10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

☐ 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 000-31927 

VERIFYME, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	23-3023677
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
409 Boot Road Downingtown, PA  19335	33009
(Address of Principal Executive Offices)	(Zip Code)

               (212) 994-7002

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)

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  ☒    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  ☒    No  ☐

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.

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 8,515,207 shares of common stock outstanding at November 21, 2016.

PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
Condensed Balance Sheets (Unaudited)		4
Condensed Statements of Operations (Unaudited)		5
Condensed Statement of Changes in Stockholders’ Deficit (Unaudited)		6
Condensed Statements of Cash Flows (Unaudited)		7
Notes to Condensed Financial Statements (Unaudited)		8
ITEM 2.	Management’s Discussions and Analysis of Financial Condition and Results of Operations	19
Cautionary Note Regarding Forward-Looking Statements		19
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	26
ITEM 4.	Controls and Procedures	26
PART II - OTHER INFORMATION
ITEM 1.	Legal Proceedings	27
ITEM 1A.	Risk Factors	27
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
ITEM 3.	Defaults Upon Senior Securities	27
ITEM 4.	Mine Safety Disclosures	27
ITEM 5.	Other Information	27
ITEM 6.	Exhibits	28
SIGNATURES		29

2

PART I - FINANCIAL INFORMATION
 

ITEM 1. FINANCIAL STATEMENTS

VerifyMe, Inc.

CONTENTS

	PAGE
CONDENSED BALANCE SHEETS	4
CONDENSED STATEMENTS OF OPERATIONS	5
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT	6
CONDENSED STATEMENTS OF CASH FLOWS	7
NOTES TO CONDENSED FINANCIAL STATEMENTS	8-18

3

VerifyMe, Inc.

Condensed Balance Sheets

September 30, 2016 and December 31, 2015

	September 30, 2016			December 31, 2015
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	6,539		$	4,152
Inventory		59,379			28,687
TOTAL CURRENT ASSETS		65,918			32,839
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $232,966 and $230,621 as of September 30, 2016 and December 31, 2015		5,493			7,838
OTHER ASSETS
Deposits		-			37,197
Patents and Trademark, net of accumulated amortization of $187,401 and $166,894 as of September 30, 2016 and December 31, 2015		238,787			259,294
		238,787			296,491
TOTAL ASSETS	$	310,198		$	337,168
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	731,662		$	652,973
Customer deposits		5,625			-
Note payable		50,000			50,000
Embedded derivative liability		683,000			-
Warrant liability		1,070,161			1,802,375
TOTAL CURRENT LIABILITIES		2,540,448			2,505,348
CONTINGENCIES
STOCKHOLDERS' DEFICIT
Series A Convertible Preferred Stock, $ .001 par value; 37,564,767 shares authorized; 397,778 shares issued and outstanding
as of September 30, 2016 and 75,000,000 shares authorized; 441,938 issued and outstanding as of December 31, 2015		398			442
Series B Convertible Preferred Stock, $.001 par value; 85 shares authorized; 0.97 shares issued and outstanding
as of September 30, 2016  and 1 share issued and outstanding as of December 31, 2015		-			-
Series C Convertible Preferred Stock, $.001 par value; 7,500,000 shares authorized; 2,037,500 shares issued and outstanding
as of September 30, 2016  and 0 shares issued and outstanding as of December 31, 2015		2,038			-
Common stock, $ .001 par value; 675,000,000 shares authorized; 8,357,544 and 6,327,570 shares issued, 8,007,004 and 5,977,030
shares outstanding at September 30, 2016 and December 31, 2015		8,007			5,977
Additional paid in capital		40,028,352			39,779,414
Treasury stock, at cost (350,540 shares at September 30, 2016 and December 31, 2015)		(113,389	)		(113,389	)
Deferred compensation		(461,517	)		(1,842,334	)
Accumulated deficit		(41,694,139	)		(39,998,290	)
STOCKHOLDERS' DEFICIT		(2,230,250	)		(2,168,180	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	310,198		$	337,168

See the accompanying notes to the condensed financial statements.

4

VerifyMe, Inc.

Condensed Statements of Operations

For the Three and Nine Months Ended September 30, 2016 and 2015

(Unaudited)

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
NET REVENUES
Sales	$	-		$	138,475			11,705		$	200,600
Royalties		-			4,167			-			16,667
TOTAL NET REVENUE		-			142,642			11,705			217,267
COST OF SALES		-			28,689			5,910			64,768
GROSS PROFIT		-			113,953			5,795			152,499
OPERATING EXPENSES
General and administrative		107,340			215,787			357,723			379,817
Legal and accounting		71,005			170,506			303,932			398,941
Payroll expenses		257,712			747,333			1,569,372			1,037,472
Research and development		-			58,415			211,881			2,194,801
Sales and marketing		15,177			37,189			226,951			60,316
Total operating expenses		451,234			1,229,230			2,669,859			4,071,347
LOSS BEFORE OTHER INCOME		(451,234	)		(1,115,277	)		(2,664,064	)		(3,918,848	)
OTHER INCOME (EXPENSE)
Interest expense		(1,000	)		(4,284	)		(3,000	)		(59,438	)
Gain on extinguishment of debt		-			(19,395	)		-			332,523
Change in fair value of warrants		(820,667	)		1,355,293			2,499,790			2,642,138
Change in fair value of embedded derivative liability		(500,000	)		-			239,000			-
Fair value of warrants in excess of consideration for convertible preferred stock		-			-			(1,767,575	)		-
		(1,321,667	)		1,331,614			968,215			2,915,223
NET INCOME (LOSS)	$	(1,772,901	)	$	216,337		$	(1,695,849	)	$	(1,003,625	)
INCOME (LOSS) PER SHARE
BASIC	$	(0.24	)	$	0.04		$	(0.26	)	$	(0.22	)
DILUTED	$	(0.24	)	$	0.03		$	(0.26	)	$	(0.22	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		7,420,112			5,859,187			6,415,649			4,474,383
DILUTED		7,420,112			7,462,128			6,415,649			4,474,383

See the accompanying notes to the condensed financial statements.

5

VerifyMe, Inc.

Condensed Statement of Changes in Stockholders’ Deficit

For the Nine Months Ended September 30, 2016
 

	Series A						Series B					Series C
	Convertible						Convertible					Convertible
	Preferred						Preferred					Preferred						Common
	Stock						Stock					Stock						Stock						Additional
	Number of						Number of					Number of						Number of						Paid-In			Treasury			Deferred			Accumulated
	Shares			Amount			Shares			Amount		Shares			Amount			Shares			Amount			Capital			Stock			Compensation			Deficit			Total
Balance at December 31, 2015 (Audited)		441,938		$	442			1.00		$	-								5,977,030		$	5,977		$	39,779,414		$	(113,389	)	$	(1,842,334	)	$	(39,998,290	)	$	(2,168,180	)
Conversion of Series A Convertible Preferred Stock		(44,160	)		(44	)		-			-		-			-			883,200			883			(839	)		-			-			-			-
Effect of Series A Convertible Preferred Stock on
embedded derivative liability		-			-			-			-		-			-			-			-			313,000			-			-			-			313,000
Conversion of Series B Convertible Preferred Stock		-			-			(0.03	)		-		-			-			291,780			292			(292	)		-			-			-			-
Sale of Series C Convertible Preferred Stock		-			-			-			-		3,087,500			3,088			-			-			1,231,912			-			-			-			1,235,000
Stock issuance costs		-			-			-			-		-			-			-			-			(17,500	)		-			-			-			(17,500	)
Conversion of Series C Convertible Preferred Stock		-			-			-			-		(1,050,000	)		(1,050	)		1,050,000			1,050			-			-			-			-			-
Deemed dividend distribution		-			-			-			-		-			-			-			-			(1,235,000	)		-			-			-			(1,235,000	)
Issuance of stock for services		-			-			-			-		-			-			32,983			33			20,742			-			-			-			20,775
Issuance of restricted stock for services		-			-			-			-		-			-			40,000			40			960			-			89,000			-			90,000
Forfeiture of restricted stock units		-			-			-			-		-			-			(267,989	)		(268	)		(917,732	)		-			637,500			-			(280,500	)
Fair value of stock options and warrants		-			-			-			-		-			-			-			-			944,062			-			-			-			944,062
Decrease in fair value of restricted stock units		-			-			-			-		-			-			-			-			(90,375	)		-			90,375			-			-
Amortization of deferred compensation		-			-			-			-		-			-			-			-			-			-			563,942			-			563,942
Net income		-			-			-			-		-			-			-			-			-			-			-			(1,695,849	)		(1,695,849	)
Balance at September 30, 2016 (Unaudited)		397,778		$	398			0.97		$	-		2,037,500		$	2,038			8,007,004		$	8,007		$	40,028,352		$	(113,389	)	$	(461,517	)	$	(41,694,139	)	$	(2,230,250	)

See the accompanying notes to the condensed financial statements.

6

VerifyMe, Inc.

Condensed Statements of Cash Flows

For the Three and Nine Months Ended September 30, 2016 and 2015

(Unaudited)
 

	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(1,695,849	)	$	(1,003,625	)
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		944,062			400,721
Fair value of restricted stock issued in exchange for services		90,000			-
Common stock issued for services		20,775			-
Accretion of discount on notes payable		-			10,447
Change in fair value of warrant liability		(732,214	)		(2,642,138	)
Change in fair value of embedded derivative liability		(239,000	)		-
Amortization and depreciation		22,852			64,629
Reversal of expense from forfeiture of restricted common stock		(280,500	)		-
Amortization of deferred compensation		563,942			202,908
(Increase) decrease in assets
Accounts receivable		-			(69,237	)
Inventory		(30,692	)		(1,221	)
Prepaid expenses		-			10,033
Increase (decrease) in liabilities
Accounts payable and accrued expenses		115,886			2,155,173
Customer deposits		5,625			-
Deferred revenue		-			(16,667	)
Net cash used in operating activities		(1,215,113	)		(1,221,500	)
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
Repayment of notes payable		-			(50,000	)
Proceeds from sale of Series A Convertible Preferred Stock		-			1,278,501
Proceeds from sale of Series C Convertible Preferred Stock		1,235,000			-
Stock issuance costs		(17,500	)		-
Proceeds from sale of common stock		-			50,000
Net cash provided by financing activities		1,217,500			1,438,043
NET INCREASE  IN CASH AND
CASH EQUIVALENTS		2,387			214,011
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		4,152			63,956
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	6,539		$	277,967
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	$	-		$	731,426
Cashless exercise of warrants	$	-		$	2
Series A Convertible Preferred Stock converted to common stock	$	883		$	633,333
Issuance of Series A Convertible Preferred Stock for deferred compensation	$	-		$	35,000
Issuance of Series A Convertible Preferred Stock for stockholder notes payable and accrued interest	$	-		$	136,813
Issuance of Series B Convertible Preferred Stock for accrued expenses	$	-		$	6,500,000
Conversion of warrants associated with notes payable	$	-		$	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	$	-		$	2,131,650
Series B Convertible Preferred Stock converted to common stock	$	292		$	-
Series C Convertible Preferred Stock converted to common stock	$	1,050		$	-
Security deposit offset against accounts payable	$	37,197		$	-
Forgiveness of stockholder compensation	$	-		$	175,287
Accretion of discount on preferred stock as deemed dividend distribution	$	1,235,000		$	-
Revaluation of restricted stock units between additional paid in capital and deferred
compensation	$	90,375		$	-
Forfeited restricted common stock	$	918,000		$	-
Revaluation of embedded derivative liability upon conversion of Series C Convertible Preferred Stock	$	313,000		$	-

See the accompanying notes to the condensed financial statements.

