10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2015

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.)

12 West 21st, 8th Floor

New York, NY  10010

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 994-7002

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

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  x

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  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x 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  x 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	x

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

The aggregate market value of the common stock held by non-affiliates of the registrant was $13,385,345 as of June 30, 2015 based on the price in which the common stock of the registrant was last sold as reported by the OTC Bulletin Board. 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 conclusive determination for other purposes.

The registrant had 6,586,711 shares of common stock outstanding as of the close of business on March 30, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

VERIFYME, INC.

FORM 10-K ANNUAL REPORT

Year Ended December 31, 2015

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		16
Item 1B.	Unresolved Staff Comments		16
Item 2.	Properties		16
Item 3.	Legal Proceedings		16
Item 4.	Mine Safety Disclosures		16
PART II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		17
Item 6.	Selected Financial Data		17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 8.	Financial Statements and Supplementary Data		24
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		24
Item 9A.	Controls and Procedures		24
Item 9B.	Other Information		25
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		26
Item 11.	Executive Compensation		33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		36
Item 13.	Certain Relationships and Related Transactions, and Director Independence		38
Item 14.	Principal Accountant Fees and Services		39
PART IV
Item 15.	Exhibits and Financial Statement Schedules		40

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this annual report on Form 10-K, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: our ability to raise additional capital, our limited revenues generated to date, our ability to attract and retain qualified personnel, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition with larger companies, general economic conditions, and other factors set forth described in “Item 7 — Management’s Discussions and Analysis of Financial Condition and Results of Operation” below.

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.

ITEM 1. BUSINESS.

Overview

VerifyMe, Inc. (the “Company,” “VerifyMe,” “we,” “us,” or “our”) 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 identities in digital transactions. We 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 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.

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.

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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.

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 and through direct sales of our technology.

Our physical technologies involve the utilization of invisible and/or color shifting/changing inks, which are compatible with today’s printing machines. 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.

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.  Currency, lottery tickets, credit cards, event and transportation tickets, casino slot tickets, and travelers’ checks are all susceptible to counterfeiting. We believe that losses from such counterfeiting have increased substantially with improvements in counterfeiting 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.

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. Our technologies include (1) a technology utilizing invisible ink that can be revealed by use of laser light for authentication purposes, (2) an inkjet ink technology, which allows invisible codes to be printed and (3) a color shifting technology that is activated by certain types of lights. All of those technologies are intended to be substantially different than pen systems that are currently in the marketplace. Pen systems also rely on invisible ink that is activated by a special marker. If the item is an original and not an invisible print, then the ink will be activated and show a visible mark as a different color than on an illegitimate copy. We believe that our technologies are superior to the pen system technology because, in the case of its laser and color shifting technologies, it will not result in a permanent mark on the merchandise. Permanent marks generally lead to the disposal of the merchandise or its sale as a “second” rather than best-quality product. In the case of rubbed ink technology, no special tools are required to distinguish the counterfeit. 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 of products from production to ultimate consumption when coupled with proprietary software.

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In the past, we have focused on the widespread problem of counterfeiting in the gaming industry. We have incorporated our technology into traditional gaming accessories such as playing cards, casino chips, and dice as well as gaming-based machinery such as slot machines with cashless gaming systems. This is accomplished during the regular manufacturing and printing processes. Our products use ink that is incorporated into dice and casino chips that can be viewed with a laser to reveal the authenticity of the item.

Physical and Material Goods Anti-Counterfeit Industry — Overview

Currency, passports, ID cards and other high-value documents have historically been subject to counterfeiting and forgery and continue to be today. Many consumer industries such as pharmaceutical, luxury goods and auto parts are also subject to significant counterfeiting. In the last 15 years, the counterfeiting of goods has increased significantly on a global basis and has become a major threat to brand owners in most industries. Major brands, whether national or multinational, are being systematically attacked by sophisticated criminals and terrorists. Furthermore, counterfeiting and forgery have filtered down to the level of lone criminals due to the availability of digital scanning and copying technologies.

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 the digital age, including the color copier and other new technologies and templates available on the web, thieves and forgers have been able to make near identical copies of almost any printed item, which has resulted in major financial losses to business and, importantly, has compromised security at critical installations. One particular problem is that criminal and civil penalties for forgery, fraud, and counterfeiting are relatively light, and many of those engaging in such activities are overseas and far from the reach of U.S. law enforcement.

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, time-consuming in the 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 be rejected. There is no commercially fiscal way, for example, that a hologram, costing around five cents a copy, can be introduced to verify tax stamps.  Moreover, more than half the national currencies in the world lack even one layer of protection and can easily be counterfeited.

Counterfeiting, product diversion, piracy, forgery, identity theft, and unauthorized intrusion into websites, physical locations and databases create significant and growing problems to companies in a wide range of industries as well as governments and individuals worldwide. Counterfeiting is a global problem, and it is a problem that appears to be increasing. According to the 2012 Global Report on Counterfeiting: Anti-Counterfeiting and The Apparel Industry — February 2012, revenues generated from counterfeit product sales are estimated to have grown by more than 400% since the early 1990s, while sales of legitimate brands grew just 50% over the same timeframe. In February 2011, the International Chamber of Commerce (“ICC”) issued an updated report on counterfeiting and piracy that states that the global economic and social impacts of counterfeiting and piracy could reach $1.7 trillion by 2015.

Counterfeiting is one of the fastest growing economic crimes of modern times. It presents companies, governments and individuals with a unique set of problems. What was once a cottage industry has now become a highly sophisticated network of organized crime that has the capacity to threaten the very fabric of national economies, endanger safety and frequently kill. It devalues corporate reputations, hinders investment, funds terrorism, and costs hundreds of thousands of people their livelihood every year.

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.

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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.

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.

In April 2010, the United States Government Accountability Office (“GAO”) issued a report to Congress entitled, “INTELLECTUAL PROPERTY: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods.” In this report, the GAO estimated that the total economic value of intellectual property seizures by Customs and Border Protection during 2004 to 2009 was $1.12 billion. This was based only on imported goods and not goods produced in the United States.

The Organization for Economic Cooperation and Development estimates that the value of counterfeiting is approximately $250 billion per year. 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 is currently $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 ‘false,’ 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 all types of identification and official documents, such as:

· passports;

· permanent resident, or “green” cards and visas;

· drivers’ licenses;

· Social Security cards;

· military identification cards;

· 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.

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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 that 50% of all “dangerous drugs” (defined as all prescription drugs) that are distributed in California must be serialized and have an electronic pedigree by January 1, 2015; 100% of all dangerous drugs must have an electronic pedigree by January 1, 2016.

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.

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. According to the World Customs Organization, European clothing and footwear companies lose an estimated €7.5 billion per year to counterfeiting; Havocscope values the counterfeit clothing market at $12 billion. 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. As a result, the global anti-counterfeit packaging market is estimated to reach approximately $128.6 billion by the year 2019, according to MarketsandMarkets.  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.

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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.

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+™; and

· Authentication tools.

RainbowSecureTM 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. 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, and are not interested in outside public verification by consumers. The technology is also appropriate for anti-counterfeit protection of tags and labels in the apparel industry, where it can be applied to a variety of different materials in the form of dyes.

SecureLightTM technology was developed as a result of our investment in new proprietary color shifting 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+TM 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.

Authentication tools have been developed which we sell to customers in conjunction with pigments and are tuned to authenticate the unique frequency of each batch. This 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 and audible ‘beep’.

Raw Material Suppliers

Our security pigments are manufactured from naturally occurring inorganic materials. The manufacturing process includes both chemical and mechanical elements. In many cases, we produce pigments that are unique to a particular 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.

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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 currently distribute pigments directly to our customers. We are in discussions with an existing channel partner regarding an arrangement to use their secure facilities to house inventory and fulfill customer orders. 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.

The company has also developed relationships with ink suppliers for formulation and mixing of inks and coatings, which can be provided directly to customers. Typically, inks and coatings are formulated and mixed individually for specific printing equipment and applications for different substrates. We have worked with ink suppliers to optimize the formulation of inks and coatings incorporating our pigments. Our ready supply of finished inks and coatings allows for customers to easily utilize our solutions.

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. As more electronic transactions incorporate the exchange of value and money, the verification of the unique identity of human beings participating in those transactions becomes more important. 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 2015 Identity Fraud Study released by Javelin Strategy & Research, in 2014, $16 billion was stolen from 12.7 million U.S. consumers. 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.

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 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.

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.

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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 (“UX”) and total cost of ownership (“TCO”). 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 multifactor authentication (“MFA”) market is predicted to reach more than $10 billion by 2017 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

2012 was the year of password theft, according to SecurityCoverage. The security software company says that in the first six months of 2012, online password breaches increased 300% over the same period in 2011. Since then, this growth rate has continued. In the case of the recent data breach of dating service Ashley Madison, it is expected that the exposed personally identifiable information of over 30 million people will directly lead to the compromise of other password based accounts and services.

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.

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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.

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:

· Subscription services market, where revenue is commonly lost due to multiple individuals sharing user credentials to access information and services;

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

· Financial services market, where there is a large financial risk to identity theft and fraud; and

· Physical access control market, where the identity of individuals is key to allow access to buildings.

Our Solution

VerifyMe Authenticator delivers an electronic authentication solution for identifying individual human beings. When a 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.

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VerifyMe Authenticator is based around mobile apps that incorporate a password manager and single sign on (“SSO”) 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 are able to 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.

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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:

· Available to be white-labeled and integrated into existing digital platforms;

· Non-Stop, audited, monitored, private cloud service;

· Three independent, fault tolerant, redundant data centers (“Rackspace”);

· Global load balancing and traffic management;

· 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.

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Factor 3 – Something you are – we utilize facial recognition to authenticate images captured in real-time using the registered device’s 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.

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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.

Our Technology

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 ten granted patents and six applications pending. 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 begin to expire between the years 2019 and 2031.

We continue to develop new anti-counterfeiting technologies and to apply for patent protection for these technologies wherever possible.  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 are occasionally 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.

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 $2.4 million and $10.6 million on research and development during the years ended December 31, 2015 and 2014.

Our Revenue Model

To date, we have not generated significant revenue. We believe that creating demand for our products and services will require a marketing program that effectively reaches potential customers. In developing our most recent marketing approach, 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 collecting license fees 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.

Sales and Marketing Strategy

We plan to direct our sales and marketing strategy at multiple target groups as follows:

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Consumer Product Security	·      Pharmaceuticals ·      Luxury goods ·      Tobacco ·      Alcohol ·      Auto parts ·      Aviation parts ·      Any other packaging requirements
Documents of Value	·      Currency ·      Stock certificates and bonds ·      Event tickets ·      Lottery tickets
Homeland Security	·      Passports ·      ID cards ·      Driver’s licenses ·      Visas ·      Container seals ·      Pallet security
Gaming	·      Online gaming sites ·      Casino chips ·      Dice ·      Playing cards ·      E-proms/critical memory devices ·      Lottery tickets
Product Diversion Tracking	·      Pharmaceuticals ·      Apparel/licensed merchandise ·      Cosmetics and fragrances ·      Watches and jewelry
Financial Services and Products	·      Consumer login credentials ·      Online transaction approval ·      Credit cards ·      Bank checks ·      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.

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Competition

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, particularly in the area of traditional overt security technologies. This is due to the fact that security printing for currency production, for example, 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. 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 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 American Banknote Holographics and Digimarc, which provide holograms and digital watermarking, respectively; (iv) Product Diversion Tracking Providers. Next-Generation Technology Providers LLC falls into this group, along with several companies such as Applied DNA Sciences, Authentix, DNA Technologies, and Identif, which provide on-product and in-product tagging technologies; (v) Traditional Security Printers. This group includes traditional security printers such as Thomas de la Rue and Portals, whose core products are printing the world’s currencies; and (vi) Biometric Solution Providers. These companies offer biometric authentication capabilities to be integrated with existing mobile device authentication, such as ImageWare Systems.

To compete effectively, we expect that 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 to the market effectively, if at all.

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;

· timing of 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, 2015 and 2014, three customers accounted for 100% of total revenue. Generally, a substantial percentage of our revenue has been to a small number of customers and is typically on an open account basis.

During the years ended December 31, 2015 and 2014, we purchased 100% of our pigment from one vendor.

Facilities

Our principal offices are located in temporary office space at 12 West 21st Street, New York, NY10010 where we lease and occupy approximately 300 square feet of space. The lease for our office is month-to-month.

We believe that our office is suitable and adequate for our current needs but we do anticipate seeking more permanent office facilities in New York City.

Employees

As of December 31, 2015, we had five full time employees. None of our employees are represented by a union or covered by a collective bargaining agreement.  We believe that our relations with our employees, consultants and contractors are good.

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ITEM 1A. RISK FACTORS.

Not required.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our principal offices are currently located at 12 West 21st Street, New York, NY  10010.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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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 OTC Bulletin Board 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 OTC Bulletin Board, 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, 2014	High		Low
Quarter ended March 31, 2014	$	8.50	$	4.25
Quarter ended June 30, 2014	$	8.50	$	3.40
Quarter ended September 30, 2014	$	10.20	$	3.40
Quarter ended December 31, 2014	$	4.25	$	0.85
Fiscal Year Ended December 31, 2015	High		Low
Quarter ended March 31, 2015	$	3.74	$	0.85
Quarter ended June 30, 2015	$	8.08	$	0.54
Quarter ended September 30, 2015	$	6.20	$	2.10
Quarter ended December 31, 2015	$	1.95	$	0.85

Common Stockholders

As of March 30, 2016, our shares of common stock were held by approximately 1,324 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.

Recent Sales of Unregistered Securities

On February 9, 2016, the Company issued to certain accredited investors 2,587,500 shares of 0% Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”) at a purchase price of $0.40 per share with gross proceeds to the Company of $1,035,000.00. In connection with the sale of the Series C Preferred Stock, 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 Preferred Stock, 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 Preferred Stock, 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 Preferred Stock is convertible into one share of common stock, subject to adjustment. The Company used the proceeds of these offerings to pay general and administrative expenses, research and development costs and reduce accounts payable.  Of the amount raised, the Company has approximately $670,000 remaining.

The foregoing issuances of the securities were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(a)(2) as transactions not involving a public offering.

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.

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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 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 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 from 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 5% of global trade 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/or color shifting/changing inks, which are compatible with today’s printing machines. 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.

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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, 2015 and 2014

The following discussion analyzes our results of operations for the years ended December 31, 2015 and 2014. 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, 2015 and 2014, we generated revenues of $217,268 and $124,598. Our net loss was $2,301,885 for the year ended December 31, 2015, a decrease of $5,616,610 from a net loss of $7,918,495 for the year ended December 31, 2014, primarily as a result of closing our Washington, D.C. office , a reduction in share-based compensation and other cost conservation measures.

Cost of Sales

For the years ended December 31, 2015 and 2014, we incurred proprietary technology costs of sales of $65,723 and $113,024. Cost of sales is significantly lower for the year end December 31, 2015, since we receive a commission on the number of units produced and our customer was able to produce more units with less of our product.

General and Administrative Expenses

General and administrative expenses were $449,483 for the year ended December 31, 2015 compared to $811,916 for the year ended December 31, 2014, a decrease of $362,433. The decrease is attributable to the closing of the office in Washington, D.C., the reduction in staff and associated costs as well as a concentrated effort to contain costs. However the Company incurred additional cost during the year ended December 31, 2015, including, bad debt write off of $62,125 of receivables and increases in public company filing costs.

Legal and Accounting

Legal and accounting fees increased $113,898 to $458,801 for the year ended December 31, 2015 from $344,903 for the year ended December 31, 2014. The increase in legal and accounting fees between the periods was related to the Recapitalization Transaction in June, 2015, and the settlement of old accounts payable.

Payroll Expenses

Payroll expenses increased to $1,875,488 for the year ended December 31, 2015 from $1,611,376 for the year ended December 31, 2014, an increase of $264,112. The majority of the increase was the expense of the fair market value of options issued to the Board and the officers of the Company aggregating approximately $1,260,000 in 2015, compared to $860,000 in 2014.

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Research and Development

Research and development expenses decreased $8,177,438 to $2,412,833 for the year ended December 31, 2015 from $10,590,271 for the year ended December 31, 2014. The decrease in research and development expenses was due to warrants and shares issued, with a fair value of $10,236,089 for the year ended December 31, 2014 related to the Patent and Technology License Agreement entered into on December 31, 2012 as compared to $2,000,000 in 2015.

Sales and Marketing

Sales and marketing expenses for the year ended December 31, 2015 were $197,430 as compared to $218,443 for the year ended December 31, 2014, a decrease of $21,013. The Company has reduced expenditures such as sales related travel and certain advertising programs that it has concluded were not generating revenue.

Interest Expense

During the year ended December 31, 2015, we incurred interest expense of $61,438, as compared to $199,364 for the year ended December 31, 2014, a decrease of $137,926. The decrease in interest expense relates to the conversion of notes payable and accrued interest into common stock as part of the restructuring transaction in June 2015.

Gain (Loss) on Extinguishment of Debt

The gain from extinguishment of debt was $332,523 for the year ended December 31, 2015, compared to a loss of $82,000 for the year ended December 31, 2014. The gain on extinguishment of debt was a result of the excess fair value of the notes payable and accrued interest over the value of the common stock issued, and accrued interest thereon, that were part of the restructuring transaction in June 2015.

Change in Fair Value of Warrants

During the year ended December 31, 2015, the Company incurred a change in the fair value of warrants of $2,669,520 as compared to $5,128,204 for the year ended December 31, 2014. The change resulted from the re-valuation of warrants associated with the Investment Agreement entered into on December 31, 2012, the Subscription Agreement entered into on January 31, 2013 and the notes payable issued during 2014. The value of the warrant liability has decreased because most of the warrants were converted to common stock as part of the restructuring transaction in June 2015. Additionally, as part of the Recapitalization Transaction, certain warrants were converted to shares of Common Stock and the associated liability of $1,867,417 was reclassified to additional paid-in capital.

Change in Fair Value Embedded Derivative Liability

During the year ended December 31, 2015, the Company incurred $0 for the change in fair value of the embedded derivative liability as compared to a gain of $800,000 for the year ended December 31, 2014. The change derived from the Common Stock price decreasing below the value of the conversion option associated with the Subscription Agreement entered into on January 31, 2013 for the year ended December 31, 2014. Because the Series A Preferred Stock was converted into shares of Common Stock with the Recapitalization Transaction, the embedded derivative liability no longer exists and no valuation or adjustment will be needed in the future as a result.

Liquidity and Capital Resources

Net cash used in operating activities decreased $524,702 to $1,495,315 for the year ended December 31, 2015 as compared to $2,020,017 for the year ended December 31, 2014.  The decrease resulted primarily from reductions in accounts payable.

Net cash used in investing activities was $2,532 for the year ended December 31, 2015, materially unchanged from $0 for the year ended December 31, 2014. 

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Net cash provided by financing activities increased by $640,043 to $1,438,043 for the year ended December 31, 2015 from $798,000 for the year ended December 31, 2014.  Cash provided by financing activities during the year ended December 31, 2015, consisted of our Series A Preferred Stock offering and Common Stock offering which raised $1,328,501 in June 2015.

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.  In June 2015, as part of the restructuring transaction we raised approximately $1,328,000 as described in detail below. On February 9, 2016, the Company issued 2,587,500 shares of 0% Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”) 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 Preferred Stock, 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 Preferred Stock, 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 Preferred Stock, 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 Preferred Stock is convertible into one share of common stock, subject to adjustment.

Even with this infusion of capital, we do not believe that our existing cash resources will be sufficient to sustain our operations during the next twelve months, and we may need to raise additional funds in the future. We intend to raise such financing through private placements and/or the sale of debt and equity securities, of which there is no assurance. The issuance of additional equity would result in dilution to our existing shareholders. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms favorable to us, we may be unable to execute upon our business plan or pay our costs and expenses as they are incurred, which could have a material, adverse effect on our business, financial condition and results of operations.

Even if we are successful in raising sufficient capital, in order to continue in business as a viable going concern our revenues need to reach a level that sustains our business operations. While it is impossible to predict the amount of revenues, if any, that we may receive from our products, we presently believe, based solely on our internal projections, that we will generate revenues sufficient to fund our planned business operations if the products are marketed effectively in accordance with our plans. There can be no assurance that we will raise sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan. Moreover there can be no assurance that even if our products are marketed effectively, that we will generate revenues sufficient to fund our operations. In either situation, we may not be able to continue our operations and our business might fail.

As of March 30, 2016 we had cash resources of approximately $670,000.

As we have not realized significant revenues since our inception, we have financed our operations through public and private offerings of debt and equity securities. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution. The following sets forth our primary sources of capital during the previous two years.

On or about June 12, 2015, the Company entered into definitive agreements to restructure the overall capitalization of the Company (the “Recapitalization Transaction”). To effectuate the Recapitalization Transaction, the Company entered into a Master Acquisition Agreement (the “Master Agreement”) with OPC Partners LLC, a Delaware limited liability company (“OPC”), VerifyMe Inc., a Texas corporation (“VFM”), Zaah Technologies, Inc., a Delaware corporation (“Zaah”), and an additional private investor (the “Private Investor”).

Pursuant to the Master Agreement, the Company entered into several other material definitive agreements (collectively, the “Transaction Documents”) required to consummate the Recapitalization Transaction. A brief summary of the Transaction Documents is included below. Each of the Transaction Documents was entered effective as of June 12, 2015, upon the closing of the Recapitalization Transaction.

Note Conversion Agreement. The Company entered into various Note Conversion Agreements with various holders of promissory notes executed by the Company (the “Noteholders”), pursuant to which the Noteholders converted $731,426 of outstanding notes and accrued interest (net of gain on conversion of $297,370) into 57,265,030 shares (pre Reverse Stock Split) of restricted non-trading Common Stock of the Company at a conversion rate of one (1) share of Common Stock per $0.018 of outstanding principal and interest.

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Warrant Conversion Agreement. The Company entered into various Warrant Conversion Agreements with various holders of warrants for the Company’s Common Stock (the “Warrantholders”), pursuant to which the Warrantholders converted 3,700,000 outstanding Common Stock warrants into 3,700,000 shares (pre Reverse Stock Split) of restricted non-trading Common Stock of the Company at a conversion ratio 1:1.

Preferred Stock Conversion Agreement. The Company and VFM entered into a Preferred Stock Conversion Agreement, pursuant to which VFM converted 21,111,111 shares (pre Reverse Stock Split) of Series A Preferred Stock of the Company that it currently owns into shares of Common Stock of the Company on a 1:1 basis (pre Reverse Stock Split).

Patent and Technology License Termination Agreement. Pursuant to a Patent and Technology License Termination Agreement, the Company and VFM terminated that certain Patent and Technology License Agreement, dated as of December 31, 2012, by and between the Company and VFM (the “License”), and VFM agreed to receive eighty five (85) shares (pre Reverse Stock Split) of Series B Preferred Stock in complete satisfaction of $4,500,000 in past due license payments and $2,000,000 exclusivity payments owed by the Company under the License.

Termination of Registration Rights. Pursuant to a Registration Rights Termination Agreement, the Company and VFM have terminated that certain Registration Rights Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Termination of Technology and Services Agreement. Pursuant to a Technology and Services Agreement Termination Agreement, the Company and VFM terminated that certain Technology and Services Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Termination of Investment Agreement. Pursuant to an Investment Agreement Termination Agreement, the Company and VFM terminated that certain Investment Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Patent Purchase Agreement. The Company and VFM entered into and consummated a Patent Purchase Agreement, transferring and assigning over to the Company all of VFM’s rights, title and interest into certain U.S. patents and pending U.S. patent applications.

Termination of Zaah Technology and Services Agreement. Pursuant to a Technology and Services Agreement Termination Agreement, the Company and Zaah terminated that certain Technology and Services Agreement, dated as of December 31, 2012, by and between the Company and Zaah.

Series A Preferred Stock Subscription Agreement. The Company entered into a Subscription Agreement with OPC, pursuant to which the Company issued 37,564,767 shares (pre Reverse Stock Split) of Series A Preferred Stock to OPC for a cash investment $1,278,501, plus the conversion of deferred compensation, notes payable and accrued interest amounting to $171,813, into the Company by OPC.

Common Stock Subscription Agreement. The Company entered into a Subscription Agreement with the Private Investor, pursuant to which the Company issued 25,906,736 shares (pre Reverse Stock Split) of restricted non-trading Common Stock to the Private Investor for a cash investment of $50,000 into the Company by the Private Investor.

Series B Preferred Stock Subscription Agreement. In connection with the termination of the License with VFM, the Company entered into a Subscription Agreement with VFM, pursuant to which to the Company issued 85 shares (pre Reverse Stock Split) of Series B Preferred Stock to VFM.

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The foregoing description of the Master Agreement and the related Transaction Documents is a summary, and does not purport to be a complete description of the Master Agreement and the related Transaction Documents, and is qualified in its entirety by reference to the Master Agreement and the related Transaction Documents, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on June 18, 2015.

Off-Balance Sheet Arrangements

As of December 31, 2015, 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 particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.

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.

Revenue Recognition

In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition (Codified in FASB ASC 605), we recognize 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 sales revenues 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.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Consolidated Financial Statements contained elsewhere in this report.

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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 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.

None.

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, 2015 using criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has concluded that our internal control over financial reporting was effective as of December 31, 2015.

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.

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Changes in Internal Control Over Financial Reporting

As of December 31, 2015, 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, 2015, our disclosure controls and procedures were effective 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.

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, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The current members of our board of directors and executive officers of the Company are as follows:

Name	Age	Position with Company
Michael Madon*	43	Chairman
Claudio R. Ballard**	57	Director
Lawrence G. Schafran	77	Director
Jonathan Weinberger	39	Director
Paul Donfried	54	Director and Chief Executive Officer
Ben Burrell	37	Chief Operating Officer
Scott A. McPherson	54	Chief Financial Officer
Sandy Fliderman	39	Chief Technology Officer

* ** Appointed February 29, 2016 Appointed as Director by VerifyMe, Inc. (a Texas Corporation)

Board of Directors

We believe that our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe that experience, qualifications, or skills in the following areas are most important: security industry experience, accounting and finance; strategic planning; human resources and development practices; and board practices of other corporations. These areas are in addition to the personal qualifications described in this section. We believe that all of our current board members possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each board member in the individual biographies below. The principal occupation and business experience, for at least the past five years, of each current director is as follows:

MICHAEL MADON

Michael Madon was appointed as the Chairman of the Board of VerifyMe, Inc. on February 29, 2016.  Mr. Madon is a senior strategy leader in cyber security and financial intelligence with nearly 20 years of a proven track record and expertise in leading cross-functional teams to develop and create results-oriented solutions at the intersection of government and business processes, people management, and information technology. Mr. Madon currently serves as the CEO and co-founder of Ataata, the next generation learning and engagement platform for the 21st century workforce. Before founding Ataata, Mr. Madon served as Vice President, Business Development for RedOwl, a behavioral analytics software company that addresses insider security risks. Mr. Madon also served on the Board of Directors of TeleCommunication Systems (NASDAQ: TSYS), a world leader in secure and highly reliable wireless communication technology. In February 2016, Comtech Telecommunications Corp. acquired TeleCommunication Systems, Inc. for $430.8 million in a strategic and cash accretive transaction.

From September 2009 to May 2014, Mr. Madon served as Deputy Assistant Secretary in the Office of Intelligence and Analysis of the Treasury Department where he developed strategies to help the department identify and mitigate cyber risks and vulnerabilities within both the department and financial sector. In recognition of his service, Mr. Madon was awarded the National Intelligence Distinguished Service Medal—the Intelligence Community’s highest award. In addition, he received the U.S. Department of the Treasury’s Distinguished Service Award.

Mr. Madon has focused on cyber information issues in areas as diverse as attack, remediation, and preservation, as well as threats to critical infrastructure and supply chains. A recognized expert in the fields of cyber security and financial intelligence, he has testified before Congress on the global cyber threat and been profiled in an array of industry publications. He currently serves on Intelligence & National Security Alliance (INSA) and is an active member of INSA’s Subcommittee on Insider Threat. He also serves on the Board of Advisors of the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance and is an active member of the Armed Forces Communications and Electronics Association.

Mr. Madon served as an active duty officer in the U.S. Army and remains an active member of the Army Reserves as an Intelligence Officer supporting the Joint Chiefs of Staff (J2, Intelligence). He has held leadership positions in Airborne, Mechanized and Military Intelligence Units stateside and overseas. He is a recipient of the Bronze Star.

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Mr. Madon holds a M.B.A. from the Wharton School of the University of Pennsylvania, a Certificate of Graduation from the Command and General Staff College, a Master of International Affairs from Columbia University, and a B.A. from Cornell University.

As a result of these and other professional experiences, Mr. Madon possesses particular knowledge and experience that strengthen the Board’s collective qualifications, skills and experience.

