What changed in this filing

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Item 1. Financial Statements

2026-08-13 compared with 2026-06-22 · 215 added, 131 removed, 586 unchanged (37% of the section changed)

52 unchanged sentences

issued and outstanding;

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

1,087,360 of $ .0001 par value at June 30, 2026 and 1,085,360 at December 31, 2025, respectively

Additional paid-in capital

14 unchanged sentences

Three Months Ended

$ 248,384 $ 272,598

1,365,893 1,098,758

531,256 235,803

Six Months Ended

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

( 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 )

Loss before provision for income tax

Provision for income taxes

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.

4 unchanged sentences

Comprehensive

Income (Loss)

Balance as of January 1, 2026

1 unchanged sentence

Issuance of restricted stock to employees

250 - - - - -

Restricted stock forfeited

( 250 ) - - - - -

Foreign currency translation adjustment

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

Share-based compensation

- - 40,744 - - 40,744

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

Balance as of March 31, 2026

( 136,670,885

Issuance of common stock for Employee Stock Purchase Plan

Share-based compensation for employee stock plan

Foreign currency translation adjustment

Share-based compensation

Balance as of June 30, 2026

( 137,247,737

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.

4 unchanged sentences

Comprehensive

Income (Loss)

Balance as of January 1, 2025

1 unchanged sentence

Issuance of common stock for directors’ fees

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

( 757 ) - - - - -

Exercise of warrants

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

Foreign currency translation adjustment

- - - 6,803 - 6,803

Share-based compensation

- - 52,488 - - 52,488

Issuance costs

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

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

Balance as of March 31, 2025

( 130,044,447

Issuance of common stock for directors’ fees

Issuance of restricted stock to employees

Issuance of common stock for repayment of debt

Restricted stock forfeited

Issuance of common stock for Employee Stock Purchase Plan

Share-based compensation for Employee Stock Purchase Plan

Foreign currency translation adjustment

Exercise of warrants

Share-based compensation

Balance as of June 30, 2025

( 131,211,843

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.

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOW FROM OPERATING ACTIVITIES:

11 unchanged sentences

Reserve for inventory

( 802,020 ) -

Operating leases right-of-use assets

18,874 12,543

Share and warrant-based compensation for employees and consultants

1 unchanged sentence

Stock based directors’ fees

Change in operating assets and liabilities:

Change in assets and liabilities:

Accounts receivable

( 285,060 ) ( 15,305 )

Allowance for credit losses

( 225,627 ) ( 250,000 )

Due from factor

9 unchanged sentences

Deferred revenue

265,404 95,718

Operating lease liabilities

4 unchanged sentences

Capital expenditures

Net cash used in investing activities

Net cash provided by (used in) investing activities

CASH FLOW FROM FINANCING ACTIVITIES:

Proceeds from note payable

Offering costs

1 unchanged sentence

Proceeds for exercise of warrants

Receipt of cash from employee stock purchase plan

Repayment of government loan

( 38,179 ) ( 71,645 )

Net cash used in financing activities

Net cash provided by (used in) financing activities

( 30,519 ) 3,493,505

7 unchanged sentences

$ 1,379,300 $ 2,275,345

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

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid for:

Noncash investing and financing activities

Additions for operating lease right-of-use assets

Issuance of stock for repayment of debt

$ - $ 859,000

See accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2026 (Unaudited)

June 30, 2026 (Unaudited)

NATURE OF BUSINESS AND BASIS OF PRESENTATION

31 unchanged sentences

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

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

Reverse Stock Split

14 unchanged sentences

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.

In July 2025, the FASB issued ASU 2025 - 05, “Measurement of Credit Losses for Accounts Receivable and Contract Assets” (“ASU 2025 - 05” ).

The standard provides a practical expedient related to the estimation of expected credit losses for current accounts receivable and current contract assets.

The practical expedient assumes that conditions as of the balance sheet date do not change for the remaining life of the accounts receivable and contract assets when forecasting estimated credit losses.

An entity is required to disclose whether it has applied the practical expedient.

The guidance is effective for interim and annual periods beginning after December 15, 2025, and should be applied prospectively.

We adopted this guidance as of January 1, 2026 and elected the practical expedient as described in ASU 2025 - 05.

The impact of adopting this new guidance on our consolidated financial statements is not material.

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.

GOING CONCERN

2 unchanged sentences

The Company has historically financed operations through access to the capital markets by issuing convertible debt securities, convertible preferred stock, common stock, and through factoring receivables.

As of the date of this report, the Company does have enough cash for twelve months of operations.