7

  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

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 OTCQB, 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 unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 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. Basic net income per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted net income per common share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e., the exercise prices of the outstanding stock options were greater than the market price of the Common Stock. Anti-dilutive Common Stock equivalents, which were excluded from the calculation of number of dilutive common stock equivalents, amounted to 19,237,648 shares for the three months ended September 30, 2015.

Recently Adopted Accounting Pronouncements

Effective January 1, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) 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”,which did not have a material impact on the financial statements.

8

Recently Issued Accounting Pronouncements Not Yet Adopted

As of September 30, 2016, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements through 2017.

NOTE 2 – MANAGEMENT PLANS

The accompanying condensed 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.

On November 15, 2016, the Company issued 259,435 shares of 0% Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) at a purchase price of $0.40 per share with gross proceeds to the Company of $103,774. In connection with the sale of the Series D Preferred Stock, the Company issued to the purchasers warrants to purchase in the aggregate 1,037,740 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series D Preferred Stock is convertible into one share of common stock. The Series D 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 D Preferred Stock.

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 – INCOME TAXES

Income tax expense was $0 for the three and nine months ended September 30, 2016 and 2015.

As of January 1, 2016, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2016 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and nine months ended September 30, 2016, and there was no accrual for uncertain tax positions as of September 30, 2016. Tax years from 2012 through 2015 remain subject to examination by major tax jurisdictions.

There is no income tax benefit for the losses for the three and nine months ended September 30, 2016 and 2015, since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

NOTE 4 – EMBEDDED DERIVATIVE LIABILITY

The conversion feature of the 0% Series C Convertible Preferred Stock (“Series C”) is an embedded derivative, which due to anti-dilution adjustments is classified as a liability in accordance with FASB ASC Topic 815, “Derivatives and Hedging” and ASU 2014-16, and was valued in accordance with FASB ASC 470, “Debt”, as a beneficial conversion feature at a combined fair market value of $1,235,000 as of February 2016.  This was classified as an embedded derivative liability and a discount to Series C.  Because the Series C can be converted at any time, the full amount was accreted and classified as a reduction to the discount on Series C and a deemed distribution in the full amount of $1,235,000.

9

In addition, the embedded derivative liability must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings.  Series C shareholders converted 1,050,000 shares into 1,050,000 common shares during the second quarter of 2016.  As a result, the embedded derivative liability associated with those shares was adjusted to the fair value ($313,000) and the associated liability was eliminated against additional paid in capital.  As of September 30, 2016, the fair value of the embedded derivative liability was $683,000.  For the three and nine months ended September 30, 2016, the Company realized income (expense) of $(500,000) and $239,000 relative to the embedded derivative liability.  

NOTE 5 – 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 (collectively, the “VFM Agreements”) with VerifyMe, Inc. – Texas (“VFM”) on the same date entered into a Technology and Service Agreement with Zaah Technologies, Inc. (collectively with the VFM Agreements, the “Agreements”). The Agreements contemplate warrant issuances by the Company for the purchase of common stock.

Warrants exercisable for 627,451 shares 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 September 30, 2016 and December 2015, the fair value of the warrant liability was $70,746 and $1,020,632, respectively.

The 392,157 warrants associated with the Company’s Series A Convertible Preferred Stock were also classified as a liability since they were 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 September 30, 2016 and December 31, 2015, the fair value of the warrants was $58,986 and $626,317.

On January 1, 2014, the Company issued warrants to purchase 74,697 shares of Common Stock as consideration for technology received from VFM under the VFM 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 VFM Patent and Technology 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 September 30, 2016, and December 31, 2015, the fair value of the warrant liability was $15,779 and $147,524, respectively.

Warrants to purchase 3,529 shares of Common Stock associated with the notes payable incurred on August 5, 2014, were revalued and at September 30, 2016 and December 31, 2015, the fair value of those warrants was $892 and $7,902.

In conjunction with the issuance of Series C, the Company issued warrants to purchase 3,087,500 shares of the Company’s Common Stock.  The warrants are subject to anti-dilution adjustments outlined in the warrant agreement. In accordance with FASB ASC 815 and ASU 2014-16, the warrants were classified as a liability with an initial fair value of $1,767,576, which was immediately expensed. 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 September 30, 2016, the fair value of the warrant liability was $923,758.

10

NOTE 6 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with VFM on January 31, 2013 (the “Subscription Agreement”). Under the terms of the Subscription Agreement, VFM subscribed to purchase 392,157 shares of Series A Convertible Preferred Stock post 85-for-1 reverse stock split and a warrant to purchase 392,157 shares of Common Stock post 85-for-1 reverse stock split at an exercise price of $10.20 per share, for $1 million.

Series A Convertible Preferred Stock

On March 10, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.

On June 1, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.

On August 23, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.

Series B Convertible Preferred Stock

On May 26, 2015, the Company amended its Amended and Restated Articles of Incorporation dated December 19, 2003 to establish the Series B Convertible Preferred Stock and authorized 1 share (85 shares pre-reverse stock split). The par value of the Series B Convertible Preferred Stock is $0.001 and they are convertible currently at 8,496,732:1. These shares were issued to settle the $6.5 million of licensing fees due and the associated warrants as part of the Company’s recapitalization transaction in July 2015.

On March 17, 2016, 0.03 shares of Series B Convertible Preferred Stock were converted into 291,780 shares of the Company’s common stock.

Series C Convertible Preferred Stock

On February 9, 2016, the Company issued 2,587,500 shares of Series C, par value $0.001 per share, at a purchase price of $0.40 per share with gross proceeds to the Company of $1,035,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 2,587,500 shares of the Company’s common stock at an exercise price of $0.40 per share. Further, as a part of the same offering, on February 29, 2016, the Company issued 500,000 shares of Series C, at a purchase price of $0.40 per share with gross proceeds to the Company of $200,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 500,000 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series C is convertible into one share of common stock. The Series C provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to future corporate events or otherwise, including, for a proscribed period of time, upon the issuance of securities at a price that is less than the exercise price of the Series C.

In addition, the Company incurred stock issuance costs of $17,500 related to the issuance of Series C.

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The Company entered into a Registration Rights Agreement with each of the purchasers of the Series C pursuant to which the Company agreed to file a registration statement with the SEC covering the resale of the common stock underlying the Series C, as well as the shares of common stock that are issuable upon exercise of the warrants.  The registration statement was filed in April 2016 and declared effective on April 29, 2016.

On May 2, 2016, 572,000 shares of Series C were converted into 572,000 shares of the Company’s Common Stock.

On May 3, 2016, 125,000 shares of Series C were converted into 125,000 shares of the Company’s Common Stock.

On May 5, 2016, 353,000 shares of Series C were converted into 353,000 shares of the Company’s Common Stock.

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Liabilities

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

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

	Level 1		Level 2			Level 3		Total
Embedded derivative liability related to beneficial conversion option	$	-	$	-		$	683,000	$	683,000
Derivative liability related to fair value of warrants		-		-			1,070,161		1,070,161
Total	$	-	$	-		$	1,753,161	$	1,753,161
			Total
Balance at January 1, 2016			$	1,802,375
Series C embedded derivative fair value, February, 2016				1,235,000
Effect of conversion of Series C Preferred Stock on embedded derivative liability				(313,000	)
Series C warrant liability fair value, February, 2016				1,767,576
Change in fair value of derivative liabilities				(2,738,790	)
Balance at September 30, 2016			$	1,753,161

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 nine months ended September 30, 2016.

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As of September 30, 2016, the beneficial conversion feature of Series C was treated as an embedded derivative liability and changes in the fair value were recognized in earnings.  Because the fair value of the warrants issued in conjunction with Series C was in excess of the proceeds of Series C, the effective conversion price of the Series C is $0.   The Series C shares are convertible into shares of the Company’s Common Stock, which did trade in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:

Closing trade price of Common Stock	$	0.34
Effective Series A Preferred Stock Conversion price		-
Intrinsic value of conversion option per share	$	0.34

As of September 30, 2016, the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings. These warrants did not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using the Black-Scholes option pricing model and the following assumptions:

	September 30, 2016
Annual Dividend Yield		0.0%
Expected Life (Years)		1.3 - 2.8
Risk-Free Interest Rate		0.59% - 0.88%
Expected Volatility		204.9% - 244.7%

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

NOTE 8 – STOCKHOLDERS’ EQUITY

A restricted stock unit (“RSU”) is an award of common shares that is subject to certain restrictions during a specified period. RSU awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company’s restricted stock awards vest over a period of one year. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period, during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.  RSU’s issued to consultants are revalued every quarter until the end of the term of the agreement.

On June 11, 2015, the Company issued 525,000 RSUs (44,625,000 units 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.  The former Chief Executive Officer (“CEO”) resigned on April 27, 2016 and holds 300,000 of the issued 525,000 RSUs above.  As part of his severance package the RSUs will continue to vest and will not expire, therefore since there is no further obligation on the part of the former CEO, the Company expensed immediately the remaining unamortized portion of the RSUs in the amount of $187,708.

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On July 9, 2015, the Company hired a Chief Operating Officer (“COO”). The COO received 225,000 RSUs (19,125,000 units 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.  The COO resigned on May 31, 2016 and as a result the Company reversed the expense related to the RSUs during the six months ended June 30, 2016 in the amount of $280,500.  In addition, the value of the RSUs included in deferred compensation in the amount of $637,500 was reclassified to additional paid in capital.

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.

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 were to be issued on January 1, 2016 and 20,000 shares were to be issued on April 1, 2016. The RSUs were originally valued at $195,000.  The Company issued the remaining 40,000 shares in April 2016 and expensed $0 and $124,750 for the three and nine months ended September 30, 2016 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 agreement was terminated on April 29, 2016.  The Company expensed $0 and $18,563 for the three and nine months ended September 30, 2016 relative to these RSUs. Further the individual was to receive a 2% to 5% commission on company sales while this agreement is in effect; however no commissions were earned during April 2016 or the three months ended March 31, 2016.  In addition, the remaining value of the RSUs included in deferred compensation in the amount of $2,750 was reclassified to additional paid in capital as a result of the termination of the agreement.

For the three and nine months ended September 30, 2016 the Company expensed $64,021 and $563,942 and for the three and nine months ended September 30, 2015, the Company expensed $196,710 and $202,908 related to the RSUs.

On February 8, 2016, the Company issued 23,500 shares of Common Stock to a consultant for assistance in raising capital.  The shares were valued at $15,275 based on the closing stock price of the Company’s stock price on February 8, 2016 of $0.65 per share.  The value of the shares was expensed immediately.

On May 24, 2016, the Company issued 9,483 shares of Common Stock to a consultant as a finder’s fee for an employee.  The shares were value at $5,500 based on the closing stock price of the Company’s common stock on March 11, 2016 per the agreement.  The value of the shares was expensed immediately.

On May 1, 2016, the Company issued warrants to purchase 100,000 shares of common stock at an exercise price of $0.01 per share, with a term of five years, to the Chief Executive Officer, which vest immediately. The fair value of warrants issued was $49,885. These warrants 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 204.0%, risk-free interest rate of 1.28% and expected life of five years. The options were expensed immediately.

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.”  There were no outstanding equity-based payments to non-employees as of September 30, 2016.

