What changed in this filing

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Item 1. Financial Statements

2026-06-22 compared with 2025-11-14 · 214 added, 307 removed, 503 unchanged (51% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Cash and cash equivalents

2 unchanged sentences

1,573,454 1,220,822

Due from factor

338,397 370,879

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1,127,099 1,333,930

Note payable, current

651,935 604,102

9 unchanged sentences

45,225 62,584

Note payable, long term 1,000,000 -

Government loan – BBVA Bank – net of current portion

Deferred tax liability

16,500 16,500

Operating lease liabilities, net of current portion

8 unchanged sentences

issued and outstanding;

7,313,423 and 3,715,483 of $ .0001 par value at September 30, 2025 and December 31, 2024, respectively

1,085,360 of $ .0001 par value at March 31, 2026 and December 31, 2025, respectively

Additional paid-in capital

8 unchanged sentences

$ 8,157,005 $ 8,303,315

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-10 reverse stock split, which was effective April 30, 2026.

See accompanying notes to the condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

$ 248,384 $ 272,598

1,365,893 1,098,758

531,256 235,803

Total revenues

2,145,533 1,607,159

Costs and other expenses

Cost of services

78,498 98,144

Cost of license fees

73,234 72,885

Cost of hardware

323,538 108,469

Cost of hardware - reserve

Total costs and other expenses

376,300 279,498

1,769,233 1,327,661

Operating expenses

Selling, general and administrative

1,310,066 1,372,524

Research, development and engineering

616,880 595,775

Total operating expenses

1,926,946 1,968,299

Operating loss

( 157,713 ) ( 640,638 )

Other income (expense)

1 unchanged sentence

Loan fee amortization

( 20,833 ) ( 60,000 )

Interest expense

( 27,166 ) ( 35,910 )

Total other income (expense), net

Loss before provision for income tax

Provision for income taxes

( 47,324 ) ( 95,907 )

Loss before provision for income taxes (tax benefits)

( 205,037 ) ( 736,545 )

Provision for income taxes (tax benefits)

$ ( 205,037 ) $ ( 736,545 )

Comprehensive loss:

$ ( 205,037 ) $ ( 736,545 )

Other comprehensive income (loss) – foreign currency translation adjustment

( 50,499 ) 6,803

Comprehensive loss

$ ( 255,536 ) $ ( 729,742 )

Basic and diluted loss per common share

$ ( 0.20 ) $ ( 1.57 )

Weighted average common shares outstanding:

Basic and diluted

1,035,147 470,242

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-10 reverse stock split, which was effective April 30, 2026.

See accompanying notes to the condensed consolidated financial statements.

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Comprehensive

Income (Loss)

Balance as of January 1, 2026

1,085,360 $ 109 $ 141,497,741 $ 74,803 $ ( 136,465,848 ) $ 5,106,805

Issuance of common stock for directors’ fees

Issuance of restricted stock to employees

Issuance of common stock for repayment of debt

Restricted stock forfeited

Exercise of warrants

Foreign currency translation adjustment

Share-based compensation

Issuance costs

Balance as of March 31, 2025

250 - - - - -

Issuance of common stock for directors’ fees

Issuance of common stock for repayment of debt

Restricted stock forfeited

Issuance of restricted common stock to employees and directors

Share-based compensation for employee stock plan

Foreign currency translation adjustment

Share-based compensation

Exercise of warrants

Balance as of June 30, 2025

( 250 ) - - - - -

Issuance of common stock for directors’ fees

Issuance of common stock for repayment of debt

Issuance of restricted common stock to employees and directors

Foreign currency translation adjustment

- - - ( 50,499 ) - ( 50,499 )

Share-based compensation

Balance as of September 30, 2025

- - 40,744 - - 40,744

- - - - ( 205,037 ) ( 205,037 )

Balance as of March 31, 2026

1,085,360 $ 109 $ 141,538,485 $ 24,304 $ ( 136,670,885 ) $ 4,892,013

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-10 reverse stock split, which was effective April 30, 2026.

See accompanying notes to the condensed consolidated financial statements.

3 unchanged sentences

Comprehensive

Income (Loss)

Balance as of January 1, 2025

1 unchanged sentence

Issuance of common stock for directors’ fees

Restricted stock forfeited

Exercise of prefunded warrants

Foreign currency translation adjustment

Share-based compensation

Issuance costs

Balance as of March 31, 2024

891 1 9,001 - - 9,002

Issuance of restricted stock to employees

250 - - - - -

Issuance of common stock for repayment of debt

50,461 5 858,995 - - 859,000

Restricted stock forfeited

Issuance of common stock for Employee Stock Purchase Plan

Share-based compensation for Employee Stock Purchase Plan

( 757 ) - - - - -

Exercise of warrants

159,011 15 3,813,041 - - 3,813,056

Foreign currency translation adjustment

Share-based compensation

Balance as of June 30, 2024

- - - 6,803 - 6,803

Restricted stock forfeited

Issuance of restricted common stock to employees and directors

Share-based compensation

Foreign currency translation adjustment

Exercise of prefunded warrants

Exercise of warrants

- - 52,488 - - 52,488

Issuance costs

Balance as of September 30, 2024

- - ( 248,783 ) - - ( 248,783 )

- - - - ( 736,545 ) ( 736,545 )

Balance as of March 31, 2025

581,552 $ 58 $ 137,515,349 $ 56,093 $ ( 130,044,447 ) $ 7,527,053

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-10 reverse stock split, which was effective April 30, 2026.

See accompanying notes to the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOW FROM OPERATING ACTIVITIES:

$ ( 205,037 ) $ ( 736,545 )

Adjustments to reconcile net loss to net cash used for operating activities:

14,716 21,782

Amortization of intangible assets

56,039 76,245

Amortization of capitalized contract costs

40,000 46,545

Amortization of note payable

20,833 60,000

Interest payable on note

27,000 35,173

Reserve for inventory

1 unchanged sentence

Share and warrant-based compensation for employees and consultants

40,744 52,488

Stock based directors’ fees

Change in assets and liabilities:

Change in operating assets and liabilities:

Accounts receivable

Allowance for credit losses

( 352,632 ) ( 85,048 )

Due from factor

Capitalized contract costs

Resalable software license rights

( 22,824 ) ( 12,824 )

131,452 20,465

Prepaid expenses and other

( 74,720 ) 24,363

Accounts payable

2,074 ( 259,571 )

Accrued liabilities

( 206,831 ) ( 236,321 )

Deferred revenue

265,404 95,718

Operating lease liabilities

( 1,819 ) ( 1,734 )

Net cash used in operating activities

( 358,001 ) ( 835,312 )

CASH FLOWS FROM INVESTING ACTIVITIES:

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CASH FLOW FROM FINANCING ACTIVITIES:

Proceeds for exercise of warrants

Offering costs

Proceeds from note payable

Receipt of cash from employee stock purchase plan

- ( 248,783 )

Proceeds for exercise of warrants

Repayment of government loan

Net cash provided by financing activities

( 38,179 ) ( 35,047 )

Net cash used in financing activities

( 38,179 ) 3,529,227

Effect of exchange rate changes

NET INCREASE IN CASH AND CASH EQUIVALENTS

( 50,499 ) 6,803

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

( 446,679 ) 2,696,148

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

2,694,663 437,604

CASH AND CASH EQUIVALENTS, END OF PERIOD

$ 2,247,984 $ 3,133,752

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-10 reverse stock split, which was effective April 30, 2026.