CLAUDIO R. BALLARD

Claudio R. Ballard has served as a director on our board of directors since March 30, 2013. He currently serves as the Chairman, Founder and one of the Managing Members of VEEDIMS, where he has served since April 2011. In 2010, Mr. Ballard was named “Inventor of the Year” by the United States Business and Industry Council, in recognition of his founding of Iconic Motors and VEEDIMS as well as the creation of the DataTreasury Global Repository Platform, a patent protected electronic transaction system licensed by banks to process digital checks. Mr. Ballard has over 37 years of experience in computer technology, software and business development. In 1979, he founded FORTEX Corporation, which in 1981 became the world’s first ORACLE Value-Added Reseller and Systems Integrator by delivering the earliest known commercially viable production mission critical application software and supporting development tools that initially ran on ORACLE and eventually ran on other database platforms. By the late 1980s, Mr. Ballard’s team had built sophisticated, mission critical systems for more than 30 Fortune 500 companies, including Kidder Peabody, General Electric (14 Divisions), Standard & Poor’s, CitiBank, Philip Morris, Boeing, McDonnell Douglas and AT&T Bell Labs, Pfizer, and Novartis (formally Ciba-Geigy), as well as government agencies that included the U.S. Army, U.S. Air Force, U.S. Navy, the Food and Drug Administration (7 departments at the FDA) and the Central Intelligence Agency. In 1994, Mr. Ballard invented the DataTreasury System, the sophisticated repository and online biometrics system that enables banks to quickly verify identity and process a myriad number of financial transactions. In 1998, Mr. Ballard founded DataTreasury Corporation and launched the core technology that led to the development of the check-imaging platform. Today, over 50 banks throughout the U.S. representing approximately 70% of U.S. check processing volume use this technology through a licensing arrangement.

As a result of these and other professional experiences, Mr. Ballard possesses particular knowledge and experience that strengthen the Board’s collective qualifications, skills and experience.

LAWRENCE G. SCHAFRAN

Lawrence G. Schafran has served as a director on our board of directors since September 30, 2015. Mr. Schafran, age 77, was chosen as a member of the Company’s Board because of his extensive business skills and experiences and his financial literacy and expertise. Mr. Schafran also possesses a broad range of experiences and skill garnered from the various leadership positions and from his service on other public company boards and committees. Since 2006, Mr. Schafran has served as a director, chairman of the audit committee and member of the compensation committee of Wright Investors’ Service Holdings, Inc., a provider of investment and financial services. Mr. Schafran was previously a director, audit committee chairman and member of the compensation committee of SecureAlert, Inc., now Track Group, a manufacturer and distributor of tracking systems, from 2006 to 2013. Between 2006 and 2011, Mr. Schafran also served as a director and board committee member for other public companies, including Subaye, Inc., New Frontier Energy, Inc., America’s Suppliers, Inc., and SulphCo, Inc. Mr. Schafran has also served as a director of several private companies, including Cupcake Digital, Inc., a creator and distributor of children’s educational and entertainment applications (2014 to present); Glasstech, Inc., an automotive glass manufacturer (2002 to present), and as the managing director of Providence Capital, an investment and advisory firm (2003 to 2012).

As a result of these and other professional experiences, Mr. Schafran possesses particular knowledge and experience that strengthen the Board’s collective qualifications, skills and experience. Mr. Schafran was appointed to the Board on September 30, 2015.

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JONATHAN WEINBERGER

Jonathan R. Weinberger has served as a director on our board of directors since November 21, 2012. Mr. Weinberger is an experienced, accomplished, and well-respected member of the Washington D.C. legal, government, technology, and business communities. He currently serves as the first ever Vice President of Innovation and Technology at the Alliance of Automobile Manufacturers, based in Washington D.C. The Alliance is the leading advocacy group for the auto industry and represents 77% of all car and light truck sales in the United States. He previously served as President and Executive Vice President of a revolutionary technology company called Veedims, LLC, based in Fort Lauderdale, Florida. He also acted as a senior advisor to the owners of the private holding company that owns Veedims. Prior to joining Veedims, Mr. Weinberger served directly under six cabinet members in various positions, including service at the Department of State on the staffs of both Secretary Albright and Secretary Powell. At the U.S. Treasury, Mr. Weinberger served as the youngest Executive Secretary of the Treasury in the department’s history. He also served as the Executive Secretary and Deputy Chief of Staff at the Office of the United States Trade Representative at the White House. Mr. Weinberger has served as Associate General Counsel, where he was in charge of issues with respect to foreign investment in the United States and led the litigation team on various high-level trade disputes with China. Through his service in the government, Mr. Weinberger has developed a superb skill for executive management at the largest scale, an eye for efficient operation, and a rare entrepreneurial mindset that allowed for the streamlining of multitudes of bureaucratic structures and processes. Mr. Weinberger received his Bachelor’s Degree in International Affairs and Italian from The Johns Hopkins University. He also earned a Master’s Degree in U.S. Foreign Policy from the Elliott School of International Affairs at George Washington University, a Juris Doctor degree from the Washington College of Law at American University, and a Masters of Law (LL.M.) in international finance and national security law, with distinction, from Georgetown University Law Center.

As a result of these and other professional experiences, Mr. Weinberger possesses particular knowledge and experience in information technology that strengthen the board’s collective qualifications, skills and experience. 

PAUL DONFRIED

Paul Donfried was appointed as appointed to the Board, as President, Chief Executive Officer and Secretary of VerifyMe, Inc. on April 22, 2015.  Mr. Donfried joined VerifyMe as Chief Technology Officer in 2013. He was responsible for leading the development of innovative, resilient and easy-to-use solutions for meeting the anti-counterfeiting and brand protection needs of our customers. In his role as CTO, Mr. Donfried was also responsible for IT services, both internal and external.

Prior to his current role at VerifyMe, Inc., Mr. Donfried spent four years as CTO - Identity and Access Management for Verizon, responsible for the strategy, engineering and marketing direction of the company’s portfolio of enterprise identity services. He led Verizon’s strategic alignment of cloud-based identity technologies across market segments, helping deliver a new generation of identity services that enable organizations to address the complex challenges of authenticating and managing user identities.

Prior to his role at Verizon, Mr. Donfried was Vice President of SAIC Identity & Access Management Solutions for two years, where his responsibilities included overall strategy, product development and the introduction of identity technologies. Earlier in his career, Mr. Donfried worked for Apple, General Electric and The Bank of Montreal.

A recognized expert in the fields of identity life cycle and risk management, Mr. Donfried has led the development of numerous industry organizations including SAFE-BioPharma and Identrust. He is a frequent speaker on the role of trusted e-commerce and its application in heavily regulated industries and the federal government. As a member of the Open Identity Exchange (OIX), Mr. Donfried provides leadership on the creation of trust frameworks and the protection of critical infrastructure.

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Mr. Donfried received a Bachelor of Science in computer science from Rensselaer Polytechnic Institute and holds multiple patents for identity, authentication, attributes and digital signing systems.

As a result of these and other professional experiences, Mr. Donfried possesses particular knowledge and experience in information technology that strengthen the board’s collective qualifications, skills and experience. 

BEN BURRELL

On July 15, 2015, Ben Burrell was appointed as the Chief Operating Officer of VerifyMe, Inc.  Prior to his current role with the Company, Mr. Burrell was the Vice President—Americas, Head of Middle Office Operations for Clearing, Collateral Management and Execution at JPMorgan Chase & Co., a global leader in investment banking, financial services, commercial banking, financial transaction processing, asset management and private equity. In his role at JPMorgan Chase & Co., Mr. Burrell coordinated the operational delivery of technology-based financial services products to over 400 institutional clients. Prior to that, Mr. Burrell held various senior positions in the Worldwide Securities Services division of JPMorgan Chase & Co. spanning 15 years, including roles relating to Sales, Securities Operations Management and Client Relationship Management. Mr. Burrell began his career with Barclays Bank Plc in London and has also worked as Director of Business Development for a boutique investment bank, New Vernon Financial LLC.

SCOTT MCPHERSON

Scott McPherson became has served as our Chief Financial Officer (“CFO”) of VerifyMe, Inc. on since December 1, 2014. Mr. McPherson previously served as our Chief Financial Officer of the Company from December 2012 to October 2013. Mr. McPherson is currently the CFO of Virtual Piggy, Inc. Mr. McPherson also served as CFO of Cannlabs from April 2014 to June 2015. He also served as Chief Executive Officer of Cannlabs from April 2015 to June 2015. . Prior to his tenure with us, from August 2012 through November 2012, Mr. McPherson served as the Chief Financial Officer of Virtual Piggy, Inc., from August 2012 through November 2012. Virtual Piggy, Inc. is a public company that has increased market interest towards the security aspects of online gaming and social networking and has focused its efforts towards delivering a platform technology designed to manage the under 18 age group’s online experience in a secure manner. a public company that focuses on providing a secure COPPA compliant platform allowing under 18 year olds to purchase products in a safe environment. Mr. McPherson currently serves as Chief Financial Officer of Virtual Piggy, Inc. In January 2005, Mr. McPherson formed McPherson, CPA, PLLC in January 2005, which he continues to manage today. The firm performs accounting and tax services for numerous clients in various industries. The firm also performs in addition to providing litigation support services, primarily involving for clients involved in class action lawsuits and other lawsuits involving accounting malpractice or manipulation. The firm has successfully assisted small public companies by developing procedures for them to implement in order to initially comply and maintain compliance with the Sarbanes-Oxley Act. All of these services are conducted under the direction of Mr. McPherson. Mr. McPherson has managed McPherson, CPA, PLLC since its founding. Prior to the formation of McPherson, CPA, PLLC, Mr. McPherson was served in a regional certified public accounting firm as a partner in the SEC, Merger and Acquisition department and SEC departments, and as Co-Chairman of the Litigation Support department of a regional certified public accounting firm.

SANDY FLIDERMAN

On June 12, 2015, Sandy Fliderman was appointed as the Chief Technology Officer (“CTO”) of VerifyMe, Inc.  Prior to his current role with the Company, Mr. Fliderman was the Chief Information Officer at VEEDIMS, LLC, a Internet of Things technology company specializing in data collection and distribution in the aerospace and marine industries. In addition, in the areas of Information Technology (“IT”)/Information Systems, Research and Development and Operations, Mr. Fliderman lead the charge to attain the AS9100 and ISO9001:2008 certifications needed to do business in the aerospace markets. Prior to that Mr. Fliderman was the co-founder and CTO of Zaah. Zaah is a full service digital media company that creates big brand websites, mobile apps, games, and develops social media content and strategy. As CTO of Zaah, Mr. Fliderman directed a team of over 200 personnel and oversaw Zaah’s strategy and development teams in New York, Florida and India. While CTO at Zaah, Sandy was co-inventor on a number of patents and created the technology behind VerifyMe. A software management veteran with over 22 years of experience, Mr. Fliderman began his business career at J.P. Morgan & Co. on the bank’s IT team. He spent his first 5 years in IT on the trading floor on Wall Street.

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Composition of our Board of Directors

Our board of directors currently consists of five members, four of whom are non-employee directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. There are no family relationships among any of our directors or executive officers.

Director Independence

Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, our board of directors has determined that Michael Madon, Lawrence Schafran and Jonathan Weinberger are independent under the applicable rules and regulations of the NASDAQ Stock Market. Our board of directors also determined that Jonathan Weinberger, who is chairman of our nominating and governance committee, satisfies the independence standards for such committees established by the Securities and Exchange Commission and the NASDAQ Marketplace Rules, as applicable. However, Claudio Ballard who is chairman of our compensation committee does not satisfy the standards for such committees established by the Securities and Exchange Commission and the NASDAQ Marketplace Rules, as applicable. With respect to our audit committee, our board of directors has determined that Lawrence Schafran satisfies the independence standards for such committee established by Rule 10A-3 under the Exchange Act, the Securities and Exchange Commission and the NASDAQ Marketplace Rules, as applicable. In making such determinations, the board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances the board of directors deemed relevant in determining their independence.

Board Diversity

Our nominating and governance committee is responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and has individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, takes into account many factors, including the following:

• diversity of personal and professional background, perspective, experience, age, gender, ethnicity and country of citizenship;

• personal and professional integrity and ethical values;

• experience in one or more fields of business, professional, governmental, scientific or educational endeavors, and a general appreciation of major issues facing public companies similar in scope and size to us;

• experience relevant to our industry or with relevant social policy concerns;

• relevant academic expertise or other proficiency in an area of our operations;

• objective and mature business judgment and expertise; and

• any other relevant qualifications, attributes or skills.

Committees of the Board of Directors

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a charter approved by our board of directors. The composition and function of each of these committees are described below.

Audit Committee. Our audit committee is comprised of Lawrence Schafran, Jonathan Weinberger, and Claudio Ballard, Mr. Schafran is the chairperson of the committee. Our board of directors has determined that Mr. Schafran is an audit committee financial expert, as defined by the rules of the Securities and Exchange Commission, and satisfies the financial sophistication requirements of applicable NASDAQ rules.

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Our board of directors has determined that each of the audit committee members other than Claudio Ballard is an independent director under the NASDAQ Marketplace Rules and Rule 10A-3 of the Exchange Act.

Our audit committee is authorized to:

• approve and retain the independent auditors to conduct the annual audit of our financial statements;

• review the proposed scope and results of the audit;

• review and pre-approve audit and non-audit fees and services;

• review accounting and financial controls with the independent auditors and our financial and accounting staff;

• review and approve transactions between us and our directors, officers and affiliates;

• recognize and prevent prohibited non-audit services;

• establish procedures for complaints received by us regarding accounting matters;

• oversee internal audit functions, if any; and

• prepare the report of the audit committee that the rules of the Securities and Exchange Commission require to be included in our annual meeting proxy statement.

Compensation Committee. Our compensation committee is comprised of Claudio Ballard, Lawrence Schafran and Jonathan Weinberger. Mr. Ballard is the chairman of the compensation committee. Our compensation committee is authorized to:

• review and recommend the compensation arrangements for management, including the compensation for our president and chief executive officer;

• establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;

• administer our stock incentive plans; and

• prepare the report of the compensation committee that the rules of the Securities and Exchange Commission require to be included in our annual meeting proxy statement.

Nominating and Governance Committee. Our nominating and governance committee is comprised of Jonathan Weinberger, Claudio Ballard and Lawrence Schafran. Mr. Weinberger is the chairman of the nominating and governance committee. Our nominating and governance committee is authorized to:

• identify and nominate members of the board of directors;

• develop and recommend to the board of directors a set of corporate governance principles applicable to our company; and

• oversee the evaluation of our board of directors.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that will apply to all of our employees, officers and directors, including those officers responsible for financial reporting.  The code of business conduct and ethics is available on our website at http://www.verifyme.com/#intro.  We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

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Board Leadership Structure and Board’s Role in Risk Oversight

The positions of chairman of the board and chief executive officer are presently separated at our company.  We believe that separating these positions allows our chief executive officer to focus on our day-to-day business, while allowing our chairman of the board to lead the board of directors in its fundamental role of providing advice to, and independent oversight of, management.  Our board of directors recognizes the time, effort and energy that the chief executive officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our chairman, particularly as the board of directors’ oversight responsibilities continue to grow.  Our board of directors also believes that this structure ensures a greater role for the independent directors in the oversight of our company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our board of directors.  This leadership structure also is preferred by a significant number of our stockholders.  Our board of directors believes its administration of its risk oversight function has not affected its leadership structure. Michael Madon is the Chairman of the Board of Directors

While our amended and restated by-laws and corporate governance guidelines do not require that our chairman and chief executive officer positions be separate, our board of directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success.  We face a number of risks, including risks relating to product candidate development, technological uncertainty, dependence on collaborative partners and other third parties, uncertainty regarding patents and proprietary rights, comprehensive government regulations, having no commercial manufacturing experience, marketing or sales capability or experience and dependence on key personnel.  Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management.  In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

Our board of directors is actively involved in oversight of risks that could affect us.  This oversight is conducted primarily through committees of the board of directors, but the full board of directors has retained responsibility for general oversight of risks.  Our board of directors satisfies this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company as our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight.

Limitation of Directors’ and Officers’ Liability and Indemnification

The corporate laws of the state of Nevada authorize corporations to limit or eliminate, subject to specified conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties.  Our amended and restated articles of incorporation limit the liability of our directors to the fullest extent permitted by Nevada law.

We have obtained director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us.  Our amended and restated articles of incorporation and amended and restated by-laws also provide that we will indemnify and advance expenses to any of our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding of any nature.  We will repay certain expenses incurred by a director or officer in connection with any civil, criminal, administrative or investigative action or proceeding, including actions by us or in our name.  Such indemnifiable expenses include, to the maximum extent permitted by law, attorney’s fees, judgments, fines, ERISA excise taxes, penalties, settlement amounts and other expenses reasonably incurred in connection with legal proceedings.  A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interest.

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The company has entered into separate agreements with its directors and officers.  Pursuant to such agreements, the company agrees to indemnify, defend and hold harmless each director to the fullest extent of the law of the State of Nevada and in accordance with the company’s Amended and Restated Articles of Incorporation and Amended and Restated By-laws.  Such indemnification applies to any actions taken in the director’s official capacity as a director, as well as those actions that relate to the company’s business while the director holds office.  Such indemnification does not apply to matters arising out of the director’s gross negligence or willful misconduct.  The company’s indemnification of its directors covers payment for or reimbursement of expenses, including legal fees and expenses.  Additionally, the company agrees to maintain directors’ and officers’ insurance throughout the terms of such agreements and for a period of six years thereafter. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers.

Such limitation of liability and indemnification does not affect the availability of equitable remedies.  In addition, we have been advised that in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.

There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted.  We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that our officers and directors and persons who beneficially own more than 10% of our common stock file initial reports of ownership and reports of changes in beneficial ownership of our common stock with the SEC. They are also required to furnish us with copies of all Section 16(a) forms that they file with the SEC. Based solely on our review of the copies of such forms received by us, or written representations from such persons that no reports were required for those persons, we believe that all Section 16(a) filing requirements were satisfied in a timely fashion during our fiscal year ended December 31, 2015, except for the late filings or failures to file by Paul Donfried, Scott McPherson, Ben Burrell, Sandy Fliderman, Claudio Ballard, Jonathan Weinberger, and Lawrence Shafran set forth below:

With respect to Paul Donfried, he failed to file timely his Form 3 upon his appointment as a director of the Company in April 2015.  Further, Mr. Donfried failed to timely file a Form 4 upon his receipt of 500,000 options at an exercise price of $0.85 per share, 300,000 Restricted Stock Units and the equivalent of 7,619 shares of the Company through an investor.

With respect to Sandy Fliderman, he failed to file timely his Form 3 upon his appointment as an officer of the Company in June 2015, which included his receipt of 375,000 options at an exercise price of $0.85 per share, and 225,000 Restricted Stock Units.

With respect to Benjamin Burrell, he failed to file timely his Form 3 upon his appointment as an officer of the Company in July 2015, which included his receipt of 375,000 options at an exercise price of $0.85 per share, and 225,000 Restricted Stock Units.

With respect to Larry Schafran, he failed to file timely his Form 3 upon his appointment as an officer of the Company in June 2015, which included his receipt of 75,000 options at an exercise price of $2.15 per share.

With respect to Scott McPherson, failed to timely file a Form 4 upon his receipt of 375,000 options at an exercise price of $0.85 per share, and 225,000 Restricted Stock Units in August 2015.

With respect to Jonathan Weinberger, he failed to file his Form 4 upon his receipt of 175,000 options at an exercise price of $0.85 per share.

With respect to Claudio Ballard, he failed to file his Form 4 upon his receipt of 75,000 options at an exercise price of $0.85 per share.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table sets forth the compensation earned by the Company’s principal executive officer and named executive officers during the years ended December 31, 2015 and 2014.

						Stock		Option		All Other
		Salary		Bonus		Awards (1)		Awards (1)		Compensation		Total
Name and Principal Position	Year	($)		($)		($)		($)		($)		($)
Neil Alpert, Former Chief	2015		6,667		-		-		-		-		6,667
Executive Officer	2014		200,000*		-		-		-		-		200,000
Paul Donfried, Chief Executive Officer, President	2015		151,107**		-		280,000		405,342		-		836,449
and Secretary (a)	2014		300,000***		-		-		-		-		300,000
Ben Burrell, Chief Operating Officer (b)	2015		68,055****		-		918,000		1,502,219		-		2,488,274
	2014		-		-		-		-		-		-
Scott McPherson, Chief Financial Officer	2015		79,350*****		-		692,400		1,107,857		-		1,879,607
	2014		-		-		-		-		-		-
Sandy Fliderman, Chief Technology Officer (c)	2015		74,948******		-		191,250		304,003		-		570,201
	2014		-		-		-		-		-		-

(1)   Represents the grant date fair value of the option award, calculated in accordance with FASB Accounting Standard Codification 718, “Compensation – Stock Compensation,” or ASC 718. The assumptions used in calculating the grant date fair value of the option awards are set forth in Note 13 of our Consolidated Financial Statements.

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(a) – Mr. Donfried was appointed Chief Executive Officer, President and Secretary on April 22, 2015.

(b) – Mr. Burrell was appointed Chief Operating Officer on July 15, 2015.

(c) – Mr. Fliderman was appointed Chief Technology Officer on June 12, 2015.

As of December 31, 2015, employees have accrued the following:

** $4,167

**** $3,245

***** $6,000

***** $3,245

As of December 31, 2014, employees had accrued the following:

* $38,827

*** $76,000

Outstanding Equity Awards At December 31, 2015

The following table sets forth, for each named executive officer, information regarding unexercised options, stock that had not vested, and equity incentive plan awards as of the end of our fiscal year ended December 31, 2015.

	Option awards					Stock awards
									Equity
									incentive
								Equity	plan awards:
			Equity					incentive	Market or
			incentive					plan awards:	payout
		Number of	plan awards:				Market	Number of	value of
	Number of	securities	Number of			Number of	value of	unearned	unearned
	securities	underlying	securities			shares or	shares or	shares, units	shares, units
	underlying	unexercised	underlying			units of	units of	or other	or other
	unexercised	options	unexercised	Option		stock that	stock that	rights that	rights that
	options	(#)	unearned	Exercise	Option	have not	have not	have not	have not
	(#)	unexercisable	options	Price	Expiration	vested	vested	vested	vested
Name	exercisable	(a)	(#)	($)	Date	(#)	($)	(#)	($)
Neil Alpert	-	-	-	-	-	-	-	-	-
Paul Donfried	5,882	-	-	4.25	3/28/2024	-	-	-	-
	125,000	375,000	-	0.85	6/12/2020	-	-	-	-
	-	-	-	-	-	-	-	300,000	750,000
Ben Burrell	31,250	343,750	-	0.85	7/9/2020	-	-	-	-
	-	-	-	-	-	-	-	225,000	562,500
Scott McPherson	16,667	183,333	-	5.77	8/10/2020	-	-	-	-
	-	-	-	-	-	-	-	20,000	50,000
	-	-	-	-	-	-	-	100,000	250,000
Sandy Fliderman	62,500	312,500	-	0.85	6/12/2020	-	-	-	-
	-	-	-	-	-	-	-	225,000	562,500

Narrative Disclosure to Summary Compensation Table and Outstanding Equity Awards Table

Employment Agreements

Pursuant to the terms of the offer letter agreed to between the Company and Mr. Donfried, Mr. Donfried is an “at-will” employee of the Company and receives an annual salary of $200,000. Mr. Donfried will also receive 42,500,000 options (post reverse split 500,000 options) to purchase shares of common stock of the Company, with an exercise price of $0.01. The options vest quarterly over three years. In addition, Mr. Donfried will receive 25,500,000 (post reverse split 300,000 RSUs) shares of restricted stock, vesting over a three year period, with 1/3 vesting the first year and 1/6 vesting ratably semi-annually thereafter. Mr. Donfried will receive a standard benefits package that includes health insurance and paid vacation time.

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Pursuant to the terms of the offer letter agreed to between the Company and Mr. Burrell, Mr. Burrell is an “at-will” employee of the Company and receives an annual salary of $150,000. Mr. Burrell received 31,875,000 options (post reverse split 375,000 options) to purchase shares of common stock of the Company, with an exercise price of $0.01. The options will vest quarterly over three years. In addition, Mr. Burrell received 19,125,000 (post reverse split 225,000 RSUs) shares of restricted stock, vesting over a three-year period, with one-third vesting the first year and 1/12 vesting ratably on a quarterly basis thereafter. Mr. Burrell receives a standard benefits package that includes health insurance and paid vacation time.

Pursuant to the terms of the offer letter agreed to between the Company and Mr. Fliderman, Mr. Fliderman is an “at-will” employee of the Company and receives an annual salary of $150,000. Mr. Fliderman received 31,875,000 options (post reverse split 375,000 options) to purchase shares of common stock of the Company, with an exercise price of $0.01. The options vest quarterly over three years. In addition, Mr. Fliderman received 19,125,000 (post reverse split 225,000 RSUs) shares of restricted stock, vesting over a three year period, with 1/3 vesting the first year and 1/12 vesting ratably on a quarterly basis thereafter. Mr. Fliderman receives a standard benefits package that includes health insurance and paid vacation time.

Director Compensation

									Nonqualified
							Non-equity incentive		deferred
	Fees Earned or		Stock		Option		plan		compensation		All Other
	paid in cash		awards		awards		compensation		earnings		Compensation		Total
Name	($)		($)		($)		($)		($)		($)		($)
Michael Madon		-		-		-		-		-		-		-
Claudio Ballard		-		-		60,801		-		-		-		60,801
Lawrence G. Schafran		-		-		155,003		-		-		-		155,003
Jonathan Weinberger		-		-		141,870		-		-		-		141,870
Paul Klapper		-		-		-		-		-		-		-
Connie Harriman		-		-		-		-		-		-		-

(1)	Represents the grant date fair value of the option award, calculated in accordance with FASB Accounting Standard Codification 718, “Compensation – Stock Compensation,” or ASC 718. The assumptions used in calculating the grant date fair value of the option awards are set forth in Note 13 of our Consolidated Financial Statements.
(2)	Neil Alpert and Paul Donfried who were Directors in 2015 are not included in this table as they were employee directors who did not receive additional compensation for their service as directors.

Narrative Disclosure to Directors Compensation Table

We did not pay an annual fee to any of our directors during 2015 or 2014. Each member of our board of directors receives reimbursement of expenses incurred in connection with his or her services as a member of our board or board committees.

Our non-employee directors are eligible to receive options, restricted stock and other equity linked grants under our options plans.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS

Security Ownership

The following table sets forth, as of March 28, 2016, information with respect to the securities holdings of all persons that we have reason to believe, pursuant to filings with the SEC, may be deemed the beneficial owner of more than 5% of our outstanding common stock. The following table also sets forth, as of such date, the beneficial ownership of our common stock by all executive officers and directors, individually and as a group.

The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of March 30, 2016 upon the exercise or conversion of any options, warrants or other convertible securities. Unless otherwise indicated, each person or entity named below has sole voting and investment power with respect to all common stock beneficially owned by that person or entity, subject to the matters set forth in the footnotes to the table below, and has an address of c/o VerifyMe, Inc., 12 West 21st Street, 8th Floor, New York, NY  10010.

Title of	Name and address of beneficial	Amount and nature of beneficial			Percent of
class	owner	ownership +			class
5% Beneficial Owners
Common	Robert Bast
	110 Spruce Lane
	Ambler, PA  19002		334,396	(1)		5.1	%
Common	Clydesdale Partners II LLC
	201 Spear Street, Suite 1750
	San Francisco, CA  94105		679,394	(2)		10.3	%
Common	Nob Hill
	c/o Stephen Ray
	100 V Embarcadero PH
	San Francisco, CA  94105		385,312	(3)		5.8	%
Executive Officers and Directors
Michael Madon			50,000	(4)		*
Claudio Ballard			25,000	(5)		*
Jonathan Weinberger			58,333	(6)		*
Lawrence Schafran			25,000	(7)		*
Paul Donfried			345,775	(8)		5.0	%
Ben Burrell			93,750	(9)		1.4	%
Scott McPherson			70,000	(10)		1.1	%
Sandy Fliderman			93,750	(11)		1.4	%
All officers and directors as a group
(9 people)			761,608			10.4	%

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*  Less than 1 percent

+ In accordance with SEC rules, options, warrants and other securities exercisable for or convertible into shares of our common stock that were exercisable as of March 28, 2016, or would become exercisable within 60 days thereafter, are deemed to be outstanding and beneficially owned by the person holding such options, warrants or other securities for the purpose of computing such person’s percentage ownership, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. This table has been prepared based on 6,586,711 shares of our common stock outstanding on March 28, 2016.

(1) Consists of 334,396 shares of common stock.

(2) Consists of 568,805 shares of common stock and 110,589 shares of PFK Acquisition Group II LLC, which is under common control.

(3) Consists of 385,312 shares of common stock.

(4) Consists of 50,000 shares of common stock underlying options exercisable at $0.60 per share.

(5) Consists of 25,000 shares of common stock underlying options exercisable at $0.85 per share.

(6) Consists of 58,333 shares of common stock underlying options exercisable at $0.85 per share.

(7)  Consists of 25,000 shares of common stock underlying options exercisable at $2.55.

(8) Consists of 5,882 shares of common stock underlying options exercisable at $4.25 per share, 187,500 shares of common stock underlying options at $0.85 per share, and 7,620 shares of Series A Convertible Preferred Stock held by OPC Partners, LLC for the benefit of Paul Donfried that are convertible into 152,393 shares of common stock.

(9) Consists of 93,750 shares of common stock underlying options exercisable at $0.85 per share.

(10) Consists of 20,000 shares of restricted stock and 50,000 shares of common stock underlying options at $5.77 per share.

(11) Consists of 93,750 shares of common stock underlying options exercisable at $0.85 per share.