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NOTE 9 – 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 the Board was authorized to grant options to purchase up to 1.5 million shares of Common Stock (the “2000 Plan”). 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 September 30, 2016, options to purchase 282,353 shares of Common Stock have been issued and are unexercised, and 4,083,808 shares are available for grants under the 2003 Plan.  

During 2013, the Board adopted a new omnibus incentive compensation plan that was ratified by the shareholders at the 2013 annual meeting, (the “2013 Plan”) which serves 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 September 30, 2016, under the 2013 Plan grants of restricted stock and options to purchase 760,000 shares of Common Stock have been issued and are unvested or unexercised, and 19,240,000 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 June 11, 2015, the Company issued options to purchase an aggregate of 1,225,000 shares of the Company’s Common Stock (104,125,000 shares of Common Stock pre-reverse split 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 April 27, 2016, the former CEO resigned.  As part of his severance package the options will continue to vest and will not expire prior to the original expiration date, therefore since there is no further obligation on the part of the former CEO, the Company expensed immediately the remaining unamortized portion of the options in the amount of $298,377.

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On February 29, 2016, the Company issued options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.57 per share, with a term of five years, to the Chairman of the Board. The fair value of options issued was $53,731. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 202.9%, risk-free interest rate of 1.22% and expected option life of five years.  The options are being expensed over the Board Chairman’s remaining service terms as that is shorter than the vesting terms.

On March 10, 2016, the Company issued options to purchase 150,000 shares of the Company’s Common Stock at an exercise price of $0.56 per share, with a term of five years, to an employee. The fair value of options issued was $82,113. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 202.9%, risk-free interest rate of 1.45% and expected option life of five years. The options are being expensed over the vesting terms for the employee.

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

For the three and nine months ended September 30, 2016 the Company expensed $131,127 and $894,177 and for the three and nine months ended September 30, 2015, the Company expensed $314,960 and $349,055 with respect to the options.

The following table summarizes the activities for our stock options for the nine months ended September 30, 2016:
 

	Options Outstanding
							Weighted -
							Average
							Remaining		Aggregate
				Weighted-			Contractual		Intrinsic
	Number of			Average			Term		Value
	Shares			Exercise Price			(in years)		(in 000's) (1)
Balance December 31, 2015		2,157,353			$	1.80		5.0
Expired/Cancelled		(525,000	)		$	0.77
Granted		300,000			$	0.55		5.0
Balance September 30, 2016		1,932,353			$	1.88		4.3	$	-
Exercisable at September 30, 2016		1,074,019			$	2.08		4.8	$	-
Exercisable at September 30, 2016 and expected to
vest thereafter		1,932,353			$	1.88		4.3	$	-

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(1) – the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

As of September 30, 2016 there was $907,494 of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average period of 1.8 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 September 30, 2016 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 for our warrants for the nine months ended September 30, 2016:
 

	Warrants Outstanding
							Weighted -
							Average
							Remaining		Aggregate
				Weighted-			Contractual		Intrinsic
	Number of			Average			Term		Value
	Shares			Exercise Price			in years)		(in 000's) (1)
Balance December 31, 2015		1,414,893			$	9.67		4.8
Expired		(2,941	)		$	0.85
Granted		3,187,500			$	0.39
Balance September 30, 2016		4,599,452			$	3.24		2.9	$	33
Exercisable at September 30, 2016		4,599,452			$	3.24		2.9	$	33

(1) – the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

All warrants were vested on the date of grant.

For the three and nine months ended September 30, 2016, the Company expensed $49,885 relative to the warrants in addition to previous income or expense related to the warrant liability and for the three and nine months ended September 30, 2015, the Company expensed $0 relative to the warrants in addition to previous income or expense related to the warrant liability.

NOTE 10 – OPERATING LEASES

For the three and nine months ended September 30, 2016, total rent expense under leases amounted to $0 and $11,835.  For the three and nine months ended September 30, 2015, total rent expense under leases amounted to $23,463 and $55,474. As of September 30, 2016, the Company was not obligated under any non-cancelable operating lease arrangements.

NOTE 11 – RELATED PARTIES

As of September 30, 2016, the Company owed the current CEO $6,250 for services rendered, the CFO $19,400 for services rendered and the former CEO $56,667 under his severance package.  All of these amounts are included in accounts payable.

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NOTE 12 – SUBSEQUENT EVENTS

On October 6, 2016, 0.0451 shares of Preferred Series B were converted into 383,203 shares of the Company’s common stock.

On October 14, 2016, 125,000 shares of Preferred Series C were converted into 125,000 shares of the Company’s common stock.

On November 15, 2016, the Company issued 259,435 shares of 0% Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) at a purchase price of $0.40 per share with gross proceeds to the Company of $103,774. In connection with the sale of the Series D Preferred Stock, the Company issued to the purchasers warrants to purchase in the aggregate 1,037,740 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series D Preferred Stock is convertible into one share of common stock. The Series D 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 D Preferred Stock.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “believes,” “contemplates,” “targets,” “could,” “would” or “should” or the negative thereof or any variation thereon or similar terminology or expressions. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.

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, the absence of any operating history or revenue, our ability to attract and retain qualified personnel, our ability to develop and introduce new services and products to the market in a timely manner, market acceptance of our services and products, our limited experience in the industry, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, 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 risks discussed in this filing, the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (the “SEC”), the Company’s Form S-1 registration statement declared effective on April 29, 2016, the Company’s final prospectus filed pursuant to Securities Act Rule 424 on May 2, 2016, and the Company’s other subsequent filings with the SEC.

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. The Company has no obligation to and does not undertake to update, revise, or correct any of these forward-looking statements after the date of this report.

References such as “we”, “us”, “our” and the “Company” used in this Quarterly Report on Form 10-Q mean VerifyMe, Inc., a Nevada corporation.

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.

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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.
 

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.

Recent Events

On April 29, 2016, Paul Donfried resigned as Chief Executive Officer and President of the Company as well as his position as a director on the Board of Directors of the Company.  On May 1, 2016, the Company appointed Tom Nicolette as Chief Executive Officer and President pursuant to a consulting agreement that began May 1, 2016 and ends December 31, 2017.

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On May 26, 2016, the Company signed a Memorandum of Understanding with Hewlett Packard Indigo (“HP Indigo”) to launch security ElectroInk for authentication and counterfeit prevention.  This security ElectroInk will be marketed and sold globally by the Company to HP Indigo customers, along with the Company’s readers and authentication tools that can be used in conjunction with security ElectroInk. Both companies will provide support to HP Indigo customers that use security ElectroInk on HP Indigo’s digital printing presses.

The Company’s patented anti-counterfeiting pigment technology can be seamlessly integrated into the digital printing process to produce visible and invisible marks, which enables two levels of authentication. First, consumers are able to see the patented ink without any specialized equipment. Second, manufacturers can use customized devices to view characteristics of non-visible pigments to support their supply and distribution chain security.

On May 31, 2016, Ben Burrell resigned as Chief Operating Officer.
 

Results of Operations

Comparison of the Three Months Ended September 30, 2016 and 2015

The following discussion analyzes our results of operations for the three months ended September 30, 2016 and 2015. The following information should be considered together with our condensed financial statements for such period and the accompanying notes thereto.

Net Revenue/Net Loss

We have not generated significant revenue since our inception. For the three months ended September 30, 2016 and 2015, we generated revenues of $0 and $142,642.  For the three months ended September 30, 2016 and 2015, we had a net income (loss) of $(1,772,901) and $216,337. 

General and Administrative Expenses

General and administrative expenses decreased $108,447 to $107,340 for the three months ended September 30, 2016 from $215,787 for the three months ended September 30, 2015. The decrease resulted from approximate decreases in bad debt expenses of $62,000, depreciation of $17,000, employee related expenses of $14,000, rent expense $23,000, SEC filing fees of $54,000, website expenses of $24,000 and other expenses of $11,000, offset by an approximate increase in consulting expense of $74,000, and insurance expense of $23,000.

Legal and Accounting

Legal and accounting fees decreased $99,501 to $71,005 for the three months ended September 30, 2016 from $170,506 for the three months ended September 30, 2015. The decrease in legal and accounting fees between the periods was primarily a result of the costs associated costs associated with the beginning a Registration Statement on Form S-1 in the third quarter of 2015.

21

Payroll Expenses

Payroll expenses were $257,712 for the three months ended September 30, 2016, a decrease of $489,621 from $747,333 for the three months ended September 30, 2015. The decrease is primarily the result of option expenses and restricted stock related to officers that were issued between June and August of 2015.

Research and Development

Research and development expenses were $0 and $58,415 for the three months ended September 30, 2016 and 2015, a decrease of $58,415.  The decrease is a result of cost containment procedures and research and development programs being suspended.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2016 were $15,177 as compared to $37,189 for the three months ended September 30, 2015, a decrease of $22,012. The decrease relates to decreases in option issuances, commissions and travel expenses.

Interest Expense

During the three months ended September 30, 2016, the Company incurred interest expense of $1,000 as compared to $4,284 for the three months ended September 30, 2015, a decrease of $3,284. The decrease in interest expense was a result of the conversion of debt to stock pursuant to the Company’s restructuring transaction in June 2015.

Gain (Loss) on Extinguishment of Debt

During the three months ended September 30, 2016 and 2015, the Company incurred a loss of $0 and $19,395. The loss related to conversion of notes payable and accrued interest.

Change in Fair Value of Warrants

During the three months ended September 30, 2016, the Company reported an unrealized loss on the market value of warrants of $820,667 as compared to a gain of 1,355,293 for the three months ended September 30, 2015, a decrease in the gain of $2,175,960. The change primarily resulted from the valuation of warrants associated with the Investment Agreement entered into on December 31, 2012 with VerifyMe, Inc. – Texas (“VFM”) and the Subscription Agreement entered into on January 31, 2013 with VFM. The value of these warrants has decreased during the three months ended September 30, 2016 as a result of the value of the Company’s common stock decreasing relative to the 2012 and 2013 issuances, but offset by the issuance of the February 2016 issuances.

Change in Fair Value of Embedded Derivative Liability

During the three months ended September 30, 2016, the Company reported an unrealized loss of $500,000 for the change in the fair value of the embedded derivative liability as compared to a gain of $0 for the three months ended September 30, 2015.  This change is related to a decrease in the value of the beneficial conversion option related to the 0% Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C”), issued in February 2016 and the Series A Preferred Stock issued in conjunction with the Subscription Agreement entered into on January 31, 2013 with VFM.  The increase in the embedded derivative liability is due to the increase in the trading price of the Company’s Common Stock.

22

Comparison of the Nine Months Ended September 30, 2016 and 2015

The following discussion analyzes our results of operations for the nine months ended September 30, 2016 and 2015. The following information should be considered together with our condensed financial statements for such period and the accompanying notes thereto.

Net Revenue/Net Loss

We have not generated significant revenue since our inception. For the nine months ended September 30, 2016 and 2015, we generated revenues of $11,705 and $200,600.  For the nine months ended September 30, 2016 and 2015, we had a net loss of $1,695,849 and $1,003,625. 

General and Administrative Expenses

General and administrative expenses decreased $22,094 to $357,723 for the nine months endedSeptember 30, 2016 from $379,817 for the nine months ended September 30, 2015. The decrease resulted primarily from approximate decreases in bad debt expense of $62,000, depreciation and amortization of $42,000, SEC filing fees of $49,000, rent expense of $44,000, and website expense of $40,000, offset by increases in consulting related expenses of $155,000, insurance of $23,000, recruitment fees of $17,000, transfer agent fees of 12,000 and other expenses of $8,000.