See accompanying notes to the condensed consolidated financial statements.

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SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for:

Noncash financing activities

Issuance of common stock for repayment of debt

Noncash investing and financing activities

Issuance of stock for repayment of debt

$ - $ 859,000

See accompanying notes to the condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2025 (Unaudited)

March 31, 2026 (Unaudited)

NATURE OF BUSINESS AND BASIS OF PRESENTATION

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The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key and include all normal and recurring adjustments which are necessary for a fair presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim consolidated financial statements and Rule 8 - 03 of Regulation S- X promulgated by the Securities and Exchange Commission (the “SEC”).

The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year ended December 31, 2025.

The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year ending December 31, 2026.

Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted.

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In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10 -K for the fiscal year ended December 31, 2024, filed with the SEC on April 23, 2025, from which the accompanying condensed consolidated balance sheet dated December 31, 2024 was derived.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10 -K/A for the fiscal year ended December 31, 2025, filed with the SEC on June 15, 2026 from which the accompanying condensed consolidated balance sheet dated December 31, 2025 was derived.

Foreign Currencies

The Company accounts for foreign currency transactions pursuant to Accounting Standards Codification ("ASC") 830, Foreign Currency Matters (“ASC 830” ).

The functional currency of the Company is the U.S.

The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830 ”).

The functional currency of the Company is the U.

dollar, which is the currency of the primary economic environment in which it operates.

In accordance with ASC 830, all assets and liabilities are translated into U.

In accordance with ASC 830, monetary balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date.

For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used.

Gains or losses arising from changes in the exchange rates used in the translation of such transactions and from the remeasurement of the monetary balance sheet items are recorded as gain (loss) on foreign currency transactions.

The functional currency of Swivel Secure Europe, SA is the Euro.

Under ASC 830, all assets and liabilities are translated into U.

dollars using the current exchange rate at the end of each fiscal period.

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All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate.

Translation adjustments are included in accumulated other comprehensive income (loss).

Translation adjustments are included in accumulated other comprehensive loss.

The functional currency of BIO-key Africa is the Naira, however, the majority of the Company's transactions are U.

Under ASC 830, all assets and liabilities are translated into U.

dollars using the current exchange rate at the end of each fiscal period.

An adjustment will be made for the current value of our bank account in Naira currency if the amount materially changes.

The functional currency of BIO-key Hong Kong is the HKD (Hong Kong dollar).

Under ASC 830, all assets and liabilities are translated into U.

dollars using the current exchange rate at the end of each fiscal period.

An adjustment will be made for the current value of our bank account in Yen currency if the amount materially changes.

Recently Adopted Accounting Pronouncements

Effective January 1, 2024, the Company adopted ASU 2020 - 06, Debt - Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging - Contracts in Entity ’ s Own Equity (Subtopic 815 - 40 ) (“ASU 2020 - 06” ) to simplify accounting for certain financial instruments.

ASU 2020 - 06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity.

The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity.

ASU 2020 - 06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

The adoption of ASU 2020 - 06 did not have a material effect on the consolidated financial statements of the Company.

Effective January 1, 2024, the Company adopted ASU 2023 - 07, Segment Reporting (Topic 280 ):

“ Improvements to Reportable Segment Disclosures ” (“ASU 2023 - 07” ) to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance.

The adoption of ASU 2023 - 07 did not have a significant impact on the Company’s consolidated financial statements.

See Note 16 – Segment Information.

Reverse Stock Split

All references to issued and outstanding shares for all periods reflect the 1 -for- 10 reverse stock split, which was effective April 30, 2026.

As a result, all share amounts for all periods, including the number of shares underlying warrants, options, and other convertible securities, and all exercise prices applicable to such warrants, options and convertible securities have been adjusted retrospectively to reflect the 1 -for- 10 reverse stock split.

Recently Issued Accounting Pronouncements

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The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023 - 09, “ Improvements to Income Tax Disclosures ” (“ASU 2023 - 09” ) to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid.

This ASU applies to all entities subject to income taxes.

This ASU will be effective for public companies for annual periods beginning after December 15, 2024 ( year ended December 31, 2025 for the Company).

The adoption of this standard is not expected to a material impact on the Company’s consolidated financial statements and disclosures.

In November 2024, the FASB issued ASU 2024 - 03, “ Income Statement:

Reporting Comprehensive Income— Expense Disaggregation Disclosures ,” which requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement, as well as disclosures about selling expenses.

This ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

The amendments may be applied either ( 1 ) prospectively to financial statements issued for reporting periods after the effective date of this ASU or ( 2 ) retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.

In November 2024, the FASB issued ASU 2024 - 03, "Disaggregation of Income Statement Expenses (“DISE”)" ("ASU 2024 - 03" ) which applies to all public entities and requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses.

Public entities must adopt the new standard prospectively for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption and retrospective application are permitted.

The Company is currently evaluating the impact of ASU 2024 - 03 on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

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The Company has lowered expenses through decreasing spending in marketing, and research and development.

In addition, the Company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and has slowly been selling into other markets to generate additional cash.

In order to mitigate the losses and improve cash flow, the Company is working on the following initiatives.

The EMESA subsidiary is now only selling BIO-key and PortalGuard solutions that do not carry the previous license fee of 50% cost of sales and the inventory purchased for projects in Nigeria, which have been delayed in deployment, are being sold into other markets to generate additional cash.