Transfer Agent

Our Transfer Agent is Interwest Transfer Company, Inc. and their address and phone number are 1981 Murray Holladay Road, #100, Salt Lake City, UT 84117; (801) 272-9294.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides certain information with respect to all of our equity compensation plans in effect as of the date of this filing.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		448,529	$	3.44		23,767,631
Equity compensation plans not approved by security holders		3,123,716	$	10.59		—
Total:		3,572,245	$	4.79		23,767,631

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2003 and 2013 Stock Option Plans

We adopted our 2003 Stock Option Plan as of December 17, 2003 (the “2003 Plan”). Awards were available to be made under the 2003 Plan for up to 18,000,000 shares of our common stock in the form of stock options or deferred stock awards. Awards were available to be made to our employees, officers or directors as well as our consultants or advisors. The Plan is administered by our board of directors which has full and final authority to interpret the Plan, select the persons to whom awards may be granted, and determine the amount, vesting and all other terms of any awards.

During 2013, our Board adopted, and our shareholders approved, a new comprehensive incentive compensation plan (the “2013 Plan”, and together with the 2003 Plan, the “Plans”) which serves as the successor incentive compensation plan to the 2003 Plan, and provides the Company with an omnibus plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for selected individuals in our employ or service. Our Board believes that the availability of (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 but not subject to previously exercised, vested or paid grants, for issuance under the 2013 Plan, as sufficient to meet the current needs of the Company.

All stock options issued prior to June 12, 2015 under the Plans are exercisable for a period of up to ten years from the date of grant.  All stock options issued on or subsequent to June 12, 2015 under the Plans are exercisable for a period of up to five years from the date of grant.  All of the options are subject to vesting as determined by the Board upon grant, and have an exercise price equal to not less than the fair market value of our common stock on the date of grant (except for incentive stock options granted to 10% stockholders, which are required to have an exercise price of not less than 110% of the fair market value of the common stock on the date the option is granted). Unless otherwise determined by the Board, awards may not be transferred except by will or the laws of descent and distribution. The Board has discretion to determine the effect on any award granted under the Plans of the death, disability, retirement, resignation, termination or other change in employment or other status of any participant in the Plans.

Upon the occurrence of a “Change in Control”, as defined in the Plans, the Board may take any number of actions. These actions include, providing for all options outstanding under the Plans to be assumed by the acquiring corporation or to become immediately vested and exercisable in full. As of the date of this report, we have issued options under the Plans to purchase 14,232,369 shares of common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Party Transactions

At June 12, 2015, three stockholders of the Company held $317,000 of the senior secured convertible notes payable and were owed accrued interest of $42,713. The notes and accrued interest were converted into 234,735 shares (19,952,489 pre Reverse Stock Split) of Common Stock.  These transactions were considered arms length transactions as they were on similar terms with transactions included in the restructuring transaction on June 12, 2015.

Policies and Procedures for Reviewing Related Party Transactions

We have not adopted any written policies or procedures governing the review, approval or ratification of related party transactions. However, our Board of Directors reviews, approves or ratifies, when necessary, all transactions with related parties.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND DISCLOSURES.

Audit Fees

The fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements for the years ended December 31, 2015 and 2014 and the review of the financial statements included in each of our quarterly reports during the years ended December 31, 2015 and 2014, were $72,400 and $40,500, respectively.

Audit-Related Fees

There were no fees billed by our independent accountants for audit-related services during the fiscal year ended December 31, 2015 and 2014.

Tax Fees

During the fiscal years ended December 31, 2015 and 2014, there were no fees billed for tax compliance, tax advice and/or tax planning by our principal accountants.

All Other Fees

During the for the year ended December 31, 2015 and 2014, there were no additional fees billed for products and services provided by the principal accountant other than those set forth above.

Audit Committee Approval

Our recently formed audit committee approves the engagement of our independent auditors, and meets with our independent auditors to approve the annual scope of accounting services to be performed and the related fee estimates. It also meets with our independent auditors prior to the completion of our annual audit and reviews the results of their audit and review of our annual and interim consolidated financial statements, respectively. During the course of the year, our chairperson has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. The chairperson reports any interim pre-approvals at the following quarterly meeting. At each of the meetings, management and our independent auditors update our board of directors regarding material changes to any service.

We did not have any pre-approval policies for the year ended December 31, 2015.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

3.1	Certificate of Amendment to Amended and Restated Articles of Incorporation of LaserLock Technologies, Inc., as amended (filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 19, 2015 and incorporated herein by reference).
3.2	Amended Certificate of Designation of Series A Preferred Stock, dated as of January 31, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2013 and incorporated herein by reference).
3.3	Second Amended Certificate of Designation for Series A Preferred Stock, dated as of June 2015 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015 and incorporated herein by reference).
3.4	Certificate of Designation for Series B Preferred Stock, dated as of June 2015 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015 and incorporated herein by reference).
3.5	Certificate of Designation for Series C Preferred Stock, filed with the Nevada Secretary of State on January 27, 2016 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2016 and incorporated herein by reference).
3.6	Amended and Restated Bylaws of LaserLock Technologies, Inc. as amended (filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 19, 2015 and incorporated herein by reference).
3.7	Second Amendment to Amended and Restated Bylaws of the Company, dated January 27, 2016 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2016 and incorporated herein by reference).
4.1	Form of Warrant for Purchase of Common Stock (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2016 and incorporated herein by reference.
10.1	Form of Securities Purchase Agreement by and between the Company and each of the Investors (filed as an Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2016 and incorporated herein by reference)
10.2	Form of Registration of Rights Agreement by and between the Company and each of the Investors (filed as an Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2016 and incorporated herein by reference)
10.3	Master Acquisition Agreement by and among OPC Partners LLC, VerifyMe, Inc., Laserlock Technologies, Inc., Zaah Technologies, Inc. and a Common Stock Investor dated as of June 12, 2015 (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.4	Form of Promissory Note Conversion Agreement (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.5	Form of Warrant Conversion Agreement (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.6*	Employment Letter to Paul Donfried from LaserLock Technologies, Inc. (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.7*	Employment Letter to Sandy Fliderman from LaserLock Technologies, Inc. (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.8	Independent Director's Agreement between LaserLock Technologies, Inc. and Jonathan Weinberger dated as of June 12, 2015 (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.9	Independent Director's Agreement between LaserLock Technologies, Inc. and Claudio Ballard dated as of June 12, 2015 (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2015).
10.10*	Employment Letter to Ben Burrell from LaserLock Technologies, Inc., dated as of June 12, 2015 (filed as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2015).

40

23.1**	Consent of Morison Cogen, LLP
31.1**	Certification of the principal executive officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
31.2**	Certification of the principal financial officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
32.1**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief executive officer and chief financial officer of the Company
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

*  Management contract of compensatory plan or arrangement.

**  filed herewith

41

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/ Paul Donfried
	Paul Donfried Chief Executive Officer
	Date: March 30, 2016

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/ Paul Donfried	Chief Executive Officer	March 30, 2016
Paul Donfried	(Principal Executive Officer)
Signature	Title	Date
/s/ Scott McPherson	Chief Financial Officer	March 30, 2016
Scott McPherson	(Principal Financial Accounting Officer)
Signature	Title	Date
/s/ Michael Madon	Chairman of the Board	March 30, 2016
Michael Madon
Signature	Title	Date
/s/ Claudion Ballard	Director	March 30, 2016
Claudio Ballard
Signature	Title	Date
/s/ Jonathan Weinberger	Director	March 30, 2016
Signature /s/ Lawrence Schafran	Title Director	Date March 30, 2016

42

CONTENTS

	PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-1
BALANCE SHEETS		F-2
STATEMENTS OF OPERATIONS		F-3
STATEMENT OF STOCKHOLDERS’ DEFICIT		F-4
STATEMENTS OF CASH FLOWS		F-5
NOTES FINANCIAL STATEMENTS		F-6 to F-28

Report of Independent Registered Public Accounting Firm

To the Board of Directors

VerifyMe, Inc.

We have audited the accompanying balance sheets of VerifyMe, Inc. as of December 31, 2015 and 2014 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years 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 audits.

We conducted our audits 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 audits provide 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, 2015 and 2014, and the results of their operations and their cash flows for the years 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

March 30, 2016

F-1

VerifyMe, Inc.

Balance Sheets

	December 31, 2015			December 31, 2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,152		$	63,956
Inventory		28,687			97,360
Prepaid expenses		-			181,086
TOTAL CURRENT ASSETS		32,839			342,402
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $230,621 and $161,205 as of December 31, 2015 and December 31, 2014		7,838			74,821
OTHER ASSETS
Deposits		37,197			37,197
Patents and Trademark, net of accumulated amortization of $135,315 and $118,502 as of December 31, 2015 and December 31, 2014		259,294			107,586
		296,491			144,783
TOTAL ASSETS	$	337,168		$	562,006
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	652,973		$	5,217,770
Accrued interest - related parties		-			43,215
Deferred revenue		-			16,667
Senior secured convertible notes payable - related parties		-			114,000
Notes payable		50,000			812,553
TOTAL CURRENT LIABILITIES		702,973			6,204,205
LONG-TERM LIABILITIES
Warrant liability		1,802,375			6,370,709
Accrued interest - related parties		-			112,885
TOTAL LONG-TERM LIABILITIES		1,802,375			6,483,594
TOTAL LIABILITIES		2,505,348			12,687,799
CONTINGENCIES
STOCKHOLDERS' DEFICIT
Series A Convertible Preferred Stock, $ .001 par value; 37,564,767 shares authorized; 441,938 shares issued and outstanding
as of December 31, 2015 and 75,000,000 shares authorized; 248,366 issued and outstanding as of December 31, 2014		442			633,333
Series B Convertible Preferred Stock, $.001 par value; 85 shares authorized; 1 share issued and outstanding
as of December 31, 2015 and 0 shares authorized; 0 issued and outstanding as of December 31, 2014		-			-
Common stock, $ .001 par value; 675,000,000 shares authorized; 6,259,727 and 3,969,106 shares issued, and 5,977,030
and 3,618,566 shares outstanding at December 31, 2015 and December 31, 2014		5,977			3,618
Additional paid in capital		39,779,414			25,047,050
Treasury stock, at cost (350,540 shares at December 30, 2015 and December 31, 2014)		(113,389	)		(113,389	)
Deferred compensation		(1,842,334	)		-
Accumulated deficit		(39,998,290	)		(37,696,405	)
STOCKHOLDERS' DEFICIT		(2,168,180	)		(12,125,793	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	337,168		$	562,006

The accompanying notes are an integral part to these financial statements.

F-2

VerifyMe, Inc.

Statements of Operations

For the Years Ended and 2015 and 2014

	Year			Year
	Ended			Ended
	December 31,			December 31,
	2015			2014
NET REVENUES
Sales		200,601		$	116,265
Royalties		16,667			8,333
TOTAL NET REVENUE		217,268			124,598
COST OF SALES		65,723			113,024
GROSS PROFIT		151,545			11,574
OPERATING EXPENSES
General and administrative		449,483			811,916
Legal and accounting		458,801			344,903
Payroll expenses (a)		1,875,488			1,611,376
Research and development (b)		2,412,833			10,590,271
Sales and marketing (c)		197,430			218,443
Total operating expenses		5,394,035			13,576,909
LOSS BEFORE OTHER INCOME		(5,242,490	)		(13,565,335	)
OTHER INCOME (EXPENSE)
Interest expense		(61,438	)		(199,364	)
Gain (loss) on extinguishment of debt		332,523			(82,000	)
Change in fair value of warrants		2,669,520			5,128,204
Change in fair value of embedded derivative liability		-			800,000
		2,940,605			5,646,840
NET LOSS	$	(2,301,885	)	$	(7,918,495	)
LOSS PER SHARE
BASIC	$	(0.47	)	$	(2.22	)
DILUTED	$	(0.47	)	$	(2.22	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		4,848,738			3,573,511
DILUTED		4,848,738			3,573,511

(a) - includes share based compensation of $1,259,670 and $860,235 for the years ended December 31, 2015 and 2014

(b) - includes share based compensation of $2,000,000 and $10,236,089 for the years ended December 31, 2015 and 2014

(c) - includes share based compensation of $88,937 and $0 for the years ended December 31, 2015 and 2014

The accompanying notes are an integral part to these financial statements.

F-3

VerifyMe, Inc.

Statement of Changes in Stockholders’ Deficit

For the Two Years Ended December 31, 2015

	Series A						Series B
	Convertible						Convertible
	Preferred						Preferred				Common
	Stock						Stock				Stock					Additional
	Number of						Number of				Number of					Paid-In			Treasury			Deferred			Accumulated
	Shares			Amount			Shares		Amount		Shares		Amount			Capital			Stock			Compensation			Deficit			Total
Balance at December 31, 2013		21,111,111		$	633,333							290,066,139	$	(13,893	)	$	23,272,739		$	(113,389	)				$	(29,777,910	)	$	(5,999,121	)
Issuance of shares of common stock for services		-			-							6,349,206		6,349			393,651			-						-			400,000
Cashless exercise of options		-			-							2,714,285		2,714			(2,714	)		-						-			-
Fair value of employee stock options		-			-							-		-			860,235			-						-			860,235
Issuance of shares of common stock for settlement of debt		-			-							8,448,519		8,449			498,139			-						-			506,588
Forgiveness of related party debt		-			-							-		-			25,000			-						-			25,000
Net income for the year ended December 31, 2014		-			-							-		-			-			-						(7,918,495	)		(7,918,495	)
Balance at December 31, 2014		248,366		$	633,333			-	$	-		3,618,566	$	3,618		$	25,047,050		$	(113,389	)	$	-		$	(37,696,405	)	$	(12,125,793	)
Conversion of Series A Convertible Preferred Stock into common stock		(248,366	)		(633,333	)		-		-		248,366		248			633,085			-			-			-			-
Sale of Series A Convertible Preferred Stock		389,668			390			-		-		-		-			1,278,111			-			-			-			1,278,501
Conversion of stockholder deferred compensation into Series A Convertible Preferred Stock		10,667			10			-		-		-		-			34,990			-			-			-			35,000
Conversion of notes payable and accrued interest into Series A Convertible Preferred Stock		41,603			42			-		-		-		-			136,771			-			-			-			136,813
Conversion of accrued expenses into Series B Convertible Preferred Stock		-			-			1		-		-		-			8,367,417			-			-			-			8,367,417
Sale of common stock		-			-			-		-		304,785		305			49,695			-			-			-			50,000
Conversion of warrants into common stock		-			-			-		-		51,372		51			36,949			-			-			-			37,000
Conversion of stockholder notes payable and accrued interest into common stock		-			-			-		-		673,706		674			730,752			-			-			-			731,426
Conversion of accounts payable and accrued expenses into common stock		-			-			-		-		116,997		117			99,330			-			-			-			99,447
Cashless exercise of warrants into common stock		-			-			-		-		2,353		2			(2	)		-			-			-			-
Issuance of stock for services		-			-			-		-		960,000		960			2,415,690			-			(2,416,650	)		-			-
Decrease in fair value of restricted stock units		-			-			-		-							(75,500	)		-			75,500			-			-
Forgiveness of stockholder compensation		-			-			-		-		-		-			175,287			-			-			-			175,287
Amortization of deferred compensation		-			-			-		-		-		-			-			-			498,816			-			498,816
Fair value of employee stock options		-			-			-		-		-		-			849,791			-			-			-			849,791
Rounding of partial shares relative to reverse split					-			-		-		885		1			(1	)		-			-			-			-
Net loss		-			-			-		-		-		-			-			-			-			(2,301,885	)		(2,301,885	)
Balance at December 31, 2015		441,938		$	442			1	$	-		5,977,030	$	5,977		$	39,779,414		$	(113,389	)	$	(1,842,334	)	$	(39,998,290	)	$	(2,168,180	)

The accompanying notes are an integral part to these financial statements.

F-4

VerifyMe, Inc.

Statements of Cash Flows

For the Years Ended and 2015 and 2014

	Year			Year
	Ended			Ended
	December 31,			December 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,301,885	)	$	(7,918,495	)
Adjustments to reconcile net loss to net cash used in
operating activities
Gain on conversion of debt		(332,523	)		-
Fair value of options issued in exchange for services		849,791			860,235
Accretion of discount on notes payable		10,447			202,377
Change in fair value of warrant liability		(2,700,917	)		(5,128,204	)
Change in fair value of embedded derivative liability		-			(800,000	)
Fair value of stock in excess of converted notes payable and accrued interest		-			82,000
Amortization and depreciation		94,123			82,362
Stock and warrants issued in exchange for technology		-			5,736,089
Amortization of deferred compensation		498,816			-
Series B Preferred Stock issued for licensing fees		2,000,000			-
(Increase) decrease in assets
Accounts receivable		-			3,573
Inventory		68,673			(63,089	)
Prepaid expenses		4,770			8,388
Increase (decrease) in liabilities
Accounts payable and accrued expenses		330,057			4,898,080
Deferred revenue		(16,667	)		16,667
Net cash used in operating activities		(1,495,315	)		(2,020,017	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment		(2,432	)		-
Purchase of patents		(100	)		-
Net cash used in investing activities		(2,532	)		-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable		159,542			798,000
Repayment of notes payable		(50,000	)		-
Proceeds from sale of Series A Convertible Preferred Stock		1,278,501			-
Proceeds from sale of common stock		50,000			-
Net cash provided by financing activities		1,438,043			798,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		(59,804	)		(1,222,017	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		63,956			1,285,973
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	4,152		$	63,956
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	6,646		$	-
Income taxes	$	-		$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of common stock issued for conversion of notes payable and accrued interest	$	1,028,039		$	506,588
Fair value of warrants issued as debt discount	$	-		$	211,576
Forgiveness of related party debt	$	-		$	25,000
Cashless exercise of warrants	$	2		$	-
Series A Convertible Preferred Stock converted to common stock	$	633,333		$	-
Issuance of Series A Convertible Preferred Stock for deferred compensation	$	35,000		$	-
Issuance of Series A Convertible Preferred Stock for notes payable and accrued interest	$	136,813		$	-
Issuance of Series B Convertible Preferred Stock for accrued expenses	$	4,500,000		$	-
Conversion of warrants into Series B Convertible Preferred Stock	$	1,867,417		$	-
Conversion of warrants to common stock	$	37,000		$	-
Conversion of accounts payable and accrued expenses into common stock	$	99,447		$	-
Common stock issued for deferred compensaton	$	2,416,650		$	-
Forgiveness of stockholder compensation	$	175,285		$	-
Patent costs reclassified from prepaid expenses resulting from purchase of patents	$	176,316		$	-
Revaluation of restricted stock units between additional paid in capital and deferred
compensation	$	75,500		$	-

The accompanying notes are an integral part to these financial statements.

F-5

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

On July 14, 2015, LaserLock Technologies, Inc. changed its name to VerifyMe, Inc., effective July 23, 2015. As used in this report, unless the context otherwise indicates, any reference to “VerifyMe,” “our Company,” “the Company,” “us,” “we” and “our” refers to VerifyMe, Inc. a Nevada corporation.

The Company was incorporated in the State of Nevada on November 10, 1999. The Company is based in New York, 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 OTC QB, organized by the OTC Markets Group, Inc., and the OTC Bulletin Board under the ticker symbol “VRME.”

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 delivers 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. 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 operationalize the Company’s current technology.

Basis of Presentation

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America.

Reverse Stock Split and Changes to Company’s Preferred Stock

On May 26, 2015, the board of directors of the Company (the “Board”), acting by written consent in lieu of a special meeting, unanimously approved and adopted: (a) a reverse stock split of all of the Company’s issued and outstanding capital stock based on a minimum 1-for-40 split, up to a maximum 1-for-100 split (the “Reverse Stock Split”), and recommended the same for the Company’s stockholders for approval, and (b) a Second Amended Certificate of Designation for Series A Preferred Stock, which amended the designations, preferences, powers and rights of the shares of the Company’s Series A convertible preferred stock, par value $0.001 per share (the “Series A Preferred Stock”), which were originally set forth in that certain Amended Certificate of Designation for Series A Preferred Stock, dated December 19, 2003.

On May 28, 2015, those stockholders of the Company holding a majority of the issued and outstanding shares of Common Stock and Series A Preferred Stock, acting by written consent in lieu of a special meeting, voted to approve the Reverse Stock Split.

On June 11, 2015, at a duly authorized special meeting of the Board, the Board (a) finalized, adopted and approved a resolution setting the Reverse Stock Split exchange ratio to a 1-for-85 split and (b) approved and adopted a new Certificate of Designation for Series B Preferred Stock, establishing the designations, preferences, powers and rights of the shares of the Company’s Series B convertible preferred stock, par value $0.001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”).

On July 23, 2015, the Company completed the 1-for-85 Reverse Stock Split of all of its outstanding Common Stock and Preferred Stock. The total number of authorized capital stock of the Company remained unchanged at its current total of 750,000,000, with 675,000,000 designated as Common Stock and 75,000,000 designated as Preferred Stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

F-6

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, warrant liability and notes payable. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities.

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

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

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

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

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

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 Trademark

The current patent portfolio consists of ten granted patents and six applications pending.   The Company has also purchased a trademark. 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.

F-7

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.”

Convertible Notes Payable

Convertible notes payable, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature (BCF) as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method which approximates the effective interest method.

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.

F-8

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 2012 through 2015 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.

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 $458 and $62,835 for the years ended December 31, 2015 and 2014 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, 2015 and 2014 were $2,529,833 and $10,590,271.

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.

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.

F-9

Recently Adopted Accounting Pronouncements

As of December 31, 2015 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 Company is evaluating the effect of the adoption of this standard.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. The amendments in this Update apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share.

For hybrid financial instruments issued in the form of a share, an entity (an issuer or an investor) should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. That is, an entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract.

The effects of initially adopting the amendments in this Update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. The Company does not anticipate the adoption of this standard to have a material effect on the financial statements.

The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. If an entity early adopts the amendments in an interim period, any adjustments shall be reflected as of the beginning of the fiscal year that includes that interim period.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company does not anticipate the adoption of this standard to have a material effect on the financial statements.

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. 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.

F-10

In February 2016, the Company raised net proceeds of $1,217,500 through the sales of Series Preferred C Stock.  Even with the infusion of capital, the Company does not believe that its existing cash resources will be sufficient to sustain operations during the next twelve months.  The Company currently needs to generate revenue in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing stockholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company may be unable to execute upon the business plan or pay costs and expenses as they are incurred, which could have a material, adverse effect on the business, financial condition and results of operations.

If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained.

Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.

NOTE 3 – PROPERTY AND EQUIPMENT

Equipment consists of the following:

	December 31,		December 31,
	2015		2014
Furniture and Fixtures	$	219,871	$	219,871
Equipment		18,588		16,155
		238,459		236,026
Less:  Accumulated depreciation		230,621		161,205
	$	7,838	$	74,821

Depreciation of property and equipment was $69,415 and $69,253, respectively, for the years ended December 31, 2015 and 2014.

NOTE 4 – PATENTS AND TRADEMARK

The current patent portfolio consists of ten granted patents and six applications pending. 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 20 years. The trademark is also being amortized on a straight-line basis over its estimated useful life of 20 years. During the years ended December 31, 2015 and 2014, the Company capitalized $100 of patent costs and trademarks. Amortization expense for patents and trademarks was $16,813 and $13,109 for the years ended December 31, 2015 and 2014.

On March 30, 2015, the Company was advised by the United States Patent and Trademark Office (“USPTO”) that its petition for an unintentional delayed payment for an unpaid maintenance fee to reinstate its patent was granted by the USPTO. The patent, for a counterfeiting ink detection system, was granted on November 2, 2004.

NOTE 5 – INCOME TAXES

The Company follows FASB ASC 740-10-10 whereby an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

F-11

At December 31, 2015 the Company has a net operating loss (“NOL”) that approximates $30.0 million. Consequently, the Company may have NOL carryforwards available for federal income tax purposes, which would begin to expire in 2019. Due to changes in ownership, a portion of the NOL carryforward may be subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.

The income tax benefit (provision) consists of the following:

	Year Ended			Year Ended
	December 31,			December 31,
	2015			2014
Current	$	(1,653,000	)	$	(5,505,000	)
Deferred		(395,000	)		(372,000	)
Change in valuation allowance		2,048,000			5,877,000
	$	-		$	-

The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:

	2015						2014
	Amount			%			Amount			%
U.S federal income tax benefit at federal statutory rate	$	(806,000	)		(36	)	$	(2,771,000	)		(35	)
State tax, net of federal tax effect		(135,000	)		(6	)		(463,000	)		(6	)
Non-deductible changes in derivative liability and share based transactions		(1,107,000	)		(53	)		(2,639,000	)		(33	)
Other		-			-			(4,000	)		-
Change in valuation allowance		2,048,000			95			5,877,000			74
	$	-			-		$	-			-

The primary components of the Company’s December 31, 2015 and 2014 deferred tax assets, liabilities and related valuation allowance are as follows:

	December 31,			December 31,
	2015			2014
Deferred tax asset for NOL carryforwards	$	12,303,000		$	10,649,000
Deferred tax liability for intangibles		(165,000	)		(165,000	)
Share based compensation		4,589,000			4,205,000
Non deductible accrued expenses		10,000			-
Valuation allowance		(16,737,000	)		(14,689,000	)
	$	-		$	-

Management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.

F-12

The Company follows FASB ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statement of operations. As of December 31, 2015 and 2014, the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2015 and 2014. The Company did not recognize any interest or penalties during 2015 and 2014 related to unrecognized tax benefits.

NOTE 6 – RECAPITALIZATION TRANSACTION

On or about June 12, 2015, the Company entered into definitive agreements to restructure the overall capitalization of the Company (the “Recapitalization Transaction”). To effectuate the Recapitalization Transaction, the Company entered into a Master Acquisition Agreement (the “Master Agreement”) with OPC Partners LLC, a Delaware limited liability company (“OPC”), VerifyMe Inc., a Texas corporation (“VFM”), Zaah Technologies, Inc., a Delaware corporation (“Zaah”), and an additional private investor (the “Private Investor”).

Pursuant to the Master Agreement, the Company entered into several other material definitive agreements (collectively, the “Transaction Documents”) required to consummate the Recapitalization Transaction. A brief summary of the Transaction Documents is included below. Each of the Transaction Documents was entered effective as of June 12, 2015, upon the closing of the Recapitalization Transaction.

Note Conversion Agreement. The Company entered into various Note Conversion Agreements with various holders of promissory notes executed by the Company (the “Noteholders”), pursuant to which the Noteholders converted $731,426 of outstanding notes and accrued interest (net of gain on conversion of $297,370) into 57,265,030 shares (pre Reverse Stock Split) of restricted non-trading Common Stock of the Company at a conversion rate of one (1) share of Common Stock per $0.018 of outstanding principal and interest.

Warrant Conversion Agreement. The Company entered into various Warrant Conversion Agreements with various holders of warrants for the Company’s Common Stock (the “Warrantholders”), pursuant to which the Warrantholders converted 3,700,000 outstanding Common Stock warrants into 3,700,000 shares (pre Reverse Stock Split) of restricted non-trading Common Stock of the Company at a conversion ratio 1:1.

Preferred Stock Conversion Agreement. The Company and VFM entered into a Preferred Stock Conversion Agreement, pursuant to which VFM converted 21,111,111 shares (pre Reverse Stock Split) of Series A Preferred Stock of the Company that it currently owns into shares of Common Stock of the Company on a 1:1 basis (pre Reverse Stock Split).

Patent and Technology License Termination Agreement. Pursuant to a Patent and Technology License Termination Agreement, the Company and VFM terminated that certain Patent and Technology License Agreement, dated as of December 31, 2012, by and between the Company and VFM (the “License”), and VFM agreed to receive eighty five (85) shares (pre Reverse Stock Split) of Series B Preferred Stock in complete satisfaction of $4,500,000 in past due license payments and $2,000,000 exclusivity payments owed by the Company under the License.  As a result of the Patent Purchase Agreement explained below, $176,316, net of amortization of $23,684, of prepaid expenses related to the patents were reclassified to patent expense.

Termination of Registration Rights. Pursuant to a Registration Rights Termination Agreement, the Company and VFM have terminated that certain Registration Rights Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Termination of Technology and Services Agreement. Pursuant to a Technology and Services Agreement Termination Agreement, the Company and VFM terminated that certain Technology and Services Agreement, dated as of December 31, 2012, by and between the Company and VFM.

F-13

Termination of Investment Agreement. Pursuant to an Investment Agreement Termination Agreement, the Company and VFM terminated that certain Investment Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Patent Purchase Agreement. The Company and VFM entered into and consummated a Patent Purchase Agreement, transferring and assigning over to the Company all of VFM’s rights, title and interest into certain U.S. patents and pending U.S. patent applications.

Termination of Zaah Technology and Services Agreement. Pursuant to a Technology and Services Agreement Termination Agreement, the Company and Zaah terminated that certain Technology and Services Agreement, dated as of December 31, 2012, by and between the Company and Zaah.

Series A Preferred Stock Subscription Agreement. The Company entered into a Subscription Agreement with OPC, pursuant to which the Company issued 37,564,767 shares (pre Reverse Stock Split) of Series A Preferred Stock to OPC for a cash investment $1,278,501, plus the conversion of deferred compensation, notes payable and accrued interest amounting to $171,813, into the Company by OPC.

Common Stock Subscription Agreement. The Company entered into a Subscription Agreement with the Private Investor, pursuant to which the Company issued 25,906,736 shares (pre Reverse Stock Split) of restricted non-trading Common Stock to the Private Investor for a cash investment of $50,000 into the Company by the Private Investor.

Series B Preferred Stock Subscription Agreement. In connection with the termination of the License with VFM, the Company entered into a Subscription Agreement with VFM, pursuant to which to the Company issued 85 shares (pre Reverse Stock Split) of Series B Preferred Stock to VFM.