Legal and Accounting

Legal and accounting fees decreased $95,009 to $303,932 for the nine months ended September 30, 2016 from $398,941 for the nine months ended June 30, 2015. The legal and accounting fees were reduced as a result of the Company beginning the preparation of a registration statement in the third quarter of 2015 that did not occur in the third quarter of 2016.

Payroll Expenses

Payroll expenses were $1,569,372 for the nine months ended September 30, 2016, an increase of $531,900 from $1,037,472 for the nine months ended September 30, 2015. The increase is the result of option expenses and restricted stock units related to officers that were issued between June and August of 2015, as well as the hiring of the Chief Operating Officer and Chief Technology Officer in June 2015.

Research and Development

Research and development expenses were $211,881 and $2,194,801 for the nine months endedSeptember 30, 2016 and 2015, a decrease of $1,982,920.  The decrease is a result of the additional licensing fees as part of the restructuring transaction in June 2015 that was not replicated in the second quarter of 2016.

Sales and Marketing

Sales and marketing expenses for the nine months ended September 30, 2016 were $226,951 as compared to $60,316 for the nine months ended September 30, 2015, an increase of $166,635. The Company hired a salesperson in the second quarter of 2016, issued options to the salesperson and had increased travel expenditures relative to the new collaboration with HP Indigo.

23

Interest Expense

During the nine months ended September 30, 2016, the Company incurred interest expense of $3,000 as compared to $59,438 for the nine months ended September 30, 2015, a decrease of $56,438. The decrease in interest expense was a result of the conversion of debt to stock pursuant to the Company’s restructuring transaction in June 2015.

Gain (Loss) on Extinguishment of Debt

During the nine months ended September 30, 2016 and 2015, the Company incurred a gain on extinguishment of debt of $0 and $332,523. These resulted from the restructuring of debt in during the nine months ended September 30, 2015.

Change in Fair Value of Warrants

During the nine months ended September 30, 2016, the Company reported an unrealized gain on the market value of warrants of $2,499,790 as compared to $2,642,138 for the nine months ended September 30, 2015, a decrease of $142,348. The change primarily resulted from the valuation of warrants associated with an Investment Agreement entered into on December 31, 2012 with VFM and a Subscription Agreement entered into on January 31, 2013 with VFM. The values of these warrants have decreased during the nine months ended September 30, 2016 because the trading price of our Common Stock has decreased from the price at the beginning of the year. This decrease was offset by an increase in the value of the warrants issued in February 2016 pursuant to the Series C issuance.

Change in Fair Value of Embedded Derivative Liability

During the nine months ended September 30, 2016, the Company reported an unrealized gain of $239,000 for the change in the fair value of the embedded derivative liability as compared to a gain of $0 for the nine months ended September 30, 2015.  This change is related to a decrease in the value of the beneficial conversion option related to the 0% Series C Convertible Preferred Stock (the “Series C Preferred”) issued in February 2016 and the Series A Preferred Stock issued in conjunction with the Subscription Agreement entered into on January 31, 2013.  The decrease in the embedded derivative liability is due to the loss created by the conversion of Series C preferred stock offset by the increase in the trading price of the Company’s Common Stock.

Fair value of warrants in excess of consideration for convertible preferred stock

In February 2016, upon the issuance of the Series C, the associated warrants were valued and that value exceeded the amount that was received by Company for the Series C in the amount of $1,767,575, fair value.  This value exceeded the amount of proceeds allocated to the Series C by $1,767,575 and was expensed immediately.

Liquidity and Capital Resources

As of November 21, 2016, we had cash on hand of approximately $16,000.

Net cash used in operating activities decreased $6,387 to $1,215,113 for the nine months ended September 30, 2016 as compared to $1,221,500 for the nine months ended September 30, 2015.  The increase resulted primarily from a increases in net loss from operations, amortization of deferred compensation and fair value of options offset by changes in the warrant and embedded derivative liability values and reversal of expenses from restricted stock forfeitures.

Net cash used in investing activities was $0 for the nine months ended September 30, 2016, compared to $2,532 for the nine months ended September 30, 2015.  

24

Net cash provided by financing activities decreased by $220,543 to $1,217,500 for the nine months ended September 30, 2016 from $1,438,043 for the nine months ended September 30, 2015.  Cash provided by financing activities during the nine months ended June 30, 2016, consisted of our Series C offering which raised $1,217,500 net of stock issuance costs of $17,500, in February 2016 as opposed to the restructuring transaction in 2015 that raised $1,438,043.

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.  On February 9, 2016, the Company issued 2,587,500 shares of Series C at a purchase price of $0.40 per share with gross proceeds to the Company of $1,035,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 2,587,500 shares of the Company’s common stock at an exercise price of $0.40 per share. Further, as a part of the same offering, on February 29, 2016, the Company issued 500,000 shares of Series C, at a purchase price of $0.40 per share with gross proceeds to the Company of $200,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 500,000 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series C is convertible into one share of common stock, 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, 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 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.

Off-Balance Sheet Arrangements

As of September 30, 2016, we do not have any off-balance sheet arrangements.

Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. 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.

25

Stock-based Compensation

We account for stock-based compensation under the provisions of FASB ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing 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 505-50, “Equity-Based Payments to Non-Employees”. Under FASB 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 FASB ASC 605, “Revenue Recognition”, 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.

License fee revenue is recognized on a straight-line basis over the term of the license agreement.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 of the notes to condensed financial statements contained in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures. Our disclosure controls and procedures are designed to ensure information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2016, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.

26

(b) Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On November 15, 2016, the Company issued 259,435 shares of 0% Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) at a purchase price of $0.40 per share with gross proceeds to the Company of $103,774. In connection with the sale of the Series D Preferred Stock, the Company issued to the purchasers warrants to purchase in the aggregate 1,037,740 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series D Preferred Stock is convertible into one share of common stock. The Series D 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 D Preferred Stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

27

ITEM 6. EXHIBITS

Exhibit No.	Description
31.1	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data Files.**

* Denotes management compensation plan or contract.

** The documents formatted in XBRL (Extensible Business Reporting Language) and attached as Exhibit 101 to this report are deemed not filed as part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections.

28

SIGNATURES
 

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	VERIFYME, INC.
	By:	/s/ Scott McPherson
		Scott McPherson
		On behalf of the registrant and as Chief Financial Officer (Principal Financial Officer)
Date: November 21, 2016

29

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, Thomas A. Nicolette, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: November 21, 2016	By:	/s/ Thomas A. Nicolette
		Thomas A. Nicolette
		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 Quarterly Report on Form 10-Q 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 presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: November 21, 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 Quarterly Report of VerifyMe, Inc. (the “Registrant”) on Form 10-Q for the quarter ending September 30, 2016, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Nicolette, Chief Executive Officer (Principal Executive 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: November 21, 2016	By:	/s/ Thomas A. Nicolette
		Thomas A. Nicolette
		Chief Executive Officer

EX-32.2

Exhibit 32.2

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 Quarterly Report of VerifyMe, Inc. (the “Registrant”) on Form 10-Q for the quarter ending September 30, 2016, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Scott McPherson, Chief Financial Officer (Principal Financial 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: November 21, 2016	By:	/s/ Scott McPherson
		Scott McPherson
		Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 21, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	VRME
Entity Registrant Name	VerifyMe, Inc.
Entity Central Index Key	0001104038
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,515,207

XML

Condensed Balance Sheets - USD ($)	Sep. 30, 2016	Dec. 31, 2015
CURRENT ASSETS
Cash and cash equivalents	$ 6,539	$ 4,152
Inventory	59,379	28,687
TOTAL CURRENT ASSETS	65,918	32,839
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $232,198 and $230,621 as of June 30, 2016 and December 31, 2015	5,493	7,838
OTHER ASSETS
Deposits		37,197
Patents and Trademark, net of accumulated amortization of $180,565 and $166,894 as of June 30, 2016 and December 31, 2015	238,787	259,294
TOTAL OTHER ASSETS	238,787	296,491
TOTAL ASSETS	310,198	337,168
CURRENT LIABILITIES
Accounts payable and accrued expenses	731,662	652,973
Customer deposits	5,625
Note payable	50,000	50,000
Embedded derivative liability	683,000
Warrant liability	1,070,161	1,802,375
TOTAL CURRENT LIABILITIES	2,540,448	2,505,348
CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $ .001 par value; 675,000,000 shares authorized; 8,051,133 and 6,327,570 shares issued, 7,712,604 and 5,977,030 shares outstanding at June 30, 2016 and December 31, 2015	8,007	5,977
Additional paid in capital	40,028,352	39,779,414
Treasury stock, at cost (350,540 shares at June 30, 2016 and December 31, 2015)	(113,389)	(113,389)
Deferred compensation	(461,517)	(1,842,334)
Accumulated deficit	(41,694,139)	(39,998,290)
STOCKHOLDERS' DEFICIT	(2,230,250)	(2,168,180)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	310,198	337,168
Series A Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Convertible Preferred Stock	398	442
STOCKHOLDERS' DEFICIT	398	442
Series B Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Convertible Preferred Stock
STOCKHOLDERS' DEFICIT
Series C Preferred Stock [Member]
STOCKHOLDERS' DEFICIT
Convertible Preferred Stock	2,038
STOCKHOLDERS' DEFICIT	$ 2,038

XML

Condensed Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Accumulated depreciation on capital equipment	$ 232,966	$ 230,621
Accumulated amortization, patent and trademarks	$ 187,401	$ 166,894
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	675,000,000	675,000,000
Common stock, shares issued	8,357,544	6,327,570
Common stock, shares outstanding	8,007,004	5,977,030
Treasury stock, shares	350,540	350,540
Series A 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	397,778	441,938
Preferred stock, shares outstanding	397,778	441,938
Series B Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	85	85
Preferred stock, shares issued	0.97	1
Preferred stock, shares outstanding	0.97	1
Series C Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	7,500,000	7,500,000
Preferred stock, shares issued	2,037,500	0
Preferred stock, shares outstanding	2,037,500	0

XML

Condensed Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
NET REVENUES
Sales		$ 138,475	$ 11,705	$ 200,600
Royalties		4,167		16,667
TOTAL NET REVENUE		142,642	11,705	217,267
COST OF SALES		28,689	5,910	64,768
GROSS PROFIT		113,953	5,795	152,499
OPERATING EXPENSES
General and administrative	107,340	215,787	357,723	379,817
Legal and accounting	71,005	170,506	303,932	398,941
Payroll expenses	257,712	747,333	1,569,372	1,037,472
Research and development		58,415	211,881	2,194,801
Sales and marketing	15,177	37,189	226,951	60,316
Total operating expenses	451,234	1,229,230	2,669,859	4,071,347
LOSS BEFORE OTHER INCOME	(451,234)	(1,115,277)	(2,664,064)	(3,918,848)
OTHER INCOME (EXPENSE)
Interest expense	(1,000)	(4,284)	(3,000)	(59,438)
Gain on extinguishment of debt		(19,395)		332,523
Change in fair value of warrants	(820,667)	1,355,293	2,499,790	2,642,138
Change in fair value of embedded derivative liability	(500,000)		239,000
Fair value of warrants in excess of consideration for convertible preferred stock			(1,767,575)
TOTAL OTHER INCOME (EXPENSE)	(1,321,667)	1,331,614	968,215	2,915,223
NET INCOME (LOSS)	$ (1,772,901)	$ 216,337	$ (1,695,849)	$ (1,003,625)
INCOME (LOSS) PER SHARE
BASIC	$ (0.24)	$ 0.04	$ (0.26)	$ (0.22)
DILUTED	$ (0.24)	$ 0.03	$ (0.26)	$ (0.22)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC	7,420,112	5,859,187	6,415,649	4,474,383
DILUTED	7,420,112	7,462,128	6,415,649	4,474,383