The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

1 unchanged sentence

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three -month periods ended September 30, 2025 and September 30, 2024 :

September 30,

$ 204,536 $ 63,482 $ 95 $ - $ 268,113

471,471 - 446,480 - 917,951

5,692 - 217,500 140,450 363,642

Total Revenues

$ 681,699 $ 63,482 $ 664,075 $ 140,450 $ 1,549,706

September 30,

$ 188,181 $ 34,753 $ 44,437 $ - $ 267,371

738,838 223,703 478,470 - 1,441,011

52,897 - 361,525 22,000 436,422

Total Revenues

$ 979,916 $ 258,456 $ 884,432 $ 22,000 $ 2,144,804

The following table summarizes revenue from contracts with customers for the nine -month periods ended September 30, 2025 and September 30, 2024 :

September 30,

The following table summarizes revenue from contracts with customers for the three -month periods ended March 31, 2026 and March 31, 2025 :

$ 190,543 $ 57,174 $ 667 $ - $ 248,384

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$ 445,343 $ 924,104 $ 753,826 $ 22,260 $ 2,145,533

September 30,

$ 205,843 $ 64,152 $ 142 $ 2,461 $ 272,598

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Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services.

At September 30, 2025 and December 31, 2024 , amounts in deferred revenue were approximately $ 735,000 and $ 970,000 , respectively.

Revenue recognized during the three months and nine months ended September 30, 2025 from amounts included in deferred revenue as of December 31, 2024 was approximately $ 82,000 and $ 404,000 , respectively.

Revenue recognized during the three and nine months ended September 30, 2024 from amounts included in deferred revenue at December 31, 2023 was approximately $ 51,000 and $ 482,000 , respectively.

At March 31, 2026 and December 31, 2025 , amounts in deferred revenue were approximately $ 900,500 and $ 635,100 , respectively.

Revenue recognized during the three months ended March 31, 2026 from amounts included in deferred revenue as of December 31, 2025 was approximately $ 193,000 .

Revenue recognized during the three months ended March 31, 2025 from amounts included in deferred revenue at December 31, 2024 was approximately $ 200,000 .

ACCOUNTS RECEIVABLE

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Accounts receivable are written off when deemed uncollectible.

Accounts receivable at September 30, 2025 and December 31, 2024 consisted of the following:

September 30,

Accounts receivable at March 31, 2026 and December 31, 2025 consisted of the following:

Accounts receivable

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The following table presents share-based compensation expenses included in the Company’s unaudited condensed interim consolidated statements of operations:

Three Months Ended September 30,

Selling, general and administrative

$ 24,920 $ 53,117

Research, development and engineering

$ 31,660 $ 66,053

Nine Months Ended September 30,

Three Months Ended March 31,

Selling, general and administrative

2 unchanged sentences

$ 40,744 $ 52,488

$ 105,985 $ 171,617

Inventory is stated at the lower of cost, determined on a first in, first out basis, or net realizable value.

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The Company has been selling these units in small quantities and continues to explore other markets and opportunities to sell the product.

Inventory is comprised of the following as at September 30, 2025 and December 31, 2024 :

September 30,

Inventory is comprised of the following as at March 31, 2026 and December 31, 2025 :

Finished goods

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The Boumarang Shares were purchased from Fiber Food Systems, Inc.

(“Fiber Food”), an early-stage company engaged in developing global food security solutions, in consideration of the issuance of 595,000 shares of the Company’s common stock.

(“Fiber Food”), an early-stage company engaged in developing global food security solutions, in consideration of the issuance of 59,500 shares of the Company’s common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026).

Fiber Food is not a principal stockholder of Boumarang, Inc.

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The purchase agreement between the Company and Fiber Food contemplates collaboration between the parties regarding potential strategic and commercial transactions, including acquiring assets or equity interests in other operating companies, integrating the Company’s identity access management solutions into Fiber Food’s offerings, and introducing the Company to its customers, affiliates and business contacts who are potential users of the Company’s solutions, in each case pursuant to future definitive agreements on terms to be negotiated by the parties.

The Company has engaged in discussions with Fiber Food and Boumarang, Inc.

regarding the contemplated collaboration, but no definitive agreements have been executed.

Under the purchase agreement, the Company had the right to cause Fiber Food to repurchase the Boumarang Shares from the Company in exchange for the return of the shares of Company common stock issued in exchange for the Boumarang Shares if at any time during the nine -month period after the closing of the transaction the Company valued the Boumarang Shares at less than $ 5,000,000 on its balance sheet.

This repurchase right has expired.

The purchase agreement also contains a standstill which prohibits the Company, Fiber Food, Boomerang and their respective affiliates and representatives for a period of two years, from, among other things, initiating any business combination, restructuring, tender offer, proposal to seek representation on the board of directors, or any proxy solicitation, instigating, encouraging or assisting any third party from doing any of the forgoing, or acquiring any debt or equity securities of any other party.

The Company accounts for the investment under ASC 321, Investments - Equity Securities .

The purchase agreement contains a standstill which prohibits the Company, Fiber Food, Boomerang and their respective affiliates and representatives for a period of two years, from, among other things, initiating any business combination, restructuring, tender offer, proposal to seek representation on the board of directors, or any proxy solicitation, instigating, encouraging or assisting any third party from doing any of the forgoing, or acquiring any debt or equity securities of any other party.

In April of 2025, Boumarange acquired all intellectual property rights to the Wavedrone platform from Shore House IVF, a technology developer based in the Faroe Islands, for $ 3.5 million acquisition which was executed entirely in Boumarang common stock.

The Boumarang Shares constitute an investment in a privately held company for which there is no trading market and are carried at fair value.

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When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk.

The Company follows ASC 820, – Fair Value Measurement , which establishes a three -level valuation hierarchy for disclosure of fair value measurements.

The Company follows ASC Topic 820 – “Fair Value Measurement,” which establishes a three -level valuation hierarchy for disclosure of fair value measurements.

The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.

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raise uncertainties that could impact the recoverability of the investment in the Boumarang Shares.

ASC 321 - 10 - 35 Equity Securities - Subsequent Measurement requires annual impairment testing for equity securities without readily determinable fair values.

ASC 321 - 10 - 35 requires annual impairment testing for equity securities without readily determinable fair values.

As of December 31, 2025, management recorded a 50 % impairment of the Boumarang shares.

The Company did not increase the impairment as of March 31, 2026.

COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business.

As of September 30, 2025 , the Company was not a party to any pending lawsuits.

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2027.

As of March 31, 2026 , the Company was not a party to any pending lawsuits.

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2026 and 2027.

The property leased in China is paid monthly as used, without a formal agreement.

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3 Months ended

September 30,

Total lease cost

$ 7,258 $ 6,979

9 Months ended

September 30,

Total lease cost

$ 20,937 $ 38,808

September 30,

Balance sheet information

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5.50 % 5.50 %

Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2025 and 2024:

Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2026 and 2025:

$ 12,243 $ 11,964

Maturities of operating lease liabilities were as follows as of September 30, 2025 :

Maturities of operating lease liabilities were as follows as of March 31, 2026 :

2026 (9 months remaining)

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On June 24, 2024, the Company entered into and closed a note purchase agreement with Streeterville Capital, LLC (the "Lender") which provided for the issuance of a $ 2,360,000 principal amount senior secured promissory note (the “2024 Note”).