The foregoing description of the Master Agreement and the related Transaction Documents is a summary, and does not purport to be a complete description of the Master Agreement and the related Transaction Documents, and is qualified in its entirety by reference to the Master Agreement and the related Transaction Documents, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to the Company’s Report on Form 8-K, filed with the SEC on June 18, 2015.

NOTE 7 – SENIOR SECURED CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

In February 2006, the Company commenced a private placement of up to $800,000 principal amount of 10% senior secured convertible promissory notes due twelve months from the date of issue to certain Company shareholders and other accredited investors. As of December 31, 2006, the Company completed this private placement by selling all notes payable totaling $800,000. The notes are secured by a first priority lien on all of the tangible and intangible personal property of the Company. In May 2007, the due date of these notes was extended to August 2008 and the interest rate increased to 12% per annum during the extension period. In June 2011, the interest rate on all of the notes was reset to 10% and $596,500 of the notes and accrued interest was extended until September 15, 2015. During the fourth quarter of 2012 the remaining $178,749 of unextended notes and the associated accrued interest were extended to September 30, 2015. In June 2013, $225,000 of these notes payable plus accrued interest of $181,125 were converted into 7.4 million shares of the Company’s common stock, which was valued at $1,628,000. The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

During the fourth quarter of 2013, $220,000 of senior convertible notes plus accrued interest of $395,000, were converted into 7,900,000 shares of common stock. Since this transaction was with related parties, the conversion was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

During the second quarter of 2014, $216,249 of principal of the Company’s outstanding senior convertible notes held by a significant shareholder of the Company, plus accrued interest of $208,339, were converted into 8,448,519 shares of common stock. The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest, $82,000, was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

F-14

On June 12, 2015, as part of the Recapitalization Transaction (see Note 6), the Company restructured the Senior Secured Convertible Notes Payable – Related Parties. As a result the principal balance of $114,000 and accrued interest of $118,775 was converted into 154,184 shares (13,105,662 shares pre Reverse Stock Split at $0.018 per share) of the Company’s Common Stock. This resulted in a gain of $103,456. Of this amount, $17,967 was related to a stockholder and recorded as additional paid in capital, with the remaining $85,489 being recorded as a gain on extinguishment of debt.

NOTE 8 – NOTES PAYABLE

Notes payable consists of the following as of December 31:

	December 31,		December 31,
	2015		2014
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015		-	$	114,000
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 at 8% per annum, principal and accrued interest due at December 1, 2014 (past due)		-		650,000
Notes payable; interest at 5% and 8% per annum, principal and accrued interest due at April 2015		-		123,000
Less: Debt discount		-		(10,447	)
		50,000		926,553
Less: Current portion		50,000		926,553
	$	-	$	-

At December 31, 2015 and 2014 accrued interest on notes payable was $23,667 and$155,992.

The warrant liabilities in this section were valued using the Black-Scholes option pricing model, with the following assumptions: no dividend yield, expected volatility of 173.7% to 180.7%, risk free interest rate of 1.75% and expected lives of four to five years.

On June 10, 2014, the Company issued a note payable for $250,000, which included fully vested warrants to purchase 1,000,000 shares pre Reverse Stock Split of Common Stock at an exercise price of $0.10 per share, expiring in five years. The warrants were valued at $39,650 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 248.2%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $34,222 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, “Recognition” (“FASB 835-30-25”) and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $34,222 was accreted through interest expense. The note and accrued interest at 8% per annum was originally due on December 11, 2014, but the Company received approval to extend the maturity until December 31, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $8,113.

As a result of the Recapitalization Transaction, the note’s principal balance of $250,000 and accrued interest of $20,263 was converted into 176,471 shares (15,000,000 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $120,117, and because this individual is a stockholder was recorded as additional paid in capital.

On August 5, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $29,725 using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $22,914 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $22,914 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and were therefore  classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $5,151.

F-15

As a result of the Recapitalization Transaction, the principal balance of $50,000 and accrued interest of $3,414 was converted into 34,898 shares (2,966,210 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $23,740, which was recorded as a gain on the extinguishment of debt. The remaining $50,000 was paid in full, plus accrued interest in September 2015. The 3,529 warrants (300,000 warrants pre Reverse Stock Split) to purchase shares of Common Stock associated with the $50,000 note payable remain outstanding and must be re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2015, the warrants were valued at $7,902.

On August 12, 2014, the Company issued a note payable for $50,000, which included fully vested warrants to purchase 300,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $26,817 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $17,455 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25, and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $17,455 was accreted through interest expense.

The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $2,575.

As a result of the Recapitalization Transaction, the principal balance of $50,000 and accrued interest of $3,370 was converted into 34,843 shares (2,961,644 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $23,720, which was recorded as a gain on the extinguishment of debt.

On August 14, 2014, the Company issued a note payable for $100,000, which included fully vested warrants to purchase 600,000 shares pre Reverse Stock Split of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $47,676 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $32,274 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25 and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $32,274 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and were therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $5,153.

As a result of the Recapitalization Transaction, the principal balance of $100,000 and accrued interest of $6,697 was converted into 69,657 shares (5,920,852 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $47,421, which was recorded as a gain on the extinguishment of debt.

On September 8, 2014, the Company issued notes payable for $150,000, which included fully vested warrants to purchase 900,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $62,544 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $44,140 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25 and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $44,140 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and were therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $7,725.

F-16

As a result of the Recapitalization Transaction, the principal balance of $150,000 and accrued interest of $9,222 was converted into 103,991 shares (8,839,269 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $70,766, which was recorded as a gain on the extinguishment of debt.

On December 5, 2014, the Company issued a note payable for $23,000 to a stockholder, which bears interest at 5.0% and was due on April 5, 2015. As a result of the Recapitalization Transaction (see Note 6), the principal balance of $23,000 and accrued interest of $609 was converted into 15,418 shares (1,310,510 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $10,493 and because this entity is a stockholder was recorded as additional paid in capital.

On December 31, 2014, the Company issued a note payable for $100,000, which included fully vested warrants to purchase 600,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share expiring in five years. The warrants were valued at $11,812 using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 229.0%, risk free interest rate of 1.68% and expected life of five years. The relative fair value of the warrants was $10,563 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25 and was accreted over the term of the note payable for financial statement purposes. For the three months ended March 31, 2015, the final $10,447 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on April 1, 2015. The warrants were subject to anti-dilution adjustments and were therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was revalued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $5,226.

As a result of the Recapitalization Transaction, the principal balance of $100,000 and accrued interest of $3,689 was converted into 67,637 shares (5,749,163 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $46,084, which was recorded as a gain on the extinguishment of debt.

On February 10, 2015, the Company issued a note payable for $25,000, bearing interest at 5.0% to an accredited investor and director of the Company. As a result of the recapitalization transaction (see Note 6), the principal balance of $25,000 and accrued interest of $417 was converted into 16,608 shares (1,411,720 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $11,296 and because this entity is a stockholder was recorded as additional paid in capital.

The conversion of the notes above on June 12, 2015 was treated as an extinguishment of debt. In accordance with FASB ASC 470-50, the difference between the cash acquisition price of the debt and its net carrying amount shall be recognized currently in income in the period of extinguishment as losses or gains. Similar transactions between stockholders was recognized as additional paid in capital.

On March 27, 2015, the Company issued a note payable for $111,102, bearing interest at 8.0% to an accredited investor.

On April 30, 2015, the Company issued a note payable for $4,887, bearing interest at 8.0% to an accredited investor.

On May 15, 2015, the Company issued a note payable for $4,480, bearing interest at 8.0% to an accredited investor.

On May 21, 2015, the Company issued a note payable for $14,074, bearing interest at 8.0% to an accredited investor.

F-17

As a result of the Recapitalization Transaction (see Note 6), the principal balance of the above four notes of $134,542 and accrued interest of $2,271 was converted into 41,603 shares (3,536,254 shares pre Reverse Stock Split at $0.0386) of the Company’s Series A Preferred stock as part of the $1,450,000 cash investment.

On June 12, 2015, the conversion of the four notes issued from March 27, 2015 to May 21, 2015, was treated as a troubled debt restructuring in accordance with FASB ASC 470-60-15, “Debt – Troubled Debt Restructurings by Debtors.”

A debtor that issues or otherwise grants an equity interest to a creditor to settle fully a payable, shall account for the equity interest at its fair value. The difference between the fair value of the equity interest granted and the carrying amount of the payable settled was recognized as a gain on restructuring payables.

NOTE 9 – WARRANT LIABILITY

On December 31, 2012, the Company entered into an Investment Agreement, a Technology and Service Agreement, a Patent and Technology License Agreement and an Asset Purchase Agreement with VFM and on the same date entered into a Technology and Service Agreement with Zaah (collectively with the VFM agreements, the “Agreements”). Contemplated by those Agreements were warrant issuances by the Company for the purchase of Common Stock.

Warrants exercisable for 627,451 shares (53,333,333 shares pre Reverse Stock Split) of Common Stock associated with these Agreements are subject to anti-dilution adjustments outlined in the Agreements. In accordance with FASB ASC 815, the warrants were classified as a liability in the total amount of $2.4 million at December 31, 2012. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2015 and 2014, the fair value of the warrant liability was $1,020,632 and $787,544.

On January 1, 2014, the Company issued warrants to purchase 74,697 shares (6,349,245 pre Reverse Stock Split) of Common Stock as consideration for technology received from VFM under to the Patent and Technology License Agreement dated December 31, 2012. The warrants are exercisable at $0.10 per share. The warrants are subject to anti-dilution adjustments outlined in the Agreement. In accordance with FASB ASC 815, the warrants were classified as a liability with an initial fair value of $444,000, which was immediately expensed as research and development costs. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2015 and 2014, the fair value of the warrant liability was $147,524 and $149,090.

The Company made the payment of warrants to VFM on a good faith basis, based on the assumption that the technology conveyed to the Company would be patentable and licensable. The Company had not reached a conclusion at that time that the technology would be patentable and licensable.

As of June 12, 2015, the Company concluded that the technology received from VFM is patentable and licensable, and that the Company was required to make, on January 1, 2015, an additional payment pursuant to Patent and Technology Agreement in the amount of $4,500,000, to be paid by issuing (i) a number of shares of Common Stock equal to (x) $4,500,000 divided by (y) a price which equals a 10% discount to the market price at the time of issuance and (ii) warrants to purchase an equal number of shares of Common Stock exercisable at a price of $0.10 per share. Based upon the share price of $0.04 per share, this would result in the issuance of approximately an additional 125 million shares of Common Stock and warrants to purchase an additional 125 million shares. The $4,500,000 was accrued at December 31, 2014. The number of warrants to be issued based on a stock price of $0.02 at December 31, 2014 was 250 million warrants. The warrants were valued at $4,892,089 using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants with the following assumptions: no dividend yield, expected volatility of 229.1%, risk free interest rate of 1.65% and expected life of five years.

In conjunction with the Recapitalization Transaction (see Note 6), the Company agreed that an additional $2,000,000 in exclusivity licensing fees was required to be paid and converted the $6,500,000 into shares of Series B Preferred Stock. In addition, the fair value of the associated warrants was $1,867,417 as of June 12, 2015 and was recorded as additional paid in capital on conversion.

F-18

The warrants associated with the notes payable (see Note 6) were revalued at June 12, 2015, based on the cashless conversion modification. The total fair value of those warrants was $37,000 and was recorded as additional paid in capital on conversion.

NOTE 10 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with VerifyMe on January 31, 2013 (the “Subscription Agreement”). Under the terms of the Subscription Agreement, VerifyMe subscribed to purchase 33,333,333 shares of the Company’s Series A preferred stock (the “Preferred Stock”) and a warrant to purchase 33,333,333 shares of the Company’s common stock at an exercise price of $0.12 per share, for $1 million.

At any time before January 31, 2015, VerifyMe has the right, but not the obligation, to require the Company to repurchase all, but not less than all, of the capital stock of the Company and warrants exercisable for capital stock of the Company held by VerifyMe in exchange for the price originally paid by VerifyMe therefor upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurrence of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to common stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share. This right has not been exercised.

In accordance with FASB ASC 480 and 815, the Preferred Stock has been classified as permanent equity and was valued at $1 million at January 31, 2013.

The conversion feature of the Preferred Stock is an embedded derivative, which is classified as a liability in accordance with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair value of $0 at June 12, 2015 and $800,000 at December 31, 2014. This was classified as an embedded derivative liability and a discount to Preferred Stock. Because the Preferred Stock can be converted at any time, the full amount of the original fair value was accreted and classified as a reduction to the discount on Preferred Stock and a deemed dividend distribution in the full amount of $1 million, in 2013.

On August 5, 2013, 12,222,222 shares (pre Reverse Stock Split) of Series A Preferred Stock were converted into 12,222,222 shares (pre Reverse Stock Split) of Common Stock.

The Company has determined that the Series A Preferred Stock issuance in the Recapitalization Transaction does not meet the requirements of FASB ASC 480-10 for liability treatment and therefore has been classified as permanent equity. Additionally, it was determined that the economic characteristics of the beneficial conversion feature are clearly and closely related to the host, and are based on a fixed conversion rate into shares of Common Stock and therefore do not require bifurcation.

The Series A Preferred Stock was converted into 248,366 (21,111,111 pre Reverse Stock Split) shares of Common Stock on June 12, 2015 in conjunction with the Recapitalization Transaction (see Note 6).

The 392,157 warrants (33,333,333 warrants pre Reverse Stock Split) associated with the Series A Preferred Stock were also 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 $2,995,791 at January 31, 2013. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2015 and 2014, the fair value of the warrants was $626,317 and $631,678.

On May 26, 2015, the Company amended its Amended Certificate of Designation, dated February 1, 2013, with respect to its Series A Preferred Stock, to amend the designations, preferences, powers and rights of the Series A Preferred Stock, and authorizing the issuance of up to 37,564,767 shares of Series A Preferred Stock. The Series A Preferred Stock are currently convertible at 20:1. 37,564,767 (pre-Reverse Stock Split) shares of Series A Preferred Stock were issued as part of the Recapitalization Transaction (see Note 6).

F-19

Additionally, on May 26, 2015, the Company amended its Amended and Restated Articles of Incorporation, dated December 19, 2003, to establish the Series B Preferred Stock, authorizing the issuance of up to 85 shares of Series B Preferred Stock. The Series B Preferred Stock are convertible currently at 8,496,732:1. 85 shares (pre Reverse Stock Split) of Series B Preferred Stock were issued to settle the $6.5 million of licensing fees due and the associated warrants as part of the Recapitalization Transaction (see Note 6). The foregoing description of the Certificate of Designation is a summary, and does not purport to be a complete description of the Certificate of Designation, and is qualified in its entirety by reference to the Certificate of Designation, a copy of which is filed as Exhibit 3.3 to the Company’s Report on Form 8-K, filed with the SEC on June 18, 2015.

On June 12, 2015, the Company issued 389,668 shares (33,121,777 pre Reverse Stock Split) of Series A Preferred shares to an investor for $1,278,501 as part of the total $1,450,813 transaction with the investor.  Further, an officer of the Company and a stockholder are partial owners in the investor and therefore the investor received an additional 10,667 shares (906,736 pre Reverse Stock Split) of Series A Preferred Stock for the forgiveness of previously accrued but unpaid compensation valued at $35,000 and notes payable and accrued interest were converted into 41,603 shares (3,536,254 pre Reverse Stock Split) of Series A Preferred Stock also as part of the $1,450,813 transaction.

Each of the Series A Preferred Stock and the Series B Preferred Stock have a preference in liquidation that the holders of the Series A Preferred Stock and the Series B Preferred Stock are to be paid out of assets available for distribution prior to holders of Common Stock. The holders Series A Preferred Stock and the Series B Preferred Stock may cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock and the Series B Preferred Stock can be converted, with certain limitations. In addition, the holders of Series A Preferred Stock and the Series B Preferred Stock are to be paid dividends, based on the number of shares of Series A Preferred Stock and the Series B Preferred Stock, as the case may be, as if the shares had been converted to Common Stock, prior to the holders of Common Stock receiving a dividend.

NOTE 11 – 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:

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of warrants	$	-	$	-	$	1,802,375	$	1,802,375
Total	$	-	$	-	$	1,802,375	$	1,802,375

The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 inputs:

Balance at January 1, 2015	$	6,370,709
Conversion of notes payable, net of interest expense		(31,397	)
Conversion of warrants related to licensing fees		(1,867,417	)
Change in fair value of derivative liabilities		(2,669,520	)
Balance at December 31, 2015	$	1,802,375

F-20

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, 2015.

As of December 31, 2015, 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, 2015
Annual Dividend Yield		0.0	%
Expected Life (Years)		2.0 - 3.0
Risk-Free Interest Rate		1.06% - 1.31	%
Expected Volatility		178.5% - 179.3	%

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 12 – STOCKHOLDERS’ EQUITY

On January 1, 2014, under the terms of the Patent and Technology License Agreement, the Company issued 6,349,206 shares (pre Reverse Stock Split) of Common Stock to VFM, in addition to the warrants described in Note 9 above. The shares were issued in payment for the technology received. Under the agreement, $400,000 worth of Common Stock was to be paid by the Company to VFM at a 10% discount to the market at time of payment. The closing price was $0.07 per share discounted 10% to $0.063. The $400,000 payment divided by the $0.063 per share resulted in 6,349,206 shares (pre Reverse Stock Split) to be issued. The entire $400,000 payment was expensed to research and development.

On June 2, 2015, the Company issued 68,236 shares (post Reverse Stock Split) of Common Stock to two vendors to settle outstanding payable balances of $58,000.

On June 12, 2015, the Company issued 304,785 shares (25,906,735 pre Reverse Stock Split) of Common Stock and raised $50,000.

During the three months ended June 30, 2015, one stockholder received 2,353 shares (post Reverse Stock Split) of Common Stock in a cashless exercise.

On June 11, 2015, the Company issued 525,000 Restricted Stock Units (“RSUs”) (44,625,000 pre Reverse Stock Split) to two officers of the Company. The RSUs were valued at the closing stock price of $0.01 on June 11, 2015, at $446,250, fair value. These RSUs are being expensed over the vesting terms. For the year ended December 31, 2015, the Company expensed $80,573 related to the RSUs.

On June 30, 2015, the Company issued 48,761 shares (post Reverse Stock Split) of Common Stock to a vendor to settle an outstanding payable balance of $41,447, net of gain on conversion of $35,153.

On July 9, 2015, the Company hired a Chief Operating Officer (“COO”). The COO will receive 225,000 RSUs (19,125,000 pre Reverse Stock Split), vesting over a three-year period, with one-third vesting the first year and one-twelfth vesting ratably on a quarterly basis thereafter. The RSUs were valued at fair value of $918,000 based on the closing stock price of $4.08 on July 9, 2015. For the year ended December 31, 2015, the Company expensed $153,000 related to the RSUs.

F-21

On July 23, 2015, the Company completed the Reverse Stock Split of its outstanding Common Stock and Preferred Stock, as further described in Note 1 and Note 6 above.

On August 10, 2015, the Company agreed to issue the Chief Financial Officer (“CFO”) 20,000 RSUs vesting over six months and 100,000 RSUs vesting annually over three years. The RSUs were valued at a fair value of $692,400 based on the closing stock price of $5.77 per share on August 10, 2015. For the year ended December 31, 2015, the Company expensed $176,306 related to the RSUs.

On October 1, 2015, the Company agreed to issue 100,000 RSUs to a consultant for services. Of the 100,000 RSUs, 60,000 were issued upon execution of the agreement, 20,000 shares are to be issued on January 1, 2016 and 20,000 shares are to be issued on April 1, 2016. The RSUs were originally valued at $195,000.  The Company expensed $54,250 for the year ended December 31, 2015 relative to these RSUs.

On October 7, 2015, the Company agreed to pay $15,000 to a consultant/stockholder as well as an additional $35,000 based on certain milestones being met. Additionally, as of August 1, 2015 the Company agreed to issue the individual 30,000 RSUs originally valued at $165,000 in quarterly installments on November 1, 2015, February 1, 2016, May 1, 2016 and August 1, 2016, which began vesting on August 1, 2015.  The Company expensed $34,687 for the year ended December 31, 2015 relative to these RSUs. Further the individual will receive a 2% to 5% commission on company sales while this agreement is in effect, however no commissions were earned during 2015.

In accordance with FASB ASC 505-50, “Equity – Equity-Based Payments to Non-Employees,” restricted stock with performance conditions should be revalued based on the modification accounting methodology described in FASB ASC 718-20, “Compensation—Stock Compensation—Awards Classified as Equity.” As such the Company has revalued certain restricted stock with consultants and determined that there was an aggregate decrease in fair value of $75,500.

NOTE 13 – STOCK OPTIONS

During 1999, the Board of Directors (“Board”) of the Company adopted, with the approval of the stockholders, a Stock Option Plan. In 2000, the Board superseded that plan and created a new Stock Option Plan, pursuant to which it is authorized to grant options to purchase up to 1.5 million shares of common stock. On December 17, 2003, the Board, with approval of the stockholders, superseded the 2000 plan and 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. The Plan is intended to permit stock options granted to employees under the Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2003 Plan, which are not intended to qualify as Incentive Stock Options, are deemed to be non-qualified options (“Non-Statutory Stock Options”).  As of December 31, 2015, options to purchase 298,530 shares of common stock have been issued and are unexercised, and 4,067,631 shares are available for grants under the 2008 Plan.  

During 2013, our Board adopted a new omnibus incentive compensation plan that was ratified by the shareholders at the 2013 annual meeting, (the “2013 Plan”) which will serve as the successor incentive compensation plan to the 2003 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.  As of December 31, 2015, under the 2013 Plan grants of restricted stock and options to purchase 292,500 shares of common stock have been issued and are unvested or unexercised, and 19,700,000 shares of common stock remain available for grants under the 2013 Plan.  

The 2013 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.

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

F-22

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 March 28, 2014, the Company issued options to purchase an aggregate of 6,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share, with a term of ten years, to a member of the Board of Directors. The fair value of options issued was $599,893 of which all was expensed immediately. 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 229%, risk-free interest rate of 2.73% and expected option life of ten years.

On March 28, 2014 at the urging of the Company’s previous Chairman, Michael Sonnenreich, and after discussion by the Board and suggestions by Board Observers attending the meeting, the Board unanimously voted to extend the exercise period of all existing 10 year options, for a full ten years (as opposed to six months) regardless of their status with the Company. This charge was memorialized and sent in writing to previous Directors by then general counsel Morgan, Lewis & Bockius.

On June 11, 2015, the Company issued options to purchase an aggregate of 1,225,000 shares (104,125,000 pre Reverse Stock Split) of the Common Stock at an exercise price of $0.85 per share, with a term of five years, to three employees and two members of the Board. The fair value of options issued was $993,083. 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 176.6%, risk-free interest rate of 1.74% to 1.75% and expected option life of five years. The options are being expensed over the vesting terms for the employees and over the Board members’ remaining service terms as that is shorter than the vesting terms.

On July 9, 2015, the Company hired a COO who received 375,000 options (31,875,000 pre Reverse Stock Split) to purchase shares of Common Stock of the Company, with an exercise price of $0.85 ($0.01 pre reverse split) and valued at $1,502,219. The options vest quarterly over three years. The fair value of the options was valued using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 180.1%, risk free interest rate of 1.58% and expected life of five years. The options are being expensed over the vesting terms.

On August 10, 2015, the Company hired a CFO who received 200,000 options (17,000,000 pre Reverse Stock Split) to purchase shares of Common Stock vesting annually over three years. The options were valued at fair value of $1,107,857, using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 182.2%, risk free rate interest rate of 1.62% and expected life of five years. The options are being expensed over the vesting terms.

On September 25, 2015, the Company issued options to purchase an aggregate of 75,000 shares (6,375,000 pre Reverse Stock Split) of Common Stock at an exercise price of $2.15 per share, with a term of five years to a member of the Board. The fair value of options issued was $155,003. 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 183.5%, risk-free interest rate of 1.48% and expected option life of five years. The options are being expensed over the service term as that is shorter than the vesting terms.

F-23

For the years ended December 31, 2015 and 2014, the Company expensed $849,791 and $860,235 with respect to the options.

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, 2015 and 2014:

	2015			2014
Risk Free Interest Rate		1.69	%		2.73	%
Expected Volatility		176.6	%		229.0	%
Expected Life (in years)		5.0			10.0
Dividend Yield		0	%		0	%
Weighted average estimated fair value of options during the period	$	2.00		$	1.00

The following table summarizes the activities for our stock options for the year ended December 31, 2015and 2014:

	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s) (1)
Balance as of December 31, 2013	739,608	$	4.25
Exercised	(141,176)	$	1.70
Balance as of December 31, 2014	598,431	$	4.25
Granted	1,875,000	$	0.85
Exercised	(7,843)		0.05
Forfeited/canceled	(308,235)	$	0.06
Balance as of December 31, 2015	2,157,353	$	1.80	5.0	$	226,631
Exercisable as of December 31, 2015	626,103	$	2.57	6.2
Exercisable as of December 31, 2015 and expected to vest thereafter	2,157,353	$	1.80	5.0	$	226,631

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $2.50 for our common stock on December 31, 2015.

During the year ended December 31, 2015 and 2014, the weighted average fair value of stock options granted during the period was $3,758,162 and $599,893.  The fair value of stock options is expensed over the vesting term in accordance with the terms of the related stock option agreements.

During the year ended December 31, 2015 and 2014, the intrinsic value of stock options exercised during the period was $0.

For the years ended December 31, 2015 and 2014, the Company expensed $849,792 and $860,233, relative to the fair value of stock options granted.

F-24

As of December 31, 2015, there was $2,853,537 of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average period of 2.5 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from the Company’s expectations. The difference between the stock options exercisable at December 31, 2015 and the stock options exercisable and expected to vest relates to management’s estimate of options expected to vest in the future.

The following table summarizes the activities of our unvested stock options for the year ended December 31, 2015 and 2014:

	Number of Awards			Weighted Average Exercise Price		Weighted Average Remaining Amortization Period (Years)
Unvested stock options at December 31, 2013		55,882		$	6.52
Vested		(38,235)			(6.86)
Unvested stock options at December 31, 2014		17,647		$	9.49
Granted		1,875,000		$	1.43
Cancelled/Forfeited		(11,765	)	$	(12.75)
Vested		(349,632	)	$	(1.31)
Unvested stock options at December 31, 2015		1,531,250		$	1.48		4.49

The following table summarizes the activities for our warrants for the year ended December 31, 2015:

	Warrants Outstanding
	Number of Shares			Weighted- Average Exercise Price			Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s) (1)
Balance as of December 31, 2013		1,405,686		$	8.80
Granted		121,755			6.86
Expired		(66,666	)		(12.75	)
Balance as of December 31, 2014		1,460,775		$	1.01
Exercised		(2,353	)	$	0.85
Cancelled/Forfeited		(43,529	)	$	(4.15	)
Balance as of December 31, 2015		1,414,893		$	9.67		4.8	$	413
Exercisable as of December 31, 2015		1,414,893		$	9.67		4.8
Exercisable as of December 31, 2015 and expected to vest thereafter		1,414,893		$	9.67		4.8	$	413

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $2.50 for our common stock on December 31, 2015.

All warrants were vested on the date of grant.

F-25

NOTE 14 – OPERATING LEASES

For the year ended December 31, 2014 and 2013, total rent expense under leases amounted to $55,153 and $65,950. At December 31, 2015, the Company was not obligated under any non-cancelable operating leases.

NOTE 15 – RELATED PARTY TRANSACTIONS

At June 12, 2015, three stockholders of the Company held $317,000 of the senior secured convertible notes payable and were owed accrued interest of $42,713. The notes and accrued interest were converted into 234,735 shares (19,952,489 pre Reverse Stock Split) of Common Stock as further described in Note 7 and 8.

NOTE 16 – MAJOR CUSTOMERS/VENDORS

During the years ended December 31, 2015 and 2014, three customers 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, 2015 and 2014, we purchased 100.0% of our pigment from one vendor.

NOTE 17 – SUBSEQUENT EVENTS

As of the date of this filing, the 10,667 shares (906,736 pre Reverse Stock Split) of Series A Preferred Stock have not been distributed to the officer of the Company and the stockholder, as further discussed in Note 10.

On February 9, 2016, the Company issued 2,587,500 shares of 0% Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”) 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 Preferred Stock, 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 Preferred Stock, 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 Preferred Stock, 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 $0.40per share. Each share of Series C Preferred Stock is convertible into one share of common stock. The Series C Preferred Stock 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 Preferred Stock.

The Company entered into a Registration Rights Agreement with each of the Investors (the “Registration Rights Agreement”), pursuant to which the Company has agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) covering the resale of the Conversion Shares, as well as the shares of Common Stock that are issuable upon exercise of the Warrants (the “Warrant Shares”).

The following is a brief summary of the Purchase Agreement, the Registration Rights Agreement, the Series C Preferred Stock and the Warrants, which are qualified in their entirety by reference to the full text of such documents.

F-26

Purchase Agreement

The Purchase Agreement contains representations and warranties by the Company and the Investors and covenants of the Company and the Investors (including indemnification from the Company in the event of breaches of its representations and warranties), which the Company believes are customary for transactions of this type. The Purchase Agreement provides for certain restrictive covenants, including the restriction on the Company to issue any securities for a period of sixty days from the date of the Purchase Agreement. Additionally, pursuant to the Purchase Agreement, during the Protection Period (as such term is defined in the Purchase Agreement), the Company is prohibited from entering into any variable rate transaction. Additionally, provided the Protection Period has not expired, for the period beginning on the date that the Company’s securities are listed on a national securities exchange and until the expiration of the Protection Period, the Company is prohibited from issuing any securities or incurring any financing debt, subject to certain exceptions.

