the benefit of, all Parties, their successors and assigns.  Except as set forth in any of the Exhibits hereto, this Settlement Agreement is not intended, and shall not be construed, to create rights in or confer benefits to any other persons, and there shall not be any third-party beneficiaries thereto.
 
17.            Severability . The provisions of this Settlement Agreement are severable.  Should any provision be found to be invalid, unlawful or unenforceable by a court of competent jurisdiction, the remaining terms and provisions of this Settlement Agreement shall remain in full force and effect.  If any provision of this Settlement Agreement is held to be invalid, unlawful or unenforceable by a court of competent jurisdiction, that provision shall be replaced by a valid and enforceable substitute provision that carries out, as closely as possible, the intentions of the Parties under this Settlement Agreement.
 
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18.            Amendment/Modification .   This Settlement Agreement may be modified only by a writing which expressly refers to this Settlement Agreement and is signed by or on behalf of all Parties.
 
19.            Counterparts; Facsimile .   This Settlement Agreement may be executed in any number of counterparts and such counterparts may be delivered by facsimile, email or other electronic means.  Each such counterpart shall be deemed an original, and all of the counterparts together shall constitute one and the same instrument.
 
20.            Headings .   The headings used herein are included for convenience of reference only and shall be ignored in the construction or interpretation of this Settlement Agreement.
 
21.            Warranty of Authority .   Each person executing this Settlement Agreement represents and warrants that he or she has full authority to sign this Settlement Agreement on behalf of the Party for which he or she is acting and that the Parties will thereby be fully bound by the terms of this Settlement Agreement.  The Parties specifically represent and warrant that they have not sold, assigned, transferred, conveyed or otherwise disposed of any claim, demand or action which is the subject of this Settlement Agreement.
 
22.            Waiver of Breach .   The Parties may not waive or vary any right hereunder except by an express written waiver or variation.   Any failure to exercise or any delay in exercising any such rights, or any partial or defective exercise of any such rights, shall not operate as a waiver or variation of that or any other such right.  The waiver by one Party of any breach of this Settlement Agreement by another Party shall not be deemed a waiver of any other prior or subsequent breach of this Settlement Agreement.
 
23.            Restricted Stock .  The Company acknowledges that, as of the date of this Settlement Agreement, three hundred thousand (300,000) shares of the Common Stock of the Company issued to Klapper as restricted shares for his services as a director of the Company are fully vested.

24.            Covenant to Remove Restrictive Legends .  In connection with requests by Klapper, Silver, the Funds or investors in the Funds to remove restrictive legends from restricted stock certificates held by any of these persons, the Company shall cause its counsel to promptly issue legal opinions necessary for the removal of such legends, subject to (i) the requirement that an exemption from registration exists under Rule 144 under the Securities Act of 1933 or another applicable provision of, or rule under, that Act, and  (ii) the requesting persons’ compliance with customary practices, including execution of a seller’s representation letter.
 

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IN WITNESS THEREOF, the Parties hereto knowingly and voluntarily executed this Settlement Agreement as of the date set forth above:

VERIFYME, INC.

By: ________________________
Its: ________________________

PAUL F. KLAPPER

___________________________

STEPHEN H. SILVER

___________________________

PFK DEVELOPMENT GROUP, LTD.

By: ________________________
Its: ________________________


PFK ACQUISITION GROUP II, LLC

By: _________________________
Its: _________________________

CLYDESDALE PARTNERS, LLC

By: _________________________
Its: _________________________

CLYDESDALE PARTNERS II, LLC

By: _________________________
Its: _________________________
 
 
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Exhibit 10.31

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (the “Purchase Agreement”) is entered into as of this ____ day of _________, 2018 (the “Effective Date”) by and between the parties on the signature page to this Agreement (each, a “Purchaser”), and VerifyMe, Inc., a Nevada corporation (the “Company”) (collectively, the Purchasers and the Company are the “Parties”).

WHEREAS, the Company and the Purchaser are parties to that certain Confidential Settlement Agreement, dated the date of this Purchase Agreement (the “Settlement Agreement”);

WHEREAS, the Settlement Agreement provides among other things that the Company will issue to the Purchasers a total of 1,000,000 shares of common stock, $0.001 par value per share, of the Company (the “Settlement Shares”);

WHEREAS, the Settlement Agreement also provides that the Company and the Purchasers execute a Stock Purchase Agreement with respect to the issuance of the Settlement Shares;

NOW, THEREFORE, in consideration of the mutual promises contained herein, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

1.           Terms of Issuance .

1.1            The Company agrees to issue and offer to the Purchasers, and the Purchasers agree to accept, the number of Settlement Shares set forth on each Purchaser’s signature page.

