Newton Golf Company, Inc.

NOTES TO FINANCIAL STATEMENTS

**For the Years Ended December 31, 2025 and 2024

(Amounts rounded to nearest thousands, except share and per share amounts)

NOTE 1 –OPERATIONS AND LIQUIDITY

Newton Golf Company, Inc. (“we” or the “Company”) was formed in 2018 as Sacks Parente Golf, Inc., a Delaware limited liability company. On March 18, 2025 the Company converted into a Delaware corporation named Newton Golf Company, Inc. Pursuant to our Plan of Conversion, on March 18, 2025, all of the outstanding ownership interests in Sacks Parente Golf, Inc., and rights to receive such interest were converted into and exchanged for shares of capital stock of Newton Golf Company, Inc.. The Company retroactively reflected the conversion as of the earliest periods presented herein.

On March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change to Newton Golf Company, Inc. became effective on March 17, 2025.

The Company designs, manufactures, and sells performance golf equipment, including premium golf shafts and putters. The Company’s Newton Motion shaft product line represents a core component of its product strategy and has contributed significantly to recent revenue growth.

In April 2022, the Company expanded its manufacturing capabilities by opening a shaft manufacturing facility in St. Joseph, Missouri, to support the production of advanced carbon fiber golf shafts. The Company seeks to manufacture and assemble substantially all of its products in the United States where economically feasible, which management believes provides supply chain advantages and greater control over product quality and manufacturing processes.

The Company sells its products through a combination of direct-to-consumer channels, including its websites, as well as through resellers, professional club fitters, distributors, and golf retailers. The Company currently distributes products primarily in the United States, with additional distribution in Japan and South Korea.

The Company may expand its product offerings over time through internal product development, strategic partnerships, or acquisitions of complementary golf-related product lines or technologies.

Going Concern and Liquidity

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the year ended December 31, 2025, the Company incurred a net loss of $6,020,000 and used cash in operations of $5,166,000 and had stockholders’ equity of $926,000 as of December 31, 2025. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

At December 31, 2025, the Company had cash and cash equivalents on hand in the amount of $1,298,000. Management currently expects that its existing cash resources will fund operations for a limited period and that additional financing will be required to support ongoing operations.

The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.

Reverse Stock Splits

On July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-10 shares (the “First Reverse Stock Split”). The First Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on July 30, 2024 and the Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As a result of the First Reverse Stock Split, every ten shares of common stock were automatically combined into one share of common stock. The authorized number of shares of common stock was not affected by the First Reverse Stock Split. No fractional shares were issued in connection with the First Reverse Stock Split, as all fractional shares were rounded up to the next whole share.

On March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of Delaware to affect areverse stock split of the Company’s common stock at a ratio of 1-for-30 shares (the “Second Reverse Stock Split”, and together with the First Reverse Stock Split, the “Reverse Stock Splits”). The Second Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on March 17, 2025 and the Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As a result of the Second Reverse Stock Split, every 30 shares of common stock were automatically combined into one share of common stock. All shares and per share amounts and information presented herein have been retroactively adjusted to reflect the Reverse Stock Splits for all years presented.

The authorized number of shares of common stock was not affected by the Reverse Stock Splits. No fractional shares were issued in connection with the Reverse Stock Splits, as all fractional shares were rounded up to the next whole share. Accordingly, all share and per share amounts presented herein with respect to common stock have been retroactively adjusted to reflect the First and Second Reverse Stock Split for all periods presented. Proportionate adjustments for the Reverse Stock Splits have been made to the per share exercise price and the number of shares issuable upon the exercise of warrants, the number of shares reserved for issuance under the Company’s equity plans, and all the then outstanding awards under the Company’s equity plans. The Reverse Stock Splits did not change the par value of the common stock or modify any voting rights or other terms of common stock.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts receivables, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term and tangible and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing warrant liabilities, and assumptions made in valuing stock instruments issued for services.

Cash and Cash Equivalents

The Company’s cash consists of cash on deposit with banks. Cash equivalents represent money market funds or short-term investments with original maturities of three months or less from the date of purchase.

