BIO KEY INTERNATIONAL INC
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
BKYI$2.38+0.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001437749-24-026861
Item 2. —Management’s Discussion and Analysis of Financial Conditions and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001437749-24-035354
Item 2. —Management’s Discussion and Analysis of Financial Conditions and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 74 previous paragraphs and 75 current paragraphs.
49 unchanged; 24 reworded; 2 added; 1 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 14 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (2)
Current report
For the nine months ended September 30, 2024, license revenue increased $401,327 or 11% to $4,165,6699 from $3,764,342 in the corresponding period in 2023. Several long-term customers expanded their license deployments which contributed to the increase.
Current report
On September 12, 2024, we entered into a warrant exercise agreement with an existing investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 1,030,556 shares of the Company’s common stock. The warrants were originally issued to the Investor on October 31, 2023 and had an original exercise price of $3.15 per share. In consideration for the immediate exercise of the warrants, we reduced the exercise price of the warrants to $1.85 per share and issued to the Investor unregistered Series A Warrants to purchase an aggregate of 1,030,556 shares of the Company's common stock and unregistered Series B Warrants to purchase an aggregate of 1,030,556 shares of the Company's common stock, each with an exercise price of $1.85 per share. The Series A and Series B warrants share substantially the same terms, are immediately exercisable and will expire five years from the date of issuance. The forgoing transaction resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent fees and estimated offering expenses.
Removed paragraphs (1)
Previous report
For the six months ended June 30, 2024, license revenue decreased 89,668 or 3% to $2,724,659 from $2,814,327 in the corresponding period in 2023. Several anticipated orders sliding from the second quarter to the third quarter, contributed to the decrease.
Reworded paragraphs (24)
Previous wording
Millions of people use BIO-key multi-factor-authentication, or MFA, solutions every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices. We go beyond passwordless to offer phone-less and token-less authentication methods. This critical differentiator is particularly effective for retail, call center, manufacturing, shop-floor, and healthcare environments which utilize roving workers and shared workstations. Unlike most digital identity solutions, BIO-key also plays a role in securing in-person identity. For example, a banking customer has enrolled over 21.7 million of its customers’ biometrics with BIO-key as part of their know your customer, or KYC process, and then uses BIO-key fingerprint technology each time their customers access bank services to ensure positive identification before transacting with them.
Current wording
Millions of people use BIO-key multi-factor-authentication, or MFA, solutions every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices. We go beyond passwordless to offer phone-less and token-less authentication methods. This critical differentiator is particularly effective for retail, call center, manufacturing, shop-floor, and healthcare environments which utilize roving workers and shared workstations. Unlike most digital identity solutions, BIO-key also plays a role in securing in-person identity. For example, a banking customer has enrolled over 25 million of its customers’ biometrics with BIO-key as part of their know your customer, or KYC process, and then uses BIO-key fingerprint technology each time their customers access bank services to ensure positive identification before transacting with them.
Previous wording
In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure Europe, a Madrid, Spain based provider of IAM solutions. Swivel Secure Europe is the exclusive distributer of the AuthControl Sentry, AuthControl Enterprise, and AuthControl MSP product line in Europe, Africa and the Middle East, or EMEA, excluding the United Kingdom and Ireland. These solutions include PINsafe, a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and “bring your own device” policies.
Current wording
In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure Europe, a Madrid, Spain based provider of IAM solutions. Swivel Secure Europe is a distributer of the AuthControl Sentry, AuthControl Enterprise, and AuthControl MSP product line in Europe, Africa and the Middle East, or EMEA, excluding the United Kingdom and Ireland. These solutions include PINsafe, a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and “bring your own device” policies.
Previous wording
THREE MONTHS ENDED June 30, 2024 AS COMPARED TOJune 30, 2023
Current wording
THREE MONTHS ENDED September 30, 2024 AS COMPARED TOSeptember 30, 2023
Previous wording
For the three months ended June 30, 2024, and 2023, service revenues included approximately $274,000 and $310,000, respectively, of recurring maintenance and support revenue, and approximately $10,000 and $310,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $36,000 or 12% in 2024 which was due to the loss of one large customer service agreement. Non-recurring custom services decreased 97% due to loss of one large customer for Swivel Secure customizations and upgrades. We expect the service revenue to remain at the current lower rate in future periods.