The 2024 Note carries an original issue discount of $ 350,000 and the Company agreed to pay $ 10,000 to the lender (the "Lender") to cover its transaction costs, which were deducted from the proceeds of the 2024 Note resulting in a total of $ 2,000,000 being funded to the Company at closing.

The 2024 Note carried an original issue discount of $ 350,000 and the Company agreed to pay $ 10,000 to the lender (the "Lender") to cover its transaction costs, which were deducted from the proceeds of the 2024 Note resulting in a total of $ 2,000,000 being funded to the Company at closing.

The proceeds were used for general working capital.

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All repayments of principal due under the 2024 Note were subject to an exit fee of seven percent ( 7 %) of the principal amount being repaid (the “Exit Fee”).

Commencing six months after the date of issuance of the 2024 Note (the “Redemption Start Date”), Lender has the right to redeem up to $ 270,000 of principal amount under the 2024 Note each month which amount plus the Exit Fee will be due and payable three ( 3 ) business days after Lender’s delivery of a redemption notice to the Company.

At the end of each month following the Redemption Start Date, if the Company had not reduced the outstanding balance under the 2024 Note by at least $ 270,000 , then by the fifth ( 5th ) day of the following month, the Company must either pay to Lender the difference between $ 270,000 and the amount, if any, redeemed in such month plus the Exit Fee, or the outstanding balance due under the Note will automatically increase by one percent ( 1 %).

As of September 30, 2025, there were no redemptions by the Lender.

Commencing six months after the date of issuance of the 2024 Note (the “Redemption Start Date”), Lender had the right to redeem up to $ 270,000 of principal amount under the 2024 Note each month which amount plus the Exit Fee will be due and payable three ( 3 ) business days after Lender’s delivery of a redemption notice to the Company.

The 2024 Note was secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the 2024 Note were guaranteed by Pistol Star, Inc.

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Between January and September 2025, the Company entered into a number of Exchange Agreements with the holder of the 2024 Note pursuant to which it partitioned from the 2024 Note new promissory notes in the aggregate principal amount of $ 1,459,000 reducing the outstanding principal amount of the 2024 Note to approximately $ 338,400 .

All of the partitioned notes were subsequently exchanged for shares of common stock.

(see Note 17 Subsequent Events).

On October 27, 2025, the Company entered into two Exchange Agreements (the “Exchange Agreements”) with the Lender.

Pursuant to the Exchange Agreements, the Company and Lender agreed to (i) partition from the 2024 Note two new Promissory Notes (the “Partitioned Notes”) in the original principal amounts of $ 261,841 and $ 66,150 , respectively, (ii) cause the outstanding balance of the 2024 Note to be reduced by $ 327,991 , the aggregate principal amount of the Partitioned Notes, and (iii) exchange the Partitioned Notes for an aggregate of 429,027 shares of the Company’s Common Stock.

As a result of the Exchange Agreements, the 2024 Note has been paid in full.

Note Purchase Agreement dated September 30, 2025

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At the end of each month following the Redemption Start Date, if the Company has not reduced the outstanding balance under the 2025 Note by at least $ 135,000 , then by the fifth ( 5th ) day of the following month, the Company must either pay to Lender the difference between $ 135,000 and the amount, if any, redeemed in such month plus the Exit Fee, or the outstanding balance due under the Note will automatically increase by one percent ( 1 %).

As of September 30, 2025, there have been no redemptions by the Lender.

As of March 31, 2026, there have been no redemptions by the Lender.

The 2025 Note is secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the 2025 Note are guaranteed by Pistol.

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In the event that the Company receives any proceeds in connection with any fundraising or financing transaction (including any warrant exercises), it will be required to make a mandatory prepayment equal to the lesser of (i) forty percent ( 40 %) of the amount raised in such transaction and (ii) the full amount due under the 2025 Note.

In connection with the October 27, 2025 warrant exercise agreement (see Note 12 Stockholders' Equity), the Company prepaid approximately $ 455,000 of the amount due under the 2025 Note.

At March 31, 2026, the principal balance due for the 2025 Note was $ 651,935 .

EARNINGS (LOSS) PER SHARE - COMMON STOCK (“EPS”)

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period.

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026) during the reporting period.

Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of preferred stock.

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Three Months ended

Nine Months Ended

September 30,

Stock options

1 unchanged sentence

661,702 424,278

3,997,542 2,742,369 3,997,542 2,742,369

STOCKHOLDERS’ EQUITY

Issuances of Common Stock

During the nine -month periods ended September 30, 2025 , and 2024 , there have not been any shares of common stock issued to anyone outside the Company, except as noted in this Note 12.

During the three -month periods ended March 31, 2026 , and 2025 , there have not been any shares of common stock issued to anyone outside the Company, except as noted in this Note 12.

On June 18, 2021, the stockholders approved the Employee Stock Purchase Plan.

Under the terms of this plan, 43,334 shares of common stock are reserved for issuance to employees and officers of the Company at a purchase price equal to 85 % of the lower of the closing price of the common stock on the first day or the last day of the offering period as reported on the Nasdaq Capital Market.

Under the terms of this plan (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026), 4,384 shares of common stock are reserved for issuance to employees and officers of the Company at a purchase price equal to 85 % of the lower of the closing price of the common stock on the first day or the last day of the offering period as reported on the Nasdaq Capital Market.

Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions.

The Company may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031.

On June 30, 2025, 1,251 shares were issued to employees which resulted in a $ 876 non-cash compensation expense for the Company.

On June 28, 2024, 1,390 shares were issued to employees which resulted in a $ 456 non-cash compensation expense for the Company.

On August 8, 2025, at the Company’s Annual Stockholders Meeting (“Annual Meeting”), a proposal was approved to amend the plan to reserve an additional 70,000 shares of common stock.

There were no shares issued during the three -month periods ended March 31, 2026 and 2025.

Issuances of Restricted Stock

Restricted stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions.

Restricted stock consists of shares of common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026) that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions.

The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date.

Nonvested stock is expensed ratably over the term of the restriction period.

During the nine -month periods ended September 30, 2025 and 2024 , the Company issued 280,500 and 168,963 shares of restricted common stock, respectively, to certain employees and directors.

During the three -month periods ended March 31, 2026 and 2025 , the Company issued 250 and 250 shares of restricted common stock, respectively, to certain employees.

These shares vest in equal annual installments over a three -year period from the date of grant and had a fair value on the date of issuance of $ 1,600 and $ 2,525 , respectively.

During the nine -month periods ended September 30, 2025 and 2024 , 25,748 and 1,351 shares of restricted common stock were forfeited, respectively.

Share based compensation for the nine -month periods ended September 30, 2025 and 2024 , was $ 125,989 and $ 171,67 , respectively.