1.2            The closing of the transactions contemplated by this Purchase Agreement (the “Closing”) shall take place by email simultaneously.  Prior to the Closing, the Company shall deliver to each Purchaser a copy of the issuance instructions to the Company’s transfer agent instructing the transfer agent to issue the Settlement Shares.

2.           Representations and Warranties of the Company .  As an inducement to the Purchasers to enter into this Purchase Agreement and consummate the transaction contemplated hereby, the Company hereby makes the following representations and warranties, each of which is true and correct in all material respects on the date hereof and will be true and correct in all material respects on the Closing date:

2.1            Organization .  The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada and is duly authorized to conduct business as currently conducted.

2.2            Authority .  The Company has full power and authority to execute and deliver this Purchase Agreement and to perform its obligations hereunder.  This Purchase Agreement constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms. The execution, delivery, and performance of this Purchase Agreement and all other agreements contemplated hereby have been duly authorized by the Company.
 
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2.3            Non-Contravention .  The execution and delivery of this Purchase Agreement by the Company and the observance and performance of the terms and provisions contained herein do not constitute a violation or breach of any applicable law, or any provision of any other contract or instrument to which the Company is a party or by which it is bound, or any order, writ, injunction, decree, statute, rule, by-law or regulation applicable to the Company.

2.4            Litigation .  There are no actions, suits, or proceedings pending or, to the best of the Company’s knowledge, threatened, which could in any manner restrain or prevent the Company from effectually and legally selling the Settlement Shares pursuant to the terms and provisions of this Purchase Agreement.

2.5            Brokers’ Fees .  The Company has no liability or obligation to pay fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Purchase Agreement.

2.6            Reporting Company .  The Company is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and has a class of common stock registered pursuant to Section 12(g) of the Exchange Act.

2.7            SEC Reports .  The Company has filed with the Securities and Exchange Commission (the “SEC”) all reports required to be filed since January 1, 2017.  None of the reports filed with the SEC contained any material statements which were not true and correct or omitted to state any statements of material fact necessary in order to make the statements made not misleading.

2.8            Outstanding Securities .  All issued and outstanding shares of capital stock and equity interests in the Company have been duly authorized and validly issued and are fully paid and non-assessable.

2.9            No Material Adverse Change .  Since April 12, 2017 (filing date of the last Form 10-K), there has not been individually or in the aggregate a Material Adverse Change with respect to the Company. For the purposes of this Purchase Agreement, “Material Adverse Change” means any event, change or occurrence which, individually or together with any other event, change, or occurrence, could result in a material adverse change on the Company or material adverse change on its business, assets, financial condition, or results of operations. Provided , however , a Material Adverse Change does not exist solely because (i) there are changes in the economy, credit markets or capital markets, or (ii) changes generally affecting the industry in which the Company operates.
 
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3.           Representations and Warranties of the Purchasers .  As an inducement to the Company to enter into this Purchase Agreement and to consummate the transactions contemplated hereby, each Purchaser, severally and not jointly, hereby makes the following representations and warranties, each of which is true and correct in all material respects on the date hereof and will be true and correct in all material respects on the Closing date:

3.1            Authority .  Such Purchaser has full power and authority to execute and deliver this Purchase Agreement and to perform its obligations hereunder.  This Purchase Agreement constitutes the valid and legally binding obligation of such Purchaser, enforceable in accordance with its terms. The execution, delivery, and performance of this Purchase Agreement and all other agreements contemplated hereby have been duly authorized by such Purchaser.

3.2            Non-Contravention . The execution and delivery of this Purchase Agreement by such Purchaser and the observance and performance of the terms and provisions of this Purchase Agreement on the part of such Purchaser to be observed and performed will not constitute a violation of applicable law or any provision of any contract or other instrument to which such Purchaser is a party or by which it is bound, or any order, writ, injunction, decree statute, rule or regulation applicable to it.

3.3            Litigation There are no actions, suits, or proceedings pending or, to the best of such Purchaser’s knowledge, threatened, which could in any manner restrain or prevent such Purchaser from effectually and legally accepting the Settlement Shares pursuant to the terms and provisions of this Purchase Agreement.

3.4            Brokers’ Fees .  Such Purchaser has no liability or obligation to pay fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Purchase Agreement.

3.5            Information .  Such Purchaser has relied solely on the reports of the Company filed with the SEC, other publicly available information and other written and electronic information prepared by the Company in making its decision to accept the Settlement Shares. The Purchasers acknowledge that the acquisition of the Settlement Shares entails a high degree of risk, including the risks highlighted in the risk factors contained in filings by the Company with the SEC including its annual report on Form 10-K for the year ended December 31, 2016, and the Risk Factors contained on Exhibit A .   Such Purchaser represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of this Purchase Agreement and the reasons for this offering, the business prospects of the Company, the risks attendant to the Company’s business, and the risks relating to an investment in the Company. Such Purchaser acknowledges the receipt (without exhibits) of or access to the reports filed with SEC at www.sec.gov which includes the Company’s reports referred to in this Section 3.5.