Registration Rights Agreement

Pursuant to the Registration Rights Agreement, the Company is required to prepare and file a registration statement (the “Registration Statement”) with the SEC under the Securities Act of 1933, as amended, covering the resale of the Conversion Shares and the Warrant Shares (collectively, the “Registrable Securities”). The Company will be required to file such Registration Statement within 45 calendar days following the closing date of the Offering (the “Filing Deadline”). The Company will be required to use its best efforts to have the Registration Statement declared effective as soon as practicable, but in no event later than 60 days from the closing of the Offering (or, in the event of a “full review” by the SEC, 120 days) (the “Effectiveness Deadline”). Pursuant to the Registration Rights Agreement, the Company will incur certain liquidated damages upon the occurrence of certain events, including if: (i) the Registration Statement is not filed with the SEC on or prior to the Filing Deadline; (ii) the Company fails to file with the SEC a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the SEC pursuant to the Securities Act of 1933 (the “Securities Act”), within five trading days of the date that the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be “reviewed” or will not be subject to further review; (iii) prior to the effective date of the Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the SEC in respect of such Registration Statement within eighteen (18) calendar days after the receipt of comments by or notice from the SEC that such amendment is required in order for such Registration Statement to be declared effective, (iv) the Registration Statement is not declared effective by the SEC on or prior to the Effectiveness Deadline, and (v) after the effective date of the Registration Statement and prior to the expiration of the Effectiveness Period, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the holders of the Registrable Securities are otherwise not permitted to utilize the prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive trading days or more than an aggregate of twenty (20) trading days (which need not be consecutive trading days) during any 12-month period (each such failure is referred to herein as an “Event”).

On each date that an Event occurs and on each monthly anniversary of such date, the Company shall pay to each holder of Registrable Securities an amount in cash equal to 1.0% multiplied by the aggregate subscription amount paid by such holder of Registrable Securities, up to a maximum of 6.0%. If the Company fails to pay such amount when due, the Company will pay interest thereon at a rate of 18% per annum.

The Registration Rights Agreement also contains mutual indemnifications by the Company and each Investor, which the Company believes are customary for transactions of this type.

Series C Preferred Stock

The Series C Preferred Stock was created pursuant to a Certificate of Designation.

F-27

Warrants

The Warrants are exercisable, in full or in part, at any time prior to the third anniversary of their issuance, at an exercise price of $0.40 per share. The Warrants provide 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 per share that is less than the exercise price of the Warrants then in effect. In the case of certain fundamental transactions affecting the Company, the holders of Warrants, upon exercise of such Warrants after such fundamental transaction, will have the right to receive, in lieu of shares of the Common Stock, the same amount and kind of securities, cash or property that such holder would have been entitled to receive upon the occurrence of the fundamental transaction, had the Warrants been exercised immediately prior to such fundamental transaction. The Warrants contain a “cashless exercise” feature that allows the holders to exercise the warrants without a cash payment to the Company upon the terms set forth in the Warrants.   Due to the adjustment features of the exercise price, the fair value of the warrants will be recorded as a liability and not equity.

On February 29, 2016, the Company appointed a new Chairman of the Board.  In connection with this appointment, the Chairman was granted a stock option to purchase 100,000 shares of Common Stock at an exercise price of $0.60 per share under the Company’s 2013 Comprehensive Incentive Compensation Plan.

F-28

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

VerifyMe, Inc.

Washington, D.C.

We consent to the incorporation by reference of our report, dated March 30, 2016, relating to the consolidated financial statements, which appear in this Form 10-K of LaserLock Technologies, Inc.

/s/ Morison Cogen LLP

Blue Bell, Pennsylvania

March 30, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) UNDER

THE SECURITIES EXCHANGE ACT OF 1934

I, Paul Donfried, certify that:

1. I have reviewed this Annual Report on Form 10-K of VerifyMe, Inc. (the “Registrant”);

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 present 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 13-a-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 involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2016	By:	/s/ Paul Donfried
		Paul Donfried
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a) UNDER

THE SECURITIES EXCHANGE ACT OF 1934

I, Scott McPherson, certify that:

1. I have reviewed this Annual Report on Form 10-K of VerifyMe, Inc. (the “Registrant”);

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 present 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 13-a-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 involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2016	By:	/s/ Scott McPherson
		Scott McPherson
		Chief Financial Officer

EX-32.1

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 this Annual Report of VerifyMe, Inc. (the “Registrant”) on Form 10-K for the year ending December 31, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Paul Donfried, Chief Executive Officer (Principal Executive Officer) of the Registrant, and I, Scott McPherson, Chief Financial Officer (Principal Financial Accounting Officer) of the Registrant certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) This 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 this Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: March 30, 2016	By:	/s/ Paul Donfried
		Paul Donfried
		Chief Executive Officer

By:	/s/ Scott McPherson
	Scott McPherson
	Chief Financial Officer

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 30, 2016	Jun. 30, 2015
Document And Entity Information
Entity Registrant Name	VerifyMe, Inc.
Entity Central Index Key	0001104038
Document Type	10-K
Document Period End Date	Dec. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 13,385,345
Entity Common Stock, Shares Outstanding		6,586,711
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2015

XML

Balance Sheets - USD ($)	Dec. 31, 2015	Dec. 31, 2014
CURRENT ASSETS
Cash and cash equivalents	$ 4,152	$ 63,956
Inventory	$ 28,687	97,360
Prepaid expenses		181,086
TOTAL CURRENT ASSETS	$ 32,839	342,402
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $230,621 and $161,205 as of December 31, 2015 and December 31, 2014	7,838	74,821
OTHER ASSETS
Deposits	37,197	37,197
Patents and Trademark, net of accumulated amortization of $135,315 and $118,502 as of December 31, 2015 and December 31, 2014	259,294	107,586
TOTAL OTHER ASSETS	296,491	144,783
TOTAL ASSETS	337,168	562,006
CURRENT LIABILITIES
Accounts payable and accrued expenses	$ 652,973	5,217,770
Accrued interest - related parties		43,215
Deferred revenue		16,667
Senior secured convertible notes payable - related parties		114,000
Notes payable	$ 50,000	812,553
TOTAL CURRENT LIABILITIES	702,973	6,204,205
LONG-TERM LIABILITIES
Warrant liability	$ 1,802,375	6,370,709
Accrued interest - related parties		112,885
TOTAL LONG-TERM LIABILITIES	$ 1,802,375	6,483,594
TOTAL LIABILITIES	$ 2,505,348	$ 12,687,799
CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $ .001 par value; 675,000,000 shares authorized; 6,259,727 and 3,969,106 shares issued, and 5,977,030 and 3,618,566 shares outstanding at December 31, 2015 and December 31, 2014	$ 5,977	$ 3,618
Additional paid in capital	39,779,414	25,047,050
Treasury stock, at cost (350,540 shares at December 31, 2015 and December 31, 2014)	(113,389)	$ (113,389)
Deferred compensation	(1,842,334)
Accumulated deficit	(39,998,290)	$ (37,696,405)
STOCKHOLDERS' DEFICIT	(2,168,180)	(12,125,793)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	337,168	562,006
Series A Convertible Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Series A and B Convertible Preferred Stock	$ 442	$ 633,333
Series B Convertible Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Series A and B Convertible Preferred Stock

XML

Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Accumulated depreciation on capital equipment	$ 230,621	$ 161,205
Accumulated amortization, patent and trademarks	$ 135,315	$ 118,502
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	675,000,000	675,000,000
Common stock, shares issued	6,259,727	3,969,106
Common stock, shares outstanding	5,977,030	3,618,566
Treasury stock, shares	350,540	350,540
Series A Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	37,564,767	75,000,000
Preferred stock, shares issued	441,938	248,366
Preferred stock, shares outstanding	441,938	248,366
Series B Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	85	0
Preferred stock, shares issued	1	0
Preferred stock, shares outstanding	1	0

XML

Statements of Operations - USD ($)		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014
NET REVENUES
Sales		$ 200,601	$ 116,265
Royalties		16,667	8,333
TOTAL NET REVENUE		217,268	124,598
COST OF SALES		65,723	113,024
GROSS PROFIT		151,545	11,574
OPERATING EXPENSES
General and administrative		449,483	811,916
Legal and accounting		458,801	344,903
Payroll expenses	[1]	1,875,488	1,611,376
Research and development	[2]	2,412,833	10,590,271
Sales and marketing	[3]	197,430	218,443
Total operating expenses		5,394,035	13,576,909
LOSS BEFORE OTHER INCOME		(5,242,490)	(13,565,335)
OTHER INCOME (EXPENSE)
Interest expense		(61,438)	(199,364)
Gain (loss) on extinguishment of debt		332,523	(82,000)
Change in fair value of warrants		$ 2,669,520	5,128,204
Change in fair value of embedded derivative liability			800,000
TOTAL OTHER INCOME (EXPENSE)		$ 2,940,605	5,646,840
NET LOSS		$ (2,301,885)	$ (7,918,495)
LOSS PER SHARE
BASIC		$ (0.47)	$ (2.22)
DILUTED		$ (0.47)	$ (2.22)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		4,848,738	3,573,511
DILUTED		4,848,738	3,573,511

[1] Includes share based compensation of $1,259,670 and $860,235 for the years ended December 31, 2015 and 2014

[2] Includes share based compensation of $2,000,000 and $10,236,089 for the years ended December 31, 2015 and 2014

[3] includes share based compensation of $88,937 and $0 for the years ended December 31, 2015 and 2014

XML

Statements of Operations (Parenthetical) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Payroll Expenses [Member]
Share based compensation	$ 1,259,670	$ 860,235
Research and Development Expense [Member]
Share based compensation	2,000,000	$ 10,236,089
Sales and Marketing Expense [Member]
Share based compensation	$ 88,937

XML

Statement of Changes in Stockholders' Deficit - USD ($)	Series A Convertible Preferred Stock [Member]	Series B Convertible Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Deferred Compensation [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2013	$ 633,333		$ (13,893)	$ 23,272,739	$ (113,389)		$ (29,777,910)	$ (5,999,121)
Balance, shares at Dec. 31, 2013	21,111,111		290,066,139
Issuance of stock for services			$ 6,349	393,651				$ 400,000
Issuance of stock for services, shares			6,349,206
Cashless exercise of options			$ 2,714	(2,714)
Cashless exercise of options, shares			2,714,285
Fair value of employee stock options				860,235				$ 860,235
Issuance of shares of common stock for settlement of debt			$ 8,449	498,139				506,588
Issuance of shares of common stock for settlement of debt, shares			8,448,519
Forgiveness of related party debt				$ 25,000				25,000
Net loss							$ (7,918,495)	(7,918,495)
Balance at Dec. 31, 2014	$ 633,333		$ 3,618	$ 25,047,050	$ (113,389)		$ (37,696,405)	$ (12,125,793)
Balance, shares at Dec. 31, 2014	248,366		3,618,566
Issuance of stock for services			$ 960	2,415,690		$ (2,416,650)
Issuance of stock for services, shares			960,000
Fair value of employee stock options				849,791				$ 849,791
Conversion of Series A Convertible Preferred Stock into common stock	$ (633,333)		$ 248	633,085
Conversion of Series A Convertible Preferred Stock into common stock, shares	(248,366)		248,366
Sale of Convertible Preferred stock	$ 390			1,278,111				$ 1,278,501
Sale of Convertible Preferred stock, shares	389,668
Conversion of stockholder deferred compensation into Series A Convertible Preferred Stock	$ 10			34,990				35,000
Conversion of stockholder deferred compensation into Series A Convertible Preferred Stock, shares	10,667
Conversion of notes payable and accrued interest into Series A Convertible Preferred Stock	$ 42			136,771				136,813
Conversion of notes payable and accrued interest into Series A Convertible Preferred Stock, shares	41,603
Conversion of accrued expenses into Series B Convertible Preferred Stock				8,367,417				8,367,417
Conversion of accrued expenses into Series B Convertible Preferred Stock, shares		1
Sale of stock			$ 305	49,695				50,000
Sale of stock, shares			304,785
Conversion of warrants			$ 51	36,949				37,000
Conversion of warrants, shares			51,372
Conversion of stockholder notes payable and accrued interest into common stock			$ 674	730,752				731,426
Conversion of stockholder notes payable and accrued interest into common stock, shares			673,706
Conversion of accounts payable and accrued expenses into common stock			$ 117	99,330				$ 99,447
Conversion of accounts payable and accrued expenses into common stock, shares			116,997
Cashless exercise of warrants into common stock			$ 2	(2)
Cashless exercise of warrants into common stock, shares			2,353
Decrease in fair value of restricted stock units				(75,500)		$ 75,500
Forgiveness of stockholder compensation				$ 175,287				$ 175,287
Amortization of deferred compensation						$ 498,816		$ 498,816
Rounding of partial shares relative to reverse split			$ 1	$ (1)
Rounding of partial shares relative to reverse split (in shares)			885
Net loss							$ (2,301,885)	$ (2,301,885)
Balance at Dec. 31, 2015	$ 442		$ 5,977	$ 39,779,414	$ (113,389)	$ (1,842,334)	$ (39,998,290)	$ (2,168,180)
Balance, shares at Dec. 31, 2015	441,938	1	5,977,030

XML

Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (2,301,885)	$ (7,918,495)
Adjustments to reconcile net loss to net cash used in operating activities
Gain on conversion of debt	(332,523)
Fair value of options issued in exchange for services	849,791	$ 860,235
Accretion of discount on notes payable	10,447	202,377
Change in fair value of warrant liability	$ (2,700,917)	(5,128,204)
Change in fair value of embedded derivative liability		(800,000)
Fair value of stock in excess of converted notes payable and accrued interest		82,000
Amortization and depreciation	$ 94,123	82,362
Stock and warrants issued in exchange for technology		$ 5,736,089
Amortization of deferred compensation	$ 498,816
Series B Preferred Stock issued for licensing fees	$ 2,000,000
(Increase) decrease in assets
Accounts receivable		$ 3,573
Inventory	$ 68,673	(63,089)
Prepaid expenses	4,770	8,388
Increase (decrease) in liabilities
Accounts payable and accrued expenses	330,057	4,898,080
Deferred revenue	(16,667)	16,667
Net cash used in operating activities	(1,495,315)	$ (2,020,017)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment	(2,432)
Purchase of patents	(100)
Net cash used in investing activities	(2,532)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable	159,542	$ 798,000
Repayment of notes payable	(50,000)
Proceeds from sale of Series A Convertible Preferred Stock	1,278,501
Proceeds from sale of common stock	50,000
Net cash provided by financing activities	1,438,043	$ 798,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(59,804)	(1,222,017)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	63,956	1,285,973
CASH AND CASH EQUIVALENTS - END OF PERIOD	4,152	$ 63,956
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for:
Interest	$ 6,646
Income taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value of stock issued for conversion of notes payable and accrued interest	$ 1,028,039	$ 506,588
Fair value of warrants issued as debt discount		211,576
Forgiveness of related party debt		$ 25,000
Cashless exercise of warrants	$ 2
Series A Convertible Preferred Stock converted to common stock	633,333
Issuance of Series A Convertible Preferred Stock for deferred compensation	35,000
Issuance of Series A Convertible Preferred Stock for notes payable and accrued interest	136,813
Issuance of Series B Convertible Preferred Stock for accrued expenses	4,500,000
Conversion of warrants into Series B Convertible Preferred Stock	1,867,417
Conversion of warrants to common stock	37,000
Conversion of accounts payable and accrued expenses into common stock	99,447
Common stock issued for deferred compensation	2,416,650
Forgiveness of stockholder compensation	175,285
Patent costs reclassified from prepaid expenses resulting from purchase of patents	176,316
Revaluation of restricted stock units between additional paid in capital and deferred compensation	$ 75,500

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Nature of the Business

On July 14, 2015, LaserLock Technologies, Inc. changed its name to VerifyMe, Inc., effective July 23, 2015. As used in this report, unless the context otherwise indicates, any reference to “VerifyMe,” “our Company,” “the Company,” “us,” “we” and “our” refers to VerifyMe, Inc. a Nevada corporation.

The Company was incorporated in the State of Nevada on November 10, 1999. The Company is based in New York, 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 OTC QB, organized by the OTC Markets Group, Inc., and the OTC Bulletin Board under the ticker symbol “VRME.”

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 delivers 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. 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 operationalize the Company’s current technology.

Basis of Presentation

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America.

Reverse Stock Split and Changes to Company’s Preferred Stock

On May 26, 2015, the board of directors of the Company (the “Board”), acting by written consent in lieu of a special meeting, unanimously approved and adopted: (a) a reverse stock split of all of the Company’s issued and outstanding capital stock based on a minimum 1-for-40 split, up to a maximum 1-for-100 split (the “Reverse Stock Split”), and recommended the same for the Company’s stockholders for approval, and (b) a Second Amended Certificate of Designation for Series A Preferred Stock, which amended the designations, preferences, powers and rights of the shares of the Company’s Series A convertible preferred stock, par value $0.001 per share (the “Series A Preferred Stock”), which were originally set forth in that certain Amended Certificate of Designation for Series A Preferred Stock, dated December 19, 2003.

On May 28, 2015, those stockholders of the Company holding a majority of the issued and outstanding shares of Common Stock and Series A Preferred Stock, acting by written consent in lieu of a special meeting, voted to approve the Reverse Stock Split.

On June 11, 2015, at a duly authorized special meeting of the Board, the Board (a) finalized, adopted and approved a resolution setting the Reverse Stock Split exchange ratio to a 1-for-85 split and (b) approved and adopted a new Certificate of Designation for Series B Preferred Stock, establishing the designations, preferences, powers and rights of the shares of the Company’s Series B convertible preferred stock, par value $0.001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”).

On July 23, 2015, the Company completed the 1-for-85 Reverse Stock Split of all of its outstanding Common Stock and Preferred Stock. The total number of authorized capital stock of the Company remained unchanged at its current total of 750,000,000, with 675,000,000 designated as Common Stock and 75,000,000 designated as Preferred Stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

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, warrant liability and notes payable. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities.

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

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

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

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

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

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 Trademark

The current patent portfolio consists of ten granted patents and six applications pending.   The Company has also purchased a trademark. 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.”

Convertible Notes Payable

Convertible notes payable, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature (BCF) as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method which approximates the effective interest method.

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 2012 through 2015 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.

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 $458 and $62,835 for the years ended December 31, 2015 and 2014 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, 2015 and 2014 were $2,529,833 and $10,590,271.

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.

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

As of December 31, 2015 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 Company is evaluating the effect of the adoption of this standard.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. The amendments in this Update apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share.

For hybrid financial instruments issued in the form of a share, an entity (an issuer or an investor) should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. That is, an entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract.

The effects of initially adopting the amendments in this Update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. The Company does not anticipate the adoption of this standard to have a material effect on the financial statements.

The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. If an entity early adopts the amendments in an interim period, any adjustments shall be reflected as of the beginning of the fiscal year that includes that interim period.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company does not anticipate the adoption of this standard to have a material effect on the financial statements.

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GOING CONCERN

12 Months Ended

Dec. 31, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Going Concern

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. 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.

In February 2016, the Company raised net proceeds of $1,217,500 through the sales of Series Preferred C Stock.  Even with the infusion of capital, the Company does not believe that its existing cash resources will be sufficient to sustain operations during the next twelve months.  The Company currently needs to generate revenue in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing stockholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company may be unable to execute upon the business plan or pay costs and expenses as they are incurred, which could have a material, adverse effect on the business, financial condition and results of operations.

If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained.

Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.

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PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2015

PROPERTY AND EQUIPMENT

Property and Equipment

NOTE 3 – PROPERTY AND EQUIPMENT

Equipment consists of the following:

	December 31,		December 31,
	2015		2014
Furniture and Fixtures	$	219,871	$	219,871
Equipment		18,588		16,155
		238,459		236,026
Less:  Accumulated depreciation		230,621		161,205
	$	7,838	$	74,821

Depreciation of property and equipment was $69,415 and $69,253, respectively, for the years ended December 31, 2015 and 2014.

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PATENTS AND TRADEMARK

12 Months Ended

Dec. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Patents and Trademark

NOTE 4 – PATENTS AND TRADEMARK

The current patent portfolio consists of ten granted patents and six applications pending. 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 20 years. The trademark is also being amortized on a straight-line basis over its estimated useful life of 20 years. During the years ended December 31, 2015 and 2014, the Company capitalized $100 of patent costs and trademarks. Amortization expense for patents and trademarks was $16,813 and $13,109 for the years ended December 31, 2015 and 2014.

On March 30, 2015, the Company was advised by the United States Patent and Trademark Office (“USPTO”) that its petition for an unintentional delayed payment for an unpaid maintenance fee to reinstate its patent was granted by the USPTO. The patent, for a counterfeiting ink detection system, was granted on November 2, 2004.

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INCOME TAXES

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 5 – INCOME TAXES

The Company follows FASB ASC 740-10-10 whereby an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

At December 31, 2015 the Company has a net operating loss (“NOL”) that approximates $30.0 million. Consequently, the Company may have NOL carryforwards available for federal income tax purposes, which would begin to expire in 2019. Due to changes in ownership, a portion of the NOL carryforward may be subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.

The income tax benefit (provision) consists of the following:

	Year Ended			Year Ended
	December 31,			December 31,
	2015			2014
Current	$	(1,653,000	)	$	(5,505,000	)
Deferred		(395,000	)		(372,000	)
Change in valuation allowance		2,048,000			5,877,000
	$	-		$	-

The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:

	2015						2014
	Amount			%			Amount			%
U.S federal income tax benefit at federal statutory rate	$	(806,000	)		(36	)	$	(2,771,000	)		(35	)
State tax, net of federal tax effect		(135,000	)		(6	)		(463,000	)		(6	)
Non-deductible changes in derivative liability and share based transactions		(1,107,000	)		(53	)		(2,639,000	)		(33	)
Other		-			-			(4,000	)		-
Change in valuation allowance		2,048,000			95			5,877,000			74
	$	-			-		$	-			-

The primary components of the Company’s December 31, 2015 and 2014 deferred tax assets, liabilities and related valuation allowance are as follows:

	December 31,			December 31,
	2015			2014
Deferred tax asset for NOL carryforwards	$	12,303,000		$	10,649,000
Deferred tax liability for intangibles		(165,000	)		(165,000	)
Share based compensation		4,589,000			4,205,000
Non deductible accrued expenses		10,000			-
Valuation allowance		(16,737,000	)		(14,689,000	)
	$	-		$	-

Management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.

The Company follows FASB ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statement of operations. As of December 31, 2015 and 2014, the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2015 and 2014. The Company did not recognize any interest or penalties during 2015 and 2014 related to unrecognized tax benefits.

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RECAPITALIZATION TRANSACTION

12 Months Ended

Dec. 31, 2015

Restructuring and Related Activities [Abstract]

Recapitalization Transaction

NOTE 6 – RECAPITALIZATION TRANSACTION

On or about June 12, 2015, the Company entered into definitive agreements to restructure the overall capitalization of the Company (the “Recapitalization Transaction”). To effectuate the Recapitalization Transaction, the Company entered into a Master Acquisition Agreement (the “Master Agreement”) with OPC Partners LLC, a Delaware limited liability company (“OPC”), VerifyMe Inc., a Texas corporation (“VFM”), Zaah Technologies, Inc., a Delaware corporation (“Zaah”), and an additional private investor (the “Private Investor”).

Pursuant to the Master Agreement, the Company entered into several other material definitive agreements (collectively, the “Transaction Documents”) required to consummate the Recapitalization Transaction. A brief summary of the Transaction Documents is included below. Each of the Transaction Documents was entered effective as of June 12, 2015, upon the closing of the Recapitalization Transaction.

Note Conversion Agreement. The Company entered into various Note Conversion Agreements with various holders of promissory notes executed by the Company (the “Noteholders”), pursuant to which the Noteholders converted $731,426 of outstanding notes and accrued interest (net of gain on conversion of $297,370) into 57,265,030 shares (pre Reverse Stock Split) of restricted non-trading Common Stock of the Company at a conversion rate of one (1) share of Common Stock per $0.018 of outstanding principal and interest.

Warrant Conversion Agreement. The Company entered into various Warrant Conversion Agreements with various holders of warrants for the Company’s Common Stock (the “Warrantholders”), pursuant to which the Warrantholders converted 3,700,000 outstanding Common Stock warrants into 3,700,000 shares (pre Reverse Stock Split) of restricted non-trading Common Stock of the Company at a conversion ratio 1:1.

Preferred Stock Conversion Agreement. The Company and VFM entered into a Preferred Stock Conversion Agreement, pursuant to which VFM converted 21,111,111 shares (pre Reverse Stock Split) of Series A Preferred Stock of the Company that it currently owns into shares of Common Stock of the Company on a 1:1 basis (pre Reverse Stock Split).

Patent and Technology License Termination Agreement. Pursuant to a Patent and Technology License Termination Agreement, the Company and VFM terminated that certain Patent and Technology License Agreement, dated as of December 31, 2012, by and between the Company and VFM (the “License”), and VFM agreed to receive eighty five (85) shares (pre Reverse Stock Split) of Series B Preferred Stock in complete satisfaction of $4,500,000 in past due license payments and $2,000,000 exclusivity payments owed by the Company under the License.  As a result of the Patent Purchase Agreement explained below, $176,316, net of amortization of $23,684, of prepaid expenses related to the patents were reclassified to patent expense.

Termination of Registration Rights. Pursuant to a Registration Rights Termination Agreement, the Company and VFM have terminated that certain Registration Rights Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Termination of Technology and Services Agreement. Pursuant to a Technology and Services Agreement Termination Agreement, the Company and VFM terminated that certain Technology and Services Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Termination of Investment Agreement. Pursuant to an Investment Agreement Termination Agreement, the Company and VFM terminated that certain Investment Agreement, dated as of December 31, 2012, by and between the Company and VFM.

Patent Purchase Agreement. The Company and VFM entered into and consummated a Patent Purchase Agreement, transferring and assigning over to the Company all of VFM’s rights, title and interest into certain U.S. patents and pending U.S. patent applications.

Termination of Zaah Technology and Services Agreement. Pursuant to a Technology and Services Agreement Termination Agreement, the Company and Zaah terminated that certain Technology and Services Agreement, dated as of December 31, 2012, by and between the Company and Zaah.

Series A Preferred Stock Subscription Agreement. The Company entered into a Subscription Agreement with OPC, pursuant to which the Company issued 37,564,767 shares (pre Reverse Stock Split) of Series A Preferred Stock to OPC for a cash investment $1,278,501, plus the conversion of deferred compensation, notes payable and accrued interest amounting to $171,813, into the Company by OPC.

Common Stock Subscription Agreement. The Company entered into a Subscription Agreement with the Private Investor, pursuant to which the Company issued 25,906,736 shares (pre Reverse Stock Split) of restricted non-trading Common Stock to the Private Investor for a cash investment of $50,000 into the Company by the Private Investor.

Series B Preferred Stock Subscription Agreement. In connection with the termination of the License with VFM, the Company entered into a Subscription Agreement with VFM, pursuant to which to the Company issued 85 shares (pre Reverse Stock Split) of Series B Preferred Stock to VFM.

The foregoing description of the Master Agreement and the related Transaction Documents is a summary, and does not purport to be a complete description of the Master Agreement and the related Transaction Documents, and is qualified in its entirety by reference to the Master Agreement and the related Transaction Documents, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to the Company’s Report on Form 8-K, filed with the SEC on June 18, 2015

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

12 Months Ended

Dec. 31, 2015

Convertible Notes Payable [Abstract]

Senior Secured Convertible Notes Payable -Related Parties

NOTE 7 – SENIOR SECURED CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

In February 2006, the Company commenced a private placement of up to $800,000 principal amount of 10% senior secured convertible promissory notes due twelve months from the date of issue to certain Company shareholders and other accredited investors. As of December 31, 2006, the Company completed this private placement by selling all notes payable totaling $800,000. The notes are secured by a first priority lien on all of the tangible and intangible personal property of the Company. In May 2007, the due date of these notes was extended to August 2008 and the interest rate increased to 12% per annum during the extension period. In June 2011, the interest rate on all of the notes was reset to 10% and $596,500 of the notes and accrued interest was extended until September 15, 2015. During the fourth quarter of 2012 the remaining $178,749 of unextended notes and the associated accrued interest were extended to September 30, 2015. In June 2013, $225,000 of these notes payable plus accrued interest of $181,125 were converted into 7.4 million shares of the Company’s common stock, which was valued at $1,628,000. The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

During the fourth quarter of 2013, $220,000 of senior convertible notes plus accrued interest of $395,000, were converted into 7,900,000 shares of common stock. Since this transaction was with related parties, the conversion was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

During the second quarter of 2014, $216,249 of principal of the Company’s outstanding senior convertible notes held by a significant shareholder of the Company, plus accrued interest of $208,339, were converted into 8,448,519 shares of common stock. The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest, $82,000, was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

On June 12, 2015, as part of the Recapitalization Transaction (see Note 6), the Company restructured the Senior Secured Convertible Notes Payable – Related Parties. As a result the principal balance of $114,000 and accrued interest of $118,775 was converted into 154,184 shares (13,105,662 shares pre Reverse Stock Split at $0.018 per share) of the Company’s Common Stock. This resulted in a gain of $103,456. Of this amount, $17,967 was related to a stockholder and recorded as additional paid in capital, with the remaining $85,489 being recorded as a gain on extinguishment of debt.