During the three -month periods ended March 31, 2026 and 2025 , 250 and 757 shares of restricted common stock were forfeited, respectively.

Share based compensation for the three -month periods ended March 31, 2026 and 2025 , was $ 40,744 and $ 52,488 , respectively.

Issuances to Directors

During the nine -month periods ended September 30, 2025 , and 2024 , the Company issued 22,136 and 4,287 , shares of common stock to its directors in lieu of payment of board and committee fees valued at $ 20,002 and $ 9,003 , respectively.

During the three -month periods ended March 31, 2026 , and 2025 , the Company issued 0 and 891 shares of common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026) to its directors in lieu of payment of board and committee fees valued at $ 0 and $ 9,002 , respectively.

Employees ’ exercise options

During the nine -month periods ended September 30, 2025 and 2024 , no employee stock options were exercised.

On January 15, 2025, the Company entered into a warrant exercise agreement (the "Warrant Exercise Agreement") with an existing institutional investor (the "Investor") to exercise certain outstanding warrants to purchase an aggregate of 2,061,112 shares of the Company’s common stock at an exercise price of $ 1.85 per share which were originally issued to the Investor on September 13, 2024 ( the "Existing Warrants").

In consideration for the exercise of the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the existing warrants, the Investor received new unregistered Series A warrants to purchase up to an aggregate of 1,545,834 shares of the Company’s common stock (the “Series A Warrants”) and new unregistered Series B warrants to purchase up to an aggregate of 1,545,834 shares of the Company’s common stock (the “Series B Warrants”, and together with the “Series A Warrants, the “New Warrants”).

During the three -month periods ended March 31, 2026 and 2025 , no employee stock options were exercised.

On October 27, 2025, the Company entered into and closed a warrant exercise agreement (the “Warrant Exercise Agreement”) with an existing institutional investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 309,167 shares of the Company’s common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026), which were originally issued to the Investor on January 15, 2025 ( the “Existing Warrants”).

Pursuant to the Warrant Exercise Agreement, the exercise price of the Existing Warrants was reduced from $ 21.50 per share to $ 10.20 per share.

In consideration for the exercise of the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the Existing Warrants, the Investor received new unregistered warrants to purchase up to an aggregate of 618,334 shares of the Company’s Common Stock (the “New Warrants”).

The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $ 10.20 per share and will expire five years from the date of issuance.

The New Warrants each include a beneficial ownership limitation that prevents the Investor from beneficially owning more than 4.99 % of the Company’s outstanding common stock at any time.

The Company realized gross proceeds under the Warrant Exercise Agreement of approximately $ 3.8 million, prior to deducting placement agent fees and estimated offering expenses.

Net proceeds are being used for working capital and general corporate purposes, including repayment of a portion of the 2024 Note.

There were 777,666 prefunded warrants exercised during the nine -month period ended September 30, 2024 and the Company received proceeds of approximately $ 1,600 .

Partitioned Notes

During the nine -month period ended September 30, 2025, partitioned notes in the aggregate principal amount of $ 600,000 were exchanged for 753,084 shares of common stock (See Note 10 Note Payable).

The New Warrants include a beneficial ownership limitation that prevents the Investor from beneficially owning more than 4.99 % of the Company’s outstanding common stock at any time.

The gross proceeds to the Company under the Warrant Exercise Agreement were approximately $ 3.1 million, prior to deducting placement agent fees and estimated offering expenses.

The Company intends to use the net proceeds for working capital and general corporate purposes, including repayment of a portion of the Company’s outstanding secured note.

On January 15, 2025, the Company entered into a warrant exercise agreement (the "January Warrant Exercise Agreement") with the Investor to exercise certain outstanding warrants to purchase an aggregate of 206,111 shares of the Company’s common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026) at an exercise price of $ 18.50 per share which were originally issued to the Investor on September 13, 2024 ( the "Existing Warrants").

In consideration for the exercise of the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the existing warrants, the Investor received new unregistered warrants which were amended and exercised in full pursuant to the Warrant Exercise Agreement which is more fully described in the preceding paragraph..

The Company realized gross proceeds under the January Warrant Exercise Agreement of approximately $ 3.8 million, prior to deducting placement agent fees and estimated offering expenses.

Net proceeds were used for working capital and general corporate purposes, including repayment of a portion of the 2024 Note.

On September 12, 2024, the Company entered into a Warrant Exercise Agreement ("Inducement Agreement") with the Investor for the immediate exercise of certain outstanding warrants that the Company issued on October 30, 2023.

Pursuant to the Inducement Agreement, the Investor agreed to exercise outstanding warrants to purchase an aggregate of 103,056 shares of the Company's common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026) at an amended exercise price of $ 18.50 .

The gross proceeds from the exercise of the warrants were approximately $ 1.9 million, prior to deducting placement agent fees and estimated offering expenses.

In consideration for the immediate exercise of these warrants, the Company issued new unregistered warrants which were amended and exercised in full pursuant to the January Warrant Exercise Agreement which is more fully described in the preceding paragraph.

Exchange Agreements

During the three -month period ended March 31, 2025, exchange agreements in the aggregate principal and interest amount of $ 859,000 were exchanged for 50,462 shares of common stock as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026.

( See Note 10 Note Payable).

FAIR VALUES OF FINANCIAL INSTRUMENTS

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MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE

During each of the three -month periods ended September 30, 2025 , and 2024 , two customers accounted for 42 % and three customers accounted for 47 % of the revenue, respectively.

Two customers accounted for 45 % of current accounts receivable at September 30, 2025 .

At December 31, 2024 , two customers accounted for 36 % of current accounts receivable.

During each of the three -month periods ended March 31, 2026 , and 2025 , two customers accounted for 66 % and two customers accounted for 47 % of the revenue, respectively.

Two customers accounted for 51 % of current accounts receivable at March 31, 2026 .

At December 31, 2025 , two customers accounted for 43 % of total accounts receivable.

United States, Hong Kong and Nigeria

The Company recorded no income tax expense for the three and nine months ended September 30, 2025 and 2024 because the estimated annual effective tax rate was zero .

The Company recorded no income tax expense for the three months ended March 31, 2026 and 2025 because the estimated annual effective tax rate was zero .

In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

As of September 30, 2025 and December 31, 2024 , the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Due to the current loss for the nine months ended September 30, 2025 , the Company did not record income taxes.

As of March 31, 2026 and December 31, 2025 , the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Due to the current loss for the three months ended March 31, 2026 , the Company did not record income taxes.

SEGMENT INFORMATION

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SUBSEQUENT EVENTS

October 27, 2025, the Company entered into and closed a warrant exercise agreement (the “Warrant Exercise Agreement”) with an existing institutional investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of

3,091,668 shares of the Company’s common stock, which were originally issued to the Investor on

January 15, 2025 ( the “Existing Warrants”).