3.6            Investment .  Such Purchaser is acquiring the Settlement Shares for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distribution or selling the same, and, except as contemplated by this Purchase Agreement, and has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof.  Such Purchaser understands that the Settlement Shares may not be sold, transferred or otherwise disposed of without registration under the Securities Act of 1933, as amended (the “Securities Act”) or an exemption therefrom, and that in the absence of an effective registration statement covering the Settlement Shares or an available exemption from registration under the Act, the Securities must be held indefinitely.

3.7            Restricted Securities .  Such Purchaser understands that the Settlement Shares have not been registered under the Securities Act and are offered in reliance on an exemption from registration under the Securities Act pursuant to Section 4(a)(2) thereof and Rule 506 thereunder and the Settlement Shares will bear a restrictive legend.
 
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3.8            Investment Experience .  Such Purchaser represents that it is an “accredited investor” within the meaning of the applicable rules and regulations promulgated under the Securities Act, for one of the reasons set forth on Exhibit B . Such Purchaser represents and acknowledges that (i) it is experienced in evaluating and investing in private placement transactions in similar circumstances, (ii) it has such knowledge and experience in financial, tax and business matters so as to enable it to utilize the information made available to it in connection with the offering of the Settlement Shares to evaluate the merits and risks of the investment in the Settlement Shares and to make an informed investment decision with respect thereto, (iii) it is able to bear the substantial economic risks of an investment the Settlement Shares for an indefinite period of time, and (iv) it has no need for liquidity in such investment, (v) it can afford a complete loss of such investment.

3.9            No General Solicitation .  The offer to issue the Settlement Shares was directly communicated to such Purchaser by the Company.  At no time was such Purchaser presented with or solicited advertisement, articles, notice or other communication published in any newspaper, television or radio or presented at any seminar or meeting, or any solicitation by a person not previously known to the undersigned in connection with the communicated offer.

4.           Survival of Representations and Warranties and Agreements .  All representations and warranties of the Parties contained in this Purchase Agreement shall survive the Closing.

5.           Indemnification .

5.1            Indemnification Provisions for Benefit of the Purchasers .  In the event the Company breaches any of its representations, warranties, and/or covenants contained herein, and provided that the Purchasers make a written claim for indemnification against the Company, then the Company agrees to indemnify the Purchasers from and against the entirety of any losses, damages, amounts paid in settlement of any claim or action, expenses, or fees including court costs and reasonable attorneys’ fees and expenses, in connection with such breach.

5.2            Indemnification Provisions for Benefit of the Company .  In the event either Purchaser breaches any of its representations, warranties, and/or covenants contained herein, and provided that the Company makes a written claim for indemnification against such Purchaser, then such Purchaser agrees to indemnify the Company from and against the entirety of any losses, damages, amounts paid in settlement of any claim or action, expenses, or fees including court costs and reasonable attorney’s fees and expenses, in connection with such breach.
 
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6.           Post-Closing Covenants . The Parties agree as follows with respect to the period following the Closing:

6.1            General.   In case at any time after the Closing any further action is necessary to carry out the purposes of this Purchase Agreement, the Company will take such further action (including the execution and delivery of such further instruments and documents) as the Purchasers reasonably may request, all at the sole cost and expense of the Company.

6.2            Inspection .  At all times upon reasonable notice, the Purchasers or their authorized representatives shall have the power to inspect the books and records including the books and records of account of the Company for any proper purpose.  As part of such inspection, the Purchasers and their authorized representatives may make such copies and extra sets of the Company’s books and records as it or they may reasonably request.  All of the foregoing rights are subject to the inspecting persons executing a confidentiality agreement.

6.3            Registration Rights .  The Company shall file with the SEC a registration statement on Form S-1 registering the Settlement Shares for public sale as provided for in a Registration Rights Agreement, a copy of which is attached as Exhibit C hereto.

7.           Expenses .  Except as otherwise provided in this Purchase Agreement or the Settlement Agreement, all Parties hereto shall pay their own expenses, including legal and accounting fees, in connection with the transactions contemplated herein. In the event any action is instituted with respect to or arising out of this Purchase Agreement, the prevailing party shall be entitled to an award of reasonable attorney’s fees and costs including expert fees and costs.

8.           Severability .  In the event any part of this Purchase Agreement is found to be void, the remaining provisions of this Purchase Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

9.           Counterparts .  This Purchase Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Purchase Agreement may be by actual or facsimile signature.