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NOTES PAYABLE

12 Months Ended

Dec. 31, 2015

Debt Disclosure [Abstract]

Notes Payable

NOTE 8 – NOTES PAYABLE

Notes payable consists of the following as of December 31:

	December 31,		December 31,
	2015		2014
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015		-	$	114,000
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 at 8% per annum, principal and accrued interest due at December 1, 2014 (past due)		-		650,000
Notes payable; interest at 5% and 8% per annum, principal and accrued interest due at April 2015		-		123,000
Less: Debt discount		-		(10,447	)
		50,000		926,553
Less: Current portion		50,000		926,553
	$	-	$	-

At December 31, 2015 and 2014 accrued interest on notes payable was $23,667 and$155,992.

The warrant liabilities in this section were valued using the Black-Scholes option pricing model, with the following assumptions: no dividend yield, expected volatility of 173.7% to 180.7%, risk free interest rate of 1.75% and expected lives of four to five years.

On June 10, 2014, the Company issued a note payable for $250,000, which included fully vested warrants to purchase 1,000,000 shares pre Reverse Stock Split of Common Stock at an exercise price of $0.10 per share, expiring in five years. The warrants were valued at $39,650 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 248.2%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $34,222 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, “Recognition” (“FASB 835-30-25”) and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $34,222 was accreted through interest expense. The note and accrued interest at 8% per annum was originally due on December 11, 2014, but the Company received approval to extend the maturity until December 31, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $8,113.

As a result of the Recapitalization Transaction, the note’s principal balance of $250,000 and accrued interest of $20,263 was converted into 176,471 shares (15,000,000 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $120,117, and because this individual is a stockholder was recorded as additional paid in capital.

On August 5, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $29,725 using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $22,914 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $22,914 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and were therefore  classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $5,151.

As a result of the Recapitalization Transaction, the principal balance of $50,000 and accrued interest of $3,414 was converted into 34,898 shares (2,966,210 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $23,740, which was recorded as a gain on the extinguishment of debt. The remaining $50,000 was paid in full, plus accrued interest in September 2015. The 3,529 warrants (300,000 warrants pre Reverse Stock Split) to purchase shares of Common Stock associated with the $50,000 note payable remain outstanding and must be re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2015, the warrants were valued at $7,902.

On August 12, 2014, the Company issued a note payable for $50,000, which included fully vested warrants to purchase 300,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $26,817 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $17,455 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25, and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $17,455 was accreted through interest expense.

The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $2,575.

As a result of the Recapitalization Transaction, the principal balance of $50,000 and accrued interest of $3,370 was converted into 34,843 shares (2,961,644 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $23,720, which was recorded as a gain on the extinguishment of debt.

On August 14, 2014, the Company issued a note payable for $100,000, which included fully vested warrants to purchase 600,000 shares pre Reverse Stock Split of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $47,676 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $32,274 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25 and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $32,274 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and were therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $5,153.

As a result of the Recapitalization Transaction, the principal balance of $100,000 and accrued interest of $6,697 was converted into 69,657 shares (5,920,852 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $47,421, which was recorded as a gain on the extinguishment of debt.

On September 8, 2014, the Company issued notes payable for $150,000, which included fully vested warrants to purchase 900,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $62,544 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of five years. The relative fair value of the warrants was $44,140 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25 and was accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $44,140 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants were subject to anti-dilutive adjustments and were therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was re-valued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $7,725.

As a result of the Recapitalization Transaction, the principal balance of $150,000 and accrued interest of $9,222 was converted into 103,991 shares (8,839,269 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $70,766, which was recorded as a gain on the extinguishment of debt.

On December 5, 2014, the Company issued a note payable for $23,000 to a stockholder, which bears interest at 5.0% and was due on April 5, 2015. As a result of the Recapitalization Transaction (see Note 6), the principal balance of $23,000 and accrued interest of $609 was converted into 15,418 shares (1,310,510 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $10,493 and because this entity is a stockholder was recorded as additional paid in capital.

On December 31, 2014, the Company issued a note payable for $100,000, which included fully vested warrants to purchase 600,000 shares (pre Reverse Stock Split) of Common Stock at an exercise price of $0.05 per share expiring in five years. The warrants were valued at $11,812 using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 229.0%, risk free interest rate of 1.68% and expected life of five years. The relative fair value of the warrants was $10,563 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25 and was accreted over the term of the note payable for financial statement purposes. For the three months ended March 31, 2015, the final $10,447 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on April 1, 2015. The warrants were subject to anti-dilution adjustments and were therefore classified as a liability in accordance with FASB ASC 815. The warrant liability was revalued at each reporting period with the change in fair value recorded through earnings. As of June 12, 2015, the date of conversion in conjunction with the Recapitalization Transaction (see Note 6), the fair value of the warrant liability was $5,226.

As a result of the Recapitalization Transaction, the principal balance of $100,000 and accrued interest of $3,689 was converted into 67,637 shares (5,749,163 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $46,084, which was recorded as a gain on the extinguishment of debt.

On February 10, 2015, the Company issued a note payable for $25,000, bearing interest at 5.0% to an accredited investor and director of the Company. As a result of the recapitalization transaction (see Note 6), the principal balance of $25,000 and accrued interest of $417 was converted into 16,608 shares (1,411,720 shares pre Reverse Stock Split at $0.018) of Common Stock. This resulted in a gain of $11,296 and because this entity is a stockholder was recorded as additional paid in capital.

The conversion of the notes above on June 12, 2015 was treated as an extinguishment of debt. In accordance with FASB ASC 470-50, the difference between the cash acquisition price of the debt and its net carrying amount shall be recognized currently in income in the period of extinguishment as losses or gains. Similar transactions between stockholders was recognized as additional paid in capital.

On March 27, 2015, the Company issued a note payable for $111,102, bearing interest at 8.0% to an accredited investor.

On April 30, 2015, the Company issued a note payable for $4,887, bearing interest at 8.0% to an accredited investor.

On May 15, 2015, the Company issued a note payable for $4,480, bearing interest at 8.0% to an accredited investor.

On May 21, 2015, the Company issued a note payable for $14,074, bearing interest at 8.0% to an accredited investor.

As a result of the Recapitalization Transaction (see Note 6), the principal balance of the above four notes of $134,542 and accrued interest of $2,271 was converted into 41,603 shares (3,536,254 shares pre Reverse Stock Split at $0.0386) of the Company’s Series A Preferred stock as part of the $1,450,000 cash investment.

On June 12, 2015, the conversion of the four notes issued from March 27, 2015 to May 21, 2015, was treated as a troubled debt restructuring in accordance with FASB ASC 470-60-15, “Debt – Troubled Debt Restructurings by Debtors.”

A debtor that issues or otherwise grants an equity interest to a creditor to settle fully a payable, shall account for the equity interest at its fair value. The difference between the fair value of the equity interest granted and the carrying amount of the payable settled was recognized as a gain on restructuring payables.

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WARRANT LIABILITY

12 Months Ended

Dec. 31, 2015

Warrants and Rights Note Disclosure [Abstract]

Warrant Liability

NOTE 9 – WARRANT LIABILITY

On December 31, 2012, the Company entered into an Investment Agreement, a Technology and Service Agreement, a Patent and Technology License Agreement and an Asset Purchase Agreement with VFM and on the same date entered into a Technology and Service Agreement with Zaah (collectively with the VFM agreements, the “Agreements”). Contemplated by those Agreements were warrant issuances by the Company for the purchase of Common Stock.

Warrants exercisable for 627,451 shares (53,333,333 shares pre Reverse Stock Split) of Common Stock associated with these Agreements are subject to anti-dilution adjustments outlined in the Agreements. In accordance with FASB ASC 815, the warrants were classified as a liability in the total amount of $2.4 million at December 31, 2012. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2015 and 2014, the fair value of the warrant liability was $1,020,632 and $787,544.

On January 1, 2014, the Company issued warrants to purchase 74,697 shares (6,349,245 pre Reverse Stock Split) of Common Stock as consideration for technology received from VFM under to the Patent and Technology License Agreement dated December 31, 2012. The warrants are exercisable at $0.10 per share. The warrants are subject to anti-dilution adjustments outlined in the Agreement. In accordance with FASB ASC 815, the warrants were classified as a liability with an initial fair value of $444,000, which was immediately expensed as research and development costs. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2015 and 2014, the fair value of the warrant liability was $147,524 and $149,090.

The Company made the payment of warrants to VFM on a good faith basis, based on the assumption that the technology conveyed to the Company would be patentable and licensable. The Company had not reached a conclusion at that time that the technology would be patentable and licensable.

As of June 12, 2015, the Company concluded that the technology received from VFM is patentable and licensable, and that the Company was required to make, on January 1, 2015, an additional payment pursuant to Patent and Technology Agreement in the amount of $4,500,000, to be paid by issuing (i) a number of shares of Common Stock equal to (x) $4,500,000 divided by (y) a price which equals a 10% discount to the market price at the time of issuance and (ii) warrants to purchase an equal number of shares of Common Stock exercisable at a price of $0.10 per share. Based upon the share price of $0.04 per share, this would result in the issuance of approximately an additional 125 million shares of Common Stock and warrants to purchase an additional 125 million shares. The $4,500,000 was accrued at December 31, 2014. The number of warrants to be issued based on a stock price of $0.02 at December 31, 2014 was 250 million warrants. The warrants were valued at $4,892,089 using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants with the following assumptions: no dividend yield, expected volatility of 229.1%, risk free interest rate of 1.65% and expected life of five years.

In conjunction with the Recapitalization Transaction (see Note 6), the Company agreed that an additional $2,000,000 in exclusivity licensing fees was required to be paid and converted the $6,500,000 into shares of Series B Preferred Stock. In addition, the fair value of the associated warrants was $1,867,417 as of June 12, 2015 and was recorded as additional paid in capital on conversion.

The warrants associated with the notes payable (see Note 6) were revalued at June 12, 2015, based on the cashless conversion modification. The total fair value of those warrants was $37,000 and was recorded as additional paid in capital on conversion.

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CONVERTIBLE PREFERRED STOCK

12 Months Ended

Dec. 31, 2015

Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]

Convertible Preferred Stock

NOTE 10 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with VerifyMe on January 31, 2013 (the “Subscription Agreement”). Under the terms of the Subscription Agreement, VerifyMe subscribed to purchase 33,333,333 shares of the Company’s Series A preferred stock (the “Preferred Stock”) and a warrant to purchase 33,333,333 shares of the Company’s common stock at an exercise price of $0.12 per share, for $1 million.

At any time before January 31, 2015, VerifyMe has the right, but not the obligation, to require the Company to repurchase all, but not less than all, of the capital stock of the Company and warrants exercisable for capital stock of the Company held by VerifyMe in exchange for the price originally paid by VerifyMe therefor upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurrence of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to common stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share. This right has not been exercised.

In accordance with FASB ASC 480 and 815, the Preferred Stock has been classified as permanent equity and was valued at $1 million at January 31, 2013.

The conversion feature of the Preferred Stock is an embedded derivative, which is classified as a liability in accordance with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair value of $0 at June 12, 2015 and $800,000 at December 31, 2014. This was classified as an embedded derivative liability and a discount to Preferred Stock. Because the Preferred Stock can be converted at any time, the full amount of the original fair value was accreted and classified as a reduction to the discount on Preferred Stock and a deemed dividend distribution in the full amount of $1 million, in 2013.

On August 5, 2013, 12,222,222 shares (pre Reverse Stock Split) of Series A Preferred Stock were converted into 12,222,222 shares (pre Reverse Stock Split) of Common Stock.

The Company has determined that the Series A Preferred Stock issuance in the Recapitalization Transaction does not meet the requirements of FASB ASC 480-10 for liability treatment and therefore has been classified as permanent equity. Additionally, it was determined that the economic characteristics of the beneficial conversion feature are clearly and closely related to the host, and are based on a fixed conversion rate into shares of Common Stock and therefore do not require bifurcation.

The Series A Preferred Stock was converted into 248,366 (21,111,111 pre Reverse Stock Split) shares of Common Stock on June 12, 2015 in conjunction with the Recapitalization Transaction (see Note 6).

The 392,157 warrants (33,333,333 warrants pre Reverse Stock Split) associated with the Series A Preferred Stock were also 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 $2,995,791 at January 31, 2013. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2015 and 2014, the fair value of the warrants was $626,317 and $631,678.

On May 26, 2015, the Company amended its Amended Certificate of Designation, dated February 1, 2013, with respect to its Series A Preferred Stock, to amend the designations, preferences, powers and rights of the Series A Preferred Stock, and authorizing the issuance of up to 37,564,767 shares of Series A Preferred Stock. The Series A Preferred Stock are currently convertible at 20:1. 37,564,767 (pre-Reverse Stock Split) shares of Series A Preferred Stock were issued as part of the Recapitalization Transaction (see Note 6).

Additionally, on May 26, 2015, the Company amended its Amended and Restated Articles of Incorporation, dated December 19, 2003, to establish the Series B Preferred Stock, authorizing the issuance of up to 85 shares of Series B Preferred Stock. The Series B Preferred Stock are convertible currently at 8,496,732:1. 85 shares (pre Reverse Stock Split) of Series B Preferred Stock were issued to settle the $6.5 million of licensing fees due and the associated warrants as part of the Recapitalization Transaction (see Note 6). The foregoing description of the Certificate of Designation is a summary, and does not purport to be a complete description of the Certificate of Designation, and is qualified in its entirety by reference to the Certificate of Designation, a copy of which is filed as Exhibit 3.3 to the Company’s Report on Form 8-K, filed with the SEC on June 18, 2015.

On June 12, 2015, the Company issued 389,668 shares (33,121,777 pre Reverse Stock Split) of Series A Preferred shares to an investor for $1,278,501 as part of the total $1,450,813 transaction with the investor.  Further, an officer of the Company and a stockholder are partial owners in the investor and therefore the investor received an additional 10,667 shares (906,736 pre Reverse Stock Split) of Series A Preferred Stock for the forgiveness of previously accrued but unpaid compensation valued at $35,000 and notes payable and accrued interest were converted into 41,603 shares (3,536,254 pre Reverse Stock Split) of Series A Preferred Stock also as part of the $1,450,813 transaction.

Each of the Series A Preferred Stock and the Series B Preferred Stock have a preference in liquidation that the holders of the Series A Preferred Stock and the Series B Preferred Stock are to be paid out of assets available for distribution prior to holders of Common Stock. The holders Series A Preferred Stock and the Series B Preferred Stock may cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock and the Series B Preferred Stock can be converted, with certain limitations. In addition, the holders of Series A Preferred Stock and the Series B Preferred Stock are to be paid dividends, based on the number of shares of Series A Preferred Stock and the Series B Preferred Stock, as the case may be, as if the shares had been converted to Common Stock, prior to the holders of Common Stock receiving a dividend.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

NOTE 11 – 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:

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of warrants	$	-	$	-	$	1,802,375	$	1,802,375
Total	$	-	$	-	$	1,802,375	$	1,802,375

The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 inputs:

Balance at January 1, 2015	$	6,370,709
Conversion of notes payable, net of interest expense		(31,397	)
Conversion of warrants related to licensing fees		(1,867,417	)
Change in fair value of derivative liabilities		(2,669,520	)
Balance at December 31, 2015	$	1,802,375

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, 2015.

As of December 31, 2015, 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, 2015
Annual Dividend Yield		0.0	%
Expected Life (Years)		2.0 - 3.0
Risk-Free Interest Rate		1.06% - 1.31	%
Expected Volatility		178.5% - 179.3	%

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.

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STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2015

Equity [Abstract]

Stockholders' Equity

NOTE 12 – STOCKHOLDERS’ EQUITY

On January 1, 2014, under the terms of the Patent and Technology License Agreement, the Company issued 6,349,206 shares (pre Reverse Stock Split) of Common Stock to VFM, in addition to the warrants described in Note 9 above. The shares were issued in payment for the technology received. Under the agreement, $400,000 worth of Common Stock was to be paid by the Company to VFM at a 10% discount to the market at time of payment. The closing price was $0.07 per share discounted 10% to $0.063. The $400,000 payment divided by the $0.063 per share resulted in 6,349,206 shares (pre Reverse Stock Split) to be issued. The entire $400,000 payment was expensed to research and development.

On June 2, 2015, the Company issued 68,236 shares (post Reverse Stock Split) of Common Stock to two vendors to settle outstanding payable balances of $58,000.

On June 12, 2015, the Company issued 304,785 shares (25,906,735 pre Reverse Stock Split) of Common Stock and raised $50,000.

During the three months ended June 30, 2015, one stockholder received 2,353 shares (post Reverse Stock Split) of Common Stock in a cashless exercise.

On June 11, 2015, the Company issued 525,000 Restricted Stock Units (“RSUs”) (44,625,000 pre Reverse Stock Split) to two officers of the Company. The RSUs were valued at the closing stock price of $0.01 on June 11, 2015, at $446,250, fair value. These RSUs are being expensed over the vesting terms. For the year ended December 31, 2015, the Company expensed $80,573 related to the RSUs.

On June 30, 2015, the Company issued 48,761 shares (post Reverse Stock Split) of Common Stock to a vendor to settle an outstanding payable balance of $41,447, net of gain on conversion of $35,153.

On July 9, 2015, the Company hired a Chief Operating Officer (“COO”). The COO will receive 225,000 RSUs (19,125,000 pre Reverse Stock Split), vesting over a three-year period, with one-third vesting the first year and one-twelfth vesting ratably on a quarterly basis thereafter. The RSUs were valued at fair value of $918,000 based on the closing stock price of $4.08 on July 9, 2015. For the year ended December 31, 2015, the Company expensed $153,000 related to the RSUs.

On July 23, 2015, the Company completed the Reverse Stock Split of its outstanding Common Stock and Preferred Stock, as further described in Note 1 and Note 6 above.

On August 10, 2015, the Company agreed to issue the Chief Financial Officer (“CFO”) 20,000 RSUs vesting over six months and 100,000 RSUs vesting annually over three years. The RSUs were valued at a fair value of $692,400 based on the closing stock price of $5.77 per share on August 10, 2015. For the year ended December 31, 2015, the Company expensed $176,306 related to the RSUs.

On October 1, 2015, the Company agreed to issue 100,000 RSUs to a consultant for services. Of the 100,000 RSUs, 60,000 were issued upon execution of the agreement, 20,000 shares are to be issued on January 1, 2016 and 20,000 shares are to be issued on April 1, 2016. The RSUs were originally valued at $195,000.  The Company expensed $54,250 for the year ended December 31, 2015 relative to these RSUs.

On October 7, 2015, the Company agreed to pay $15,000 to a consultant/stockholder as well as an additional $35,000 based on certain milestones being met. Additionally, as of August 1, 2015 the Company agreed to issue the individual 30,000 RSUs originally valued at $165,000 in quarterly installments on November 1, 2015, February 1, 2016, May 1, 2016 and August 1, 2016, which began vesting on August 1, 2015.  The Company expensed $34,687 for the year ended December 31, 2015 relative to these RSUs. Further the individual will receive a 2% to 5% commission on company sales while this agreement is in effect, however no commissions were earned during 2015.

In accordance with FASB ASC 505-50, “Equity – Equity-Based Payments to Non-Employees,” restricted stock with performance conditions should be revalued based on the modification accounting methodology described in FASB ASC 718-20, “Compensation—Stock Compensation—Awards Classified as Equity.” As such the Company has revalued certain restricted stock with consultants and determined that there was an aggregate decrease in fair value of $75,500.

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STOCK OPTIONS

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Options

NOTE 13 – STOCK OPTIONS

During 1999, the Board of Directors (“Board”) of the Company adopted, with the approval of the stockholders, a Stock Option Plan. In 2000, the Board superseded that plan and created a new Stock Option Plan, pursuant to which it is authorized to grant options to purchase up to 1.5 million shares of common stock. On December 17, 2003, the Board, with approval of the stockholders, superseded the 2000 plan and 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. The Plan is intended to permit stock options granted to employees under the Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2003 Plan, which are not intended to qualify as Incentive Stock Options, are deemed to be non-qualified options (“Non-Statutory Stock Options”).  As of December 31, 2015, options to purchase 298,530 shares of common stock have been issued and are unexercised, and 4,067,631 shares are available for grants under the 2008 Plan.  

During 2013, our Board adopted a new omnibus incentive compensation plan that was ratified by the shareholders at the 2013 annual meeting, (the “2013 Plan”) which will serve as the successor incentive compensation plan to the 2003 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.  As of December 31, 2015, under the 2013 Plan grants of restricted stock and options to purchase 292,500 shares of common stock have been issued and are unvested or unexercised, and 19,700,000 shares of common stock remain available for grants under the 2013 Plan.  

The 2013 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.

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 March 28, 2014, the Company issued options to purchase an aggregate of 6,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share, with a term of ten years, to a member of the Board of Directors. The fair value of options issued was $599,893 of which all was expensed immediately. 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 229%, risk-free interest rate of 2.73% and expected option life of ten years.

On March 28, 2014 at the urging of the Company’s previous Chairman, Michael Sonnenreich, and after discussion by the Board and suggestions by Board Observers attending the meeting, the Board unanimously voted to extend the exercise period of all existing 10 year options, for a full ten years (as opposed to six months) regardless of their status with the Company. This charge was memorialized and sent in writing to previous Directors by then general counsel Morgan, Lewis & Bockius.

On June 11, 2015, the Company issued options to purchase an aggregate of 1,225,000 shares (104,125,000 pre Reverse Stock Split) of the Common Stock at an exercise price of $0.85 per share, with a term of five years, to three employees and two members of the Board. The fair value of options issued was $993,083. 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 176.6%, risk-free interest rate of 1.74% to 1.75% and expected option life of five years. The options are being expensed over the vesting terms for the employees and over the Board members’ remaining service terms as that is shorter than the vesting terms.

On July 9, 2015, the Company hired a COO who received 375,000 options (31,875,000 pre Reverse Stock Split) to purchase shares of Common Stock of the Company, with an exercise price of $0.85 ($0.01 pre reverse split) and valued at $1,502,219. The options vest quarterly over three years. The fair value of the options was valued using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 180.1%, risk free interest rate of 1.58% and expected life of five years. The options are being expensed over the vesting terms.

On August 10, 2015, the Company hired a CFO who received 200,000 options (17,000,000 pre Reverse Stock Split) to purchase shares of Common Stock vesting annually over three years. The options were valued at fair value of $1,107,857, using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 182.2%, risk free rate interest rate of 1.62% and expected life of five years. The options are being expensed over the vesting terms.

On September 25, 2015, the Company issued options to purchase an aggregate of 75,000 shares (6,375,000 pre Reverse Stock Split) of Common Stock at an exercise price of $2.15 per share, with a term of five years to a member of the Board. The fair value of options issued was $155,003. 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 183.5%, risk-free interest rate of 1.48% and expected option life of five years. The options are being expensed over the service term as that is shorter than the vesting terms.

For the years ended December 31, 2015 and 2014, the Company expensed $849,791 and $860,235 with respect to the options.

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, 2015 and 2014:

	2015			2014
Risk Free Interest Rate		1.69	%		2.73	%
Expected Volatility		176.6	%		229.0	%
Expected Life (in years)		5.0			10.0
Dividend Yield		0	%		0	%
Weighted average estimated fair value of options during the period	$	2.00		$	1.00

The following table summarizes the activities for our stock options for the year ended December 31, 2015and 2014:

	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s) (1)
Balance as of December 31, 2013	739,608	$	4.25
Exercised	(141,176)	$	1.70
Balance as of December 31, 2014	598,431	$	4.25
Granted	1,875,000	$	0.85
Exercised	(7,843)		0.05
Forfeited/canceled	(308,235)	$	0.06
Balance as of December 31, 2015	2,157,353	$	1.80	5.0	$	226,631
Exercisable as of December 31, 2015	626,103	$	2.57	6.2
Exercisable as of December 31, 2015 and expected to vest thereafter	2,157,353	$	1.80	5.0	$	226,631

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $2.50 for our common stock on December 31, 2015.

During the year ended December 31, 2015 and 2014, the weighted average fair value of stock options granted during the period was $3,758,162 and $599,893.  The fair value of stock options is expensed over the vesting term in accordance with the terms of the related stock option agreements.

During the year ended December 31, 2015 and 2014, the intrinsic value of stock options exercised during the period was $0.

For the years ended December 31, 2015 and 2014, the Company expensed $849,792 and $860,233, relative to the fair value of stock options granted.

As of December 31, 2015, there was $2,853,537 of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average period of 2.5 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from the Company’s expectations. The difference between the stock options exercisable at December 31, 2015 and the stock options exercisable and expected to vest relates to management’s estimate of options expected to vest in the future.

The following table summarizes the activities of our unvested stock options for the year ended December 31, 2015 and 2014:

	Number of Awards			Weighted Average Exercise Price		Weighted Average Remaining Amortization Period (Years)
Unvested stock options at December 31, 2013		55,882		$	6.52
Vested		(38,235)			(6.86)
Unvested stock options at December 31, 2014		17,647		$	9.49
Granted		1,875,000		$	1.43
Cancelled/Forfeited		(11,765	)	$	(12.75)
Vested		(349,632	)	$	(1.31)
Unvested stock options at December 31, 2015		1,531,250		$	1.48		4.49

The following table summarizes the activities for our warrants for the year ended December 31, 2015:

	Warrants Outstanding
	Number of Shares			Weighted- Average Exercise Price			Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s) (1)
Balance as of December 31, 2013		1,405,686		$	8.80
Granted		121,755			6.86
Expired		(66,666	)		(12.75	)
Balance as of December 31, 2014		1,460,775		$	1.01
Exercised		(2,353	)	$	0.85
Cancelled/Forfeited		(43,529	)	$	(4.15	)
Balance as of December 31, 2015		1,414,893		$	9.67		4.8	$	413
Exercisable as of December 31, 2015		1,414,893		$	9.67		4.8
Exercisable as of December 31, 2015 and expected to vest thereafter		1,414,893		$	9.67		4.8	$	413

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $2.50 for our common stock on December 31, 2015.

All warrants were vested on the date of grant.

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OPERATING LEASES

12 Months Ended

Dec. 31, 2015

Leases [Abstract]

Operating Leases

NOTE 14 – OPERATING LEASES

For the year ended December 31, 2014 and 2013, total rent expense under leases amounted to $55,153 and $65,950. At December 31, 2015, the Company was not obligated under any non-cancelable operating leases.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions

NOTE 15 – RELATED PARTY TRANSACTIONS

At June 12, 2015, three stockholders of the Company held $317,000 of the senior secured convertible notes payable and were owed accrued interest of $42,713. The notes and accrued interest were converted into 234,735 shares (19,952,489 pre Reverse Stock Split) of Common Stock as further described in Note 7 and 8.

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MAJOR CUSTOMERS/VENDORS

12 Months Ended

Dec. 31, 2015

Risks and Uncertainties [Abstract]

Major Customers/Vendors

NOTE 16 – MAJOR CUSTOMERS/VENDORS

During the years ended December 31, 2015 and 2014, three customers 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, 2015 and 2014, we purchased 100.0% of our pigment from one vendor.

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2015

Subsequent Events [Abstract]

Subsequent Events

NOTE 17 – SUBSEQUENT EVENTS

As of the date of this filing, the 10,667 shares (906,736 pre Reverse Stock Split) of Series A Preferred Stock have not been distributed to the officer of the Company and the stockholder, as further discussed in Note 10.

On February 9, 2016, the Company issued 2,587,500 shares of 0% Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”) 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 Preferred Stock, 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 Preferred Stock, 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 Preferred Stock, 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 $0.40per share. Each share of Series C Preferred Stock is convertible into one share of common stock. The Series C Preferred Stock 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 Preferred Stock.

The Company entered into a Registration Rights Agreement with each of the Investors (the “Registration Rights Agreement”), pursuant to which the Company has agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) covering the resale of the Conversion Shares, as well as the shares of Common Stock that are issuable upon exercise of the Warrants (the “Warrant Shares”).

The following is a brief summary of the Purchase Agreement, the Registration Rights Agreement, the Series C Preferred Stock and the Warrants, which are qualified in their entirety by reference to the full text of such documents.

Purchase Agreement

The Purchase Agreement contains representations and warranties by the Company and the Investors and covenants of the Company and the Investors (including indemnification from the Company in the event of breaches of its representations and warranties), which the Company believes are customary for transactions of this type. The Purchase Agreement provides for certain restrictive covenants, including the restriction on the Company to issue any securities for a period of sixty days from the date of the Purchase Agreement. Additionally, pursuant to the Purchase Agreement, during the Protection Period (as such term is defined in the Purchase Agreement), the Company is prohibited from entering into any variable rate transaction. Additionally, provided the Protection Period has not expired, for the period beginning on the date that the Company’s securities are listed on a national securities exchange and until the expiration of the Protection Period, the Company is prohibited from issuing any securities or incurring any financing debt, subject to certain exceptions.