Current wording
For the three months ended September 30, 2024, and 2023, service revenues included approximately $214,000 and $279,000, respectively, of recurring maintenance and support revenue, and approximately $53,000 and $291,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $65,000 or 24% in 2024 which was due to the loss of one large customer service agreement. Non-recurring custom services decreased 97% due to loss of one large customer for Swivel Secure customizations and upgrades. We expect the service revenue to remain at the current lower rate in future periods.
Previous wording
For the three months ended June 30, 2024, license revenue decreased $461,546 or 37% to $774,2254 from $1,235,771 in the corresponding period in 2023 , as several anticipated orders slipped into the third quarter.
Current wording
For the three months ended September 30, 2024, license revenue increased $490,996 or 52% to $1,441,011 from $950,015 in the corresponding period in 2023 , as several long-term customers expanded their license deployments.
Previous wording
For the three months ended June 30, 2024, hardware sales increased 15% to $83,492 from $72,693 in the corresponding period in 2023. The increase was due largely to a change in the mixture of hardware sales.
Current wording
For the three months ended September 30, 2024, hardware sales increased 56% to $436,422 from $279,200 in the corresponding period in 2023. The increase was due largely to several long-term customers expanding their biometric cybersecurity solutions.
Previous wording
For the three months ended June 30, 2024, cost of service decreased approximately $287,000 or 80% to $73,385 from $360,156 in the three months ended June 30, 2023, due to reduced costs to support the PortalGuard and Swivel Secure deployments. For the three months ended June 30, 2024, license fees decreased to $148,432 from $198,147 in the three months ended June 30, 2023, due largely to a decrease in license fees for third-party software included in our Swivel Secure offerings. For the three months ended June 30, 2024, hardware costs decreased to $40,455 from $47,808 in the three months ended June 30, 2023, related to costs associated with mixture of hardware revenue.
Current wording
For the three months ended September 30, 2024, cost of service decreased approximately $14,000 or 11% to $110,723 from $125,039 in the three months ended September 30, 2023, due to reduced costs to support the PortalGuard and Swivel Secure deployments. For the three months ended September 30, 2024, license fees decreased to $146,732 from $253,891 in the three months ended September 30, 2023, due largely to a decrease in license fees for third-party software included in our Swivel Secure offerings. For the three months ended September 30, 2024, hardware costs increased to $207,655 from $97,674 in the three months ended September 30, 2023, related to increase of hardware revenue.
Previous wording
Selling, general and administrative expenses for the three months ended June 30, 2024, decreased 9% from $2,143,164 in the corresponding period in 2023 to $1,941,866 in the current quarter. The decreases included reductions in administration, sales personnel costs and marketing show expenses, offset by an increase in professional services.
Current wording
Selling, general and administrative expenses for the three months ended September 30, 2024, decreased 9% from $1,776,305 in the corresponding period in 2023 to $1,607,925 in the current quarter. The decreases included reductions in administration, sales personnel costs and marketing show expenses, offset by an increase in professional services incurred in connection with financing transactions.
Previous wording
For the three months ended June 30, 2024, research, development, and engineering costs increased 6% to $591,234 compared to $558,181 in the corresponding period in 2023. The increase consisted primarily in an increase in personnel costs.
Current wording
For the three months ended September 30, 2024, research, development, and engineering costs increased 23% to $652,174 compared to $529,757 in the corresponding period in 2023. The increase consisted primarily in an increase in personnel costs.
Previous wording
Other income (expense) for the three months ended June 30, 2024 consisted of interest income of $46 and interest expense of $8,910 comprised of approximately $1,400 on the government loan through the BBVA bank and the balance on the 2024 Note, and a loan fee amortization amount of $4,000. Other income (expense) for the three months ended June 30, 2023 consisted of interest income of $23, interest expense of $56,806 on the secured note payable and the government loan through the BBVA, bank net of interest and change in fair value of $44,568 on the convertible note payable.