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Condensed Statement of Changes in Stockholders' Deficit - 9 months ended Sep. 30, 2016 - USD ($)	Common Stock [Member] Series A Preferred Stock [Member]	Common Stock [Member] Series B Preferred Stock [Member]	Common Stock [Member] Series C Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member] Series A Preferred Stock [Member]	Additional Paid-in Capital [Member] Series B Preferred Stock [Member]	Additional Paid-in Capital [Member] Series C Preferred Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member] Series A Preferred Stock [Member]	Treasury Stock [Member]	Deferred Compensation [Member] Series A Preferred Stock [Member]	Deferred Compensation [Member]	Accumulated Deficit [Member]	Series A Preferred Stock [Member]	Series B Preferred Stock [Member]	Series C Preferred Stock [Member]	Total
Balance at Dec. 31, 2015				$ 5,977				$ 39,779,414		$ (113,389)		$ (1,842,334)	$ (39,998,290)	$ 442			$ (2,168,180)
Balance (in shares) at Dec. 31, 2015				5,977,030										441,938	1
Conversion of Convertible Preferred Stock	$ 883	$ 292	$ 1,050		$ (839)	$ (292)								$ (44)		$ (1,050)
Conversion of Convertible Preferred Stock (in shares)	883,200	291,780	1,050,000											(44,160)	(0.03)	(1,050,000)
Effect of Convertible Preferred Stock on embedded derivative liability					$ 313,000												313,000
Sale of Series C Convertible Preferred Stock							$ 1,231,912									$ 3,088	1,235,000
Sale of Series C Convertible Preferred Stock (in shares)																3,087,500
Stock issuance costs								(17,500)									(17,500)
Deemed dividend distribution								(1,235,000)									(1,235,000)
Issuance of stock for services				$ 33				20,742									20,775
Issuance of stock for services (in shares)				32,983
Issuance of restricted stock for services				$ 40				960				89,000					90,000
Issuance of restricted stock for services (in shares)				40,000
Forfeiture of restricted stock units				$ (268)				(917,732)				637,500					(280,500)
Forfeiture of restricted stock units (in shares)				(267,989)
Fair value of stock options and warrants								944,062									944,062
Decrease in fair value of restricted stock units								(90,375)				90,375
Amortization of deferred compensation												563,942					563,942
Net income												(1,695,849)					(1,695,849)
Balance at Sep. 30, 2016				$ 8,007				$ 40,028,352		$ (113,389)		$ (461,517)	$ (41,694,139)	$ 398		$ 2,038	$ (2,230,250)
Balance (in shares) at Sep. 30, 2016				8,007,004										397,778	0.97	2,037,500

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Condensed Statements of Cash Flows - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ (1,695,849)	$ (1,003,625)
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	944,062	400,721
Fair value of restricted stock issued for services	90,000
Common stock issued for services	20,775
Accretion of discount on notes payable		10,447
Change in fair value of warrant liability	(732,214)	(2,642,138)
Change in fair value of embedded derivative liability	(239,000)
Amortization and depreciation	22,852	64,629
Reversal of expense from forfeiture of restricted common stock	(280,500)
Amortization of deferred compensation	563,942	202,908
(Increase) decrease in assets
Accounts receivable		(69,237)
Inventory	(30,692)	(1,221)
Prepaid expenses		10,033
Increase (decrease) in liabilities
Accounts payable and accrued expenses	115,886	2,155,173
Customer deposits	5,625
Deferred revenue		(16,667)
Net cash used in operating activities	(1,215,113)	(1,221,500)
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
Repayment of notes payable		(50,000)
Stock issuance costs	(17,500)
Proceeds from sale of common stock		50,000
Net cash provided by financing activities	1,217,500	1,488,043
NET INCREASE IN CASH AND CASH EQUIVALENTS	2,387	214,011
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	4,152	63,956
CASH AND CASH EQUIVALENTS - END OF PERIOD	6,539	277,967
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		731,426
Cashless exercise of warrants		2
Series A Convertible Preferred Stock converted to common stock	883	633,333
Issuance of Series A Convertible Preferred Stock for deferred compensation		35,000
Issuance of Series A Convertible Preferred Stock for stockholder notes payable and accrued interest		136,813
Issuance of Series B Convertible Preferred Stock for accrued expenses		6,500,000
Conversion of warrants associated with notes payable		1,867,417
Conversion of warrants to common stock		37,000
Conversion of accounts payable and accrued expenses into common stock		99,447
Issuance of common stock for notes payable and accrued interest
Common stock issued for deferred compensation		2,131,650
Series B Convertible Preferred Stock converted to common stock	292
Security deposit offset against accounts payable	37,197
Forgiveness of stockholder compensation		175,287
Accretion of discount on preferred stock as deemed dividend distribution	1,235,000
Revaluation of restricted stock units between additional paid in capital and deferred compensation	90,375
Forfeited restricted common stock	918,000
Revaluation of embedded derivative liability upon conversion of Series C Convertible Preferred Stock	313,000
Series A Preferred Stock [Member]
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of Convertible Preferred Stock		1,278,501
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Series A Convertible Preferred Stock converted to common stock	589	633,333
Issuance of common stock for notes payable and accrued interest	(44)
Series C Preferred Stock [Member]
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of Convertible Preferred Stock	1,235,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Series A Convertible Preferred Stock converted to common stock	1,050
Issuance of common stock for notes payable and accrued interest	$ (1,050)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

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 OTCQB, 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 unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 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. Basic net income per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted net income per common share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e., the exercise prices of the outstanding stock options were greater than the market price of the Common Stock. Anti-dilutive Common Stock equivalents, which were excluded from the calculation of number of dilutive common stock equivalents, amounted to 19,237,648 shares for the three months ended September 30, 2015.

Recently Adopted Accounting Pronouncements

Effective January 1, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) 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”,which did not have a material impact on the financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of September 30, 2016, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements through 2017.

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MANAGEMENT PLANS

9 Months Ended

Sep. 30, 2016

MANAGEMENT PLANS [Abstract]

MANAGEMENT PLANS

NOTE 2 – MANAGEMENT PLANS

The accompanying condensed 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.

On November 15, 2016, the Company issued 259,435 shares of 0% Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) at a purchase price of $0.40 per share with gross proceeds to the Company of $103,774. In connection with the sale of the Series D Preferred Stock, the Company issued to the purchasers warrants to purchase in the aggregate 1,037,740 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series D Preferred Stock is convertible into one share of common stock. The Series D 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 D Preferred Stock.

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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INCOME TAXES

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 3 – INCOME TAXES

Income tax expense was $0 for the three and nine months ended September 30, 2016 and 2015.

As of January 1, 2016, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2016 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and nine months ended September 30, 2016, and there was no accrual for uncertain tax positions as of September 30, 2016. Tax years from 2012 through 2015 remain subject to examination by major tax jurisdictions.

There is no income tax benefit for the losses for the three and nine months ended September 30, 2016 and 2015, since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

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EMBEDDED DERIVATIVE LIABILITY

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

EMBEDDED DERIVATIVE LIABILITY

NOTE 4 – EMBEDDED DERIVATIVE LIABILITY

The conversion feature of the 0% Series C Convertible Preferred Stock (“Series C”) is an embedded derivative, which due to anti-dilution adjustments is classified as a liability in accordance with FASB ASC Topic 815, “Derivatives and Hedging” and ASU 2014-16, and was valued in accordance with FASB ASC 470, “Debt”, as a beneficial conversion feature at a combined fair market value of $1,235,000 as of February 2016.  This was classified as an embedded derivative liability and a discount to Series C.  Because the Series C can be converted at any time, the full amount was accreted and classified as a reduction to the discount on Series C and a deemed distribution in the full amount of $1,235,000.

In addition, the embedded derivative liability must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings.  Series C shareholders converted 1,050,000 shares into 1,050,000 common shares during the second quarter of 2016.  As a result, the embedded derivative liability associated with those shares was adjusted to the fair value ($313,000) and the associated liability was eliminated against additional paid in capital.  As of September 30, 2016, the fair value of the embedded derivative liability was $683,000.  For the three and nine months ended September 30, 2016, the Company realized income (expense) of $(500,000) and $239,000 relative to the embedded derivative liability.

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WARRANT LIABILITY

9 Months Ended

Sep. 30, 2016

Warrants and Rights Note Disclosure [Abstract]

WARRANT LIABILITY

NOTE 5 – 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 (collectively, the “VFM Agreements”) with VerifyMe, Inc. – Texas (“VFM”) on the same date entered into a Technology and Service Agreement with Zaah Technologies, Inc. (collectively with the VFM Agreements, the “Agreements”). The Agreements contemplate warrant issuances by the Company for the purchase of common stock.

Warrants exercisable for 627,451 shares 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 September 30, 2016 and December 2015, the fair value of the warrant liability was $70,746 and $1,020,632, respectively.

The 392,157 warrants associated with the Company’s Series A Convertible Preferred Stock were also classified as a liability since they were 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 September 30, 2016 and December 31, 2015, the fair value of the warrants was $58,986 and $626,317.

On January 1, 2014, the Company issued warrants to purchase 74,697 shares of Common Stock as consideration for technology received from VFM under the VFM 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 VFM Patent and Technology 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 September 30, 2016, and December 31, 2015, the fair value of the warrant liability was $15,779 and $147,524, respectively.

Warrants to purchase 3,529 shares of Common Stock associated with the notes payable incurred on August 5, 2014, were revalued and at September 30, 2016 and December 31, 2015, the fair value of those warrants was $892 and $7,902.

In conjunction with the issuance of Series C, the Company issued warrants to purchase 3,087,500 shares of the Company’s Common Stock.  The warrants are subject to anti-dilution adjustments outlined in the warrant agreement. In accordance with FASB ASC 815 and ASU 2014-16, the warrants were classified as a liability with an initial fair value of $1,767,576, which was immediately expensed. 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 September 30, 2016, the fair value of the warrant liability was $923,758.

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CONVERTIBLE PREFERRED STOCK

9 Months Ended

Sep. 30, 2016

CONVERTIBLE PREFERRED STOCK [Abstract]

CONVERTIBLE PREFERRED STOCK

NOTE 6 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with VFM on January 31, 2013 (the “Subscription Agreement”). Under the terms of the Subscription Agreement, VFM subscribed to purchase 392,157 shares of Series A Convertible Preferred Stock post 85-for-1 reverse stock split and a warrant to purchase 392,157 shares of Common Stock post 85-for-1 reverse stock split at an exercise price of $10.20 per share, for $1 million.

Series A Convertible Preferred Stock

On March 10, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.

On June 1, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.

On August 23, 2016, 14,720 shares of Series A Convertible Preferred Stock were converted into 294,400 shares of the Company’s Common Stock.