10.         Benefit .  This Purchase Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.  Nothing in this Purchase Agreement, express or implied, is intended to confer on any person other than the Parties or their respective heirs, successors and assigns any rights, remedies, obligations, or other liabilities under or by reason of this Purchase Agreement.
 
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11.         Notices and Addresses . All notices, offers, acceptance and any other acts under this Purchase Agreement shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar overnight next business day delivery, or by email followed by overnight next business day delivery, as follows:

If to the Company :
VerifyMe, Inc.
837 Lindy Lane
Bala Cynwyd, PA 19004
Telephone: (610) 688-1952
Attention: Chief Executive Officer
Email: ngardner@verifyme.com

With a copy (for informational purposes only) to :
 
Nason Yeager Gerson White & Lioce, P.A.,
3001 PGA Boulevard, Suite 305
Palm Beach Gardens, FL 33410
Telephone:  (561) 471-3507
Attention: Michael D. Harris, Esq.
E-Mail: mharris@nasonyeager.com

If to the Purchaser :
The address set forth on the signature page attached hereto.

or to such other address as any of them, by notice to the other may designate from time to time.

12.         Governing Law / Jurisdiction .  This Purchase Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder, whether relating to its execution, its validity, the obligations provided therein or performance, shall be governed or interpreted according to the laws of the State of Nevada, without regard to any rules or principles governing conflicts of laws.  The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of Nevada for any dispute arising out of or relating to this Purchase Agreement, and agree that any action to enforce the terms of this Purchase Agreement shall be brought in the courts of the State of Nevada, Clark County, or in the United States District Court for the District of Nevada.

13.         Entire Agreement .  This Purchase Agreement constitutes the entire agreement between the Parties, and supersedes all prior oral and written agreements between the Parties, with respect to the subject matter hereof.

14.         Amendment . Neither this Purchase Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against whom enforcement of the change, waiver discharge or termination is sought.

15.         Assignment .   No Party hereto shall assign its rights or obligations under this Purchase Agreement without the prior written consent of the other Parties.

16.         Section Headings .  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Purchase Agreement.

[Signature Page Attached]
 
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IN WITNESS WHEREOF the parties hereto have set their hand and seals as of the above date.
 
 
VERIFYME, INC.:
     
     
     
 
By:  
 
 
Name: 
Patrick White
 
Title: 
Chief Executive Officer
 
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PURCHASER:
 
       
       
 
By: 
     
         
 
By:  
     
 
Name: [Print Name and Title]
 
     
     
     
 
Address:  
     
       
       
 
Email: 
     
       
 
Tax ID of Purchaser:   
   
 
 
 
Amount: five hundred thousand (500,000) shares.
 
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PURCHASER:
 
       
       
         
         
 
By:  
     
 
Name: [Print Name and Title]
 
     
     
     
 
Address:  
     
       
       
 
Email: 
     
       
 
Tax ID of Purchaser:   
   
 
 
 
Amount: five hundred thousand (500,000) shares.
 
 
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Exhibit 10.32

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is entered into as of the 31 st day of March, 2018 by and among VerifyMe, Inc., a Nevada corporation (the “Company”), and the persons listed as Investors on the signature pages hereto (each an “Investor,” and collectively the “Investors”).

WHEREAS, the Company issued 1,000,000 shares of its common stock, par value $0.001 per share (the “Common Stock”) to certain of the Investors pursuant to the Confidential Settlement Agreement (the “Settlement Agreement”) and the Stock Purchase Agreement (the “Purchase Agreement”),  each dated  the date of this Agreement; and

WHEREAS, the Company has agreed in the Settlement Agreement to provide certain registration rights to the Investors.

Now, therefore, in consideration of the mutual promises and the covenants as set forth herein, the parties hereto hereby agree as follows:

1.               Definitions .  Unless the context otherwise requires, the terms defined in this Section 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined.

“ Agreement ” means this Registration Rights Agreement, as the same may be amended, modified or supplemented in accordance with the terms hereof.

“ Common Stock ” has the meaning assigned to it in the first WHEREAS clause.

“ SEC ” means the Securities and Exchange Commission or any other governmental body at the time administering the Securities Act.

“ Company ” has the meaning assigned to it in the introductory paragraph of this Agreement.

“ Company Securities ” has the meaning any securities proposed to be sold by the Company for its own account in a registered public offering.

“ Exchange Act ” means the Securities Exchange Act of 1934 (or successor statute).

“ Excluded Forms ” means registration statements under the Securities Act, on Forms S-4 and S-8, or any successors thereto and any form used in connection with an initial public offering of securities.

“ Investor ” has the meaning assigned to it in the introductory paragraph of this Agreement.

