DEFR14A: VerifyMe Seeks Reverse Stock Split to Maintain Nasdaq Listing

VerifyMe, Inc. is proposing a reverse stock split at its upcoming annual meeting to boost its share price and regain compliance with Nasdaq's minimum bid price requirement.

Summary

• VerifyMe, Inc. will hold its Annual Meeting of Stockholders virtually on October 8, 2025.
• Key proposals for the meeting include the election of six directors, an advisory vote on executive compensation, ratification of MaloneBailey, LLP as the independent auditor, and approval of a reverse stock split.
• The Board seeks authorization to effect a reverse stock split at a ratio ranging from 1-for-2 to 1-for-10, at its discretion, without proportionally reducing the number of authorized shares.
• The company received a Nasdaq deficiency letter on April 3, 2025, for failing to maintain a minimum bid price of $1.00 per share for 30 consecutive business days.
• The closing price of common stock on August 11, 2025, was $0.783.
• Net loss for fiscal year 2024 was $3,824 thousand, following net losses of $3,390 thousand in 2023 and $14,398 thousand in 2022.
• Executive compensation includes salary reductions for certain officers in exchange for Restricted Stock Units (RSUs), and performance-based stock units (PSUs) for some executives expired unvested due to unmet stock price targets.

Sentiment

Score: 3

Explanation: The filing addresses critical corporate governance matters and a necessary action (reverse stock split) to maintain Nasdaq listing, which is a positive step to mitigate a significant risk. However, the underlying reason for the reverse split (sub-$1 stock price) and continued net losses indicate ongoing operational and financial challenges. The expiration of performance-based equity awards due to unmet stock price targets further highlights underperformance. The related party capital raise, while providing funds, also suggests reliance on insiders for financing.

Positives

• The Board recommends approval of all proposals, including the reverse stock split, as a strategic measure to address Nasdaq listing compliance.
• The company is eligible for consideration of a second 180-day compliance period with Nasdaq, providing additional time to regain compliance and mitigate immediate delisting risk.
• The virtual annual meeting format is designed to enhance stockholder participation from any location.
• The company maintains a structured corporate governance framework with a majority of independent directors and specialized committees overseeing various aspects of the business.

Negatives

• The company is not in compliance with Nasdaq's minimum bid price requirement, with its common stock trading at $0.783 per share as of August 11, 2025.
• Net losses continued in fiscal year 2024, totaling $3,824 thousand, indicating ongoing financial underperformance.
• Performance-based stock units (PSUs) for Fred G. Volk, III and Nancy Meyers expired in April 2025 and February 2025, respectively, as the required stock price targets ($5.00 and $7.00) were not met.
• Executive salary reductions were implemented for certain officers, suggesting cost-cutting measures and financial pressures.
• Two named executive officers, Paul Ryan and Curt Kole, departed the company in 2024, indicating management turnover.

Risks

• **Delisting Risk**: Failure to regain compliance with Nasdaq's minimum bid price requirement could lead to delisting, which would negatively impact the common stock's market price and liquidity, and reduce the company's ability to raise capital.
• **Reverse Split Effectiveness Risk**: The effect of the reverse stock split on the market price of common stock cannot be predicted with certainty, and the price may not increase sufficiently to regain compliance or may decline after the split.
• **Liquidity Risk**: The reverse stock split may decrease the liquidity of common stock due to the reduced number of outstanding shares, especially if the market price does not increase as anticipated.
• **Investor Interest Risk**: A higher market price post-split may not attract new investors, including institutional investors, or satisfy their investing requirements, potentially failing to improve trading liquidity.
• **Odd-Lot Holder Risk**: The reverse split may increase the number of stockholders owning odd lots (less than 100 shares), which could lead to increased costs for selling shares and greater difficulty in effecting such sales.
• **Anti-Takeover Effects**: The effective increase in authorized but unissued shares resulting from the reverse split could potentially be used by the Board to thwart a takeover attempt, even if such a transaction might be beneficial to stockholders.
• **Dilution Risk**: Any future issuance of the increased authorized but unissued shares could dilute the percentage of stock ownership and voting rights of current holders.