Accounts Receivable

Accounts receivable are generally recorded at the invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding. The allowance for accounts receivable is established through a provision reducing the carrying value of receivables. At December 31, 2025, management recorded an allowance for doubtful accounts of $69,000, reflecting updated expectations regarding collectability. At December 31, 2024, the allowance for doubtful accounts was $19,000.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method. Inventory consists primarily of raw materials, work-in-process, and finished goods related to the Company’s golf equipment products.

The Company regularly reviews inventory quantities on hand and records provisions for excess, slow-moving, or potentially obsolete inventory based primarily on estimated future product demand and the Company’s ability to sell the related products.

Demand for the Company’s products may fluctuate due to factors such as changes in consumer preferences, product life cycles, competitive product introductions, and general market conditions, which could result in slower inventory turnover or reductions in the rate of orders placed by customers.

The Company also performs periodic physical inventory counts and cycle counts to verify recorded inventory quantities. Adjustments may be recorded when differences are identified between recorded inventory balances and physical inventory on hand, including adjustments related to product costing or bill of materials assumptions maintained within the Company’s enterprise resource planning system.

Management’s estimates of future product demand and net realizable value require judgment and may differ from actual results, which could result in adjustments to inventory carrying values in future periods.

At December 31, 2025 and 2024, management recorded reserves for slow-moving and potentially obsolete inventory of $135,000 and $49,000, respectively.

Property and Equipment

Property and equipment are stated at cost. Expenditures for major renewals and improvements that extend the useful lives of property and equipment are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the years ended December 31, 2025 and 2024, the Company determined there wereno indicators of impairment of its property and equipment.

Warrant Liabilities

The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the guidance provided by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606,Revenue from Contracts with Customers(“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Revenue and costs of sales are recognized when control of the products is transferred to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer.

All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.

The Company does not allow for returns after 30 days, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

The following table presents our net sales by revenue source, and the period-over-period percentage change, for the period presented:

The following table presents our net sales by product lines for the period presented:

Loss per Common Share

Basic loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.

For the years ended December 31, 2025 and 2024, the calculations of basic and diluted net loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

Advertising Costs

Advertising costs are expensed as incurred and are included in selling, general and administrative expense. Advertising costs aggregated at $2,346,000 and $1,351,000 for the years ended December 31, 2025 and 2024, respectively.

Research and Development

Research and development expenses consist primarily of personnel costs, prototype expenses, and consulting services associated with research and development equipment. Research and development costs are expensed as incurred. Research and development costs were $779,000 and $743,000 for the years ended December 31, 2025 and 2024, respectively.

Stock-Based Compensation

The Company periodically grants restricted stock units (“RSUs”) and stock options to employees, directors, and consultants in non-capital raising transactions for services. The Company accounts for these awards in accordance with Accounting Standards Codification 718, Compensation—Stock Compensation (“ASC 718”), whereby the fair value of the award is measured on the grant date and recognized as compensation expense on a straight-line basis over the vesting period. Stock-based compensation expense is recorded in the Company’s statements of operations based on the nature of the services rendered. The fair value of RSU awards is determined based on the fair market value of the Company’s common stock on the grant date.

The fair value of stock option awards is estimated using the Black-Scholes option-pricing model, which requires management to make assumptions regarding the expected term of the award, expected volatility of the Company’s common stock, the risk-free interest rate, and expected dividend yield.

The Company was a private company through August 14, 2023, and therefore initially lacked company-specific historical and implied volatility information. As a result, the Company historically estimated expected volatility using the historical volatility of a group of publicly traded peer companies within the consumer products industry with characteristics similar to the Company. Beginning in the third quarter of 2025, the Company began using the historical volatility of its own publicly traded common stock to estimate expected volatility.

The expected term of stock options granted to employees is determined using the “simplified” method for awards that qualify as plain-vanilla options. The expected term of stock options granted to non-employees is generally based on the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, as the Company has never paid cash dividends and does not currently expect to pay dividends in the foreseeable future.

Fair Value of Financial Instruments

The Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure their fair value. ASC Section 820 defines the following levels of subjectivity associated with the inputs:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s assumptions.