However, the history of losses, the negative cash flow from operations, and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raises doubt about the Company's ability to continue as a going concern.

As of the date of this report, the Company does not have enough cash for twelve months of operations.

The history of losses, the negative cash flow from operations, and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raises doubt about the Company's ability to continue as a going concern.

The accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

6 unchanged sentences

Disaggregation of Revenue

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

The following table summarizes revenue from contracts with customers for the three -month periods ended June 30, 2026 and June 30, 2025 :

$ 184,597 $ 44,408 $ 2,000 $ - $ 231,005

8 unchanged sentences

$ 615,255 $ 63,482 $ 969,437 $ 48,733 $ 1,696,907

*EMESA – Europe, Middle East, South America

$ 375,140 $ 101,581 $ 2,667 $ - $ 479,388

483,045 866,930 1,245,263 - 2,595,238

111,943 - 541,695 337,260 990,898

Total Revenues

$ 970,128 $ 968,511 $ 1,789,625 $ 337,260 $ 4,065,524

$ 425,981 $ 127,634 $ 37,885 $ 3,094 $ 594,594

699,258 525,093 680,494 - 1,904,845

68,295 - 659,192 77,140 804,627

Total Revenues

$ 1,193,534 $ 652,727 $ 1,377,571 $ 80,234 $ 3,304,066

*EMESA – Europe, Middle East, South Americ

Deferred Revenue

3 unchanged sentences

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

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 .

At June 30, 2026 and December 31, 2025 , amounts in deferred revenue were approximately $ 688,900 and $ 635,100 , respectively.

Revenue recognized during the three and six months ended June 30, 2026 from amounts included in deferred revenue as of December 31, 2025 was approximately $ 117,000 and $ 310,000 .

Revenue recognized during the three and six months ended June 30, 2025 from amounts included in deferred revenue at December 31, 2024 was approximately $ 122,000 and 321,000 , respectively.

ACCOUNTS RECEIVABLE

2 unchanged sentences

Accounts receivable are written off when deemed uncollectible.

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

Accounts receivable at June 30, 2026 and December 31, 2025 consisted of the following:

Accounts receivable

7 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Selling, general and administrative

2 unchanged sentences

$ 42,652 $ 21,837

Six Months Ended June 30,

Selling, general and administrative

$ 67,992 $ 61,111

Research, development and engineering

15,404 13,214

$ 83,396 $ 74,325

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

3 unchanged sentences

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 March 31, 2026 and December 31, 2025 :

Inventory is comprised of the following as at June 30, 2026 and December 31, 2025 :

Finished goods

15 unchanged sentences

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 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 purchase agreement contains a standstill which prohibits the Company, Fiber Food, Boomarang 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, Boumarang 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.

14 unchanged sentences

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.

The Company did not increase the impairment as of June 30, 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 March 31, 2026 , the Company was not a party to any pending lawsuits.

As of June 30, 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.

5 unchanged sentences

$ 14,547 $ 6,979

6 Months ended

Total lease cost

$ 21,805 $ 13,958

Balance sheet information

10 unchanged sentences

5.50 % 5.50 %

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

Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2026 and 2025:

$ 30,145 $ 11,964

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

Maturities of operating lease liabilities were as follows as of June 30, 2026 :

2026 (6 months remaining)

18 unchanged sentences

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.

8 unchanged sentences

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

As of June 30, 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.

2 unchanged sentences

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 .

At June 30, 2026, the balance due for the 2025 Note was $ 699,769 .

which reduced the balance due under the 2025 Note to $ 349,769 .

On July 28, 2026 and August 10, 2026 the Company entered into two separate Exchange Agreements with the Lender.

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

3 unchanged sentences

Three Months ended

Six Months Ended

Stock options

1 unchanged sentence

661,637 374,596 661,637 374,596

661,702 374,782 661,702 374,782

STOCKHOLDERS’ EQUITY

Issuances of Common Stock

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 (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.

During the six -month periods ended June 30, 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 and on August 8, 2025, the stockholders approved the amendment to the plan to reserve an additional 70,000 shares of common Stock.

Under the terms of this plan (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026), and as amended, 69,251 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 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.

There were 2,000 and 125 shares issued during the three -month periods ended June 30, 2026 and 2025, respectively.

The issuance of the shares resulted in share-based expense of $ 1,565 and $ 205 , and cash returned to the company of $ 7,600 and $ 876 for the three -month periods ended June 30, 2026 and 2025, respectively.

Issuances of Restricted Stock

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.

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.

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

During the six -month periods ended June 30, 2026 and 2025 , the Company issued 250 and 7,050 shares of restricted common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026), 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 $ 1,575 and $ 2,525 , 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.