“ Purchase Agreement ” has the meaning assigned to it in the first WHEREAS clause.
 

“ Person ” includes any natural person, corporation, trust, association, company, partnership, joint venture, limited liability company and other entity and any government, governmental agency, instrumentality or political subdivision.

The terms “ register ” “ registered ” and “ registration ” refer to a registration effected by preparing and filing a registration statement on other than any of the Excluded Forms in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

“ Registrable Securities ” means the Common Stock received by the Investors under the Settlement Agreement and the Purchase Agreement (and the shares otherwise described in the Settlement Agreement as being subject to registration under this Agreement), and any securities of the Company issued with respect to such Common Stock by way of a stock dividend or stock split or in connection with a combination, recapitalization, share exchange, consolidation or other reorganization of the Company.

“ Selling Expenses ” means all selling commissions, finder’s fees and stock transfer taxes applicable to the Registrable Securities registered by the Investors and all fees and disbursements of counsel for the Investors.

“ Securities Act ” means the Securities Act of 1933 (or successor statute).

“ Settlement Agreement ” has the meaning assigned to it in the first WHEREAS clause.

2.             Required Registration .

(a)            The Company shall file a registration statement on Form S-1 with the SEC on or before the earlier of (i) 15 days following the filing of the Company’s Annual Report on Form 10-K (which includes Part III) for the fiscal year ended December 31, 2017, or (ii) April 30, 2018.

(b)            Notwithstanding anything herein to the contrary, to the extent that the registration of any or all of the Registrable Securities by the Company on a registration statement is prohibited (the “Non-Registered Shares”) as a result of rules, regulations, positions or releases issued or actions taken by the SEC (including its Division of Corporation Finance or any other part of its staff) pursuant to its authority with respect to Rule 415 (or successor rule) and the Company has registered at such time the maximum number of Registrable Securities permissible upon consultation with the SEC (including its Division of Corporation Finance or any other part of its staff), then the Company shall have no liability to the Investors for failure to register such Non-Registered Shares.
 
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3.             Obligations of the Company .  If and whenever the Company is required by the provisions hereof to effect or cause the registration of any Registrable Securities under the Securities Act as provided herein, the Company shall:

(a)            use commercially reasonable efforts to prepare and file with the SEC a registration statement with respect to such Registrable Securities and use commercially reasonable efforts to cause such registration statement to become effective within sixty (60) days of filing the registration statement and remain effective;

(b)            use commercially reasonable efforts to prepare and file with the SEC such amendments to such registration statement (including post-effective amendments) and supplements to the prospectus included therein as may be necessary to keep such registration statement effective, subject to the qualifications in Section 4(a), and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Investor  set forth in such registration statement;

(c)            furnish to the Investors such number of copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as each Investor may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities owned by the Investors;

(d)            use all commercially reasonable efforts to make such filings under the securities laws of the State of Nevada or any other state to enable the Investors to consummate the sale in such jurisdiction of the Registrable Securities owned by the Investors;

(e)            notify the Investors at any time when a prospectus relating to their Registrable Securities is required to be delivered under the Securities Act, of the Company’s becoming aware that the prospectus included in the related registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare and furnish to the Investors a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(f)            otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC;

(g)            to use commercially reasonable efforts to cause Registrable Securities to be quoted on each trading market and/or in each quotation service on which the Common Stock of the Company is then quoted; and

(h)            notify the Investor of any stop order threatened or issued by the SEC and take all actions reasonably necessary to prevent the entry of such stop order or to remove it if entered.
 
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4.             Other Procedures .

(a)            Subject to the other provisions of this Section 4(a) and the Company’s general obligation to use commercially reasonable efforts under Section 3, the Company shall be required to maintain the effectiveness of a registration statement (on Form S-1) until the earlier of (i) the sale of all Registrable Securities or (ii) 12 months from the date of this Agreement.  The Company shall have no liability to the Investors for delays in the Investors being able to sell the Registrable Securities (i) as long as the Company uses commercially reasonable efforts to file a registration statement, amendments to a registration statement, post-effective amendments to a registration statement or supplements to a prospectus contained in a registration statement (including any amendment or post effective amendments), (ii) where the required financial statements or auditor’s consents are unavailable or (iii) where the Company would be required to disclose information at a time when it has no duty to disclose such information under the Securities Act, the Exchange Act, or the rules and regulations of the SEC.

(b)            In consideration of the Company’s obligations under this Agreement, the Investors agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e) herein, the Investors shall forthwith discontinue their sale of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the Investors’ receipt of the copies of the supplemented or amended prospectus contemplated by said Section 3(e)   and, if so directed by the Company, shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies, then in the Investors’ possession of the prospectus covering such Registrable Securities current at the time of receipt of such notice.
 