The carrying amounts of financial assets and liabilities, such as cash, accounts receivable, inventory, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.

The Company utilizes level 3 inputs in the fair value hierarchy to determine the fair market value of its warrant liability.

Concentrations of Risk

Cash Balances. The Company’s cash balances on deposits with banks are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the FDIC limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions. All of the non-interest-bearing cash balances were fully insured at December 31, 2025 and 2024.

Accounts Receivable. At December 31, 2025, two customers accounted for more than 19% and 17% of accounts receivable, respectively. At December 31, 2024, two customers accounted for 44% and 20% of accounts receivable. No other customers exceeded 10% of accounts receivable in either period.

Net sales. During the year ended December 31, 2025, no customer exceeded 10% of net sales. During the year ended December 31, 2025, approximately 99% of the Company’s net sales were in the United States and 1% of the Company’s net sales were international. During the year ended December 31, 2024, no customer accounted for more than 10% of net sales. During the year ended December 31, 2024, approximately 94% of the Company’s net sales were in the United States, and 6% of the Company’s net sales were international.

Income Taxes

The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

Segments

Under ASC 280, Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company has one component. Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment for the manufacture and distribution of its products.

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the CODM and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280,Segment Reporting, including the significant segment expense disclosures. This standard became effective for the Company on January 1, 2024. The adoption of 2023-7 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In November 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation and amortization expense for each caption on the income statement where such expenses are included. The update is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. We are currently evaluating the provisions of this guidance and assessing the potential impact on our financial statement disclosures.

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 3 –INVENTORY

Inventory is valued at the lower of cost, first in, first out or net realizable value, and net of reserves is comprised of the following:

NOTE 4 –PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following:

Depreciation expense is included in selling, general and administrative expenses in the accompanying statements of operations. For the years ended December 31, 2025 and 2024, depreciation expenses were $305,000 and $165,000, respectively.

NOTE 5 –SOFTWARE LICENSING OBLIGATION

In October 2023, the Company entered into a software licensing agreement with Oracle America, Inc (“Oracle”) for its NetSuite Enterprise Resource Planning (ERP) software (“NetSuite”). The Company agreed to license NetSuite for 36 months and utilize Oracle’s professional services to assist in the implementation of NetSuite. The cost of the license fee was $102,000 and professional services were fixed at $34,000, for an aggregate cost of $136,000. Per the payment terms, no payments were due during the first nine months, and 30 monthly payments of $4,513 are due from April 1, 2024 through September 1, 2026.

The Company initially recorded the $136,000 cost as a deferred software licensing asset and liability on the accompanying balance sheets. The deferred software licensing asset is being amortized over the license period. The deferred software licensing balance was $59,000 at December 31, 2024. During the year ended December 31, 2025, the Company recorded amortization expense of $34,000, resulting in a deferred software licensing balance of $25,000 at December 31, 2025.

During the year ended December 31, 2024, the Company made payments of $50,000, leaving a software license obligation balance of $86,000 at December 31, 2024. During the year ended December 31, 2025, the Company made payments of $45,000, leaving a software license obligation balance was $41,000 at December 31, 2025. As of December 31, 2025, the entire remaining balance of $41,000 was classified as current, with no long-term software license obligation outstanding.

NOTE 6 –LEASE LIABILITIES

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company leases its office and warehouse locations, and certain warehouse equipment. Leases with an initial term of 12 months or less are not included on the balance sheets.

On April 1, 2022, the Company entered a facility lease for a 4,000 square foot facility in St. Joseph, Missouri, to expand its manufacturing business to include advanced premium golf shafts. The lease is for 24 months, and the monthly rent is approximately $1,500. On January 1, 2023, the Company amended its lease by adding an additional 5,000 square feet and extending the lease term to December 2024. The amended lease is for 24 months from January 1, 2023, and the monthly rent is approximately $3,000. On December 14, 2023, the Company again amended itslease by extending the lease term to December 2025.

In July 2025, the Company entered into an additional lease agreement that added a parking lot and a designated space for a dumpster. The lease runs from January 1, 2025 through December 31, 2027, with monthly rent increasing from $3,600 to $3,900.