During the six -month periods ended June 30, 2026 and 2025 , 250 and 2,575 shares of restricted common stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026) were forfeited, respectively.

Share based compensation for the six -month periods ended June 30, 2026 and 2025 , was $ 81,831 and $ 74,120 , respectively.

Issuances to Directors

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.

During the six -month periods ended June 30, 2026 , and 2025 , the Company issued 0 and 2,313 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 $ 20,004 , respectively.

Employees ’ exercise options

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

During the six -month periods ended June 30, 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.

2 unchanged sentences

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 August 10, 2026 the Company entered into a warrant exercise agreement with the Investor pursuant to which the New Warrants were exercised in full subject to compliance with the beneficial ownership limitations included in the New Warrants.

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").

13 unchanged sentences

MAJOR CUSTOMERS AND 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 .

During each of the three -month periods ended June 30, 2026 , and 2025 , two customers accounted for 52 % and two customers accounted for 51 % of the revenue, respectively.

During each of the six -month periods ended June 30, 2026, and 2025, three customers accounted for 54 % and two customers accounted for 41 % of the revenue, respectively.

Two customers accounted for 74 % of current accounts receivable at June 30, 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 months ended March 31, 2026 and 2025 because the estimated annual effective tax rate was zero .

The Company recorded no income tax expense for the three and six months ended June 30, 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 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.

As of June 30, 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 six months ended June 30, 2026 , the Company did not record income taxes.

SEGMENT INFORMATION

8 unchanged sentences

The Company’s long-lived tangible assets are recognized on the Condensed Consolidated Balance Sheet are located in New Hampshire and Hong Kong.

The Company’s operating lease right-of use assets recognized on the Condensed Consolidated Balance Sheet are located in Minnesota.

The Company’s operating lease right-of use assets recognized on the Condensed Consolidated Balance Sheet are located in Minnesota and New Hampshire.

SUBSEQUENT EVENTS

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.

On May 6, 2026, the Company received notice from the Nasdaq Capital Market (“Nasdaq”) that the Company’s common stock would be suspended from trading 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 appealed the decision and on July8, 2026 trading of the Company’s common stock recommenced on the Nasdaq Capital Market.

On July 28, 2026, the Company entered into an Exchange Agreement (the “2025 Exchange Agreement”) with the Lender of the 2025 Note.

Pursuant to the 2025 Exchange Agreement, the Company and Lender agreed to (i) partition from the 2025 Note a new Promissory Note (the “Partitioned Note”) in the original principal amount of $ 200,000 , (ii) cause the outstanding balance of the 2025 Note to be reduced by $ 200,000 and (iii) exchange the Partitioned Note for 43,308 shares of the Company’s Common Stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026).

On July 30, 2026, 250 shares of restricted common stock were forfeited by an employee who left the Company before the lapse of the restriction period applicable to such shares.

On August 6, 2026, the Company issued an aggregate of 800 shares of restricted stock to new employees with three -year vesting.

All the shares were issued at $ 3.98 the closing price on August 6, 2026, as reported on the Nasdaq Capital Market.

On August 10, 2026, the Company entered into a second exchange agreement with the Lender of the 2025 Note.

Pursuant to this exchange agreement, the Company and Lender agreed to (i) partition from the 2025 Note a new Promissory Note (the “Partitioned Note”) in the original principal amount of $ 150,000 , (ii) cause the outstanding balance of the 2025 Note to be reduced by $ 150,000 and (iii) exchange the Partitioned Note for 37,792 shares of the Company’s Common Stock (as adjusted to reflect our 1 -for- 10 reverse stock split, which was effective April 30, 2026).

On August 11, 2026, the Company closed a transaction with an existing investor to exercise outstanding warrants to purchase an aggregate of 618,334 shares of common stock in consideration for reducing the per share exercise price from $ 10.20 to $ 4.06 and issuing additional warrants to the investor to purchase up to an aggregate of 1,236,668 shares of common stock at exercise price of $ 4.06 per share.

The forgoing resulted in gross proceeds of approximately $ 2.5 million, prior to deducting placement agent fees and estimated offering expenses.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

21 unchanged sentences

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 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;

and Nasdaq periodic reporting requirements due to late filings;

the commercial reputational and reputational risk and impact on the trading and liquidity of our common stock due to the recent suspension of trading of our common stock on the Nasdaq Capital Market or in the event that the trading of our common stock is suspended due to non-compliance with existing and or proposed continued listing standards of the Nasdaq Stock Market;

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

any disruption to our business that may occur on a longer-term basis should we be unable to maintain effective controls over financial reporting, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 and other filings with the SEC.

any disruption to our business that may occur on a longer-term basis should we be unable to maintain effective controls over financial reporting, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2025 and other filings with the SEC.