Current wording
Other income (expense) for the three months ended September 30, 2024 consisted of interest income of $2 and interest expense of $98,556 comprised of approximately $4,200 on the government loan through the BBVA bank and the balance on the 2024 Note, and a loan fee amortization amount of $60,000. Other income (expense) for the three months ended September 30, 2023 consisted of interest income of $5,917, interest expense of $45,655 on the secured note payable and the government loan through the BBVA bank net of interest, and change in fair value of $167,283 on the convertible note payable.
Previous wording
Six MONTHS ENDED June 30, 2024 AS COMPARED TOJune 30, 2023
Current wording
Nine MONTHS ENDED September 30, 2024 AS COMPARED TOSeptember 30, 2023
Previous wording
For the six months ended June 30, 2024, and 2023, service revenues included approximately $467,000 and $602,000, respectively, of recurring maintenance and support revenue, and approximately $30,000 and $551,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $135,000 or 22% in 2024 which was due to the loss of one large customer service agreement. Non-recurring custom services decreased 95% due to loss of one large customer for Swivel Secure customizations and upgrades. We expect the service revenue to remain at the current lower rate in future periods.
Current wording
For the nine months ended September 30, 2024, and 2023, service revenues included approximately $682,000 and $899,000, respectively, of recurring maintenance and support revenue, and approximately $82,000 and $842,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $217,000 or 24% in 2024 which was due to the loss of one large customer service agreement. Non-recurring custom services decreased 90% due to loss of one large customer for Swivel Secure customizations and upgrades. We expect the service revenue to remain at the current lower rate in future periods.
Previous wording
For the six months ended June 30, 2024, hardware sales decreased 30% to $101,140 from $145,382 in the corresponding period in 2023. The decrease was due largely to reduced add-on orders from an existing customer in 2024, compared to increased new hardware deployments in 2023.
Current wording
For the nine months ended September 30, 2024, hardware sales increased 27% to $537,562 from $424,582 in the corresponding period in 2023. The increase was due largely to add-on orders from existing customers in 2024, compared to increased new hardware deployments in 2023.
Previous wording
For the six months ended June 30, 2024, cost of service decreased approximately $303,000 or 59% to $212,234 from $514.957 in the six months ended June 30, 2023, due to reduced costs to support the PortalGuard and Swivel Secure deployments. For the six months ended June 30, 2024, license fees decreased to $296,652 from $819,028 in the six months ended June 30, 2023, due largely to a decrease in license fees for third-party software included in our Swivel Secure offerings. For the six months ended June 30, 2024, hardware costs decreased to $12,573 from $44,592 in the six months ended June 30, 2023, related to costs associated with decreased hardware revenue.
Current wording
For the nine months ended September 30, 2024, cost of service decreased approximately $317,000 or 50% to $322,957 from $639,996 in the nine months ended September 30, 2023, due to reduced costs to support the PortalGuard and Swivel Secure deployments. For the nine months ended September 30, 2024, license fees decreased to $443,384 from $1,022,919 in the nine months ended September 30, 2023, due largely to a decrease in license fees for third-party software included in our Swivel Secure offerings. For the nine months ended September 30, 2024, hardware costs increased to $260,684 from $240,074 in the nine months ended September 30, 2023, related to costs associated with increased hardware revenue.
Previous wording
Selling, general and administrative expenses for the six months ended June 30, 2024, decreased 9% from $4,074,896 in the corresponding period in 2023 to $3,724,839. The decreases included reductions in administration, sales personnel costs and marketing show expenses, offset by professional fees.
Current wording
Selling, general and administrative expenses for the nine months ended September 30, 2024, decreased 9% from $5,851,201in the corresponding period in 2023 to $5,332,764. The decreases included reductions in administration, sales personnel costs and marketing show expenses, offset by an increase in professional fees incurred in connection with financing transactions.
Previous wording
For the six months ended June 30, 2024, research, development, and engineering costs decreased 4% to $1,198,755 compared to $1,248,340 in the corresponding period in 2023. The decrease consisted primarily of changes in personnel costs and reductions in outside services.