The Company’s ROU asset balance was $34,000 as of December 31, 2024. During the year ended December 31, 2025, the Company recognized an additional ROU asset of $106,000 related to its new lease and recorded amortization of ROU assets of $56,000, resulting in an ROU asset balance of $84,000 as of December 31, 2025.

The Company’s lease liability balance was $34,000 as of December 31, 2024. In connection with the 2025 lease agreement, the Company recognized an additional lease liability of $106,000. During the year ended December 31, 2025, the Company made lease payments of $56,000, resulting in a lease liability of $84,000 as of December 31, 2025. Of this amount, $40,000 was classified as current and $44,000 was classified as long-term.

During the years ended December 31, 2025 and 2024, lease costs totaled approximately $49,000 and $98,000, respectively.

As of December 31, 2025, the weighted average remaining lease term for operating leases was 2.0 years, and the weighted average discount rate for operating leases was 10.0%.

Future minimum lease payments under the leases are as follows:

NOTE 7 –STOCKHOLDERS’ EQUITY

Common Stock Issued for Public Offerings

On October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the offering, issuance and sale of up to 12,200 shares of the Company’s common stock at a public offering price of $60.00 per share. The offering closed on October 10, 2024. The net proceeds to the Company for the offering were $467,000, after deducting the underwriting discounts and commissions and estimated offering expenses.

On December 12, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the sale of up to 233,333 common units (the “Common Units”), each consisting of one share of common stock, one Series A Common Warrant to purchase one share of common stock per warrant, and one Series B Common Warrant to purchase one share of common stock per warrant. The public offering price per Common Unit is $36.00. The initial exercise price of each Series A Common Warrant is $72.00 per share of Common Stock. The Series A Common Warrants are exercisable following stockholder approval and expire 60 months thereafter. The initial exercise price of each Series B Common Warrant is $72.00 per share of common stock or pursuant to an alternative cashless exercise option. The Series B Common Warrants are exercisable following stockholder approval and expire 30 months thereafter. The offering closed on December 13, 2024. The net proceeds to the Company for the offering were approximately $7,326,000, after deducting underwriting discounts and commissions and estimated offering expenses.

As discussed below, the Series A and B Warrants have been accounted for as a liability. The fair value of the warrants at the date of issuance was determined to be $12,456,000 (Series B) and $1,783,000 (Series A). Upon closing of the offering, the fair value of the warrant liability, up to the amount of funds received of $7,326,000, was recorded as a cost of capital and the excess of $6,913,000 was recorded as a finance cost.

Equity Incentive Plans

The Company maintains the 2022 Equity Incentive Plan (the “2022 Plan”), which provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs and performance units and performance shares to employees, directors and consultants of the Company or any parent or subsidiary of the Company. The purpose of the 2022 Plan is to enable the Company to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants of the Company or any parent or subsidiary of the Company, and to promote the success of the Company’s business.

NOTE 8 –STOCK OPTIONS

Summary of Options

A summary of stock options for the years ended December 31, 2025 and 2024 is as follows:

As of December 31, 2025, the intrinsic value of the outstanding options under the 2022 Plan was $0.

The total stock compensation expense recognized related to vesting stock options for the year ended December 31, 2025 and 2024 amounted to $181,000 and $308,000, respectively. As of December 31, 2025, the total unrecognized stock-based compensation was $288,000, which is expected to be recognized as part of operating expense through November 2029.

The following were stock option transactions during the year ended December 31, 2025:

On June 26, 2025, the Company granted stock options to an employee to purchase 5,000 shares of common stock for services to be rendered. The options have an exercise price of $1.50 per share, and expire infive years, vesting equally over four years from the employee’s start date. The total fair value of these options at the grant date was approximately $7,000 using the Black-Scholes option pricing model.

On November 17, 2025, the Company granted stock options to an employee to purchase 20,033 shares of common stock for services to be rendered. The options have an exercise price of $0.90 per share, and expire infive years, vesting equally over four years from the employee’s start date. The total fair value of these options at the grant date was approximately $16,000 using the Black-Scholes option pricing model.