Registration Rights Agreement

Pursuant to the Registration Rights Agreement, the Company is required to prepare and file a registration statement (the “Registration Statement”) with the SEC under the Securities Act of 1933, as amended, covering the resale of the Conversion Shares and the Warrant Shares (collectively, the “Registrable Securities”). The Company will be required to file such Registration Statement within 45 calendar days following the closing date of the Offering (the “Filing Deadline”). The Company will be required to use its best efforts to have the Registration Statement declared effective as soon as practicable, but in no event later than 60 days from the closing of the Offering (or, in the event of a “full review” by the SEC, 120 days) (the “Effectiveness Deadline”). Pursuant to the Registration Rights Agreement, the Company will incur certain liquidated damages upon the occurrence of certain events, including if: (i) the Registration Statement is not filed with the SEC on or prior to the Filing Deadline; (ii) the Company fails to file with the SEC a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the SEC pursuant to the Securities Act of 1933 (the “Securities Act”), within five trading days of the date that the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be “reviewed” or will not be subject to further review; (iii) prior to the effective date of the Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the SEC in respect of such Registration Statement within eighteen (18) calendar days after the receipt of comments by or notice from the SEC that such amendment is required in order for such Registration Statement to be declared effective, (iv) the Registration Statement is not declared effective by the SEC on or prior to the Effectiveness Deadline, and (v) after the effective date of the Registration Statement and prior to the expiration of the Effectiveness Period, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the holders of the Registrable Securities are otherwise not permitted to utilize the prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive trading days or more than an aggregate of twenty (20) trading days (which need not be consecutive trading days) during any 12-month period (each such failure is referred to herein as an “Event”).

On each date that an Event occurs and on each monthly anniversary of such date, the Company shall pay to each holder of Registrable Securities an amount in cash equal to 1.0% multiplied by the aggregate subscription amount paid by such holder of Registrable Securities, up to a maximum of 6.0%. If the Company fails to pay such amount when due, the Company will pay interest thereon at a rate of 18% per annum.

The Registration Rights Agreement also contains mutual indemnifications by the Company and each Investor, which the Company believes are customary for transactions of this type.

Series C Preferred Stock

The Series C Preferred Stock was created pursuant to a Certificate of Designation.

Warrants

The Warrants are exercisable, in full or in part, at any time prior to the third anniversary of their issuance, at an exercise price of $0.40 per share. The Warrants provide 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 per share that is less than the exercise price of the Warrants then in effect. In the case of certain fundamental transactions affecting the Company, the holders of Warrants, upon exercise of such Warrants after such fundamental transaction, will have the right to receive, in lieu of shares of the Common Stock, the same amount and kind of securities, cash or property that such holder would have been entitled to receive upon the occurrence of the fundamental transaction, had the Warrants been exercised immediately prior to such fundamental transaction. The Warrants contain a “cashless exercise” feature that allows the holders to exercise the warrants without a cash payment to the Company upon the terms set forth in the Warrants.   Due to the adjustment features of the exercise price, the fair value of the warrants will be recorded as a liability and not equity.

On February 29, 2016, the Company appointed a new Chairman of the Board.  In connection with this appointment, the Chairman was granted a stock option to purchase 100,000 shares of Common Stock at an exercise price of $0.60 per share under the Company’s 2013 Comprehensive Incentive Compensation Plan.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Nature of the Business

Nature of the Business

On July 14, 2015, LaserLock Technologies, Inc. changed its name to VerifyMe, Inc., effective July 23, 2015. As used in this report, unless the context otherwise indicates, any reference to “VerifyMe,” “our Company,” “the Company,” “us,” “we” and “our” refers to VerifyMe, Inc. a Nevada corporation.

The Company was incorporated in the State of Nevada on November 10, 1999. The Company is based in New York, 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 OTC QB, organized by the OTC Markets Group, Inc., and the OTC Bulletin Board under the ticker symbol “VRME.”

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 delivers 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. 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 operationalize the Company’s current technology.

Basis of Presentation

Basis of Presentation

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America.

Reverse Stock Split and Changes to Company's Preferred Stock

Reverse Stock Split and Changes to Company’s Preferred Stock

On May 26, 2015, the board of directors of the Company (the “Board”), acting by written consent in lieu of a special meeting, unanimously approved and adopted: (a) a reverse stock split of all of the Company’s issued and outstanding capital stock based on a minimum 1-for-40 split, up to a maximum 1-for-100 split (the “Reverse Stock Split”), and recommended the same for the Company’s stockholders for approval, and (b) a Second Amended Certificate of Designation for Series A Preferred Stock, which amended the designations, preferences, powers and rights of the shares of the Company’s Series A convertible preferred stock, par value $0.001 per share (the “Series A Preferred Stock”), which were originally set forth in that certain Amended Certificate of Designation for Series A Preferred Stock, dated December 19, 2003.

On May 28, 2015, those stockholders of the Company holding a majority of the issued and outstanding shares of Common Stock and Series A Preferred Stock, acting by written consent in lieu of a special meeting, voted to approve the Reverse Stock Split.

On June 11, 2015, at a duly authorized special meeting of the Board, the Board (a) finalized, adopted and approved a resolution setting the Reverse Stock Split exchange ratio to a 1-for-85 split and (b) approved and adopted a new Certificate of Designation for Series B Preferred Stock, establishing the designations, preferences, powers and rights of the shares of the Company’s Series B convertible preferred stock, par value $0.001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”).

On July 23, 2015, the Company completed the 1-for-85 Reverse Stock Split of all of its outstanding Common Stock and Preferred Stock. The total number of authorized capital stock of the Company remained unchanged at its current total of 750,000,000, with 675,000,000 designated as Common Stock and 75,000,000 designated as Preferred Stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise specified.

Use of Estimates

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

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

Fair Value of Financial Instruments

The Company’s financial instruments consist of accounts receivable, accounts payable and accrued expenses, warrant liability and notes payable. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities.

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

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

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

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

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

Cash and Cash Equivalents

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

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

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

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 Trademark

Patents and Trademark

The current patent portfolio consists of ten granted patents and six applications pending.   The Company has also purchased a trademark. 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

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

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.”

Convertible Notes Payable

Convertible Notes Payable

Convertible notes payable, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature (BCF) as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method which approximates the effective interest method.

Derivative Instruments

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

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

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 2012 through 2015 remain subject to examination by major tax jurisdictions.

Stock-based Payments

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.

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

Advertising costs are expensed as incurred. Advertising costs were approximately $458 and $62,835 for the years ended December 31, 2015 and 2014 and are included in sales and marketing expenses.

Research and Development Costs

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, 2015 and 2014 were $2,529,833 and $10,590,271.

Basic and Diluted Net Income per Share of Common Stock

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.

Segment Information

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

Recently Adopted Accounting Pronouncements

As of December 31, 2015 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Recently Issued Accounting Pronouncements Not Yet Adopted

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 Company is evaluating the effect of the adoption of this standard.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. The amendments in this Update apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share.

For hybrid financial instruments issued in the form of a share, an entity (an issuer or an investor) should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. That is, an entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract.

The effects of initially adopting the amendments in this Update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. The Company does not anticipate the adoption of this standard to have a material effect on the financial statements.

The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. If an entity early adopts the amendments in an interim period, any adjustments shall be reflected as of the beginning of the fiscal year that includes that interim period.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company does not anticipate the adoption of this standard to have a material effect on the financial statements.

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2015

PROPERTY AND EQUIPMENT

Schedule of Property and Equipment

Equipment consists of the following:

	December 31,		December 31,
	2015		2014
Furniture and Fixtures	$	219,871	$	219,871
Equipment		18,588		16,155
		238,459		236,026
Less:  Accumulated depreciation		230,621		161,205
	$	7,838	$	74,821

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Schedule of Income Tax Benefit (Provision)

The income tax benefit (provision) consists of the following:

	Year Ended			Year Ended
	December 31,			December 31,
	2015			2014
Current	$	(1,653,000	)	$	(5,505,000	)
Deferred		(395,000	)		(372,000	)
Change in valuation allowance		2,048,000			5,877,000
	$	-		$	-

Reconciliation of Federal Statutory Tax Rate

The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:

	2015						2014
	Amount			%			Amount			%
U.S federal income tax benefit at federal statutory rate	$	(806,000	)		(36	)	$	(2,771,000	)		(35	)
State tax, net of federal tax effect		(135,000	)		(6	)		(463,000	)		(6	)
Non-deductible changes in derivative liability and share based transactions		(1,107,000	)		(53	)		(2,639,000	)		(33	)
Other		-			-			(4,000	)		-
Change in valuation allowance		2,048,000			95			5,877,000			74
	$	-			-		$	-			-

Schedule of Deferred Tax Assets and Liabilities

The primary components of the Company’s December 31, 2015 and 2014 deferred tax assets, liabilities and related valuation allowance are as follows:

	December 31,			December 31,
	2015			2014
Deferred tax asset for NOL carryforwards	$	12,303,000		$	10,649,000
Deferred tax liability for intangibles		(165,000	)		(165,000	)
Share based compensation		4,589,000			4,205,000
Non deductible accrued expenses		10,000			-
Valuation allowance		(16,737,000	)		(14,689,000	)
	$	-		$	-

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NOTES PAYABLE (Tables)

12 Months Ended

Dec. 31, 2015

Debt Disclosure [Abstract]

Schedule of Notes Payable

Notes payable consists of the following as of December 31:

	December 31,		December 31,
	2015		2014
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015		-	$	114,000
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 at 8% per annum, principal and accrued interest due at December 1, 2014 (past due)		-		650,000
Notes payable; interest at 5% and 8% per annum, principal and accrued interest due at April 2015		-		123,000
Less: Debt discount		-		(10,447	)
		50,000		926,553
Less: Current portion		50,000		926,553
	$	-	$	-

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Schedule of Liabilities Measured at Fair Value on a Recurring Basis

Liabilities measured at fair value on a recurring basis are summarized as follows:

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of warrants	$	-	$	-	$	1,802,375	$	1,802,375
Total	$	-	$	-	$	1,802,375	$	1,802,375

Fair Value Measurements within Fair Value Hierarchy of Derivative Liabilities Using Level 3 Inputs

The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 inputs:

Balance at January 1, 2015	$	6,370,709
Conversion of notes payable, net of interest expense		(31,397	)
Conversion of warrants related to licensing fees		(1,867,417	)
Change in fair value of derivative liabilities		(2,669,520	)
Balance at December 31, 2015	$	1,802,375

Schedule of Common Stock Purchase Warrants Valuation Assumptions

As of December 31, 2015, 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, 2015
Annual Dividend Yield		0.0	%
Expected Life (Years)		2.0 - 3.0
Risk-Free Interest Rate		1.06% - 1.31	%
Expected Volatility		178.5% - 179.3	%

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STOCK OPTIONS (Tables)

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Weighted-average Assumptions Used to Estimate the Fair Values of Stock Options Granted

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, 2015 and 2014:

	2015			2014
Risk Free Interest Rate		1.69	%		2.73	%
Expected Volatility		176.6	%		229.0	%
Expected Life (in years)		5.0			10.0
Dividend Yield		0	%		0	%
Weighted average estimated fair value of options during the period	$	2.00		$	1.00

Schedule of Stock Option Activity

The following table summarizes the activities for our stock options for the year ended December 31, 2015and 2014:

	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s) (1)
Balance as of December 31, 2013	739,608	$	4.25
Exercised	(141,176)	$	1.70
Balance as of December 31, 2014	598,431	$	4.25
Granted	1,875,000	$	0.85
Exercised	(7,843)		0.05
Forfeited/canceled	(308,235)	$	0.06
Balance as of December 31, 2015	2,157,353	$	1.80	5.0	$	226,631
Exercisable as of December 31, 2015	626,103	$	2.57	6.2
Exercisable as of December 31, 2015 and expected to vest thereafter	2,157,353	$	1.80	5.0	$	226,631

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $2.50 for our common stock on December 31, 2015.

Summary of the Activities of Unvested Stock Options

The following table summarizes the activities of our unvested stock options for the year ended December 31, 2015 and 2014:

	Number of Awards			Weighted Average Exercise Price		Weighted Average Remaining Amortization Period (Years)
Unvested stock options at December 31, 2013		55,882		$	6.52
Vested		(38,235)			(6.86)
Unvested stock options at December 31, 2014		17,647		$	9.49
Granted		1,875,000		$	1.43
Cancelled/Forfeited		(11,765	)	$	(12.75)
Vested		(349,632	)	$	(1.31)
Unvested stock options at December 31, 2015		1,531,250		$	1.48		4.49

Schedule of Warrant Activity

The following table summarizes the activities for our warrants for the year ended December 31, 2015:

	Warrants Outstanding
	Number of Shares			Weighted- Average Exercise Price			Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000’s) (1)
Balance as of December 31, 2013		1,405,686		$	8.80
Granted		121,755			6.86
Expired		(66,666	)		(12.75	)
Balance as of December 31, 2014		1,460,775		$	1.01
Exercised		(2,353	)	$	0.85
Cancelled/Forfeited		(43,529	)	$	(4.15	)
Balance as of December 31, 2015		1,414,893		$	9.67		4.8	$	413
Exercisable as of December 31, 2015		1,414,893		$	9.67		4.8
Exercisable as of December 31, 2015 and expected to vest thereafter		1,414,893		$	9.67		4.8	$	413

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $2.50 for our common stock on December 31, 2015.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Reverse Stock Split and Changes to Company's Preferred Stock ) (Details)	Dec. 31, 2015 $ / shares shares	Jul. 23, 2015 shares	Jun. 11, 2015 $ / shares	May. 26, 2015	Dec. 31, 2014 $ / shares shares
Restructuring Cost and Reserve [Line Items]
Common stock, par value | $ / shares	$ 0.001		$ 0.001		$ 0.001
Reverse stock split ratio			85
Common stock, shares authorized	675,000,000	675,000,000			675,000,000
Preferred stock, shares authorized		75,000,000
Capital stock, shares authorized		750,000,000
Minimum [Member]
Restructuring Cost and Reserve [Line Items]
Reverse stock split ratio				40
Maximum [Member]
Restructuring Cost and Reserve [Line Items]
Reverse stock split ratio				100

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Property and Equipment) (Details)	12 Months Ended
	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Depreciation method of property and equipment	Straight-line method
Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of property and equipment	5 years
Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of property and equipment	7 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Patents and Trademark) (Details) - Patents [Member]	12 Months Ended
	Dec. 31, 2015 Patents
Finite-Lived Intangible Assets [Line Items]
Number of patents granted	10
Number of provisional patent applications pending	6
Amortization method of patents	Straight-line basis
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated lives of patents	17 years
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated lives of patents	20 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Other) (Details)		12 Months Ended
		Dec. 31, 2015 USD ($) Segments	Dec. 31, 2014 USD ($)
Accounting Policies [Abstract]
Advertising expense		$ 458	$ 62,835
Research and development costs	[1]	$ 2,412,833	$ 10,590,271
Number of operating segment | Segments		1

[1] Includes share based compensation of $2,000,000 and $10,236,089 for the years ended December 31, 2015 and 2014

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GOING CONCERN (Details) - USD ($)	1 Months Ended	12 Months Ended
	Feb. 29, 2016	Dec. 31, 2015	Dec. 31, 2014
Subsequent Event [Line Items]
Net proceeds from issuance of convertible preferred stock		$ 1,278,501
Subsequent Event [Member] | 0% Series C Convertible Preferred Stock [Member]
Subsequent Event [Line Items]
Net proceeds from issuance of convertible preferred stock	$ 1,217,500

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PROPERTY AND EQUIPMENT (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment, Net [Abstract]
Furniture and Fixtures	$ 219,871	$ 219,871
Equipment	18,588	16,155
Property, Plant and Equipment, Gross, Total	238,459	236,026
Less: Accumulated depreciation	230,621	161,205
Property, Plant and Equipment, Net, Total	7,838	74,821
Depreciation of property and equipment	$ 69,415	$ 69,253

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PATENTS AND TRADEMARK (Details)	12 Months Ended
	Dec. 31, 2015 USD ($) Patents	Dec. 31, 2014 USD ($)
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Number of patents granted | Patents	10
Number of pending applications for patents | Patents	6
Amortization method	Straight-line basis
Patents [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated lives of intangible assets	17 years
Patents [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated lives of intangible assets	20 years
Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated lives of intangible assets	20 years
Amortization method	Straight-line basis
Patents And Trademark [Member]
Finite-Lived Intangible Assets [Line Items]
Capitalized patent costs and trademarks | $	$ 100	$ 100
Amortization expense | $	$ 16,813	$ 13,109

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INCOME TAX (Narrative) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Operating Loss Carryforwards [Line Items]
Net operating loss ("NOL")	$ 30.0
Federal Statutory Rate	36.00%	35.00%
Unrecognized tax benefits
Change in unrecognized tax benefits
Interest or penalties related to unrecognized tax benefits
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforward, expiration date	Dec. 31, 2019

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INCOME TAXES (Schedule of Income Tax Benefit (Provision)) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Current	$ (1,653,000)	$ (5,505,000)
Deferred	(395,000)	(372,000)
Change in valuation allowance	$ 2,048,000	$ 5,877,000
Income tax benefit (provision)

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INCOME TAXES (Reconciliation of Federal Statutory Tax Rate) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
U.S federal income tax benefit at federal statutory rate	$ (806,000)	$ (2,771,000)
State tax, net of federal tax effect	(135,000)	(463,000)
Non-deductible changes in derivative liability and share based transactions	$ (1,107,000)	(2,639,000)
Other		(4,000)
Change in valuation allowance	$ 2,048,000	$ 5,877,000
Income tax benefit (provision)
U.S federal income tax benefit at federal statutory rate	(36.00%)	(35.00%)
State tax, net of federal tax effect	(6.00%)	(6.00%)
Non-deductible changes in derviative liability and share based transactions	(53.00%)	(33.00%)
Other
Change in valuation allowance	95.00%	74.00%
Effective Income Tax Rate Reconciliation, Percent, Total

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INCOME TAXES (Schedule of Deferred Tax Assets and Liabilities) (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Deferred tax asset for NOL carryforwards	$ 12,303,000	$ 10,649,000
Deferred tax liability for intangibles	(165,000)	(165,000)
Share based compensation	4,589,000	$ 4,205,000
Non deductible accrued expenses	10,000
Valuation allowance	$ (16,737,000)	$ (14,689,000)
Deferred Tax Assets, Net, Total

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RECAPITALIZATION TRANSACTION (Details) - USD ($)	1 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Jul. 23, 2015	Jun. 12, 2015	Aug. 31, 2013
Restructuring Cost and Reserve [Line Items]
Preferred stock, shares authorized				75,000,000
Cash investment of OPC		$ 1,278,501
Conversion of deferred compensation, notes payable and accrued interest into Series A Convertible Preferred Stock		$ 136,813
Common stock, shares issued		6,259,727	3,969,106		304,785
Cash investment of private investor	$ 50,000	$ 50,000
Patent costs reclassified from prepaid expenses resulting from purchase of patents		176,316
Amortization expense recognized on amount of patent costs reclassified from prepaid expenses		23,684
OPC Partners LLC [Member]
Restructuring Cost and Reserve [Line Items]
Cash investment of OPC	$ 1,450,000
Private Investor [Member]
Restructuring Cost and Reserve [Line Items]
Cash investment of private investor		$ 50,000
Series B Convertible Preferred Stock [Member]
Restructuring Cost and Reserve [Line Items]
Preferred stock, shares authorized		85	0
Preferred stock, shares issued		1	0
Series A Convertible Preferred Stock [Member]
Restructuring Cost and Reserve [Line Items]
Preferred stock, shares authorized		37,564,767	75,000,000
Preferred stock, shares issued		441,938	248,366
Series A Convertible Preferred Stock [Member] | OPC Partners LLC [Member]
Restructuring Cost and Reserve [Line Items]
Cash investment of OPC		$ 1,278,501
Conversion of deferred compensation, notes payable and accrued interest into Series A Convertible Preferred Stock		171,813
Patent Technology And License Termination Agreement [Member]
Restructuring Cost and Reserve [Line Items]
Additional payment for patent and technology		4,500,000
Payments under license		$ 2,000,000
Patent Technology And License Termination Agreement [Member] | Series B Convertible Preferred Stock [Member]
Restructuring Cost and Reserve [Line Items]
Preferred stock, shares authorized		85
Pre Reverse Stock Split [Member]
Restructuring Cost and Reserve [Line Items]
Outstanding common stock warrant		3,700,000
Common stock shares issued on conversion of warrant		3,700,000
Shares of common stock shares issued on conversion	21,111,111	21,111,111				12,222,222
Common stock, shares issued	25,906,735
Pre Reverse Stock Split [Member] | Private Investor [Member]
Restructuring Cost and Reserve [Line Items]
Common stock, shares issued		25,906,736
Pre Reverse Stock Split [Member] | Series A Convertible Preferred Stock [Member] | OPC Partners LLC [Member]
Restructuring Cost and Reserve [Line Items]
Preferred stock, shares authorized		37,564,767
Pre Reverse Stock Split [Member] | Convertible Notes Payable [Member]
Restructuring Cost and Reserve [Line Items]
Amount of outstanding notes converted in to common stock shares		$ 731,426
Common stock shares issued on conversion of debt (in shares)		57,265,030
Net gain on conversion of notes		$ 297,370
Pre reverse split share price		$ 0.018

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE - RELATED PARTIES (Details) - USD ($)	1 Months Ended		3 Months Ended			12 Months Ended
	Jun. 30, 2015	Jun. 30, 2013	Jun. 30, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2006	Jun. 30, 2011	May. 31, 2007	Feb. 28, 2006
Debt Instrument [Line Items]
Gain (loss) on extinguishment of debt						$ 332,523	$ (82,000)
Senior Secured Convertible Notes Payable [Member]
Debt Instrument [Line Items]
Debt instrument principal amount		$ 225,000		$ 220,000					$ 596,500		$ 800,000
Interest rate									10.00%	12.00%	10.00%
Sale price of notes payable								$ 800,000
Remaining debt and accrued interest was extended until September 15, 2015					$ 178,749
Accrued interest	$ 118,775	$ 181,125		$ 395,000
Common stock shares issued on conversion of debt (in shares)	154,184	7,400,000	8,448,519	7,900,000
Amount of notes converted in to common stock shares		$ 1,628,000	$ 216,249
Accrued interest of notes converted into common stock shares			208,339
Gain (loss) on extinguishment of debt	$ 85,489		$ (82,000)
Outstanding principal balance on notes	$ 114,000
Pre reverse split shares issued on conversion of debt (in shares)	13,105,662
Pre reverse stock split common stock share price	$ 0.018
Total gain on conversion of notes	$ 103,456
Gain on conversion of notes recorded as additional paid in capital	$ 17,967

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NOTES PAYABLE (Narrative) (Details) - USD ($)	1 Months Ended											3 Months Ended			9 Months Ended	12 Months Ended
	Jun. 30, 2015	May. 31, 2015	Apr. 30, 2015	Mar. 31, 2015	Mar. 30, 2015	Feb. 28, 2015	Dec. 31, 2014	Sep. 30, 2014	Aug. 31, 2014	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Jun. 12, 2015	Dec. 05, 2014	Jun. 30, 2011	May. 31, 2007	Feb. 28, 2006
Debt Instrument [Line Items]
Proceeds from issuance of notes payable																$ 159,542	$ 798,000
Accumulated discount, notes payable (in dollars)							$ 10,447										10,447
Interest expense																61,438	199,364
Note payable balance							812,553									50,000	812,553
Accrued interest																		$ 42,713
Gain (loss) on extinguishment of debt																332,523	$ (82,000)
Repayment of notes payable																50,000
Net proceeds from issuance of convertible preferred stock																$ 1,278,501
OPC Partners LLC [Member]
Debt Instrument [Line Items]
Net proceeds from issuance of convertible preferred stock	$ 1,450,000
Senior Secured Convertible Notes Payable [Member]
Debt Instrument [Line Items]
Interest rate, notes payable																				10.00%	12.00%	10.00%
Accrued interest	$ 118,775
Shares issued on conversion of debt (in shares)	154,184										7,400,000	8,448,519		7,900,000
Pre reverse split shares issued on conversion of debt (in shares)	13,105,662
Pre reverse stock split share price	$ 0.018
Gain recorded in additional paid in capital	$ 103,456
Gain (loss) on extinguishment of debt	85,489											$ (82,000)
Notes Payable [Member]
Debt Instrument [Line Items]
Note payable balance	134,542
Accrued interest	$ 2,271
Shares issued on conversion of debt (in shares)	41,603
Pre reverse split shares issued on conversion of debt (in shares)	3,536,254
Pre reverse stock split share price	$ 0.0386
Notes Payable [Member] | Stockholder [Member]
Debt Instrument [Line Items]
Proceeds from issuance of notes payable							$ 23,000
Interest rate, notes payable																			5.00%
Note payable balance	$ 23,000
Accrued interest	$ 609
Shares issued on conversion of debt (in shares)	15,418
Pre reverse split shares issued on conversion of debt (in shares)	1,310,510
Pre reverse stock split share price	$ 0.018
Gain recorded in additional paid in capital	$ 10,493
Note due date							Apr. 05, 2015
Notes Payable [Member] | Director [Member]
Debt Instrument [Line Items]
Proceeds from issuance of notes payable		$ 14,074	$ 4,887	$ 111,102	$ 4,480	$ 25,000
Interest rate, notes payable		8.00%	8.00%	8.00%	8.00%	5.00%
Note payable balance	25,000
Accrued interest	$ 417
Shares issued on conversion of debt (in shares)	16,608
Pre reverse split shares issued on conversion of debt (in shares)	1,411,720
Pre reverse stock split share price	$ 0.018
Gain recorded in additional paid in capital	$ 11,296
Notes Payable [Member] | June 10, 2014 [Member]
Debt Instrument [Line Items]
Interest expense																	$ 34,222
Interest rate, notes payable							8.00%										8.00%
Note payable balance	250,000
Accrued interest	$ 20,263
Shares issued on conversion of debt (in shares)	176,471
Pre reverse split shares issued on conversion of debt (in shares)	15,000,000
Pre reverse stock split share price	$ 0.018
Gain recorded in additional paid in capital	$ 120,117
Notes Payable [Member] | August 12, 2014 [Member]
Debt Instrument [Line Items]
Interest expense																	$ 17,455
Interest rate, notes payable							8.00%										8.00%
Note payable balance	50,000
Accrued interest	$ 3,370
Shares issued on conversion of debt (in shares)	34,843
Pre reverse split shares issued on conversion of debt (in shares)	2,961,644
Pre reverse stock split share price	$ 0.018
Gain (loss) on extinguishment of debt	$ 23,720
Notes Payable [Member] | August 5, 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	7,899
Interest expense																	$ 22,914
Interest rate, notes payable							8.00%										8.00%
Note payable balance	50,000
Accrued interest	$ 3,414
Shares issued on conversion of debt (in shares)	34,898
Pre reverse split shares issued on conversion of debt (in shares)	2,966,210
Pre reverse stock split share price	$ 0.018
Gain (loss) on extinguishment of debt	$ 23,740
Repayment of notes payable	$ 50,000
Number of common stock called by warrants	3,529
Notes Payable [Member] | August 14, 2014 [Member]
Debt Instrument [Line Items]
Interest expense																	$ 32,274
Interest rate, notes payable							8.00%										8.00%
Note payable balance	$ 100,000
Accrued interest	$ 6,697
Shares issued on conversion of debt (in shares)	69,657
Pre reverse split shares issued on conversion of debt (in shares)	5,920,852
Pre reverse stock split share price	$ 0.018
Gain (loss) on extinguishment of debt	$ 47,421
Notes Payable [Member] | September 8, 2014 [Member]
Debt Instrument [Line Items]
Interest expense																	$ 44,140
Interest rate, notes payable							8.00%										8.00%
Note payable balance	150,000
Accrued interest	$ 9,222
Shares issued on conversion of debt (in shares)	103,991
Pre reverse split shares issued on conversion of debt (in shares)	8,839,269
Pre reverse stock split share price	$ 0.018
Gain (loss) on extinguishment of debt	$ 70,766
Notes Payable [Member] | Debt Instrument Date December 2014 [Member]
Debt Instrument [Line Items]
Interest expense													$ 10,447
Interest rate, notes payable													8.00%
Note payable balance	100,000
Accrued interest	$ 3,689
Shares issued on conversion of debt (in shares)	67,637
Pre reverse split shares issued on conversion of debt (in shares)	5,749,163
Pre reverse stock split share price	$ 0.018
Gain (loss) on extinguishment of debt	$ 46,084
Notes Payable Due April 2015 [Member]
Debt Instrument [Line Items]
Interest rate, notes payable							8.00%									5.00%	8.00%
Unsecured Notes Payable Due At Maturity In September 2015 [Member]
Debt Instrument [Line Items]
Interest rate, notes payable							10.00%									10.00%	10.00%
Notes Payable Due At December 1, 2014 (Past Due) [Member]
Debt Instrument [Line Items]
Interest rate, notes payable							8.00%									8.00%	8.00%
Series A Notes Payable Due At Maturity In October 2011 (Past Due) [Member]
Debt Instrument [Line Items]
Interest rate, notes payable							8.00%									8.00%	8.00%
Notes Payable Due At June 25, 2015 [Member]
Debt Instrument [Line Items]
Interest rate, notes payable															8.00%
Pre Reverse Stock Split [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)																3,700,000
Pre Reverse Stock Split [Member] | Notes Payable [Member] | August 5, 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants	300,000
Warrant [Member] | June 10, 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	$ 8,113
Warrant [Member] | August 12, 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	2,575
Warrant [Member] | August 5, 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	5,151
Warrant [Member] | August 14, 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	5,153
Warrant [Member] | September 8, 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	7,725
Warrant [Member] | Debt Instrument Date December 2014 [Member]
Debt Instrument [Line Items]
Fair value of warrant liability	$ 5,226
Warrant [Member] | Notes Payable [Member] | Minimum [Member]
Debt Instrument [Line Items]
Expected volatility															173.70%
Risk-free interest rate															1.75%
Expected warrant term															4 years
Warrant [Member] | Notes Payable [Member] | Maximum [Member]
Debt Instrument [Line Items]
Expected volatility															180.70%
Expected warrant term															5 years
Warrant [Member] | Notes Payable [Member] | June 10, 2014 [Member]
Debt Instrument [Line Items]
Expected volatility										248.20%
Risk-free interest rate										1.67%
Expected warrant term										5 years
Proceeds from issuance of notes payable										$ 250,000
Fair value of warrant liability										39,650		39,650
Accumulated discount, notes payable (in dollars)										$ 34,222		$ 34,222
Warrant [Member] | Notes Payable [Member] | August 12, 2014 [Member]
Debt Instrument [Line Items]
Expected volatility									233.80%
Risk-free interest rate									1.67%
Expected warrant term									5 years
Proceeds from issuance of notes payable									$ 50,000
Fair value of warrant liability									26,817
Accumulated discount, notes payable (in dollars)									$ 17,455
Warrant [Member] | Notes Payable [Member] | August 5, 2014 [Member]
Debt Instrument [Line Items]
Expected volatility									233.80%
Risk-free interest rate									1.67%
Expected warrant term									5 years
Proceeds from issuance of notes payable									$ 100,000
Fair value of warrant liability									29,725
Accumulated discount, notes payable (in dollars)									$ 22,914
Warrant [Member] | Notes Payable [Member] | August 14, 2014 [Member]
Debt Instrument [Line Items]
Expected volatility									233.80%
Risk-free interest rate									1.67%
Expected warrant term									5 years
Proceeds from issuance of notes payable									$ 100,000
Fair value of warrant liability									47,676
Accumulated discount, notes payable (in dollars)									$ 32,274
Warrant [Member] | Notes Payable [Member] | September 8, 2014 [Member]
Debt Instrument [Line Items]
Expected volatility								233.80%
Risk-free interest rate								1.67%
Expected warrant term								5 years
Proceeds from issuance of notes payable								$ 150,000
Fair value of warrant liability								62,544
Accumulated discount, notes payable (in dollars)								$ 44,140
Warrant [Member] | Notes Payable [Member] | Debt Instrument Date December 2014 [Member]
Debt Instrument [Line Items]
Expected volatility								229.00%
Risk-free interest rate								1.68%
Expected warrant term								5 years
Proceeds from issuance of notes payable								$ 100,000
Fair value of warrant liability								11,812
Accumulated discount, notes payable (in dollars)								10,447
Warrant [Member] | Issuances Of Debt [Member] | Notes Payable [Member] | Debt Instrument Date December 2014 [Member]
Debt Instrument [Line Items]
Accumulated discount, notes payable (in dollars)								$ 10,563
Warrant [Member] | Pre Reverse Stock Split [Member] | Notes Payable [Member] | June 10, 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)										1,000,000		1,000,000
Exercise price (in dollars per share)										$ 0.10		$ 0.10
Warrant [Member] | Pre Reverse Stock Split [Member] | Notes Payable [Member] | August 12, 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)									300,000
Exercise price (in dollars per share)									$ 0.05
Warrant [Member] | Pre Reverse Stock Split [Member] | Notes Payable [Member] | August 5, 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)									600,000
Exercise price (in dollars per share)									$ 0.05
Warrant [Member] | Pre Reverse Stock Split [Member] | Notes Payable [Member] | August 14, 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)									600,000
Exercise price (in dollars per share)									$ 0.05
Warrant [Member] | Pre Reverse Stock Split [Member] | Notes Payable [Member] | September 8, 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)								900,000
Exercise price (in dollars per share)								$ 0.05
Warrant [Member] | Pre Reverse Stock Split [Member] | Notes Payable [Member] | Debt Instrument Date December 2014 [Member]
Debt Instrument [Line Items]
Number of common stock called by warrants (in shares)								600,000
Exercise price (in dollars per share)								$ 0.05