(c)            The Company’s obligation to file any registration statement or amendment including a post-effective amendment, shall be subject to each Investor, as applicable, furnishing to the Company in writing such information and documents regarding such Investor and the distribution of such Investor’s Registrable Securities as may reasonably be required to be disclosed in the registration statement in question by the rules and regulations under the Securities Act or under any other applicable securities or blue sky laws of the jurisdiction referred to in Section 3(d) herein.  The Company’s obligations are also subject to each Investor promptly executing any representation letter concerning compliance with Regulation M under the Exchange Act (or any successor rule or regulation).

(d)            If any such registration or comparable statement refers to any Investor by name or otherwise as a stockholder of the Company, but such reference to the Investor by name or otherwise is not required by the Securities Act or the rules thereunder, then each Investor shall have the right to require the deletion of the reference to the Investor, as may be applicable.

(e)            In connection with the sale of Registrable Securities, the Investor shall deliver to each purchaser a copy of the necessary prospectus and, if applicable, prospectus supplement, within the time required by Section 5(b) of the Securities Act.

5.             Registration Expenses .   In connection with any registration of Registrable Securities pursuant to Section 2, the Company shall, whether or not any such registration shall become effective, from time to time, pay all expenses (other than Selling Expenses) incident to its performance of or compliance, including, without limitation, all registration, and filing fees, fees and expenses of compliance with securities or blue sky laws, word processing, printing and copying expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and all independent public accountants and other Persons retained by the Company.
 
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6.             Indemnification .

(a)            In the event of any registration of any shares of Common Stock under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless each Investor, from and against any losses, claims, damages or liabilities, joint or several, to which each Investor may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or any document incident to registration or qualification of any Registrable Securities pursuant to Section 3(d) herein, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, or state securities or blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under the Securities Act or such state securities or blue sky laws.  If the Company fails to defend the Investors as required by Section 6(c) herein, it shall reimburse (after receipt of appropriate documentation) each Investor for any legal or any other out-of-pocket expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however , that the Company shall not be liable to the Investors in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said prospectus, or said amendment or supplement or any document incident to registration or qualification of any Registrable Securities pursuant to Section 3(d) hereof in reliance upon and in conformity with written information furnished to the Company by such Investor specifically for use in the preparation thereof or information omitted to be furnished by such Investor or (ii) any act or failure to act of such Investor including the failure of any Investor to deliver a prospectus as required by Section 5(b) of the Securities Act.

(b)            In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, each Investor shall indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6(a)) the Company, each director of the Company, each officer of the Company who signs such registration statement, the Company’s attorneys and auditors and any Person who controls the Company within the meaning of the Securities Act, with respect to (i) any untrue statement or omission from such registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, if such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by such Investor specifically for use in the preparation of such registration statement, preliminary prospectus, final prospectus or amendment or supplement or (ii) from any other act, or failure to act, of the Investor in breach of this Agreement.
 
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(c)            Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in Section 6(a) or (b), such indemnified party shall, if a claim in respect thereof is to be made by an indemnified party against an indemnifying party hereunder, give written notice to the indemnifying party of the commencement of such action.  The indemnifying party shall be relieved of its obligations under this Section 6(c) to the extent that the indemnified party delays in giving notice and the indemnifying party is damaged or prejudiced by the delay, provided that the failure to so notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have otherwise than on account of this Agreement.  In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so as to assume the defense thereof, the indemnifying party shall be responsible for any legal or other expenses subsequently incurred by the indemnifying party in connection with the defense thereof, provided, however , that, if counsel for an indemnified party shall have reasonably concluded that there is an actual or potential conflict of interest between the indemnified and the indemnifying party the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, and such indemnifying party shall reimburse such indemnified party and any Person controlling such indemnified party for the fees and expenses of counsel retained by the indemnified party which are reasonably related to the matters covered by the indemnity agreement provided in this Section 6; provided, however , that in no event shall any indemnification by an Investor under this Section 6 exceed the net proceeds from the sale of Registered Securities received by the Investor.  No indemnified party shall make any settlement of any claims indemnified against hereunder without the written consent of the indemnifying party, which consent shall not be unreasonably withheld.  In the event that any indemnifying party enters into any settlement without the written consent of the indemnified party the indemnifying party shall not consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff of a release of such indemnified party from all liability in respect to such claim or litigation.