The following were stock option transactions during the year ended December 31, 2024:

On January 1, 2024, the Company granted stock options to a director to purchase 133 shares of common stock for services to be rendered. The options have an exercise price of $201.60 per share, and expire inseven years, vesting equally over three years from the grant date. The total fair value of these options at the grant date was approximately $22,000 using the Black-Scholes option pricing model.

On July 18, 2024, the Company granted stock options to a director to purchase 1,333 shares of common stock for services to be rendered. The options have an exercise price of $160.20 per share, and expire inseven years, vesting equally over three years from the grant date. The total fair value of these options at the grant date was approximately $171,000 using the Black-Scholes option pricing model.

On December 20, 2024, the Company granted stock options to directors to purchase 5,120 shares of common stock for services rendered and to be rendered. The options have an exercise price of $9.60 per share, and expire inseven years, vesting equally over three years from the grant date. The total fair value of these options at the grant date was approximately $62,000 using the Black-Scholes option pricing model.

On December 20, 2024, the Company granted stock options to an employee to purchase 333 shares of common stock for services to be rendered. The options have an exercise price of $9.60 per share, and expire inseven years, vesting equally over three years from the grant date. The total fair value of these options at the grant date was approximately $4,000 using the Black-Scholes option pricing model.

On December 20, 2024, the Company granted stock options to consultants to purchase 1,133 shares of common stock for services to be rendered. The options have an exercise price of $9.60 per share, have an average expiration date of 5.5 years, and vest equally over an average of two years from the grant date. The total fair value of these options at the grant date was approximately $11,000 using the Black-Scholes option pricing model.

The fair value of share option award is estimated using the Black-Scholes option pricing model based on the following weighted-average assumptions:

NOTE 9 –WARRANTS CLASSIFIED AS LIABILITY

A summary of warrants for the years ended December 31, 2025 and 2024 is as follows:

Information relating to outstanding warrants as of December 31, 2025 summarized by exercise price, is as follows:

Series A Warrants

Beginning on February 26, 2025 (the “Warrant Stockholder Approval”), the Series A Warrants contain a reset of the exercise price to a price equal to the lesser of (i) the then exercise price and (ii) the lowest volume weighted average price (“VWAP”) for the five trading days immediately following the date the Company effects a reverse split with a proportionate adjustment to the number of shares underlying the Series A Warrants (a “Reverse Split Reset”). Such adjustment was subject to a floor price (“the Floor Price”) calculated as follows: (a) prior to the date of the Warrant Stockholder Approval, 50% of the Nasdaq Minimum Price, and (b) after the date of the Warrant Stockholder Approval, 20% of the Nasdaq Minimum Price. “Nasdaq Minimum Price” means the lower of the Nasdaq closing price or the average closing price for the five immediately preceding trading days, as defined in Nasdaq Listing Rule 5635(d)(1)(A). Additionally, with certain exceptions, beginning on the date of the Warrant Stockholder Approval, the Series A Warrants provide for an adjustment to the exercise price and number of shares underlying the Series A Warrants (the “Dilutive Adjustment”) upon the Company’s issuance of its common stock or common stock equivalents at any time after the closing of the Offering, at a price per share that is less than the then-current exercise price of the Series A Warrants. Any Dilutive Adjustment will be subject to the Floor Price.

The Series A Warrants also require the Company to calculate the fair value in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holders of the Series A Warrants and Series B Warrants (collectively, the “Purchase Warrants”) that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares.

As of December 31, 2025, no Series A Warrants had been exercised. As of December 31, 2025, the fair value of the Series A Warrants has been determined to be $312,000. As of December 31, 2024, the fair value of the Series A Warrants had been determined to be $1,805,000. As a result of the change in fair value, the Company recognized a gain of $1,493,000 due to the change in the fair value of the warrant liability for the year ended December 31, 2025. On December 31, 2025, the fair value of the Series A Warrants was valued with a binomial model using the exercise price of $1.88 per Series A Warrant, with the underlying asset price of $1.75, an expiration term of 1,534 days, volatility of 147%, a dividend rate of 0%, and a risk-free interest rate of 3.74%.