XML

NOTES PAYABLE (Schedule of Notes Payable) (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Less: Debt discount		$ (10,447)
Notes payable	$ 50,000	926,553
Less: Current portion	$ 50,000	$ 812,553
Long-term portion
Adjustment [Member]
Debt Instrument [Line Items]
Less: Current portion	$ 50,000	$ 926,553
Series A Notes Payable Due At Maturity In October 2011 (Past Due) [Member]
Debt Instrument [Line Items]
Notes payable	$ 50,000	50,000
Notes Payable Due At December 1, 2014 (Past Due) [Member]
Debt Instrument [Line Items]
Notes payable		650,000
Unsecured Notes Payable Due At Maturity In September 2015 [Member]
Debt Instrument [Line Items]
Notes payable		114,000
Notes Payable Due April Two Thousand Fifteen [Member]
Debt Instrument [Line Items]
Notes payable		$ 123,000

XML

NOTES PAYABLE (Schedule of Notes Payable) (Parenthetical)) (Details)	Dec. 31, 2015	Dec. 31, 2014
Notes Payable Due At December 1, 2014 (Past Due) [Member]
Debt Instrument [Line Items]
Interest rate	8.00%	8.00%
Unsecured Notes Payable Due At Maturity In September 2015 [Member]
Debt Instrument [Line Items]
Interest rate	10.00%	10.00%
Notes Payable Due April 2015 [Member]
Debt Instrument [Line Items]
Interest rate	5.00%	8.00%
Series A Notes Payable Due At Maturity In October 2011 (Past Due) [Member]
Debt Instrument [Line Items]
Interest rate	8.00%	8.00%

XML

WARRANT LIABILITY (Details)	1 Months Ended		12 Months Ended
	Jan. 31, 2015 USD ($) $ / shares shares	Jan. 31, 2014 USD ($) Warrant $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Dec. 31, 2014 USD ($) $ / shares shares	Jun. 12, 2015 USD ($)	Dec. 31, 2012 USD ($)
Major Agreements [Line Items]
Warrant liability			$ 1,802,375	$ 6,370,709
Current share price (in dollars per share) | $ / shares			$ 2.50
Licensing fees payable			$ 2,000,000
Conversion of stock amount			633,333
Fair value of warrants					$ 1,867,417
Series B Convertible Preferred Stock [Member]
Major Agreements [Line Items]
Conversion of stock amount			$ 6,500,000
Convertible Notes Payable [Member]
Major Agreements [Line Items]
Fair value of warrants					$ 37,000
Pre Reverse Stock Split [Member]
Major Agreements [Line Items]
Number of common stock shares purchased under warrants (in shares) | shares			3,700,000
Patent And Technology Agreement [Member]
Major Agreements [Line Items]
Number of common stock shares purchased under warrants (in shares) | shares	125,000,000
Exercise price | $ / shares	$ 0.10
Additional payment for patent and technology	$ 4,500,000
Discount to market price at time of issuance	10.00%
Current share price (in dollars per share) | $ / shares	$ 0.04
Additional shares issued for patent and technology agreement (in shares) | shares	125,000,000
Patent And Technology Agreement [Member] | Stock Options And Warrants [Member]
Major Agreements [Line Items]
Number of warrants to be issued(in shares) | shares				250,000,000
Exercise price of warrant to be issued(in dollars per share) | $ / shares				$ 0.02
Warrant to be issued value				$ 4,892,089
Patent And Technology Agreement [Member] | Warrant [Member] | Stock Options And Warrants [Member]
Major Agreements [Line Items]
Dividend yield				0.00%
Expected volatility				229.10%
Risk free interest				1.65%
Expected warrant term				5 years
Zaah Technologies [Member] | Agreements [Member]
Major Agreements [Line Items]
Warrant liability						$ 2,400,000
Fair value of warrant liability			$ 1,020,632	$ 787,544
Number of common stock shares purchased under warrants (in shares) | shares			627,451
Zaah Technologies [Member] | Agreements [Member] | Pre Reverse Stock Split [Member]
Major Agreements [Line Items]
Number of common stock shares purchased under warrants (in shares) | shares			53,333,333
Verify Me [Member] | Warrants Issued On January 1, 2014 [Member]
Major Agreements [Line Items]
Fair value of warrant liability			$ 147,524	$ 149,090
Number of warrants issued | shares		74,697
Exercise price | $ / shares		$ 0.10
Verify Me [Member] | Pre Reverse Stock Split [Member] | Warrants Issued On January 1, 2014 [Member]
Major Agreements [Line Items]
Number of warrants | Warrant		6,349,245
Verify Me [Member] | Agreements [Member] | Research and Development Expense [Member]
Major Agreements [Line Items]
Initial fair value of warrant expensed as research and development cost		$ 444,000
Verify Me [Member] | Patent And Technology Agreement [Member] | Pre Reverse Stock Split [Member]
Major Agreements [Line Items]
Additional shares issued for patent and technology agreement (in shares) | shares		6,349,206

XML

CONVERTIBLE PREFERRED STOCK (Details)	1 Months Ended				12 Months Ended
	Jun. 30, 2015 USD ($) shares	May. 31, 2015 USD ($) shares	Aug. 31, 2013 shares	Jan. 31, 2013 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) Warrant $ / shares shares	Dec. 31, 2014 USD ($) shares	Jul. 23, 2015 shares
Class of Stock [Line Items]
Fair value of warrants | $					$ 626,317	$ 631,678
Preferred stock, shares authorized							75,000,000
Licensing fees | $					2,000,000
Series A- Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock value | $	$ 1,278,501
Preferred stock, shares issued	389,668
Preferred stock convertible ratio		20
Preferred stock subscribed by an officer and shareholder	10,667
Unpaid compensation value | $	$ 35,000
Notes payable and accrued interest converted into Series A Preferred Stock	41,603
Series A- Convertible Preferred Stock [Member] | Maximum [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized		37,564,767
Series A Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock value | $					$ 442	$ 633,333
Number of warrants | Warrant					392,157
Preferred stock, shares authorized					37,564,767	75,000,000
Preferred stock, shares issued					441,938	248,366
Preferred stock subscribed by an officer and shareholder					10,667
Series A Convertible Preferred Stock [Member] | Convertible Preferred Stock Subject to Mandatory Redemption [Member]
Class of Stock [Line Items]
Preferred stock value | $				$ 1,000,000
Series B Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock convertible ratio		84967321
Licensing fees | $		$ 6,500,000
Series B Convertible Preferred Stock [Member] | Maximum [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized		85
Common Stock [Member]
Class of Stock [Line Items]
Number of preferred stock purchased					304,785
Conversion of shares of preferred stock to common stock, shares	248,366				248,366
Notes payable and accrued interest converted into Series A Preferred Stock	234,735
Pre Reverse Stock Split [Member]
Class of Stock [Line Items]
Number of common stock called by warrants (in shares)					3,700,000
Conversion of preferred stock, shares	21,111,111		12,222,222		21,111,111
Pre Reverse Stock Split [Member] | Series A- Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock value | $	$ 1,450,813
Preferred stock, shares issued	33,121,777	37,564,767
Preferred stock subscribed by an officer and shareholder	906,736
Notes payable and accrued interest converted into Series A Preferred Stock	3,536,254
Pre Reverse Stock Split [Member] | Series B Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares issued		85
Pre Reverse Stock Split [Member] | Common Stock [Member]
Class of Stock [Line Items]
Preferred stock converted in to common stock			12,222,222
Notes payable and accrued interest converted into Series A Preferred Stock	19,952,489
Subscription Agreement [Member]
Class of Stock [Line Items]
Convertible preferred stock description					At any time before January 31, 2015, VerifyMe had the right, but not the obligation, to require the Company to repurchase all, but not less than all, of the capital stock of the Company and warrants exercisable for capital stock of the Company held by VerifyMe in exchange for the price originally paid by VerifyMe therefore upon the occurrence of any of the following events: (i) the consummation of any bona fide business acquisition, (ii) the incurrence of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to Common Stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share.
Excess amount for incurring indebtedness | $					$ 2,000,000
Exercise price of capital stock or warrant | $ / shares					$ 0.03
Fair value of warrants | $				2,995,791
Verify Me [Member] | Subscription Agreement [Member] | Series A Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Beneficial conversion feature at fair market value | $	$ 0					$ 800,000
Deemed dividend distribution | $				1,000,000
Verify Me [Member] | Subscription Agreement [Member] | Common Stock [Member]
Class of Stock [Line Items]
Value of shares issued | $				$ 1,000,000
Exercise price | $ / shares				$ 0.12
Verify Me [Member] | Subscription Agreement [Member] | Pre Reverse Stock Split [Member] | Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Number of preferred stock purchased				33,333,333
Verify Me [Member] | Subscription Agreement [Member] | Pre Reverse Stock Split [Member] | Common Stock [Member]
Class of Stock [Line Items]
Number of common stock called by warrants (in shares)				33,333,333

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Narrative) (Details)	Dec. 31, 2015 USD ($)
Fair Value Disclosures [Abstract]
Assets measured at fair value on recurring basis
Assets or liabilities measured at fair value on non-recurring basis

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS - (Schedule of Liabilities Measured at Fair Value on a Recurring Basis) (Details) - Fair Value, Measurements, Recurring [Member]	Dec. 31, 2015 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of warrants	$ 1,802,375
Total	$ 1,802,375
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of warrants
Total
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of warrants
Total
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of warrants	$ 1,802,375
Total	$ 1,802,375

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS - (Fair Value Measurements within Fair Value Hierarchy Using Level 3 Inputs) (Details)	12 Months Ended
	Dec. 31, 2015 USD ($)
Fair Value Disclosures [Abstract]
Beginning balance	$ 6,370,709
Conversion of notes payable, net of interest expense	(31,397)
Conversion of warrants related to licensing fees	(1,867,417)
Change in fair value of derivative liabilities	(2,669,520)
Ending balance	$ 1,802,375

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Schedule of Common Stock Purchase Warrants Valuation Assumptions) (Details) - Warrant [Member]	12 Months Ended
	Dec. 31, 2015
Fair Value, Option, Quantitative Disclosures [Line Items]
Annual Dividend Yield	0.00%
Minimum [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Expected Life (Years)	2 years
Risk-free interest rate	1.06%
Expected volatility	178.50%
Maximum [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Expected Life (Years)	3 years
Risk-free interest rate	1.31%
Expected volatility	179.30%

XML

STOCKHOLDERS' EQUITY (Details) - USD ($)					1 Months Ended								3 Months Ended	12 Months Ended
		Jul. 09, 2015	Jun. 30, 2015	Jun. 11, 2015	Apr. 30, 2016	Jan. 31, 2016	Oct. 31, 2015	Aug. 31, 2015	Jul. 31, 2015	Jun. 30, 2015	Jan. 31, 2015	Jan. 31, 2014	Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Jun. 12, 2015	Jun. 02, 2015
Stockholders Equity Note [Line Items]
Worth of common stock to be paid															$ 400,000
Research and development	[1]													$ 2,412,833	$ 10,590,271
Common stock, shares issued														6,259,727	3,969,106	304,785
Common stock, proceeds from sales										$ 50,000				$ 50,000
Number of shares exercised													2,353
Restricted stock units issued				525,000
Restricted stock units fair value	[2]													$ 413,000
Closing stock price per share														$ 2.50
Restricted stock units, Expense														$ 80,573
Award, compensation payment							$ 15,000
Award, additional compensation payment							$ 35,000
Decrease in fair value														$ 75,500
Minimum [Member]
Stockholders Equity Note [Line Items]
Commission on sales, percentage														2.00%
Maximum [Member]
Stockholders Equity Note [Line Items]
Commission on sales, percentage														5.00%
Pre Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Common stock, shares issued			25,906,735							25,906,735			25,906,735
Restricted stock units issued										44,625,000
Post Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Common stock, shares issued			48,761							48,761			48,761				68,236
Amount to settle outstanding payable balance			$ 41,447							$ 58,000
Gain on settlement of conversion			$ 35,153
Patent And Technology Agreement [Member]
Stockholders Equity Note [Line Items]
Issuance of shares for services (in shares)											125,000,000
Closing stock price per share											$ 0.04
Verify Me [Member] | Patent And Technology Agreement [Member]
Stockholders Equity Note [Line Items]
Worth of common stock to be paid												$ 400,000
Percentage of discount												10.00%
Closing price of share												$ 0.07
Closing price of share after discount												$ 0.063
Research and development												$ 400,000
Verify Me [Member] | Patent And Technology Agreement [Member] | Pre Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Issuance of shares for services (in shares)												6,349,206
Chief Operating Officer [Member]
Stockholders Equity Note [Line Items]
Number of options issued									375,000
Chief Operating Officer [Member] | Pre Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Number of options issued									31,875,000
Restricted Stock [Member]
Stockholders Equity Note [Line Items]
Restricted stock units fair value				$ 446,250
Closing stock price per share				$ 0.01
Restricted Stock [Member] | Consultant [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued							100,000
Restricted stock units fair value							$ 195,000
Restricted stock units, Expense														$ 54,250
Restricted Stock [Member] | Consultant [Member] | Share-based Compensation Award, Tranche One [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued							60,000
Restricted Stock [Member] | Consultant [Member] | Share-based Compensation Award, Tranche Two [Member] | Scenario Forecast [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued						20,000
Restricted Stock [Member] | Consultant [Member] | Share-based Compensation Award, Tranche Three [Member] | Scenario Forecast [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued					20,000
Restricted Stock [Member] | Chief Operating Officer [Member]
Stockholders Equity Note [Line Items]
Restricted stock units fair value									$ 918,000
Closing stock price per share									$ 4.08
Restricted stock units, Expense														153,000
Number of options issued		225,000
Vesting period		3 years
Restricted Stock [Member] | Chief Operating Officer [Member] | Pre Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Number of options issued									19,125,000
Restricted Stock [Member] | Chief Financial Officer [Member]
Stockholders Equity Note [Line Items]
Restricted stock units fair value								$ 692,400
Closing stock price per share								$ 5.77
Restricted stock units, Expense														176,306
Restricted Stock [Member] | Chief Financial Officer [Member] | Share-based Compensation Award, Tranche One [Member]
Stockholders Equity Note [Line Items]
Vesting period								6 months
Number of restricted stock issued								20,000
Restricted Stock [Member] | Chief Financial Officer [Member] | Share-based Compensation Award, Tranche Two [Member]
Stockholders Equity Note [Line Items]
Vesting period								3 years
Number of restricted stock issued								100,000
Restricted Stock Units (RSUs) [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued								30,000
Restricted stock units, Expense														$ 34,687
Restricted stock units issued, value								$ 165,000

[1] Includes share based compensation of $2,000,000 and $10,236,089 for the years ended December 31, 2015 and 2014

[2] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $2.50 for our common stock on December 31, 2015.

XML

STOCK OPTIONS (Narrative) (Details)		1 Months Ended					12 Months Ended
		Sep. 30, 2015 USD ($) $ / shares shares	Aug. 31, 2015 USD ($) shares	Jul. 31, 2015 USD ($) $ / shares shares	Jun. 30, 2015 USD ($) Director $ / shares shares	Mar. 31, 2014 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Dec. 31, 2014 USD ($)	Dec. 17, 2003 shares	Dec. 31, 2000 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield							0.00%	0.00%
Risk free interest rate							1.69%	2.73%
Expected Life (Years)							5 years	10 years
Option, expense | $							$ 849,791	$ 860,235
Weighted average fair value of stock options granted | $							$ 3,758,162	$ 599,893
Intrinsic value of stock options exercised | $
Unrecognized compensation cost related to outstanding stock options | $							$ 2,853,537
Unrecognized compensation cost related to stock options, period of recognition							2 years 6 months
Chief Operating Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued				375,000
Exercisable common stock share price | $ / shares				$ 0.85
Dividend yield				0.00%
Risk free interest rate				1.58%
Expected volatility				180.10%
Expected Life (Years)				5 years
Stock grant value | $				$ 1,502,219
Pre Reverse Stock Split [Member] | Chief Operating Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued				31,875,000
Exercisable common stock share price | $ / shares				$ 0.01
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued							1,875,000
Exercise price, description							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.
Exercisable common stock share price | $ / shares							$ 0.85
Option fair value | $	[1]						$ 226,631,000
Stock Options [Member] | Chief Financial Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued			200,000
Dividend yield			0.00%
Risk free interest rate			1.62%
Expected volatility			182.20%
Expected Life (Years)			5 years
Vesting period			3 years
Option fair value | $			$ 1,107,857
Stock Options [Member] | Pre Reverse Stock Split [Member] | Chief Financial Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued			17,000,000
Stock Options [Member] | Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued		75,000			1,225,000	6,000,000
Exercisable common stock share price | $ / shares		$ 2.15			$ 0.85	$ 0.05
Number of employees and directors receiving unit grants | Director					2
Expected option life (in years)					5 years	10 years
Fair value of option issued expensed immediately | $					$ 993,083	$ 599,893
Dividend yield		0.00%				0.00%
Risk free interest rate		1.48%				2.73%
Expected volatility		18350.00%			176.60%	229.00%
Expected Life (Years)		5 years			5 years	10 years
Vesting period		5 years
Option fair value | $		$ 155,003
Stock Options [Member] | Director [Member] | Pre Reverse Stock Split [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued		6,375,000			104,125,000
Stock Options [Member] | Director [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate					1.74%
Stock Options [Member] | Director [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate					1.75%
Stock Options [Member] | Stock Option 2003 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized to be granted under plan									18,000,000
Number of options available to be issued							4,067,631
Number of common shares that can be purchased through equity awards that have been issued, unvested or unexercised							298,530
Stock Options [Member] | Stock Option 2000 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized to be granted under plan										1,500,000
Stock Options, Restricted Stock and Units, and Other Stock-based Awards [Member] | Stock Option 2013 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized to be granted under plan							20,000,000
Number of options available to be issued							19,700,000
Number of common shares that can be purchased through equity awards that have been issued, unvested or unexercised							292,500

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $2.50 for our common stock on December 31, 2015.

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STOCK OPTIONS (Schedule of Fair Value Assumptions Used to Value Stock Options) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Risk Free Interest Rate	1.69%	2.73%
Expected Volatility	176.60%	229.00%
Expected Life (in years)	5 years	10 years
Dividend Yield	0.00%	0.00%
Weighted average estimated fair value of options during the period	$ 2.00	$ 1.00

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STOCK OPTIONS (Schedule of Stock Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended	12 Months Ended
		Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2014
Number of Shares:
Exercised		(2,353)
Aggregate Intrinsic Value:
Closing stock price			$ 2.50
Stock Options [Member]
Number of Shares:
Balance, beginning			598,431	739,608
Granted			1,875,000
Exercised			(7,843)	(141,176)
Forfeited/canceled			(308,235)
Balance, ending			2,157,353	598,431
Exercisable			626,103
Exercisable as of December 31, 2015 and expected to vest thereafter			2,157,353
Weighted Average Exercise Price:
Balance, beginning			$ 4.25	$ 4.25
Granted			0.85
Exercised			0.05	1.70
Forfeited/canceled			0.06
Balance, ending			1.80	$ 4.25
Exercisable			2.57
Exercisable as of December 31, 2015 and expected to vest thereafter			$ 1.80
Weighted Average Remaining Contractual Term:
Balance as of December 31, 2015			5 years
Exercisable as of December 31, 2015			6 years 2 months 12 days
Exercisable as of December 31, 2015 and expected to vest thereafter			5 years
Aggregate Intrinsic Value:
Balance as of December 31, 2015	[1]		$ 226,631
Exercisable as of December 31, 2015	[1]
Exercisable as of December 31, 2015 and expected to vest thereafter	[1]		$ 226,631
Closing stock price			$ 2.50

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $2.50 for our common stock on December 31, 2015.

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STOCK OPTIONS (Summary of Activities of Unvested Stock Options) (Details) - Nonvested Stock Options [Member] - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Number of Awards
Unvested stock options, beginning	17,647	55,882
Granted	1,875,000
Cancelled/Forfeited	(11,765)
Vested	(349,632)	(38,235)
Unvested stock options, ending	1,531,250	17,647
Weighted Average Exercise Price
Unvested stock options, beginning	$ 9.49	$ 6.52
Granted	1.43
Cancelled/Forfeited	(12.75)
Vested	(1.31)	(6.86)
Unvested stock options, ending	$ 1.48	$ 9.49
Weighted Average Remaining Amortization Period (Years)
Unvested stock options at December 31, 2015	4 years 5 months 27 days

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STOCK OPTIONS (Schedule of Warrant Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014
Number of Shares:
Balance, beginning		1,460,775	1,405,686
Granted			121,755
Exercised		(2,353)
Cancelled/Forfeited		(43,529)
Expired			(66,666)
Balance, ending		1,414,893	1,460,775
Exercisable as of December 31, 2015		1,414,893
Exercisable as of December 31, 2015 and expected to vest thereafter		1,414,893
Weighted Average Exercise Price:
Balance, beginning		$ 1.01	$ 8.80
Granted			6.86
Exercised		0.85
Forfeited/canceled		(4.15)
Expired			(12.75)
Outstanding, ending		9.67	$ 1.01
Exercisable as of December 31, 2015		9.67
Exercisable as of December 31, 2015 and expected to vest thereafter		$ 9.67
Weighted- Average Remaining Contractual Term:
Balance as of December 31, 2015		4 years 9 months 18 days
Exercisable as of December 31, 2015		4 years 9 months 18 days
Exercisable as of December 31, 2015 and expected to vest thereafter		4 years 9 months 18 days
Aggregate Intrinsic Value:
Balance as of December 31, 2015	[1]	$ 413
Exercisable as of December 31, 2015	[1]
Exercisable as of December 31, 2015 and expected to vest thereafter	[1]	$ 413
Closing stock price		$ 2.50

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $2.50 for our common stock on December 31, 2015.

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OPERATING LEASES (Details) - USD ($)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Leases [Abstract]
Total rent expense under leases	$ 55,153	$ 65,950

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RELATED PARTY TRANSACTIONS (Details)	1 Months Ended
	Jun. 30, 2015 shares	Dec. 31, 2015 USD ($)	Jun. 12, 2015 USD ($) Shareholders	Dec. 31, 2014 USD ($)
Schedule of Other Related Party Transactions [Line Items]
Number of shareholders | Shareholders			3
Convertible notes payable | $			$ 317,000	$ 114,000
Amount of accrued interest owed by shareholders | $			$ 42,713
Common Stock [Member]
Schedule of Other Related Party Transactions [Line Items]
Common stock shares issued on conversion of debt (in shares) | shares	234,735
Pre Reverse Stock Split [Member] | Common Stock [Member]
Schedule of Other Related Party Transactions [Line Items]
Common stock shares issued on conversion of debt (in shares) | shares	19,952,489

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MAJOR CUSTOMERS/VENDORS (Details)	12 Months Ended
	Dec. 31, 2015 Customers Vendors	Dec. 31, 2014 Customers Vendors
Risks and Uncertainties [Abstract]
Number of major customers accounting for 100% of annual sales | Customers	3	3
Number of major vendors accounting for 100% of pigment purchases | Vendors	1	1

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SUBSEQUENT EVENTS (Details) - USD ($)	1 Months Ended	12 Months Ended
	Feb. 29, 2016	Dec. 31, 2015	Dec. 31, 2014	Feb. 28, 2016	Jun. 11, 2015
Subsequent Event [Line Items]
Net proceeds from issuance of convertible preferred stock		$ 1,278,501
Common stock, par value		$ 0.001	$ 0.001		$ 0.001
Series A Convertible Preferred Stock [Member]
Subsequent Event [Line Items]
Preferred stock, par value		$ 0.001	$ 0.001
Preferred stock subscribed by an officer and shareholder		10,667
Subsequent Event [Member] | Equity Issuance One [Member] | Warrant [Member]
Subsequent Event [Line Items]
Number of common shares that can be purchased through warrants	2,587,500
Warrant exercise price	$ .40
Subsequent Event [Member] | Equity Issuance Two [Member] | Warrant [Member]
Subsequent Event [Line Items]
Number of common shares that can be purchased through warrants	500,000
Warrant exercise price	$ 0.40
Subsequent Event [Member] | Series A Convertible Preferred Stock [Member]
Subsequent Event [Line Items]
Preferred stock subscribed by an officer and shareholder				10,667
Subsequent Event [Member] | 0% Series C Convertible Preferred Stock [Member]
Subsequent Event [Line Items]
Net proceeds from issuance of convertible preferred stock	$ 1,217,500
Subsequent Event [Member] | 0% Series C Convertible Preferred Stock [Member] | Equity Issuance One [Member]
Subsequent Event [Line Items]
Stock issued, shares	2,587,500
Net proceeds from issuance of convertible preferred stock	$ 1,035,000
Equity issuance, price per share	$ .40
Preferred stock, par value	$ .001
Subsequent Event [Member] | 0% Series C Convertible Preferred Stock [Member] | Equity Issuance Two [Member]
Subsequent Event [Line Items]
Stock issued, shares	500,000
Net proceeds from issuance of convertible preferred stock	$ 200,000
Equity issuance, price per share	$ 0.40
Subsequent Event [Member] | Common Stock [Member] | Chairman of the Board [Member]
Subsequent Event [Line Items]
Number of common stock granted through stock options	100,000
Exercise price of options granted	$ 0.60
Pre Reverse Stock Split [Member] | Subsequent Event [Member] | Series A Convertible Preferred Stock [Member]
Subsequent Event [Line Items]
Preferred stock subscribed by an officer and shareholder				906,736