(d)            In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which under any indemnified party makes a claim for indemnification pursuant to this Section 6, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required in circumstances for which indemnification is provided under this Section 6; then, in each such case, the Company and such Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject as is appropriate to reflect the relative fault of the Company and such Investor in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, it being understood that the parties acknowledge that the overriding equitable consideration to be given effect in connection with this provision is the ability of one party or the other to correct the statement or omission (or avoid the conduct or take an act) which resulted in such losses, claims, damages or liabilities, and that it would not be just and equitable if contribution pursuant hereto were to be determined by pro-rata allocation or by any other method of allocation which does not take into consideration the foregoing equitable considerations.  Notwithstanding the foregoing, (i) no such Investor shall be required to contribute any amount in excess of the net proceeds to him of all Registrable Securities sold by him pursuant to such registration statement, and (ii) no Person who is guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.
 
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(e)            Notwithstanding any of the foregoing, if, in connection with an underwritten public offering of the Registrable Securities, the Company, any of the Investors and the underwriters enter into an underwriting agreement relating to such offering which contains provisions covering indemnification among the parties, then the indemnification provision of the underwriting agreement shall control.

7.             Certain Limitations on Registration Rights .   At any time prior to the effectiveness of any registration statement filed pursuant to this Agreement, if the Company determines to file a registration statement with the SEC for the public sale of its securities and the managing underwriter of such offering offers to purchase the Registrable Securities for its own account at the same price including underwriting discounts and applicable expenses as paid to the Company, the Investors shall either (i) elect to include their Registrable Securities being registered pursuant to this Agreement in the registration statement covering the sale of the Company’s securities, or (ii) immediately cease their public sales for a period of 90 days following the effective date of the registration statement covering the sale by the Company.  Additionally, no Investor may participate in the registration statement relating to the sale by the Company of its Common Stock as provided above unless such Investor enters into an underwriting agreement with the managing underwriter and completes and/or executes all questionnaires, indemnities and other reasonable documents requested by the managing underwriter. Each Investor shall be deemed to have agreed by acquisition of its Registrable Securities not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities and to use its best efforts not to effect any such public sale or distribution of any other equity security of the Company (including any short sale) or of any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such underwritten public offering) within 10 days before or 90 days after the effective date of such registration statement.  In such event, the Investor shall, if requested, sign a customary market stand-off letter with the Company’s managing underwriter, and to comply with applicable rules and regulations of the SEC.

8.             Allocation of Securities Included in Registration Statement .   In the case of a registration pursuant to Section 7 for the Company’s account, if the Company’s managing underwriter shall advise the Company and the Investors in writing that the inclusion in any registration pursuant hereto of some or all of (a) the Registrable Securities sought to be registered by the Investors and securities offered by other holders, and (b) the Company’s securities sought to be registered creates a substantial risk that the proceeds or price per unit that will be derived from such registration will be reduced or that the number of securities to be registered is too large a number to be reasonably sold, (i) first, the number of Company securities sought to be registered shall be included in such registration, and (ii) next, the number of Registrable Securities offered by the Investors and securities offered by other holders shall be included in such registration to the extent permitted by the Company’s managing underwriter with the number of Registrable Securities and such other securities being registered determined on a pro-rata basis based on the number of registered securities and securities the participating holders including the Investors desire to have registered; provided, however , that, if any participating Investor would be required pursuant to the provisions of this Section 7 to reduce the number of Registrable Securities that it may include in such registration, such Investor may withdraw all or any portion of its Registrable Securities from such registration and may resume selling shares under the registration statement (assuming it is effective) referred to in Section 2 after the 90-day lock-up period.
 
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9.             Rule 144 .   The Company covenants that it will file the reports required to be filed under the Securities Act and the Exchange Act and the rules and regulations thereunder (or, in the event that the Company is not required to file such reports, it will make publicly available information as set forth in Rule 144(c)(2) promulgated under the Securities Act), and it will take such further action as the Investors may reasonably request, or to the extent required from time to time to enable the Investors to sell their Registrable Securities without registration under the Securities Act within the limitation of the exemption provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC (collectively, “Rule 144”).  Upon request of any Investor, the Company will deliver to the Investor a written statement as to whether it has complied with such requirements.

10.             Transfer of Registration Rights .  The rights of an Investor to cause the Company to register Registrable Securities under this Agreement may be assigned in writing by such Investor to a limited liability company member, a family member or an affiliate of such Investor.

11.             Severability .  In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

12.             Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  The execution of this Agreement may be by actual or facsimile signature.