Series B Warrants

The Series B Warrants are exercisable at $72.00 per share, subject to adjustment, and expire 30 months from the date of the Warrant Stockholder Approval. The fair value of the Series B Warrants was valued by the Company based on the subsequent settlements of these warrants.

Beginning on the date of the Warrant Stockholder Approval, in lieu of a cash exercise, the holders of the Series B Warrants have the right to elect to receive an aggregate number of shares of common stock equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise of the Series B Warrants and (y) 2.0. Also, the Series B Warrants provide for a Reverse Split Reset subject to the Floor Price. Additionally, effective on the 11th trading day following the date of the Warrant Stockholder Approval, the exercise price and the number of shares underlying the Purchase Warrants reset to the then-current lowest VWAP in the period commencing on the first trading day following the date of the Warrant Stockholder Approval and ending the close of trading on the 10th trading day thereafter. Such reset was subject to the Floor Price. With respect to all of the Purchase Warrants, with the consent of the holder, the Company may adjust the exercise price to such amount and for such time as may be agreed upon. None of the Purchase Warrants were exercisable until the Warrant Stockholder Approval. The Series B Warrants allow an alternative cashless conversion, which is determined by multiplying the number of exercised Series B Warrants by the exercise price and dividing the result by the lesser of the VWAP price or the $8.40 floor. This amount is then doubled to arrive at the final share total.

Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrants as liabilities in its balance sheets. The classification of the Purchase Warrants, including whether the Purchase Warrants should be recorded as liabilities or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the statements of operations. Upon the closing of the registered direct offering, the fair value of the Series B Warrant liability was $12,456,000. During the year ended December 31, 2025, warrant holders exercised 251,484 Series B Warrants on an alternative cashless basis to acquire 4,233,238 shares of common stock. The fair value of the Series B Warrant liabilities as of December 31, 2025 was determined to be $433,000, and the Company recognized a loss of $64,000 due to the change in the fair value of the warrant liability for the year ended December 31, 2025.

Based on the alternative cashless exercise, the Company estimates issuing 288,834 shares of common stock when the remaining 16,849 Series B Warrants are exercised.

A recap of the warrant liabilities is as follows:

NOTE 10 –RESTRICTED STOCK UNITS

A summary of RSU activity for the year ended December 31, 2025 is presented below.

A summary of activity for the year ended December 31, 2025:

On September 23, 2025, the Company issued 40,000 RSUs to a vendor for services rendered with a fair value of $78,400. The shares were valued based on the market value of the Company’s common stock price on the grant date. Upon grant, $78,400 was recognized as an expense and included in selling, general and administrative expenses.

On December 18, 2025, the Company issued 600,000 RSUs to officers for services to be rendered with a fair value of $936,000. The shares were valued based on the market value of the Company’s common stock price on the grant date. The 425,000 shares vest equally over three years from the grant date, and 175,000 shares vest equally over three years from June 18, 2025. The fair value is being amortized as an expense over the vesting period and included in selling, general and administrative expenses.

On December 18, 2025, the Company issued 155,222 RSUs to employees for services to be rendered with a fair value of $242,000. The shares were valued based on the market value of the Company’s common stock price on the grant date. The shares vest equally over three years from the grant date. The fair value is being amortized as an expense over the vesting period and included in selling, general and administrative expenses.

The total fair value of RSUs that vested or were deemed vested during the year ended December 31, 2025 was $93,000 and recognized as an expense and included in selling, general and administrative expenses.

A summary of activity for the year ended December 31, 2024:

None

NOTE 11 –IMMEDIATELY VESTED RESTRICTED STOCK UNITS

During 2025, the Company issued 222,041 RSUs to vendors for services to be rendered with a fair value of $321,000. The shares were valued based on the market value of the Company’s common stock price on the grant date. The issuance was recorded as pre-paid expense in the accompanying statements of operations and balance sheets. The pre-paid expense related to issuances of RSUs will be amortized over the remaining service period and charged to selling, general and administrative expense. During the year ended December 31, 2025, the Company amortized $168,000 of this cost and $153,000 remained unamortized as a prepaid at December 31, 2025, which will be amortized in 2026.