Series B Convertible Preferred Stock

On May 26, 2015, the Company amended its Amended and Restated Articles of Incorporation dated December 19, 2003 to establish the Series B Convertible Preferred Stock and authorized 1 share (85 shares pre-reverse stock split). The par value of the Series B Convertible Preferred Stock is $0.001 and they are convertible currently at 8,496,732:1. These shares were issued to settle the $6.5 million of licensing fees due and the associated warrants as part of the Company’s recapitalization transaction in July 2015.

On March 17, 2016, 0.03 shares of Series B Convertible Preferred Stock were converted into 291,780 shares of the Company’s common stock.

Series C Convertible Preferred Stock

On February 9, 2016, the Company issued 2,587,500 shares of Series C, par value $0.001 per share, at a purchase price of $0.40 per share with gross proceeds to the Company of $1,035,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 2,587,500 shares of the Company’s common stock at an exercise price of $0.40 per share. Further, as a part of the same offering, on February 29, 2016, the Company issued 500,000 shares of Series C, at a purchase price of $0.40 per share with gross proceeds to the Company of $200,000. In connection with the sale of the Series C, the Company issued to the purchasers warrants to purchase in the aggregate 500,000 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series C is convertible into one share of common stock. The Series C provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to future corporate events or otherwise, including, for a proscribed period of time, upon the issuance of securities at a price that is less than the exercise price of the Series C.

In addition, the Company incurred stock issuance costs of $17,500 related to the issuance of Series C.

The Company entered into a Registration Rights Agreement with each of the purchasers of the Series C pursuant to which the Company agreed to file a registration statement with the SEC covering the resale of the common stock underlying the Series C, as well as the shares of common stock that are issuable upon exercise of the warrants.  The registration statement was filed in April 2016 and declared effective on April 29, 2016.

On May 2, 2016, 572,000 shares of Series C were converted into 572,000 shares of the Company’s Common Stock.

On May 3, 2016, 125,000 shares of Series C were converted into 125,000 shares of the Company’s Common Stock.

On May 5, 2016, 353,000 shares of Series C were converted into 353,000 shares of the Company’s Common Stock.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Liabilities

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

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

	Level 1		Level 2			Level 3		Total
Embedded derivative liability related to beneficial conversion option	$	-	$	-		$	683,000	$	683,000
Derivative liability related to fair value of warrants		-		-			1,070,161		1,070,161
Total	$	-	$	-		$	1,753,161	$	1,753,161
			Total
Balance at January 1, 2016			$	1,802,375
Series C embedded derivative fair value, February, 2016				1,235,000
Effect of conversion of Series C Preferred Stock on embedded derivative liability				(313,000	)
Series C warrant liability fair value, February, 2016				1,767,576
Change in fair value of derivative liabilities				(2,738,790	)
Balance at September 30, 2016			$	1,753,161

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 nine months ended September 30, 2016.

As of September 30, 2016, the beneficial conversion feature of Series C was treated as an embedded derivative liability and changes in the fair value were recognized in earnings.  Because the fair value of the warrants issued in conjunction with Series C was in excess of the proceeds of Series C, the effective conversion price of the Series C is $0.   The Series C shares are convertible into shares of the Company’s Common Stock, which did trade in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:

Closing trade price of Common Stock	$	0.34
Effective Series A Preferred Stock Conversion price		-
Intrinsic value of conversion option per share	$	0.34

As of September 30, 2016, the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings. These warrants did not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using the Black-Scholes option pricing model and the following assumptions:

	September 30, 2016
Annual Dividend Yield		0.0%
Expected Life (Years)		1.3 - 2.8
Risk-Free Interest Rate		0.59% - 0.88%
Expected Volatility		204.9% - 244.7%

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

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 8 – STOCKHOLDERS’ EQUITY

A restricted stock unit (“RSU”) is an award of common shares that is subject to certain restrictions during a specified period. RSU awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company’s restricted stock awards vest over a period of one year. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period, during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.  RSU’s issued to consultants are revalued every quarter until the end of the term of the agreement.

On June 11, 2015, the Company issued 525,000 RSUs (44,625,000 units 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.  The former Chief Executive Officer (“CEO”) resigned on April 27, 2016 and holds 300,000 of the issued 525,000 RSUs above.  As part of his severance package the RSUs will continue to vest and will not expire, therefore since there is no further obligation on the part of the former CEO, the Company expensed immediately the remaining unamortized portion of the RSUs in the amount of $187,708.

On July 9, 2015, the Company hired a Chief Operating Officer (“COO”). The COO received 225,000 RSUs (19,125,000 units 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.  The COO resigned on May 31, 2016 and as a result the Company reversed the expense related to the RSUs during the six months ended June 30, 2016 in the amount of $280,500.  In addition, the value of the RSUs included in deferred compensation in the amount of $637,500 was reclassified to additional paid in capital.

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.

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 were to be issued on January 1, 2016 and 20,000 shares were to be issued on April 1, 2016. The RSUs were originally valued at $195,000.  The Company issued the remaining 40,000 shares in April 2016 and expensed $0 and $124,750 for the three and nine months ended September 30, 2016 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 agreement was terminated on April 29, 2016.  The Company expensed $0 and $18,563 for the three and nine months ended September 30, 2016 relative to these RSUs. Further the individual was to receive a 2% to 5% commission on company sales while this agreement is in effect; however no commissions were earned during April 2016 or the three months ended March 31, 2016.  In addition, the remaining value of the RSUs included in deferred compensation in the amount of $2,750 was reclassified to additional paid in capital as a result of the termination of the agreement.

For the three and nine months ended September 30, 2016 the Company expensed $64,021 and $563,942 and for the three and nine months ended September 30, 2015, the Company expensed $196,710 and $202,908 related to the RSUs.

On February 8, 2016, the Company issued 23,500 shares of Common Stock to a consultant for assistance in raising capital.  The shares were valued at $15,275 based on the closing stock price of the Company’s stock price on February 8, 2016 of $0.65 per share.  The value of the shares was expensed immediately.

On May 24, 2016, the Company issued 9,483 shares of Common Stock to a consultant as a finder’s fee for an employee.  The shares were value at $5,500 based on the closing stock price of the Company’s common stock on March 11, 2016 per the agreement.  The value of the shares was expensed immediately.

On May 1, 2016, the Company issued warrants to purchase 100,000 shares of common stock at an exercise price of $0.01 per share, with a term of five years, to the Chief Executive Officer, which vest immediately. The fair value of warrants issued was $49,885. These warrants 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 204.0%, risk-free interest rate of 1.28% and expected life of five years. The options were expensed immediately.

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.”  There were no outstanding equity-based payments to non-employees as of September 30, 2016.

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STOCK OPTIONS

9 Months Ended

Sep. 30, 2016

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

STOCK OPTIONS

NOTE 9 – 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 the Board was authorized to grant options to purchase up to 1.5 million shares of Common Stock (the “2000 Plan”). 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 September 30, 2016, options to purchase 282,353 shares of Common Stock have been issued and are unexercised, and 4,083,808 shares are available for grants under the 2003 Plan.  

During 2013, the Board adopted a new omnibus incentive compensation plan that was ratified by the shareholders at the 2013 annual meeting, (the “2013 Plan”) which serves 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 September 30, 2016, under the 2013 Plan grants of restricted stock and options to purchase 760,000 shares of Common Stock have been issued and are unvested or unexercised, and 19,240,000 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 June 11, 2015, the Company issued options to purchase an aggregate of 1,225,000 shares of the Company’s Common Stock (104,125,000 shares of Common Stock pre-reverse split 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 April 27, 2016, the former CEO resigned.  As part of his severance package the options will continue to vest and will not expire prior to the original expiration date, therefore since there is no further obligation on the part of the former CEO, the Company expensed immediately the remaining unamortized portion of the options in the amount of $298,377.

On February 29, 2016, the Company issued options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.57 per share, with a term of five years, to the Chairman of the Board. The fair value of options issued was $53,731. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 202.9%, risk-free interest rate of 1.22% and expected option life of five years.  The options are being expensed over the Board Chairman’s remaining service terms as that is shorter than the vesting terms.

On March 10, 2016, the Company issued options to purchase 150,000 shares of the Company’s Common Stock at an exercise price of $0.56 per share, with a term of five years, to an employee. The fair value of options issued was $82,113. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 202.9%, risk-free interest rate of 1.45% and expected option life of five years. The options are being expensed over the vesting terms for the employee.

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

For the three and nine months ended September 30, 2016 the Company expensed $131,127 and $894,177 and for the three and nine months ended September 30, 2015, the Company expensed $314,960 and $349,055 with respect to the options.

The following table summarizes the activities for our stock options for the nine months ended September 30, 2016:
 

	Options Outstanding
							Weighted -
							Average
							Remaining		Aggregate
				Weighted-			Contractual		Intrinsic
	Number of			Average			Term		Value
	Shares			Exercise Price			(in years)		(in 000's) (1)
Balance December 31, 2015		2,157,353			$	1.80		5.0
Expired/Cancelled		(525,000	)		$	0.77
Granted		300,000			$	0.55		5.0
Balance September 30, 2016		1,932,353			$	1.88		4.3	$	-
Exercisable at September 30, 2016		1,074,019			$	2.08		4.8	$	-
Exercisable at September 30, 2016 and expected to
vest thereafter		1,932,353			$	1.88		4.3	$	-

(1) – the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

As of September 30, 2016 there was $907,494 of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average period of 1.8 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 September 30, 2016 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 for our warrants for the nine months ended September 30, 2016:
 

	Warrants Outstanding
							Weighted -
							Average
							Remaining		Aggregate
				Weighted-			Contractual		Intrinsic
	Number of			Average			Term		Value
	Shares			Exercise Price			in years)		(in 000's) (1)
Balance December 31, 2015		1,414,893			$	9.67		4.8
Expired		(2,941	)		$	0.85
Granted		3,187,500			$	0.39
Balance September 30, 2016		4,599,452			$	3.24		2.9	$	33
Exercisable at September 30, 2016		4,599,452			$	3.24		2.9	$	33

(1) – the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

All warrants were vested on the date of grant.

For the three and nine months ended September 30, 2016, the Company expensed $49,885 relative to the warrants in addition to previous income or expense related to the warrant liability and for the three and nine months ended September 30, 2015, the Company expensed $0 relative to the warrants in addition to previous income or expense related to the warrant liability.

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OPERATING LEASES

9 Months Ended

Sep. 30, 2016

Leases [Abstract]

OPERATING LEASES

NOTE 10 – OPERATING LEASES

For the three and nine months ended September 30, 2016, total rent expense under leases amounted to $0 and $11,835.  For the three and nine months ended September 30, 2015, total rent expense under leases amounted to $23,463 and $55,474. As of September 30, 2016, the Company was not obligated under any non-cancelable operating lease arrangements.

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RELATED PARTIES

9 Months Ended

Sep. 30, 2016

Related Parties

RELATED PARTIES

NOTE 11 – RELATED PARTIES

As of September 30, 2016, the Company owed the current CEO $6,250 for services rendered, the CFO $19,400 for services rendered and the former CEO $56,667 under his severance package.  All of these amounts are included in accounts payable.

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 12 – SUBSEQUENT EVENTS

On October 6, 2016, 0.0451 shares of Preferred Series B were converted into 383,203 shares of the Company’s common stock.

On October 14, 2016, 125,000 shares of Preferred Series C were converted into 125,000 shares of the Company’s common stock.