Pursuant to the Warrant Exercise Agreement, the exercise price of the Existing Warrants was reduced from

$ 2.15 per share to

$ 1.02 per share.

6,183,336 shares of the Company’s Common Stock (the “New Warrants”).

The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of

$ 1.02 per share and will expire

five years from the date of issuance.

The Company agreed to file a resale registration statement covering the public resale of the shares of Common Stock issuable upon exercise of the New Warrants with the SEC, and to use commercially reasonable efforts to have such Resale Registration Statement declared effective by the SEC within

90 calendar days following the date of the Warrant Exercise Agreement.

The New Warrants include a beneficial ownership limitation that prevents the Investor from beneficially owning more than

4.99 % of the Company’s outstanding common stock at any time.

The gross proceeds to the Company under the Warrant Exercise Agreement were approximately

$ 3.1 million, prior to deducting placement agent fees and estimated offering expenses.

The Company intends to use the net proceeds for working capital and general corporate purposes, including repayment of a portion of the Company’s outstanding secured note.

Maxim Group LLC acted as the exclusive placement agent to the Company and the Company agreed to pay Maxim an aggregate cash fee equal to

6.0 % of the gross proceeds received by the Company under the Warrant Exercise Agreement.

On October 27, 2025, the Company entered into two Exchange Agreements (the “Exchange Agreements”) with the Lender, to whom the Company previously issued the 2024 Note in the original principal amount of $ 2,360,000 .

As a result of the Exchange Agreements, the 2024 Note has been paid in full.

In connection with the

October 27, 2025 warrant exercise agreement described above, the Company prepaid approximately

$ 455,000 of the amount due under the

November 6, 2025, the Company issued

2,500 shares of restricted stock to a new employee with

three -year vesting.

All the shares were issued at

$ 0.63 the closing price of the Company's common stock on

November 6, 2025, as reported on the Nasdaq Capital Market.

On April 20, 2026, the Company held a Special Meeting of stockholders at which out stockholders approved a reverse split of our outstanding shares of common stock.

After the Special Meeting, the Board set the reverse stock split ratio at 1 -for- 10 , and on April 28, 2026, the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect the reverse stock split which became effective at 5:00 p.m., Eastern Time, on April 29, 2026.

The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis on April 30, 2026 under a new CUSIP number, 09060C606 (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026).

On May 6, 2026, the Company received notice from the Nasdaq Capital Market that the Company’s common stock would be suspended from trading on the Nasdaq Capital Market at the opening of business on May 13, 2026 due to the Company’s failure to regain compliance with the $1.00 minimum bid requirement and failure to timely file its periodic reports with the SEC.

The Company scheduled an appeal of such determination to Nasdaq’s Hearings Panel and the hearing was June 16, 2026 and the Company is awaiting the decision on the appeal.

Effective with the opening of trading on May 13, 2026, the Company’s common stock has been traded on OTC Markets.

On June 5, 2026, the Company received notice from the Nasdaq Stock Market stating that the Company had not yet filed its Quarterly Report on Form 10 -Q for the period ended March 31, 2026 with the SEC as required by applicable Nasdaq Listing Rules, that this served as an additional basis for delisting the Company’s common stock from the Nasdaq Capital Market, and would be considered in determining the Company’s continued listing on the Nasdaq Capital Market.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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the impact of tariffs and other trade barriers which may make it more costly for us to import inventory from China and Hong Kong and certain product components from South Korea;

delays in the development of products, the commercial, reputational and regulatory risks to our business that may arise as a consequence of the restatement of our financial statements including any consequences of non-compliance with the Securities and Exchange Commission (“SEC”) and Nasdaq periodic reporting requirements;

delays in the development of products, the commercial, reputational and regulatory risks to our business that may arise as a consequence of non-compliance with the Securities and Exchange Commission (“SEC”) and Nasdaq periodic reporting requirements;

the commercial reputational and reputational risk and impact on the trading and liquidity of our common stock as a result as a result of the recent suspension of trading of our common stock on the Nasdaq Capital Market;

our temporary loss of the use of a Registration Statement on Form S-3 to register securities in the future;

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RESULTS OF OPERATIONS

THREE MONTHS ENDED September 30, 2025 AS COMPARED TO September 30, 2024

THREE MONTHS ENDED March 31, 2026 AS COMPARED TO March 31, 2025

Consolidated Results of Operations - Percent Trend

Three Months Ended September 30,

Three Months Ended March 31,

Total Revenues

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Three Months Ended

September 30,

Total Revenue

Three Months Ended

September 30,

Cost of Goods Sold

Hardware - reserve

For the three months ended September 30, 2025, and 2024, service revenues included approximately $263,000 and $214,000, respectively, of recurring maintenance and support revenue, and approximately $5,000 and $53,000 respectively, of non-recurring custom services revenue.

Recurring service revenue increased $49,000 or 23% in 2025 which was due to the timing of renewals of service agreements.

Non-recurring custom services decreased 90% due to an upgrade for one large customer in 2024.

Overall, service revenues remained flat at $268,113 as compared to $267,371 in the corresponding period in 2024.

For the three months ended September 30, 2025, license revenue decreased $523,060 or 36% to $917,951 from $1,441,011 in the corresponding period in 2024, as several long-term customers expanded their license deployments in the corresponding period in 2024.

For the three months ended September 30, 2025, hardware sales decreased 17% to $363,642 from $436,422 in the corresponding period in 2024.

The decrease was one new customer large deploy, several new customer deploys of fully reserved inventory in the 2025 period, and to one long-term customer expanding its purchase of biometric cybersecurity solutions in the 2024 period.

For the three months ended March 31, 2026, and 2025, service revenues included approximately $229,000 and $265,000, respectively, of recurring maintenance and support revenue, and approximately $19,000 and $8,000 respectively, of non-recurring custom services revenue.

Recurring service revenue decreased $36,000 or 14% in 2026 which was due to the timing of renewals of service agreements.

Non-recurring custom services increased $11,000 due to a small increase in customization.

Overall, service revenues decreased to $248,384 as compared to $272,598 in the corresponding period in 2025.

For the three months ended March 31, 2026, license revenue increased $267,135 or 24% to $1,365,893 from $1,098,758 in the corresponding period in 2025 as several long-term customers expanded their license deployments in 2026.

For the three months ended March 31, 2026, hardware sales increased 125% to $531,256 from $235,803 in the corresponding period in 2025.

The increase was due to a large deployment from one long-term customer, several customer deploys of fully reserved inventory in the 2026 period, and several long-term customers expanding their deployments of biometric cybersecurity solutions.