NOTE 12 –TREASURY STOCK

On January 31, 2025, the Board of Directors authorized the Chief Executive Officer to repurchase, from time to time, on the open market or otherwise, shares of common stock in such quantities, at such prices, in such manner and on such terms and conditions as he determines are in the best interests of the Company; provided, however, that the aggregate value of shares of common stock repurchased shall not exceed $1,000,000 and no shares of common stock shall be repurchased after 12 months. Pursuant to this approval, the Company repurchased a total of 200,400 shares of its common stock in 13 separate open market transactions during the month of April 2025, for an aggregate purchase price of approximately $500,000. The repurchases were funded using available cash on hand.

During the year ended December 31, 2025, the Company repurchased 200,400 shares of its common stock for total consideration of approximately $500,000. The shares were subsequently retired in accordance with ASC 505-30. The retirement reduced common stock by approximately $2,000 and additional paid-in capital by approximately $498,000.

These transactions were not conducted under a formal share repurchase program and were solely authorized as a one-time action by the Board.

**NOTE 13 –INCOME TAXES **

The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

At December 31, 2025, the Company had available Federal and various state net operating loss carryforwards to reduce future taxable income of $17,509,000 and $4,640,000, respectively. The Federal net operating losses carry forward indefinitely and the various state net operating losses expire in various amounts through 2045. Given the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s NOLs may be limited as a result of changes in stock ownership. NOLs incurred subsequent to the latest change in control are not subject to the limitation.

The Company has adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2025 and 2024, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2025, and 2024, the Company has not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2022 through 2025 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize the appropriate deferred tax asset at that time.

The Company’s effective income tax rate differs from the amount computed by applying the federal statutory income tax rate to loss before income taxes as follows:

The components of deferred taxes consist of the following at December 31, 2025 and 2024:

NOTE 14. REPORTABLE SEGMENT INFORMATION

The Company is organized and operates asone operating and reportable segment. The Company’s revenue comes from customers in the following geographic regions.

The following table presents our net sales by region for the period presented:

This determination is based on the management approach which designates internal information regularly available to the CODM for making decisions and assessing performance as the source of determination of the Company’s reportable segments. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis for the purpose of making operating decisions and assessing financial performance.

The accounting policies of the one reportable segment are the same as those described in the summary of significant accounting policies. The CODM uses net income (loss), as reported in our statements of operations, to measure segment profit or loss, assess performance, and make strategic capital resources allocations. The measure of segment assets is reported on our balance sheets as total assets. The significant expense categories regularly provided to the CODM are the expenses as noted on the face of the statements of operations.

NOTE 15 –SUBSEQUENT EVENTS

On March 16, 2026, the Company entered into a securities purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to issue, and the purchasers agreed to purchase, at one or more closings, on the terms and conditions contained in the Purchase Agreement, unsecured promissory notes in the aggregate funded amount of up to $2,000,000 (the “Convertible Notes”) and common stock warrants (the “Warrants”) to purchase shares of the Company’s common stock at an exercise price of $1.75 per share, subject to adjustments from time to time. The first closing occurred on March 16, 2026, at which the Company issued to entities affiliated with and controlled by Brett Hoge, one of the Company’s directors, a Convertible Note with an aggregate principal amount of $500,000, which bears interest at a rate of 10% per annum andmatures in 18 months, along with afive-year Warrant to purchase 50,000 shares of common stock. The Convertible Note, including accrued interest, is convertible into shares of common stock at maturity at a conversion price of $1.60 per share at the option of the purchasers.

On March 27, 2026, Greg Campbell was terminated as the Company’s Executive Chairman and Chief Executive Officer, and as a result, he forfeited all of his outstanding unvested restricted stock units. The stock options will forfeit as follows:1,087 ninety days from his termination date,1,333 six months from his termination date, and 2,420 on the 2 nd anniversary from his termination date. Also on March 27, 2026, Akinobu Yorihiro was appointed the Company’s Interim Chief Executive Officer.