On November 15, 2016, the Company issued 259,435 shares of 0% Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”) at a purchase price of $0.40 per share with gross proceeds to the Company of $103,774. In connection with the sale of the Series D Preferred Stock, the Company issued to the purchasers warrants to purchase in the aggregate 1,037,740 shares of the Company’s common stock at an exercise price of $0.40 per share. Each share of Series D Preferred Stock is convertible into one share of common stock. The Series D 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 D Preferred Stock.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Nature of the Business

Nature of the Business

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 OTCQB, 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 unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

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. Basic net income per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted net income per common share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e., the exercise prices of the outstanding stock options were greater than the market price of the Common Stock. Anti-dilutive Common Stock equivalents, which were excluded from the calculation of number of dilutive common stock equivalents, amounted to 19,237,648 shares for the three months ended September 30, 2015.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective January 1, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) 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”,which did not have a material impact on the financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Recently Issued Accounting Pronouncements Not Yet Adopted

As of September 30, 2016, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements through 2017.

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of Liabilities Measured at Fair Value on a Recurring Basis

Level 1		Level 2			Level 3			Total
Embedded derivative liability related to beneficial conversion option	$	-	$	-		$	683,000		$	683,000
Derivative liability related to fair value of warrants		-		-			1,070,161			1,070,161
Total	$	-	$	-		$	1,753,161		$	1,753,161

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

Balance at January 1, 2016	$	1,802,375
Series C embedded derivative fair value, February, 2016		1,235,000
Effect of conversion of Series C Preferred Stock on embedded derivative liability		(313,000	)
Series C warrant liability fair value, February, 2016		1,767,576
Change in fair value of derivative liabilities		(2,738,790	)
Balance at September 30, 2016	$	1,753,161

Schedule of market based inputs used in valuation of embedded derivative liability

Closing trade price of Common Stock	$	0.34
Effective Series A Preferred Stock Conversion price		-
Intrinsic value of conversion option per share	$	0.34

Schedule of Common Stock Purchase Warrants Valuation Assumptions

September 30, 2016
Annual Dividend Yield	0.0%
Expected Life (Years)	1.3 - 2.8
Risk-Free Interest Rate	0.59% - 0.88%
Expected Volatility	204.9% - 244.7%

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STOCK OPTIONS (Tables)

9 Months Ended

Sep. 30, 2016

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

Summary of the activities for stock options

Options Outstanding
							Weighted -
							Average
							Remaining		Aggregate
				Weighted-			Contractual		Intrinsic
	Number of			Average			Term		Value
	Shares			Exercise Price			(in years)		(in 000's) (1)
Balance December 31, 2015		2,157,353			$	1.80		5.0
Expired/Cancelled		(525,000	)		$	0.77
Granted		300,000			$	0.55		5.0
Balance September 30, 2016		1,932,353			$	1.88		4.3	$	-
Exercisable at September 30, 2016		1,074,019			$	2.08		4.8	$	-
Exercisable at September 30, 2016 and expected to
vest thereafter		1,932,353			$	1.88		4.3	$	-

(1) – the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

Summary of the activities for warrants

Warrants Outstanding
							Weighted -
							Average
							Remaining		Aggregate
				Weighted-			Contractual		Intrinsic
	Number of			Average			Term		Value
	Shares			Exercise Price			in years)		(in 000's) (1)
Balance December 31, 2015		1,414,893			$	9.67		4.8
Expired		(2,941	)		$	0.85
Granted		3,187,500			$	0.39
Balance September 30, 2016		4,599,452			$	3.24		2.9	$	33
Exercisable at September 30, 2016		4,599,452			$	3.24		2.9	$	33

(1) – the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - $ / shares	3 Months Ended
	Sep. 30, 2015	Sep. 30, 2016	Dec. 31, 2015
Accounting Policies [Abstract]
Common stock, par value		$ 0.001	$ 0.001
Anti-dilutive common stock equivalents, excluded from the calculation of earnings per share	19,237,648

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MANAGEMENT PLANS (Details) - Subsequent Event [Member] - Series D Preferred Stock [Member]	1 Months Ended
	Nov. 15, 2016 USD ($) $ / shares shares
Shares issued | shares	259,435
Preferred stock, percentage	0.00%
Preferred stock, par value | $ / shares	$ 0.001
Purchase price per share | $ / shares	$ 0.40
Proceeds from issuance of preferred stock | $	$ 103,774
Warrants issued | shares	1,037,740
Warrants, exercise price | $ / shares	$ 0.40
Number of shares per warrant | shares	1

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INCOME TAXES (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)
Income Tax Disclosure [Abstract]
Income Tax Expense (Benefit)	$ 0	$ 0
Unrecognized tax benefits	0	0
Interest or penalties related to unrecognized tax benefits		0
Change in unrecognized tax benefits	0	0
Accrual for uncertain tax positions	$ 0	$ 0

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EMBEDDED DERIVATIVE LIABILITY (Details) - USD ($)	1 Months Ended				3 Months Ended			9 Months Ended
	May 05, 2016	May 03, 2016	May 02, 2016	Feb. 29, 2016	Sep. 30, 2016	Jun. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Beneficial conversion feature at a combined fair market value				$ 1,235,000
Deemed dividend distribution								$ 1,235,000
Fair value of the embedded derivative liability					$ 683,000			683,000
Effect of Convertible Preferred Stock on embedded derivative liability								313,000
Change in fair value of embedded derivative liability					$ 500,000			(239,000)
Common Stock [Member]
Effect of Convertible Preferred Stock on embedded derivative liability
Series C Preferred Stock [Member]
Dividend rate percentage								0.00%
Conversion of Convertible Preferred Stock (in shares)	353,000	125,000	572,000			1,050,000		(1,050,000)
Effect of Convertible Preferred Stock on embedded derivative liability
Series C Preferred Stock [Member] | Common Stock [Member]
Conversion of Convertible Preferred Stock (in shares)						1,050,000		1,050,000

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WARRANT LIABILITY (Details) - USD ($)	1 Months Ended	9 Months Ended
	Jan. 31, 2014	Sep. 30, 2016	Feb. 29, 2016	Feb. 09, 2016	Dec. 31, 2015	Aug. 05, 2014	Jan. 02, 2014	Jan. 31, 2013	Dec. 31, 2012
Series C Preferred Stock [Member]
Major Agreements [Line Items]
Number of common stock shares purchased under warrants (in shares)		3,087,500	500,000	2,587,500
Fair value of warrant liability		$ 923,758
Initial fair value of warrant expensed		1,767,576
Exercise price			$ 0.40	$ 0.40
Series A Preferred Stock [Member]
Major Agreements [Line Items]
Number of common stock shares purchased under warrants (in shares)								392,157
Fair value of warrant liability		58,986			$ 626,317			$ 2,995,791
Notes Payable [Member] | Debt Instrument Date Five August 2014 [Member]
Major Agreements [Line Items]
Number of common stock shares purchased under warrants (in shares)						3,529
Fair value of warrant liability		892			7,902
Verify Me [Member] | Research and Development Expense [Member] | Agreements [Member]
Major Agreements [Line Items]
Initial fair value of warrant expensed	$ 444,000
Verify Me [Member] | Warrants Issued on January 1, 2014 [Member]
Major Agreements [Line Items]
Fair value of warrant liability		$ 15,779			147,524
Number of warrants issued							74,697
Exercise price							$ 0.10
Zaah Technologies [Member] | Agreements [Member]
Major Agreements [Line Items]
Warrant liability									$ 2,400,000
Number of common stock shares purchased under warrants (in shares)		627,451
Fair value of warrant liability		$ 70,746			$ 1,020,632

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CONVERTIBLE PREFERRED STOCK (Details) - USD ($)					1 Months Ended						3 Months Ended	9 Months Ended
	Mar. 17, 2016	Mar. 10, 2016	Feb. 29, 2016	Feb. 09, 2016	Aug. 23, 2016	Jun. 01, 2016	May 05, 2016	May 03, 2016	May 02, 2016	Jan. 31, 2013	Jun. 30, 2016	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Class of Stock [Line Items]
Stock issuance costs												$ 17,500
Common Stock [Member]
Class of Stock [Line Items]
Shares of convertible preferred stock issued
Verify Me [Member] | Subscription Agreement [Member] | Common Stock [Member]
Class of Stock [Line Items]
Exercise price										$ 10.20
Value of shares issued										$ 1,000,000
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										392,157
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Conversion of Stock, Shares Converted	0.03
Conversion of shares of preferred stock to common stock, shares	291,780											(0.03)
Preferred stock, par value												$ 0.001		$ 0.001
Preferred stock, shares authorized												85		85
Conversion of preferred stock, shares												8,496,732
Licensing fees settled												$ 6,500,000
Series B Preferred Stock [Member] | Common Stock [Member]
Class of Stock [Line Items]
Conversion of shares of preferred stock to common stock, shares												291,780
Series B Preferred Stock [Member] | Pre Reverse Stock Split [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized												1
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Conversion of Stock, Shares Converted		14,720			14,720	14,720
Conversion of shares of preferred stock to common stock, shares		294,400			294,400	294,400						(44,160)
Preferred stock, par value												$ 0.001		$ 0.001
Preferred stock, shares authorized												37,564,767		75,000,000
Proceeds from sale of Series C Convertible Preferred Stock													1,278,501
Number of common stock called by warrants (in shares)										392,157
Series A Preferred Stock [Member] | Common Stock [Member]
Class of Stock [Line Items]
Conversion of shares of preferred stock to common stock, shares												883,200
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Conversion of Stock, Shares Converted							353,000	125,000	572,000
Conversion of shares of preferred stock to common stock, shares							353,000	125,000	572,000		1,050,000	(1,050,000)
Shares of convertible preferred stock issued			500,000	2,587,500								3,087,500
Preferred stock, par value				$ 0.001								$ 0.001		$ 0.001
Preferred stock, shares authorized												7,500,000		7,500,000
Proceeds from sale of Series C Convertible Preferred Stock			$ 200,000	$ 1,035,000								$ 1,235,000
Number of common stock called by warrants (in shares)			500,000	2,587,500								3,087,500
Purchase price (in dollars per share)			$ 0.40	$ 0.40
Exercise price			$ 0.40	$ 0.40
Series C Preferred Stock [Member] | Common Stock [Member]
Class of Stock [Line Items]
Conversion of shares of preferred stock to common stock, shares											1,050,000	1,050,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Schedule of Liabilities Measured at Fair Value on a Recurring Basis) (Details) - Fair Value, Measurements, Recurring [Member]	Sep. 30, 2016 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Embedded derivative liability related to beneficial conversion option	$ 683,000
Derivative liability related to fair value of warrants	1,070,161
Total	1,753,161
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Embedded derivative liability related to beneficial conversion option
Derivative liability related to fair value of warrants
Total
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Embedded derivative liability related to beneficial conversion option
Derivative liability related to fair value of warrants
Total
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Embedded derivative liability related to beneficial conversion option	683,000
Derivative liability related to fair value of warrants	1,070,161
Total	$ 1,753,161

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Fair Value Measurements within Fair Value Hierarchy of Derivative Liabilities Using Level 3 Inputs) (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Fair Value Disclosures [Abstract]
Balance at January 1, 2016	$ 1,802,375
Series C embedded derivative fair value, February, 2016	1,235,000
Effect of conversion of Series C on embedded derivative liability	(313,000)
Series C warrant liability fair value, February, 2016	1,767,576
Change in fair value of derivative liabilities	(2,738,790)
Balance at September 30, 2016	$ 1,753,161