Costs and other expenses

For the three months ended September 30, 2025, cost of service decreased $30,021 or 27% to $80,702 from $110,723 in the three months ended September 30, 2024, due to an upgrade for one large customer for the 2024 period.

For the three months ended September 30, 2025, license fees decreased to $74,077 from $146,732 in the three months ended September 30, 2024, due to the absence of license fees for third-party software included in our previous Swivel Secure product offerings.

For the three months ended September 30, 2025, hardware costs decreased to net cost of $203,209 (after giving effect to the $231,625 reversal of the reserve for inventory) from $207,655 in the three months ended September 30, 2024, for a net decrease of 2%

For the three months ended March 31, 2026, cost of service decreased $19,646 or 20% to $78,498 from $98,114 in the three months ended March 31, 2025.

For the three months ended March 31, 2026, license fees remained relatively flat increasing less than one percent to $73,234 from $72,885 in the three months ended March 31, 2025, For the three months ended March 31, 2026, hardware costs increased to net cost of $224,568 (after giving effect to the $98,970 reversal of the reserve for inventory) from $108,469 in the three months ended March 31, 2025, for a net increase of 100%, based on the increase in hardware revenue.

Selling, general and administrative

Three Months Ended

September 30,

Selling, general and administrative

Selling, general and administrative expenses for the three months ended September 30, 2025, decreased 13% from $1,607,925 in the corresponding period in 2024 to $1,400,288 in the current quarter.

The decreases included reductions in administration and professional services fees, and non-recurring write-off of administration fees.

Selling, general and administrative expenses for the three months ended March 31, 2026, decreased 5% from $1,372,524 in the corresponding period in 2025 to $1,310,066 in the current quarter.

The decreases included reductions in administration and professional services fees.

Research, development and engineering

Three Months Ended

September 30,

Research, development, and engineering

For the three months ended September 30, 2025, research, development, and engineering costs increased 5% to $683,620 compared to $652,174 in the corresponding period in 2024.

The increase consisted primarily of professional services and personnel costs, offset by a decrease in rent costs.

For the three months ended March 31, 2026, research, development, and engineering costs increased 4% to $616,880 compared to $595,775 in the corresponding period in 2025.

The increase consisted primarily of professional services and personnel costs.

Other income (expense)

Three Months Ended

September 30,

Interest income

Loan fee amortization

Interest expense

Other income (expense)

Other income (expense) for the three months ended September 30, 2025 consisted of interest income of $515, interest expense of $13,174 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.

Other income (expense) for the three months ended September 30, 2024 consisted of interest income of $2 and interest expense of $98,556 comprised of approximately $4,200 on the government loan through the BBVA bank and the balance on the 2024 Note, and a loan fee amortization amount of $60,000.

Nine MONTHS ENDED September 30, 2025 AS COMPARED TO September 30, 2024

Consolidated Results of Operations - Percent Trend

Nine Months Ended September 30,

Total Revenues

Costs and other expenses

Cost of services

Cost of license fees

Cost of hardware

Cost of hardware - reserve

Total Cost of Goods Sold

Operating expenses

Selling, general and administrative

Research, development and engineering

Total Operating Expenses

Operating loss

Other expense

Loss before provision for income tax

Provision for income tax

Revenues and cost of goods sold

Nine Months Ended

September 30,

Total Revenue

Cost of Goods Sold

Hardware - reserve

For the nine months ended September 30, 2025, and 2024, service revenues included approximately $799,000 and $681,000, respectively, of recurring maintenance and support revenue, and approximately $64,000 and $83,000 respectively, of non-recurring custom services revenue.

Recurring service revenue increased approximately $117,000 or 17% in 2025 which was due to the updated support for a large customer service agreement.

Non-recurring custom services decreased 22% due to an upgrade for one large customer in 2024.

Overall, service revenues increased 13% to $862,707 from $764,062 in the corresponding period in 2024.

For the nine months ended September 30, 2025, license revenue decreased $1,342,873 or 32% to $2,822,796 from $4,165,669 in the corresponding period in 2024, due to the ramp up of BIO-key EMEA selling only BIO-key product which has been accelerating in 2025.

nine months ended

September 30, 2025, hardware sales increased 117% to $1,168,2697 from $537,562 in the corresponding period in

The increase was due to several long-term and new customers expanding their purchase of biometric cybersecurity solutions combined with selling some of fully reserved inventory initially for the African project.

Costs of goods sold

For the nine months ended September 30, 2025, cost of service decreased $25,810 or 8% to $297,147 from $322,957 in the nine months ended September 30, 2024, due to the costs associated with the upgrade for one large customer.

For the nine months ended September 30, 2025, license fees decreased to $233,450 from $443,384 in the nine months ended September 30, 2024, due to the absence of license fees for third-party software included in our previous Swivel Secure product offerings.

For the nine months ended September 30, 2025, hardware costs increased to a net cost of $571,069 (after giving effect to the $509,040 reversal of the reserve for inventory) from $260,684 in the nine months ended September 30, 2024, related to increased hardware revenue which included sales of a portion of our fully reserved inventory.

Selling, general and administrative

Nine Months Ended

September 30,

Selling, general and administrative

Selling, general and administrative expenses for the nine months ended September 30, 2025, decreased 16% from $5,332,764 in the corresponding period in 2024 to $4,453,362 in the current quarter.

The decreases included reductions in administration, administrative write-offs, sales personnel costs, and professional services fees.

Research, development and engineering

Nine Months Ended

September 30,

Research, development and engineering

For the nine months ended September 30, 2025, research, development, and engineering costs increased 3% to $1,915,422 compared to $1,850,929 in the corresponding period in 2024.

The increase consisted primarily of professional services and personnel costs, offset by a decrease in rent costs.

Other income (expense)

Nine Months Ended

September 30,

Interest income

Loan fee amortization

Change in fair value of convertible note

Interest expense

Other income (expense)

Other income (expense) for the nine months ended September 30, 2025 consisted of interest income of $2,610, interest expense of $74,722 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.

Other income (expense) for the nine months ended September 30, 2024 consisted of interest income of $53 and interest expense of $108,823 consisting of approximately $8,100 on the government loan through the BBVA bank and the balance for interest accrued on the 2024 Note, as defined below, and a loan fee amortization amount of $64,000.

Other income (expense) for the three months ended March 31, 2026 consisted of interest income of $675, interest expense of $27,166 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $20,833.

Other income (expense) for the three months ended March 31, 2025 consisted of interest income of $3 and interest expense of $35,910 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities overview

Net cash used in operations during the nine months ended September 30, 2025 was $2,838,088.

Net cash used in operations during the three months ended March 31, 2026 was $358,001.