Future Outlook

The Board intends to implement the reverse stock split only if it believes that a decrease in the number of shares outstanding is likely to improve the trading price for common stock and help regain compliance with Nasdaq's minimum bid price requirement. The company plans to notify Nasdaq of its intent to cure the minimum bid price deficiency and request a second 180-day compliance period if needed. The authorization for the reverse split will remain effective until the one-year anniversary of the Annual Meeting.

Management Comments

• "We believe that hosting a virtual meeting will enable greater stockholder participation from any location."
• "We encourage you to vote your shares prior to the meeting."
• "We believe that our corporate governance is most effective when these positions [Chairman and Chief Executive Officer] are not held by the same person."
• "We do not believe there is a correlation between the CAP to our PEO or the average CAP to our Other NEOs to the Company's net income (loss)."

Industry Context

The proposed reverse stock split is a common strategy employed by companies facing delisting threats from exchanges like Nasdaq due to minimum bid price deficiencies. Maintaining a Nasdaq listing is crucial for liquidity, investor confidence, and access to capital markets, as delisting can severely restrict trading and deter institutional investment. The company's situation reflects broader challenges faced by smaller-cap companies in maintaining exchange compliance amidst market volatility or underperformance.

Management Changes

Corporate Governance

Related Party Transactions

• On August 25, 2023, the company entered into a Convertible Note Purchase Agreement for $1,100 thousand, of which $475 thousand was purchased by related parties. These related parties include CEO Adam Stedham, Chairman Scott Greenberg, former NEO Curt Kole, the Geller Living Trust (related to director Marshall Geller), and the 1065 Institute, Inc. (related to director Dr. Arthur Laffer).
• The convertible notes accrue interest at 8% per year, payable semiannually, and mature on August 25, 2026. They are convertible at a price of $1.15 per share of common stock.
• As of August 13, 2025, $750 thousand in principal was outstanding on these notes, and $118 thousand in interest had been paid between the issuance date and August 13, 2025.

Stakeholder Impact

• **Shareholders**: Directly impacted by the proposed reverse stock split, which aims to maintain Nasdaq listing but carries risks of further price decline, reduced liquidity, and potential dilution from increased authorized shares. They will vote on director elections, executive compensation, and auditor ratification.
• **Executives**: Compensation structure includes salary reductions for some in exchange for RSUs, and performance-based PSUs expired unvested due to unmet stock price targets, indicating direct impact from company performance.
• **Employees**: Subject to salary reduction programs and short-term incentive plans tied to company performance (Adjusted EBITDA and revenue goals).
• **Nasdaq**: The company is actively working to regain compliance with Nasdaq listing rules, which is critical for its market presence and reputation.
• **Creditors (Convertible Note Holders)**: Related parties hold a significant portion of convertible notes, indicating their financial interest and potential for conversion into common stock, which could impact future share structure.

Next Steps

• Hold the Annual Meeting of Stockholders on October 8, 2025, to vote on the proposed amendments and other matters.
• If the reverse stock split is approved, the Board will determine the specific ratio (1-for-2 to 1-for-10) and the effective time for the split within one year of the Annual Meeting.
• Notify Nasdaq of the intent to cure the minimum bid price deficiency and potentially request a second 180-day compliance period if needed.
• File a Current Report on Form 8-K with the SEC within four business days after the Annual Meeting to publish the final voting results.
• The Board and Compensation Committee will review and consider stockholder voting results on executive compensation when making future decisions.

Key Dates

Recommendation

The proposed reverse stock split is a necessary defensive measure to maintain Nasdaq listing, which is crucial for the company's market visibility and access to capital. However, the underlying issues of a sub-$1 stock price, continued net losses, and the failure of performance-based equity awards to vest due to unmet stock price targets indicate ongoing operational and financial challenges. While the company is taking steps to address immediate listing concerns, there is no clear indication of a fundamental turnaround in profitability or sustained stock price appreciation. The reliance on related parties for convertible note financing also suggests limited external capital access. A 'hold' recommendation is appropriate as investors should monitor the effectiveness of the reverse split and look for concrete improvements in financial performance and sustained compliance with listing standards before considering further investment.

Keywords

VerifyMe, VRME, SEC Filing, Proxy Statement, Reverse Stock Split, Nasdaq Compliance, Delisting Risk, Corporate Governance, Executive Compensation, Financial Performance, Shareholder Meeting, Stock Price, Capital Market, Equity Incentive Plan