13.             Benefit .  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.
 
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14.             Notices and Addresses .  All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by FedEx or similar overnight next business day delivery, or by facsimile delivery followed by overnight next business day delivery, as follows:

If to the Company :
VerifyMe, Inc.
837 Lindy Lane
Bala Cynwyd, PA 19004
Telephone: (610) 688-1952
Attention: Chief Executive Officer
Email: ngardner@verifyme.com

With a copy (for informational purposes only) to :
 
Nason Yeager Gerson White & Lioce, P.A.,
3001 PGA Boulevard, Suite 305
Palm Beach Gardens, FL 33410
Telephone:  (561) 471-3507
Attention: Michael D. Harris, Esq.
E-Mail: mharris@nasonyeager.com

If to the Investors :
The addresses set forth on the
signature pages to this Agreement.

or to such other address as any of them, by notice to the other may designate from time to time.  The transmission confirmation receipt from the sender’s facsimile machine shall be evidence of successful facsimile delivery.  Time shall be counted from the date of transmission.

15.             Attorneys’ Fees .  In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding relating to this Agreement is filed, the prevailing party shall be entitled to an award by the court of reasonable attorneys’ fees, costs and expenses.

16.             Entire Agreement .  This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof.

17.             Amendment / Modification .  Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated, except by a statement in writing signed by the Party or Parties, against which enforcement or the change, waiver, discharge or termination is sought.

18.             Additional Documents .  The Parties hereto shall execute such additional instruments as may be reasonably required by their counsel in order to carry out the purpose and intent of this Agreement and to fulfill the obligations of the Parties hereunder.

19.             Governing Law / Jurisdiction .  This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the State of Nevada without regard to choice of law considerations.  The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of Nevada for any dispute arising out of or relating to this Settlement Agreement, and agree that any action to enforce the terms of this Settlement Agreement shall be brought in the courts of the State of Nevada, Clark County, or in the United States District Court for the District of Nevada.
 
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20.             Section or Paragraph Headings .  Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.

21.             Force Majure .   The Company shall be excused from any delay in performance or for non-performance of any of the terms and conditions of this Agreement caused by any circumstances beyond its control, including, but not limited to, any Act of God, fire, flood, or government regulation, direction or request, or accident, interruption of telecommunications facilities, labor dispute, unavoidable breakdown, civil unrest or disruption to the extent that any such circumstances affect the Company’s ability to perform its obligations under this Agreement or the ability of the Commission to perform its responsibilities under the Securities Act.

[Signature Page Attached]
 
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed personally or by a duly authorized representative thereof as of the day and year first above written.

 
VERIFYME, INC.:
 
       
       
 
By:
   
 
Name: Patrick White
 
 
Title:   Chief Executive Officer
 
       
 
INVESTORS:
 
       
 
Clydesdale Partners, LLC
 
 
By: Clydesdale Ventures, LLC, its Manager
 
       
       
 
By:
   
 
Name: Paul F. Klapper, Manager
 
       
 
Address of Notice:
 
       
       
 
Stephen H. Silver Family Trust Dated 12/7/12
 
       
       
 
By:
   
 
Name: Stephen H. Silver, Trustee
 
       
 
Address of Notice:
 
 
Stephen H. Silver
 
       
       
 
By:
   
 
Name: Stephen H. Silver
 
       
 
Address of Notice:
 
       
       
 
]more names and addresses to come]
 
 
11
 
 
Paul F. Klapper
 
       
       
 
By:
   
 
Name: Paul F. Klapper
 
       
 
Address of Notice:
 
       
 
PFK ACQUISITION GROUP II, LLC
 
       
       
 
By:
   
 
Name: Paul F. Klapper, Manager
 
       
 
Address of Notice:
 
       
 
CLYDESDALE PARTNERS II, LLC
 
 
By: Clydesdale Ventures II, LLC, its Manager
 
       
       
 
By:
   
 
Name: Paul F. Klapper, Manager
 
       
 
Address of Notice:
 
 
 
12
Exhibit 31.1
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
 
I, Patrick White, certify that:
 
1. I have reviewed this annual report on Form 10-K of VerifyMe, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 17, 2018
 
 
 
/s/ Patrick White
 
Patrick White
 
Chief Executive Officer
 
 (Principal Executive Officer)
 
 
 
 
 
Exhibit 31.2
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
 
I,  James Cardwell, certify that:
 
1. I have reviewed this annual report on Form 10-K of VerifyMe, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 I and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 17, 2018
 
 
 
/s/  James Cardwell
 
James Cardwell
 
Chief Financial Officer
 
(Principal Financial Officer)
 
 
 
 
 
Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the annual report of VerifyMe, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof, I, Patrick White, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
1.
The annual report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
 
 
 
 
2.
The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Patrick White
 
Patrick White
 
Chief Executive Officer
 
(Principal Executive Officer)
 
Dated: April 17, 2018
 
 
In connection with the annual report of VerifyMe, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof, I, James Cardwell, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
1.
The annual report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
 
 
 
 
2.
The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ James Cardwell
 
James Cardwell
 
Chief Financial Officer
 
(Principal Financial Officer)
 
Dated: April 17, 2018