These factors are not intended to represent a complete list of the general or specific factors that may affect us.

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Critical Accounting Policies and Estimates

For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2025.

There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K/A.

Recent Accounting Pronouncements

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RESULTS OF OPERATIONS

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

THREE MONTHS ENDED June 30, 2026 AS COMPARED TO June 30, 2025

Consolidated Results of Operations - Percent Trend

Three Months Ended March 31,

Three Months Ended June 30,

Total Revenues

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Hardware - reserve

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.

For the three months ended June 30, 2026, and 2025, service revenues included approximately $227,000 and $271,000, respectively, of recurring maintenance and support revenue, and approximately $4,000 and $51,000 respectively, of non-recurring custom services revenue.

Recurring service revenue decreased $44,000 or 16% 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.

Non-recurring custom services decreased $47,000 due to a decrease in customization.

Overall, service revenues decreased to $231,005 as compared to $321,996 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.

For the three months ended June 30, 2026, license revenue increased $423,258 or 53% to $1,229,345 from $806,087 in the corresponding period in 2025 as several new customers deployed new licenses in 2026.

For the three months ended June 30, 2026, hardware sales decreased 19% to $459,641 from $568,824 in the corresponding period in 2025.

The decrease was due to several customer deploys of fully reserved inventory in the 2026 period, and one large deployment from one long-term customer and several long-term customers expanding their deployments of biometric cybersecurity solutions in 2025.

Costs and other expenses

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.

For the three months ended June 30, 2026, cost of service decreased $38,585 or 33% to $79,716 from $118,301 in the three months ended June 30, 2025.

For the three months ended June 30, 2026, license costs decreased 13% to $74,972 from $86,488 in the three months ended June 30, 2025.

For the three months ended June 30, 2026, hardware costs decreased to net cost of $91,263 (after giving effect to the $703,050 reversal of the previously fully reserved inventory) from $259,391 in the three months ended June 30, 2025, for a net decrease of 65%, based on the decrease in hardware revenue and different models of hardware shipped.

Selling, general and administrative

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Selling, general and administrative

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.

Selling, general and administrative expenses for the three months ended June 30, 2026, decreased 7% from $1,680,550 in the corresponding period in 2025 to $1,563,027 in the current quarter.

The decreases included reductions in administration and professional services fees, offset by one-time costs incurred in connection with our reverse split and increases in our accrued audit expenses and accrued taxes.

Research, development and engineering

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Research, development, and engineering

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.

For the three months ended June 30, 2026, research, development, and engineering costs increased 1% to $640,418 compared to $636,027 in the corresponding period in 2025.

The increase consisted primarily of personnel costs.

Other income (expense)

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Loan fee amortization

Change in fair value of convertible note

Interest expense

Other income (expense)

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.

Other income (expense) for the three months ended June 30, 2026 consisted of interest income of $386, interest expense of $27,000 on the note payable, and a loan fee amortization amount of $20,833.

Other income (expense) for the three months ended June 30, 2025 consisted of interest income of $2,092 and interest expense of $25,638 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.

six MONTHS ENDED June 30, 2026 AS COMPARED TO June 30, 2025

Consolidated Results of Operations - Percent Trend

Six Months Ended June 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

Six Months Ended

Total Revenue

Cost of Goods Sold

Hardware - reserve

For the six months ended June 30, 2026, and 2025, service revenues included approximately $456,000 and $535,000, respectively, of recurring maintenance and support revenue, and approximately $23,000 and $59,000 respectively, of non-recurring custom services revenue.

Recurring service revenue decreased $79,000 or 15% in 2026 which was due to the timing of renewals of service agreements.

Non-recurring custom services decreased $36,000 due to a decrease in customization.

Overall, service revenues decreased to $479,388 as compared to $594,594 in the corresponding period in 2025.

For the six months ended June 30, 2026, license revenue increased $690,393 or 36% to $2,595,238 from $1,904,845 in the corresponding period in 2025 as several new customers initiated license deployments in 2026.

For the six months ended June 30, 2026, hardware sales increased 186% to $990,898 from $804,627 in the corresponding period in 2025.

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

Costs and other expenses

For the six months ended June 30, 2026, cost of service decreased $58,231 or 27% to $158,214 from $216,445 in the six months ended June 30, 2025.

For the six months ended June 30, 2026, license costs decreasing to $148,206 from $159,373 in the six months ended June 30, 2025.

For the six months ended June 30, 2026, hardware costs decreased to net cost of $315,831 (after giving effect to the $802,020 reversal of the fully reserved shipped inventory) from $367,860 in the six months ended June 30, 2025, for a net decrease of 14%, based on the increase in hardware reserve expense exceeding the increase of the hardware expense.

Selling, general and administrative

Six Months Ended

Selling, general and administrative

Selling, general and administrative expenses for the six months ended June 30, 2026, decreased 6% from $3,053,074 in the corresponding period in 2025 to $2,873,093 in the six months.

The decreases included reductions in administration and professional services fees.

Research, development and engineering

Six Months Ended

Research, development and engineering

For the six months ended June 30, 2026, research, development, and engineering costs increased 2% to $1,257,299 compared to $1,231,802 in the corresponding period in 2025.

The increase consisted primarily of professional services and personnel costs.

Other income (expense)

Six Months Ended

Interest income

Loan fee amortization

Interest expense

Other income (expense)

Other income (expense) for the six months ended June 30, 2026 consisted of interest income of $1,062, interest expense of $54,166 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $41,666.

Other income (expense) for the six months ended June 30, 2025 consisted of interest income of $2,095 and interest expense of $61,548 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $120,000.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities overview

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

Net cash used in operations during the six months ended June 30, 2026 was $1,203,750.

Items of note included:

Net positive cash flows related to adjustments for non-cash expenses of approximately $418,000.

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.

Net positive cash flows related to inventory and deferred revenue of approximately $851,000.

Negative cash flows related to changes in accounts receivable, capitalized contract costs, prepaid expenses, accounts payable and accrued liabilities of approximately $889,000, due to working capital management.

Financing activities overview

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.

Net cash used by financing activities during the six months ended June 30, 2026 was $30,519 consisting of the repayment of $38,179 government loan through the BBVA bank, offset by receipt of $7,660 cash for the purchases under the Employee Stock Purchase Plan.

Investing activities overview

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

There was no cash used in investing activities during the six months ended June 30, 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 sources of liquidity during the previous two years:

The following sets forth our sources of liquidity during the previous two years through the date of this filling:

On August 11, 2026, we closed a transaction with an existing investor to exercise outstanding warrants to purchase an aggregate of 618,334 shares of common stock in consideration for reducing the per share exercise price from $10.20 to $4.06 and issuing additional warrants to the investor to purchase up to an aggregate of 1,236,668 shares of common stock at exercise price of $4.06 per share.

The forgoing resulted in gross proceeds of approximately $2.5 million, prior to deducting placement agent fees and estimated offering expenses.

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.

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 (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) 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.

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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.

On July 28, 2026, the Company entered into an Exchange Agreement (the “2025 Exchange Agreement”) with the Lender of the 2025 Note.

Pursuant to the 2025 Exchange Agreement, the Company and Lender agreed to (i) partition from the 2025 Note a new Promissory Note (the “Partitioned Note”) in the original principal amount of $200,000, (ii) cause the outstanding balance of the 2025 Note to be reduced by $200,000 and (iii) exchange the Partitioned Note for 43,308 shares of the Company’s Common Stock, which was effective April 30, 2026).

On August 10, 2026, the Company entered into a second exchange agreement with the Lender of the 2025 Note.

Pursuant to this exchange agreement, the Company and Lender agreed to (i) partition from the 2025 Note a new Promissory Note (the “Second Partitioned Note”) in the original principal amount of $150,000, (ii) cause the outstanding balance of the 2025 Note to be reduced by $150,000 and (iii) exchange the Second Partitioned Note for 37,792 shares of the Company’s Common Stock .

As of the date of this report, the outstanding principal amount due under the 2025 Note is approximately $325,000.

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 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").

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 (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 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 (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), ("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 an existing investor to exercise certain outstanding warrants to purchase an aggregate of 103,056 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 (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026).

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 $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.

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 (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), and unregistered Series B Warrants to purchase an aggregate of 103,056 shares of common stock(as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), 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 (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.

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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For a more complete description of the 2024 Note, please see Note 10 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2026 and may be discontinued at that time.

We are party to an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2026 and may be discontinued at that time.

Pursuant to the terms of the arrangement, from time to time, we sell to the Factor a minimum of $150,000 per quarter of certain of our accounts receivable balances on a non-recourse basis for credit approved accounts.

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Liquidity outlook

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.

At June 30, 2026, our total cash and cash equivalents were $1,379,300, as compared to $2,694,663 at December 31, 2025.

At June 30, 2026, we had a working capital of approximately $793,000.

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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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