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Schedule of Market Based Inputs used in Valuation of Embedded Derivative Liability) (Details) - $ / shares	Sep. 30, 2016	Feb. 08, 2016
Fair Value Disclosures [Abstract]
Closing trade price of Common Stock	$ 0.34	$ 0.65
Effective Series A Preferred Stock Conversion price
Intrinsic value of conversion option per share	$ 0.34

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Schedule of Common Stock Purchase Warrants Valuation Assumptions) (Details) - Warrant [Member]	9 Months Ended
	Sep. 30, 2016
Fair Value, Option, Quantitative Disclosures [Line Items]
Annual Dividend Yield	0.00%
Minimum [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Expected Life (Years)	1 year 3 months 18 days
Risk-Free Interest Rate	0.59%
Expected Volatility	204.90%
Maximum [Member]
Fair Value, Option, Quantitative Disclosures [Line Items]
Expected Life (Years)	2 years 9 months 18 days
Risk-Free Interest Rate	0.88%
Expected Volatility	244.70%

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STOCKHOLDERS' EQUITY (Details) - USD ($)						1 Months Ended							3 Months Ended		6 Months Ended	9 Months Ended
		Aug. 01, 2016	Feb. 08, 2016	Oct. 07, 2015	Oct. 01, 2015	May 24, 2016	May 01, 2016	Apr. 30, 2016	Apr. 27, 2016	Aug. 10, 2015	Jul. 09, 2015	Jun. 11, 2015	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016	Sep. 30, 2016	Sep. 30, 2015
Stockholders Equity Note [Line Items]
Issuance of shares for services (in shares)			23,500
Worth of common stock to be paid			$ 15,275													$ 20,775
Closing stock price per share			$ 0.65										$ 0.34			$ 0.34
Common stock, proceeds from sales																	$ 50,000
Restricted stock units fair value	[1]												$ 33,000			33,000
Award, compensation payment				$ 15,000
Award, additional compensation payment				$ 35,000
Restricted stock units issued, value																90,000
Forfeiture of restricted stock units																$ (280,500)
Maximum [Member]
Stockholders Equity Note [Line Items]
Commission on sales, percentage																5.00%
Minimum [Member]
Stockholders Equity Note [Line Items]
Commission on sales, percentage																2.00%
Restricted Stock Units (RSUs) [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued		30,000
Restricted stock units, Expense													64,021	$ 196,710		$ 563,942	$ 202,908
Restricted stock units issued, value		$ 165,000
Restricted Stock Units (RSUs) [Member] | Chief Executive Officer [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued												300,000
Restricted stock units, Expense									$ 187,708
Restricted Stock Units (RSUs) [Member] | Chief Financial Officer [Member]
Stockholders Equity Note [Line Items]
Closing stock price per share										$ 5.77
Restricted stock units fair value										$ 692,400
Restricted Stock Units (RSUs) [Member] | Chief Operating Officer [Member]
Stockholders Equity Note [Line Items]
Closing stock price per share											$ 4.08
Restricted stock units issued											225,000
Restricted stock units fair value											$ 918,000
Restricted stock units, Expense															$ 280,500
Vesting period											3 years
Forfeiture of restricted stock units																637,500
Restricted Stock Units (RSUs) [Member] | Chief Operating Officer [Member] | Pre Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued											19,125,000
Restricted Stock Units (RSUs) [Member] | Officer [Member]
Stockholders Equity Note [Line Items]
Closing stock price per share												$ 0.01
Restricted stock units issued												525,000
Restricted stock units fair value												$ 446,250
Restricted Stock Units (RSUs) [Member] | Officer [Member] | Pre Reverse Stock Split [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued												44,625,000
Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche Two [Member] | Chief Financial Officer [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued										100,000
Vesting period										3 years
Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche One [Member] | Chief Financial Officer [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued										20,000
Vesting period										6 months
Restricted Stock Units (RSUs) [Member] | Consultant [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued					100,000	9,483		40,000
Restricted stock units fair value					$ 195,000	$ 5,500
Restricted stock units, Expense													0			124,750
Restricted Stock Units (RSUs) [Member] | Consultant [Member] | Share-based Compensation Award, Tranche Two [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued					20,000
Restricted Stock Units (RSUs) [Member] | Consultant [Member] | Share-based Compensation Award, Tranche One [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued					60,000
Restricted Stock Units (RSUs) [Member] | Consultant [Member] | Share-based Compensation Award, Tranche Three [Member]
Stockholders Equity Note [Line Items]
Restricted stock units issued					20,000
Restricted Stock Units (RSUs) [Member] | Consultant/Stockholder [Member]
Stockholders Equity Note [Line Items]
Restricted stock units, Expense													$ 0			18,563
Forfeiture of restricted stock units																$ 2,750
Warrant [Member] | Chief Executive Officer [Member]
Stockholders Equity Note [Line Items]
Number of options issued							100,000
Granted, exercise price							$ 0.01
Expected term							5 years
Dividend yield							0.00%
Expected volatility							204.00%
Risk-free interest rate							1.28%
Share-based compensation							$ 49,885

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

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STOCK OPTIONS (Narrative) (Details) - USD ($)				1 Months Ended			3 Months Ended		9 Months Ended
	Mar. 24, 2016	Mar. 10, 2016	Feb. 29, 2016	May 01, 2016	Apr. 27, 2016	Jun. 11, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Feb. 08, 2016	Dec. 31, 2013	Dec. 17, 2003	Dec. 31, 2000
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Closing stock price per share							$ 0.34		$ 0.34		$ 0.65
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued									300,000
Exercise price of options issued									$ 0.55
Option, expense							$ 131,127	$ 314,960	$ 894,177	$ 349,055
Unrecognized compensation cost related to outstanding stock options							$ 907,494		$ 907,494
Unrecognized compensation cost related to stock options, period of recognition									1 year 9 months 18 days
Maximum percentage of outstanding stock									100.00%
Maximum aggregate fair market value									$ 1,000,000
Maximum fair value of options per employee									$ 100,000
Employee Stock Option [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							4,083,808		4,083,808				18,000,000
Number of common shares that can be purchased through equity awards that have been issued, unvested or unexercised							282,353		282,353
Employee Stock Option [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
Employee Stock Option [Member] | Employee [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued		150,000
Exercise price of options issued		$ 0.56
Expected option life (in years)		5 years
Fair value of option issued expensed immediately		$ 82,113
Dividend yield		0.00%
Expected volatility		202.90%
Risk free interest rate		1.45%
Expected Life (Years)		5 years
Employee Stock Option [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option, expense					$ 298,377
Employee Stock Option [Member] | Employees and Board Members [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued						1,225,000
Exercise price of options issued						$ 0.85
Dividend yield						0.00%
Expected volatility						176.60%
Expected Life (Years)						5 years
Fair value of options						$ 993,083
Employee Stock Option [Member] | Employees and Board Members [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate						1.75%
Employee Stock Option [Member] | Employees and Board Members [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate						1.74%
Employee Stock Option [Member] | Employees and Board Members [Member] | Pre Reverse Stock Split [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued						104,125,000
Employee Stock Option [Member] | Majority Shareholder [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum percentage of outstanding stock									110.00%
Employee Stock Option [Member] | Consultant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued	50,000
Exercise price of options issued	$ 0.43
Expected option life (in years)	5 years
Fair value of option issued expensed immediately	$ 21,068
Dividend yield	0.00%
Expected volatility	203.10%
Risk free interest rate	1.39%
Expected Life (Years)	5 years
Employee Stock Option [Member] | Board of Directors Chairman [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued			100,000
Exercise price of options issued			$ 0.57
Expected option life (in years)			5 years
Fair value of option issued expensed immediately			$ 53,731
Dividend yield			0.00%
Expected volatility			202.90%
Risk free interest rate			1.22%
Expected Life (Years)			5 years
Stock Compensation Plan [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 common shares that can be purchased through equity awards that have been issued, unvested or unexercised							760,000		760,000
Number of options available to be issued							19,240,000		19,240,000
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option, expense							$ 49,885	$ 0	$ 49,885	$ 0
Warrant [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued				100,000
Exercise price of options issued				$ 0.01
Dividend yield				0.00%
Expected volatility				204.00%
Risk free interest rate				1.28%
Expected Life (Years)				5 years
Fair value of options				$ 49,885

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STOCK OPTIONS (Summary of Activities for Stock Options) (Details) - Employee Stock Option [Member] - USD ($)		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
Number of Shares
Balance, beginning		2,157,353
Expired/Cancelled		(525,000)
Granted		300,000
Balance, ending		1,932,353	2,157,353
Exercisable at September 30, 2016		1,074,019
Exercisable at September 30, 2016 and expected to vest thereafter		1,932,353
Weighted-Average Exercise Price
Balance, beginning		$ 1.80
Expired/Cancelled		0.77
Granted		0.55
Balance, ending		1.88	$ 1.80
Exercisable at September 30, 2016		2.08
Exercisable at September 30, 2016 and expected to vest thereafter		$ 1.88
Weighted Average Remaining Contractual Term (in years)
Outstanding		4 years 3 months 18 days	5 years
Granted		5 years
Exercisable at September 30, 2016		4 years 9 months 18 days
Exercisable at September 30, 2016 and expected to vest thereafter		4 years 3 months 18 days
Aggregate Intrinsic Value (in 000's)
Balance September 30, 2016	[1]
Exercisable at September 30, 2016	[1]
Exercisable at September 30, 2016 and expected to vest thereafter	[1]

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

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STOCK OPTIONS (Summary of Activities for Warrants) (Details) - USD ($)		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
Number of Shares
Balance, beginning		1,414,893
Expired		(2,941)
Granted		3,187,500
Balance, ending		4,599,452	1,414,893
Exercisable at September 30, 2016		4,599,452
Weighted-Average Exercise Price
Balance, beginning		$ 9.67
Expired		0.85
Granted		0.39
Balance, ending		3.24	$ 9.67
Exercisable at September 30, 2016		$ 3.24
Weighted-Average Remaining Contractual Term (in years)
Outstanding		2 years 10 months 24 days	4 years 9 months 18 days
Exercisable at September 30, 2016		2 years 10 months 24 days
Aggregate Intrinsic Value
Balance September 30, 2016	[1]	$ 33,000
Exercisable at September 30, 2016	[1]	$ 33,000

[1] The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.34 for our common stock on September 30, 2016.

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OPERATING LEASES (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Leases [Abstract]
Total rent expense under leases	$ 0	$ 23,463	$ 11,835	$ 55,474

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RELATED PARTIES (Details)	Sep. 30, 2016 USD ($)
Chief Executive Officer [Member]
Due to related parties	$ 6,250
Chief Financial Officer [Member]
Due to related parties	19,400
Former Chief Executive Officer [Member]
Due to related parties	$ 56,667

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SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] - USD ($)			1 Months Ended
	Oct. 14, 2016	Oct. 06, 2016	Nov. 15, 2016
Series B Preferred Stock [Member]
Conversion of Stock, Shares Converted		0.0451
Conversion of shares of preferred stock to common stock, shares		383,203
Series C Preferred Stock [Member]
Conversion of Stock, Shares Converted	125,000
Conversion of shares of preferred stock to common stock, shares	125,000
Series D Preferred Stock [Member]
Shares issued			259,435
Preferred stock, percentage			0.00%
Preferred stock, par value			$ 0.001
Purchase price per share			$ 0.40
Proceeds from issuance of preferred stock			$ 103,774
Warrants issued			1,037,740
Warrants, exercise price			$ 0.40
Number of shares per warrant			1