Items of note included:

Net positive cash flows related to adjustments for non-cash expenses of approximately $107,000.

Net positive cash flows related to accounts receivable and amount due from factor of approximately $83,000.

Negative cash flows related to changes in allowance for doubtful receivables, accounts payable, capitalized contract costs, inventory, prepaid expenses, deferred revenues, and accrued liabilities of approximately $875,000, due to working capital management.

Net positive cash flows related to inventory, accounts payable and deferred revenue of approximately $399,000.

Negative cash flows related to changes in accounts receivable, capitalized contract costs, prepaid expenses, and accrued liabilities of approximately $657,000, due to working capital management.

Financing activities overview

Net cash provided by financing activities during the nine months ended September 30, 2025 was $4,456,013 which included $3,813,057 of proceeds from the exercise of warrants, and $876 from the purchase of shares in the Employee Stock Purchase Plan, which was offset by repayment of $109,137 of the government loan through the BBVA bank and $248,783 for offering costs.

Net cash used by financing activities during the three months ended March 31, 2026 was $38,179 of the government loan through the BBVA bank.

Investing activities overview

Net cash used in investing activities during the nine months ended September 30, 2025 consisted of capital expenditures of $7,373 for computers.

There was no cash used in investing activities during the three months ended March 31, 2026 .

Liquidity and Capital Resources

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We expect capital expenditures to be less than $100,000 during the next twelve months.

The following sets forth our investment sources of capital during the previous two years:

The following sets forth our sources of liquidity during the previous two years:

On October 27, 2025, we entered into and closed a warrant exercise agreement with an existing institutional investor to exercise certain outstanding warrants to purchase an aggregate of 309,167 shares of common stock(as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026).

The warrants were originally issued on January 15, 2025 and had an exercise price of $21.50 per share.

In consideration for the immediate exercise of these warrants, we issued new unregistered warrants to purchase up to an aggregate of 618,334 shares of common stock at an exercise price of $10.20.

We realized gross proceeds of approximately $3.1 million, prior to deducting placement agent fees and estimated offering expenses.

On September 30, 2025, we entered into and closed a note purchase agreement which provided for the issuance of a $1,130,000 principal amount senior secured promissory note (the "2025 Note").

This resulted in gross proceeds of approximately $1,000,000 after deducting estimated offering expenses, and the original issue discount.

The 2024 Note is due eighteen months (18) following the date of issuance, accrues interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance of, the lender shall have the right to redeem up to $135,000 of principal amount each month.

The 2025 Note is due eighteen months (18) following the date of issuance, accrues interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance, the lender shall have the right to redeem up to $135,000 of principal amount each month.

In connection with the October 27, 2025 warrant exercise agreement described above, we prepaid approximately $450,000 of the amount due under the 2025 Note.

1 unchanged sentence

For a more complete description of the 2025 Note, please see Note 10 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.

On January 15, 2025, we entered into a warrant exercise agreement with an existing investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 2,061,112 shares of common stock, at an exercise price of $1.85 per share which were originally issued to the Investor on September 12, 2024 (the "Existing Warrants").

In consideration for the exercise of the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the Existing Warrants, the Investor received new warrants to purchase up to an aggregate of 3,091,668 shares of Common Stock ("New Warrants").

On January 15, 2025, we entered into a warrant exercise agreement with an existing investor to exercise certain outstanding warrants to purchase an aggregate of 206,112 shares of common stock, at an exercise price of $18.50 per share which were originally issued to the investor on September 12, 2024 (the "Existing Warrants").

In consideration for the exercise of the Existing Warrants, the investor received new warrants to purchase up to an aggregate of 309,167 shares of Common Stock ("New Warrants").

The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $21.50 per share and will expire five years from the date of issuance.

The gross proceeds to the Company were approximately $3.8 million, prior to deducting placement agent fees and estimated offering expenses.

On September 12, 2024, we entered into a warrant exercise agreement with the Investor to exercise certain outstanding warrants to purchase an aggregate of 1,030,556 shares of common stock.

On September 12, 2024, we entered into a warrant exercise agreement with an existing investor to exercise certain outstanding warrants to purchase an aggregate of 103,056 shares of common stock.

The warrants were originally issued to the Investor on October 31, 2023 and had an original exercise price of $31.50 per share.

In consideration for the immediate exercise of the warrants, we reduced the exercise price of the warrants to $1.85 per share and issued to the Investor unregistered Series A Warrants to purchase an aggregate of 1,030,556 shares of common stock and unregistered Series B Warrants to purchase an aggregate of 1,030,556 shares of common stock, each with an exercise price of $1.85 per share.

The Series A and Series B warrants share substantially the same terms, are immediately exercisable and will expire five years from the date of issuance.

In consideration for the immediate exercise of the warrants, we reduced the exercise price of the warrants to $18.50 per share and issued to the Investor unregistered Series A Warrants to purchase an aggregate of 103,056 shares of common stock and unregistered Series B Warrants to purchase an aggregate of 103,056 shares of common stock, each with an exercise price of $18.50 per share and issued additional warrants to purchase an aggregate of 206,112 shares of common stock, at an exercise price of $18.50 per share.

The forgoing transaction resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent fees and estimated offering expenses.

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This resulted in gross proceeds of approximately $1,826,000 after deducting placement agent fees, estimated offering expenses, and the original issue discount.

The 2024 Note was due eighteen months (18) following the date of issuance, accrued interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance of, the lender had the right to redeem up to $270,000 of principal amount each month.

In connection with the September 12, 2024 warrant exercise agreement described above, we prepaid approximately $762,600 of the amount due under the 2024 Note.

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Liquidity outlook

At September 30, 2025, our total cash and cash equivalents were $2,039,853, as compared to $437,604 at December 31, 2024.

At September 30, 2025, we had a working capital of approximately $782,000.

On October 27, 2025, we enhanced our liquidity by closing a warrant exchange agreement resulting in net proceeds of approximately $2,500,000, after deduction of placement fees and repayment of certain indebtedness.

At March 31, 2026, our total cash and cash equivalents were $2,247,984, as compared to $2,694,663 at December 31, 2025.

At March 31, 2026, we had a working capital of approximately $1,296,000.

As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, warrants, and through factoring receivables.

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We continue to explore other markets and opportunities to sell the product to generate additional cash.

If we are unable to generate sufficient revenue to fund current operations and execute our business plan, we will need to obtain additional third-party financing.

Unless we generate sufficient positive cash flow from operations or liquidation of existing inventory, we expect that we will need to obtain additional financing during the next twelve months to support operations.

If we are unable to generate sufficient revenue and positive cash flow from operations or liquidation of existing inventory to fund current operations and execute our business plan, we will need to obtain additional third-party financing over the next twelve months.

Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements