BIO KEY INTERNATIONAL INC

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2025 and 2024

NOTE A—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company, founded in1993, develops and markets proprietary fingerprint identification biometric technology and software solutions enterprise-ready identity access management solutions to commercial, government and education customers throughout the United States and internationally. The Company was a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI (public key infrastructure), credit cards, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been, and is, used to improve both the accuracy and speed of competing finger-based biometrics.

Going Concern and Basis of Presentation

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 fortwelve 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.

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. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to increase its revenue and meet its financing requirements on a continuing basis and become profitable in its future operations. The Company has lowered expenses through decreasing spending in marketing, and research and development. In order to mitigate the losses and improve cash flow, the Company is working on the following initiatives. The EMEA subsidiary is now only selling BIO-key and PortalGuard solutions that donot carry the previous license fee of50% cost of sales. Agents are actively seeking other markets to sell our inventory for the Nigerian projects. The Company continues to lower expenses with a view to keeping current monthly expenses at the current level of approximately $750,000. The Company has an investment that it can liquidate to fund operations (See Note H) and to pay the required Note Payable payments (See Note J). We expect that the growth in revenue will alleviate our going concern within the nexttwelve months. The accompanying condensed consolidated financial statements donot 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.

Reverse Stock Split

• On April 30, 2026,*subsequent to the balance sheet date, the Company effected a 1‑for‑10 reverse stock split of its common stock. All share and per share amounts, including shares underlying options, warrants and other convertible securities, have been retroactively adjusted for all periods presented to reflect this reverse stock split

Foreign Currency

The Company accounts for foreign currency transactions pursuant to ASC830, Foreign Currency Matters ("ASC830”). The functional currency of the Company is the U. S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC830, 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 ASC830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. 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 loss.

The functional currency of BIO-key Africa is the Naira, however, the majority of the Company's transactions are U. S. dollars. Under ASC830, all assets and liabilities are translated into U. S. 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 ASC830, all assets and liabilities are translated into U. S. 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.

Summary of Significant Accounting Policies

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

1. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). Intercompany accounts and transactions have been eliminated in consolidation.

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2. Use of Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission (SEC). These accounting principles require the Company to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which it relies are reasonable based upon information available to it at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to accounts receivable, inventory, intangible assets and goodwill, fair value of convertible note payable, and income taxes.

3. Revenue Recognition

In accordance with ASC606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the followingfive steps:

All of the Company's performance obligations, and associated revenues, are generally transferred to customers at a point in time, with the exception of support and maintenance, and professional services, which are generally transferred to the customer over time.

Software licenses

Software license revenue consists of fees for perpetual and subscription licenses forone or more of the Company’s biometric fingerprint solutions or identity access management solutions. Revenue is recognized at a point in time once the software is available to the customer for download. Software license contracts are generally invoiced in full on execution of the arrangement.

Hardware

Hardware revenue consists of fees for associated equipment sold with or without a software license arrangement, such as servers, locks and fingerprint readers. Customers arenot obligated to buythird party hardware from the Company, and* may*procure these items from a number of suppliers. Revenue is recognized at a point in time once the hardware is shipped to the customer. Hardware items are generally invoiced in full on execution of the arrangement.

Support and Maintenance

Support and maintenance revenue consists of fees for unspecified upgrades, telephone assistance and bug fixes. The Company satisfies its support and maintenance performance obligation by providing “stand-ready” assistance as required over the contract period. The Company records deferred revenue (contract liability) at time of prepayment until the term of the contract begins. Revenue is recognized over time on a ratable basis over the contract term. Support and maintenance contracts areone tofive years in length and are generally invoiced in advance at the beginning of the term. Support and Maintenance revenue for subscription licenses is carved out of the total license cost at18% and recognized on a ratable basis over the license term.

Professional Services

Professional services revenues consist primarily of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts are billed on a time and materials basis, and revenue is recognized based on the amount billable to the customer in accordance with practical expedient ASC606-10-55-18. For other professional services contracts, the Company utilizes an input method and recognizes revenue based on labor hours expended to date relative to the total labor hours expected to be required to satisfy its performance obligation.

Contracts with Multiple Performance Obligations

Some contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The standalone selling prices are determined based on overall pricing objectives, taking into consideration market conditions and other factors, including the value of the contracts, the cloud applications sold, customer demographics, geographic locations, and the number and types of users within the contracts.

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The Company considered several factors in determining that control transfers to the customer upon shipment of hardware and availability of download of software. These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risks and rewards of ownership.

Accounts receivable from customers are typically due within30 days of invoicing. The Company doesnot record a reserve for product returns or warranties as amounts are deemed immaterial based on historical experience.

Costs to Obtain and Fulfill a Contract

Costs to obtain and fulfill a contract are predominantly sales commissions earned by the sales force and are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit determined to befour years. The period of benefit was determined averaging customer life (churn rate) and historical renewal rates. We continue to monitor thefour-year period as facts and circumstances change. These costs are included as capitalized contract costs on the balance sheet. The period of benefit was determined by taking into consideration customer contracts, technology, and other factors based on historical evidence. Amortization expense is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Deferred Revenue

Deferred revenue includes customer advances and amounts that have been paid by customers for which the contractual maintenance terms havenot yet occurred. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12-60 months. Contracts greater than12 months are segregated as long term deferred revenue. Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services. See Note B.

4. Business Combinations

In accordance with ASC805, Business Combinations (ASC805), the Company recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets.

The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair value. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net acquisition date fair value of the assets acquired and the liabilities assumed and represents the expected future economic benefits arising from other assets acquired that arenot individually identified and separately recognized. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. Assumptions* maybe incomplete or inaccurate, and unanticipated events or circumstances mayoccur, which mayaffect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which maybe up toone* year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

5.* Goodwill and acquired intangible assets*

Goodwill isnot amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value* maynot* be recoverable. The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, the Company estimates the fair value of the reporting unit, based on the Company’s market capitalization, and compares this amount to the carrying value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. The annual goodwill impairment test will be performed as of* December31st* of each year.

Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition. The Company amortizes acquired definite-lived intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.

6. Cash Equivalents

Cash equivalents consist of liquid investments with original maturities ofthree months or less. At* December 31, 2025and2024*, cash equivalents consisted of a money market account.

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7. Accounts Receivable

Accounts receivable are carried at original amount less an estimate made for credit losses based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful receivables by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible.

Accounts receivable at* December 31, 2025and2024* consisted of the following:

Bad debt expenses (if any) are recorded in selling, general, and administrative expense.

The allowance for credit losses for the years ended* December 31, 2025and2024* is as follows:

8. Equipment and Leasehold Improvements, Intangible Assets and Depreciation and Amortization

Equipment and leasehold improvements are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

The estimated useful lives used to compute depreciation and amortization for financial reporting purposes are as follows:

Intangible assets other than goodwill consist of patents, trade name, proprietary software, and customer relationships. Patent costs are capitalized until patents are awarded. Upon award, such costs are amortized using the straight-line method over their respective economic lives. If a patent is denied, all costs are charged to operations in that year. Trade names, proprietary software, and customer relationships are amortized over the economic useful life.

9. Impairment or Disposal of Long Lived Assets, including Intangible Assets

The Company reviews long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset* may**not* be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, the Company must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, the Company* maybe required to record impairment charges. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. Impairment expenses in2025* and2024. were $2,500,000 and $0. respectively.

10. Advertising Expense

The Company expenses the costs of advertising as incurred. Advertising expenses for2025 and2024 were approximately $287,000 and $353,000, respectively.

11. Research and Development Expenditures

Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.

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12. Earnings Per Share of Common Stock (“EPS”)

The Company’s EPS is calculated by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants, when the effect of their inclusion is dilutive. See Note Q. All BIO-key shares issued and outstanding for all periods reflect BIO-key’s1-for-10 reverse stock split, which was effective* April 30, 2026.*

13. Accounting for Stock-Based Compensation

The Company accounts for share based compensation in accordance with the provisions of ASC718-10, “Compensation — Stock Compensation,” which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The majority of its share-based compensation arrangements vest over athree year vesting schedule. The Company expenses its share-based compensation under the ratable method, which treats each vesting tranche as if it were an individual grant. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of certain assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected option term”), the estimated volatility of its common stock price over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized as an expense in the consolidated statements of operations. As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, the Company is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the service period, net of estimated forfeitures (the number of individuals that will ultimatelynot complete their vesting requirements). The estimation of stock awards that will ultimately vest requires significant judgment. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates,* maydiffer substantially from current estimates. Options and warrants to outsiders are accounted for under ASC718.*

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

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14. Income Taxes

The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely thannot that the tax benefit of the deferred tax asset willnot be realized. The evaluation, as prescribed by ASC740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which* may*be employed to prevent an operating loss or tax credit carryforward from expiring unused. Because of the Company’s historical performance and estimated future taxable income, a full valuation allowance has been established.

The Company accounts for uncertain tax provisions in accordance with ASC740. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. See Note O.

15*. Leases*

In accordance with ASC842, Leases(ASC842), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than12 months and classifies them as either operating or finance leases.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with a term greater thanone year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has electednot to recognize on the balance sheet leases with terms ofone year or less under practical expedient in paragraph ASC842-20-25-2. For contracts with lease and non-lease components, the Company has electednot to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generallynot determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.

An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we willnot exercise the option. See Note K.

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16. Recently Adopted Accounting Pronouncements

Effective* January 1, 2025.The Company adopted ASU2023*-09, “Improvements to Income Tax Disclosures” (“ASU2023-09”) to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The adoption of this standard didnot have to a material impact on the Company’s consolidated financial statements but expanded the disclosures required.

17. Recently Issued Accounting Pronouncements

• In October 2023,the Financial Accounting Standards Board (“FASB”) issued ASU2023*-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU2023-06”). This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“ASC”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of ASC Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that werenot previously subject to the requirements, and align the requirements in the ASC with the SEC’s regulations. The ASU has an unusual effective date and transition requirements since it is contingent on future SEC rule setting. If the SEC fails to enact required changes by* June 30, 2027,this ASU isnot* effective for any entities. Early adoption isnot permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.

• In November 2024,the FASB issued ASU2024*-03, "Disaggregation of Income Statement Expenses (“DISE”)" ("ASU2024-03") 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 ASU2024*-03 on its consolidated financial statements.

Management doesnot believe that any other recently issued, butnot yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

NOTE B—REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the years ended* December 31, 2025and2024*:

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• EMESA – Europe, Middle East, South America

Revenue recognized during the year ended* December 31, 2025* from amounts included in deferred revenue at the beginning of the year was approximately $455,000. Revenue recognized during the year ended* December 31, 2024* from amounts included in deferred revenue at the beginning of the year was approximately $508,000. Total deferred revenue (contract liability) was approximately $635,000 and $970,000 at* December 31, 2025and2024*, respectively. The contract liability is derived by an 18% carve-out on subscription orders which is based on industry standards and our current maintenance and support charge for perpetual licenses.

Transaction Price Allocated to the Remaining Performance Obligations

ASC606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that havenot yet been satisfied. The guidance provides certain practical expedients that limit this requirement, which the Company’s contracts meet as follows:

Deferred revenue represents the Company’s remaining performance obligations related to prepaid support and maintenance, all of which is expected to be recognized fromone tofive years.

NOTE C—FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts receivable, due from factor, accounts payable and accrued liabilities are carried at, or approximate, fair value because of their short-term nature. The carrying value of the Company’s notes and loan payables approximated fair value as the interest rates related to the financial instruments approximated market.

NOTE D—CONCENTRATION OF RISK

Financial instruments which potentially subject the Company to risk primarily consist of cash, and cash equivalents, investment in debt security, and accounts receivables.

The Company maintains its cash and cash equivalents with various financial institutions, which, at times* mayexceed insured limits. The exposure to the Company is solely dependent upon daily bank balances and the respective strength of the financial institutions. The Company wasnot in excess of coverage at December 31, 2025and2024.* The Company hasnot incurred any losses on these accounts.

The Company extends credit to customers on an unsecured basis in the normal course of business. The Company’s policy is to perform an analysis of the recoverability of its receivables at the end of each reporting period and to establish allowances where appropriate. The Company analyzes historical bad debts and contract losses, customer concentrations, and customer credit-worthiness when evaluating the adequacy of the allowances.

For the year ended* December 31, 2025* , two customers accounted for 26% of total revenue. For the year ended* December**2024*, one customer accounted for 24% of total revenue.

At* December 31, 2025*, two customers accounted for 43% of the total accounts receivable. At* December 31, 2024*, two customers accounted for 36% of total accounts receivable.

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NOTE E—INVENTORY

Inventory is stated at the lower of cost, determined on afirst in,first out basis, or realizable value. The Company periodically evaluates inventory items and establishes reserves for obsolescence accordingly. The Company also reserves for excess quantities, slow moving goods, and for other impairment of value based upon assumptions of future demand and market conditions. The reserve on inventory in2025 and2024 is due to slow moving inventory, including inventory purchased for projects in Nigeria. The Company is looking into other markets and opportunities to sell or return the product. The total inventory below accounts for selective product that ships quarterly to customers worldwide and through Amazon.

Inventory is comprised of the following as of* December 31:*

NOTE F—EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following as of* December 31:*

Depreciation was $84,458 and $93,026 for2025 and2024, respectively. Amounts are recorded in selling, general, and administrative expense as well as in cost of services.

NOTE G—INTANGIBLE ASSETS

Intangible assets consisted of the following as of* December 31:*

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Aggregate amortization expense for2025 and2024 was approximately $267,273 and $304,983, respectively. Estimated minimum amortization expense based on straight line amortization of the software license rights for each of the nextfive years and thereafter approximates the following:

NOTE H - INVESTMENTS

Equity Investment in Privately Held Company

On* November 27, 2024,the Company purchased 5,000,000 shares (the “Boumarang Shares”) of common stock of Boumarang, Inc., an early-stage private technology company developing sustainable long-range drone technology for commercial applications. The Boumarang Shares represent approximately 7.69% of the issued and outstanding shares of Boumarang, Inc. and the Company hasno* corporate governance or control rights. 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 59,500 shares of the Company’s common stock (as adjusted to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026).Fiber Food isnot* a principal stockholder of Boumarang and hasno corporate governance or control rights.

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 oftwo 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 anythird party from doing any of the forgoing, or acquiring any debt or equity securities of any other party. In* Aprilof2025,* 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 isno trading market and are carried at fair value. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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 Topic820 – “Fair Value Measurement,” which establishes athree-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value intoone ofthree different levels depending on the observability of the inputs employed in the measurement. Thethree levels are defined as follows:

Level1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level2: Inputs other than quoted prices included within Level1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived from observable market data by correlation or other means.

Level3: Inputs for the asset or liability that arenot based on observable market data (unobservable inputs).

The Boumarang Shares are classified as a Level3 asset and have been valued based on a combination of recent sales of Boumarang common stock tothird parties and athird party valuation applying a discounted cash flow analysis which included discounts for lack of control and lack of marketability, small company risk premium, and specific company risk premium based on Boumarang being an early-stage pre-revenue company. The lack of control and marketability discounts were based on published studies and transfer restrictions contained in Boumarang’s corporate governance documents.

Due to the inherent uncertainty of determining the fair value of investments that donot have a readily available market value, the fair value of the Boumarang Shares* mayfluctuate from period to period and the fair value of the Boumarang Shares maydiffer significantly from the values that would have been used had a ready market existed for such shares and maydiffer materially from the values that the Company may*ultimately realize. The early-stage pre-revenue status and unproven technology of Boumarang raise uncertainties that could impact the recoverability of the investment in the Boumarang Shares.

ASC321-10-35 requires annual impairment testing for equity securities without readily determinable fair values. In* Aprilof2026* the Company received an updated independent valuation report with a* December 31, 2025valuation of $2.00 per share. The independent report referenced revenue beginning in2026* as the basis of the valuation, which hasnot occurred to date. As a result, management has recorded a 50% impairment of investment.

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NOTE I—ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of* December 31:*

For the years ended* December 31, 2025from December 31, 2024,there were decreases in compensation costs related to commission payments due of approximately, $161,000 and decreases in employee expenses reimbursement due to timing of reimbursements of approximately $9,000. These decreases were offset by increases for the years ended December 31, 2025and December 31, 2024*of approximately $46,000 for a higher vacation time accrual, approximately $25,000 for higher legal and accounting fees, approximately $9,000 for sales tax, and approximately $157,000 for miscellaneous accrued expenses.

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NOTE J—NOTES PAYABLE

Securities Purchase Agreement dated* September 30, 2025*

On* September 30, 2025,the Company entered into and closed a note purchase agreement with the Lender which provided for the issuance of a $1,130,000 principal amount senior secured promissory note (the“2025* Note”). The2025 Note carries an original issue discount of $125,000 and the Company agreed to pay $5,000 to the Lender to cover its transaction costs, which were deducted from the proceeds of the2025 Note resulting in a total of $1,000,000 being funded to the Company at closing. The proceeds are being used for general working capital.

The principal amount of the2025 Note is due18 months following the date of issuance. Interest under the2025 Note accrues at a rate ofnine percent (9%) per annum. All repayments of principal due under the2025 Note will be subject to an exit fee ofseven percent (7%) of the principal amount being repaid (the “Exit Fee”). Commencingsix months after the date of issuance of the2025 Note (the “Redemption Start Date”), Lender shall have the right to redeem up to $135,000 of principal amount under the2025 Note each month which amount plus the Exit Fee will be due and payablethree (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 hasnot reduced the outstanding balance under the2025 Note by at least $135,000, then by thefifth (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 byone percent (1%). As of* September 30, 2025,*there have beenno redemptions by the Lender.

The2025 Note is secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the2025 Note are guaranteed by Pistol Star, Inc., a wholly owned subsidiary of the Company (Pistol). The2025 Note can be prepaid in whole or in part without penalty at any time. 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 the2025 Note.

The Note provides for customary events of default, including, among other things, the event of non-payment of principal, interest, fees or other amounts, a representation or warranty proving to have been incorrect when made, failure to perform or observe covenants within a specified period of time, the bankruptcy or insolvency of the Company or of all or a substantial part of its property, and monetary judgment defaults of a specified amount. At* December 31, 2025the Company wasnot* in default of any covenants.

In connection with the* October 27, 2025warrant exercise agreement described in Note M, the Company prepaid approximately $455,000 of the amount due under the2025* Note. At* December 31, 2025,the principal balance due for the2025* note was $545,000.

Securities Purchase Agreement dated* June 24, 2024*

On* June 24, 2024,the Company entered into and closed a note purchase agreement (the “Purchase Agreement”) which provided for the issuance of a $2,360,000 principal amount senior secured promissory note (the“2024* Note”). The2024 Note carried an original issue discount of $350,000 and the Company agreed to pay $10,000 to the Lender to cover its transaction costs, which were deducted from the proceeds of the2024 Note resulting in a total of $2,000,000 being funded to the Company at closing. The proceeds were used for general working capital.

The principal amount of the2024 Note was originally dueeighteen months (18) following the date of issuance. Interest under the2024 Note accrues at a rate ofnine percent (9%) per annum. All repayments of principal due under the2024 Note will be subject to an exit fee ofseven percent (7%) of the principal amount being repaid (the “Exit Fee”). Commencingsix months after the date of issuance of the Note (the “Redemption Start Date”), Lender shall have the right to redeem up to $270,000 of principal amount under the2024 Note each month which amount plus the Exit Fee will be due and payablethree (3) business days after Lender’s delivery of a redemption notice to the Company.

The2024 Note was secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the Note were guaranteed by Pistol. The2024 Note could be prepaid in whole or in part without penalty at any time. In the event that the Company received any proceeds in connection with any fundraising or financing transaction (including any warrant exercises), it would 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 the2024 Note.

The Company received gross proceeds of approximately $2.0 million in connection with a financing transaction (see Note M Warrants). In accordance with the terms of the2024 Note, on* October 1, 2024,40% of the proceeds received, or approximately $762,600, was used to prepay amounts due under the2024* Note.

Between* Januaryand September 2025,the Company entered into a number of Exchange Agreements with the holder of the2024* Note pursuant to which it partitioned from the2024 Note new promissory notes in the aggregate principal amount of $1,459,000 reducing the outstanding principal amount of the2024 Note to approximately $338,400. On* October 27, 2025,the Company entered intotwo* Exchange Agreements (the “Exchange Agreements”) with the Lender. Pursuant to the Exchange Agreements, the Company and Lender agreed to (i) partition from the2024 Notetwo new Promissory Notes (the “Partitioned Notes”) in the original principal amounts of $261,841 and $66,150, respectively, (ii) cause the outstanding balance of the2024 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 42,903 shares of the Company’s Common Stock (as adjusted

to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026).As a result of the Exchange Agreements, the2024* Note has been paid in full.

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NOTE K—LEASES

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong Kong with lease termination dates in2026 and2027. The property leased in China is paid monthly as used, without a formal agreement. The following tables present the components of lease expense and supplemental balance sheet information related to the operating leases were:

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NOTE L—** CONTINGENCIES**

Litigation

From time to time, the Company* maybe involved in litigation relating to claims arising out of its operations in the normal course of business. As of December 31, 2025*, the Company wasnot a party to any pending lawsuits.

NOTE M—** EQUITY**

1. Preferred Stock

Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of preferred stock, $.0001 par value per share, inone or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.

2. Common Stock

Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock haveone vote for each share held of record and donot have cumulative voting rights.

Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock arenot redeemable and haveno preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.

Employee Stock Purchase Plan

On* June 18, 2021,the stockholders approved the2021* Employee Stock Purchase Plan ("ESPP"). Under the terms of this plan,4,384 shares of common stock were reserved for issuance to employees and officers of the Company at 85% of the lower of the closing price of the common stock as reported on the Nasdaq Capital Market at thefirst day or the last day of the offering period. Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions. The Board* maysuspend 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. During2025* and2024, 2,126, and 264 shares, respectively, were issued under the ESPP to employees, (as adjusted to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026)*which resulted in a $2,250 and $775 non-cash compensation expense, respectively.

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. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Restricted stock is expensed ratably over the term of the restriction period.

The Company issued 28,300 shares of restricted common stock to certain employees of the Company and 3,025 of shares of restricted common stock were forfeited during the year ended* December 31, 2025.The Company issued 17,896 shares of restricted common stock to certain employees of the Company and 917 of shares of restricted common stock were forfeited during the year ended December 31, 2024 (as adjusted to reflect our1*-for-10 reverse stock split, which was effective* April 30, 2026).*These shares vest in equal annual installments over athree-year period from the date of grant.

Restricted stock compensation for the years ended* December 31, 2025and2024* was $144,321 and $224,470, respectively.

Issuances to Directors, Executive Officers & Consultants

During the2025 and2024 years, the Company issued 2,314 and 1,205 shares of common stock respectively to its directors in lieu of payment of board fees, valued at $20,004 and $18,006 respectively (as adjusted

to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026).*

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Warrants

Warrants Issued with a Warrant Exercise Agreement:

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 our1*-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 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 within90* 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* January 15, 2025,the Company entered into a warrant exercise agreement (the "JanuaryWarrant 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 our1*-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 "Existing2024* Warrants"). In consideration for the exercise of the Existing2024 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* JanuaryWarrant 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 the2024* Note.

On* September 12, 2024,the Company entered into a Warrant Exercise Agreement ("Inducement Agreement") with an existing institutional 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 our1*-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 the 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.

Valuation Assumptions for Warrants:

The Company records the warrants at their fair value which is determined using the Black-Scholes valuation model on the date of the grant. The fair value of the warrants issued in2025 and2024 were estimated with the following assumptions:

The volatility for each issuance is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected exercise period. Thefive-year volatility is higher than theone-year rate from Bloomberg, based on several reverse-splits of BIO-key's stock over thefive-year period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the years to maturity.

A summary of warrant activity (as adjusted to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026)*is as follows:

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The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $5.40, $17.10, and $30.00 as of* December 31, 2025,2024 and2023, respectively, which would have been received by the warrant holders had all warrant holders exercised their options as of that date. There wereno in-the-money warrants exercisable as of December 31, 2025,*2024 and2023.

NOTE N—STOCK OPTIONS

2023 Stock Incentive*Plan*

On* December 14, 2023,the stockholders approved the2023* Stock Incentive Plan. The2023 Plan initially reserved 33,333 shares of common stock for issuance of options, restricted stock, and other equity based awards to employees, officers, directors, consultants advisors and independent contractors of the Company. Options are issued at exercise prices which* may**not* be below 100% of fair market value (or 110% of the fair market value if, at the time the option is granted, the participant owns, directly or indirectly, more than10% of the total combined voting power of all classes of our stock) and have termsnot to exceedten years. Options issued under the2023 Plan vest pursuant to the terms of stock option agreements with the recipients. In the event of a change in control, certain awards issued under this plan* maybe subject to additional acceleration of vesting as maybe provided in the participants’ written agreement or as determined by the Board or Compensation Committee. The2023* Plan expires on* December 13, 2033,unless terminated earlier. On August 8, 2025,at the Annual Meeting, a proposal was approved to amend the plan to reserve an additional 70,000 shares of common stock. In2025,* the Company issued 28,300 restricted shares to employees of which 3,026 were forfeited. The Company also issued 2,316 shares to the Board of Directors for payments of Board fees.

2015 Stock Option Plan

On* January 27, 2016,the stockholders approved the2015* Equity Incentive Plan (the*“2015* Plan”). The2015 Plan initially reserved 1,042 shares of common stock for issuance of options, restricted stock, and other equity based awards to employees, officers, directors, and consultants of the Company. In2021, the stockholders approved an amendment to the2015 to increase the shares of common stock authorized for issuance under the2015 Plan from 1,042 shares to 4,383 shares together with other technical changes. The term of stock options granted under the2015 Plan,* maynot* exceedten years, exercise prices* maynot* be below 100-110% of fair market value, and vesting occurs over time periods set forth in written agreements with the recipients. In the event of a change in control, certain stock awards issued under the2015 Plan* maybe subject to additional acceleration of vesting as maybe provided in the participants’ written agreement. The2015* Plan expired in* December 2025.*

Non-Plan Stock Options

Periodically, the Company has granted options outside of the2015 Plan to various employees and consultants. In the event of change in control, as defined, certain of the non-plan options outstanding vest immediately.

Stock Option Activity

Information summarizing option activity is as follows:

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The options outstanding and exercisable at* December 31, 2025* were in the following exercise price ranges (as adjusted to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026):*

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $5.40, $17.10, and $30.00 as of* December 31, 2025,2024 and2023, respectively, which would have been received by the option holders had all option holders exercised their options as of that date. There wereno in-the-money options exercisable as of December 31, 2025,*2024 and2023.

The weighted average fair value of options granted during the years ended* December 31, 2025and2024* was $0 asno options were granted in either year. The total intrinsic value of options exercised during the years ended* December 31, 2025and2024* was $0 asno options were exercised in either year. The total fair value of shares vested during the years ended* December 31, 2025and2024* was$0 asno options vested in either year.

As of* December 31, 2024,*there wasno future forfeiture adjusted compensation costs related to nonvested stock options.

NOTE O—INCOME TAXES

For financial reporting purposes, the net pre-tax book loss for the United States and foreign entities, in the aggregate, was:

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There wasno provision for current federal, foreign or state taxes for both of the years ended* December 31, 2025and2024* as a result of taxable losses incurred in these jurisdictions. The provision for income taxes (tax benefits) benefits consists of the following:

There wereno payments made in relation to income taxes for the year ending* December 31, 2025.*

Significant components of deferred tax assets and liabilities are as follows at* December 31, 2025and2024* :

The Company recorded a valuation allowance equal to its net deferred taxes due to the uncertainty of realization of the deferred tax assets due to operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely thannot that some portion, or all of its deferred tax assets willnot be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At* December 31, 2025and2024*, the Company provided a valuation allowance on its net deferred tax assets of $15,083,017 and $15,740,289 respectively.

As of* December 31, 2025*, the Company has U.S. federal net operating loss carryforwards of approximately $53.3 million. Approximately $19.6 million are subject to expiration between2026 and2037, and $33.7 million net operating loss carryforwards haveno expiration date. These net operating loss carryforwards could be subject to the limitations under Section382 of the Internal Revenue Code due to changes in the equity ownership of the Company. In addition, the Company has net operating loss carry forwards from various states of approximately $12.5 million which expire from2026 through2045.

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A reconciliation of the effective tax rate on loss from operations and the US federal statutory rate is presented below for the years ended* December**31,* 2025 and2024.

The rate reconciliation above has been adjusted to be presented in compliance with the guidance under ASU2023-09. The Company has adopted this guidance on a prospective basis.

As previously disclosed for the year ended* December 31, 2024,prior to the adoption of ASU2023*-09, the following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate.

On* July 4, 2025,the One Big Beautiful Bill was enacted ("OBBBA"), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of100%* accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures ("R&E") which in some cases* mayinclude retroactive application back to2021* for businesses with gross receipts of less than*$31* million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions. In accordance with ASC740, the Company recognized the effects of the OBBBA in the period that included the enactment date. The Company continues to evaluate the ongoing effects of the OBBBA, including the interaction of the enacted provisions with its existing tax attributes and elections.

The Company hasnot been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company hasnot filed its required returns for fiscal2024 as of the date of this report. Management believes that when the returns are filed, the taxes that will be owed willnot be material due to the losses incurred during the year. The Company is currently working on the filings and expects to file these returns in* April 2026.The Company estimates that the potential penalties for non-filing will be minimal due to the losses incurred. The periods from2021* through2025 remain open to examination by the IRS and state jurisdictions.

The Company's subsidiary in Nigeria hasnot filed its required returns since inception. Management believes that when the returns are filed,no taxes will be owed due to the losses incurred during those periods. The Company isnot subject to minimum tax during thefirst four years of operations. As a result, management couldnot calculate the amount of net operating loss carryforwards that are available to offset future taxable income. Potential penalties for non-filing are estimated to be minimal due to the losses. The Company expects to be current by* December 31, 2026.*

The Company's subsidiary in Hong Kong hasnot filed its required returns in several years. Management believes that when the returns are filed,no taxes will be owed due to losses incurred during those periods. As a result, management couldnot calculate the amount of net operating loss carryforwards are available to offset future taxable income. Potential penalties for non-filing are expected to be minimal due to the losses. The Company expects to be current in2026.

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The Company's subsidiary in Portugal hasnot filed its required returns since inceptions. Management believes that when the returns are filed,no taxes will be owed due to losses incurred during those periods. As a result, management couldnot calculate the amount of net operating loss carryforwards are available to offset future taxable income. We estimate that the potential penalties for non-filing will be minimal due to the losses. The Company will be working on the filings during2026.

The Company believes it isnot subject to any tax audit risk beyond those periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company doesnot have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense incurred during the years ended* December 31, 2025and2024*.

NOTE P—SAVINGS PLAN

The Company has established a savings plan under section401(k) of the Internal Revenue Code. All employees of the Company, after completingone day of service, are eligible to enroll in the401(k) plan. Participating employees* mayelect to defer a portion of their salary on a pre-tax basis up to the limits as provided by the IRS Code. The Company isnot* required to match employee contributions but* maydo so at its discretion. The Company madeno matching contributions during the years ended December 31, 2025and2024*. The plan passed its2024 annual non-discrimination test and expects to pass the2025 annual non-discrimination test.

NOTE Q—EARNINGS PER SHARE (EPS)

Items excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares, and they were also excluded from diluted earnings per share due to anti-dilution (as adjusted to reflect our1-for-10 reverse stock split, which was effective* April 30, 2026):*

:

NOTE R—SEGMENTS

The Company operates asone operating segment. The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM used consolidated revenues, gross profit and loss before provision for income taxes to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the need to allocate its budget to operating expenses and invest in additional equipment. The segment assets are equal to the assets presented in the consolidated balance sheets.

The significant expenses that are regularly provided to the CODM are disclosed in the consolidated statements of operations as a part of the condensed consolidated net loss. See the consolidated financial statements for all financial information regarding the Company’s operating segment.

See Note B for the Company’s revenues by geographic region.

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

NOTE S—SUBSEQUENT EVE****NTS

On* February 17, 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 (as adjusted to reflect our1*-for-10 reverse stock split, which was effective* April 30, 2026).*

On* March 19, 2026,the Company issued 250 shares of restricted stock to a new employee which vest over three-years (as adjusted to reflect our1*-for-10 reverse stock split, which was effective* April 30, 2026).*

The forgoing issuances of common stock after* December 31, 2025total 250 shares representing a 0% increase in the Company's outstanding shares of common stock since December 31, 2025,including forfeitures (as adjusted to reflect our1*-for-10 reverse stock split, which was effective* April 30, 2026.*

On* April 20, 2026,the Company held a Special Meeting of stockholders at which our 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 at5:00* 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, 2026under a new CUSIP number,09060C606 (as adjusted to reflect our1*-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, 2026due 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 has scheduled an appeal of such determination to Nasdaq’s Hearings Panel and a hearing has been scheduled for* June 16, 2026.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 hadnot* yet filed its Quarterly Report on Form10-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.

EXHIBIT INDEX

• filed herewith

** Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted sections have been filed separately with the Securities and Exchange Commission.

*** Management compensatory plan.

• Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Company has determined that such portions are (a) not material and (b) would likely cause competitive harm to the Company if publicly disclosed.