Current wording
For the nine months ended September 30, 2024, research, development, and engineering costs increased 4% to $1,850,929 compared to $1,778,097 in the corresponding period in 2023. The increase consisted primarily of changes in personnel costs and reductions in outside services.
Previous wording
Other income (expense) for the six months ended June 30, 2024 consisted of interest income of $51 and interest expense of $10,267 for approximately $,2,700 on the government loan through the BBVA bank and the balance accrued on the 2024 Note, and a loan fee amortization amount of $4,000. Other income (expense) for the six months ended June 30, 2023 consisted of interest income of $27, a change on foreign currency in the amount of $15,000, interest expense of approximately $2,000 on the government loan through the BBVA bank and approximately $112,000 on the secured note payable, which amounts were offset by a change in fair value of $97,423 on our secured convertible note payable.
Current wording
Other income (expense) for the nine months ended September 30, 2024 consisted of interest income of $53 and interest expense of $108,823 comprised of approximately $8,100 on the government loan through the BBVA bank and the balance accrued on the 2024 Note, and a loan fee amortization amount of $64,000. Other income (expense) for the nine months ended September 30, 2023 consisted of interest income of $5,944, a loss on foreign currency of $15,000, a change in fair value of $264,706 on the convertible note payable, and interest expense of $159,379 on the secured note payable and the government loan through the BBVA bank.
Previous wording
Net cash used in operations during the six months ended June 30, 2024 was $1,123,533. Items of note included:
Current wording
Net cash used in operations during the nine months ended September 30, 2024 was $2,399,508. Items of note included:
Previous wording
Net cash provided by financing activities during the six months ended June 30, 2024 was $1,912,408 which included $2,000,000 of proceeds from the 2024 Note, $1,400 from the exercise of prefunded warrants, and $1,939 from the purchase of shares in the Employee Stock Purchase Plan, which amounts were offset by repayment of the government loan through the BBVA bank and $13,470 for offering costs. Net cash received from financing activities during the six months ended June 30, 2024 was $1,400 of proceeds from the exercise of prefunded warrants.
Current wording
Net cash provided by financing activities during the nine months ended September 30, 2024 was $3,660,414 which included $2,000,000 of proceeds from the 2024 Note, $1,906,528 from the exercise of warrants, $1,571 from the exercise of prefunded warrants, and $1,939 from the purchase of shares in the Employee Stock Purchase Plan, which amounts were offset by $101,762 in repayment of the government loan through the BBVA bank and $147,862 for offering costs.
Previous wording
Net cash used in investing activities during the six months ended June 30, 2024 was $1,869 for capital expenditures.
Current wording
Net cash used in investing activities during the nine months ended September 30, 2024 was $23,047 for capital expenditures.
Previous wording
On June 24, 2024, we entered into and closed a note purchase agreement which provided for the issuance of a $2,360,000 principal amount senior secured promissory note (the "2024 Note"). This resulted in gross proceeds of approximately $1,826,000 after deducting placement agent fees, estimated offering expenses, and the original issue discount. The 2024 Note is due eighteen months (18) following the date of issuance, accrues interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance of, the lender shall have the right to redeem up to $270,000 of principal amount each month. For a more complete description of the 2024 Note, please see Note 9 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.
Current wording
On June 24, 2024, we entered into and closed a note purchase agreement which provided for the issuance of a $2,360,000 principal amount senior secured promissory note (the "2024 Note"). This resulted in gross proceeds of approximately $1,826,000 after deducting placement agent fees, estimated offering expenses, and the original issue discount. The 2024 Note is due eighteen months (18) following the date of issuance, accrues interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance of, the lender shall have the right to redeem up to $270,000 of principal amount each month. For a more complete description of the 2024 Note, please see Note 9 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report. In connection with the warrant exercise agreement described above, we prepaid approximately $762,600 of the amount due under the 2024 Note.
Previous wording
At June 30, 2024, our total cash and cash equivalents were $1,260,351, as compared to $511,400 at December 31, 2023. At June 30, 2024, we had negative working capital of approximately $2,560,000.
Current wording
At September 30, 2024, our total cash and cash equivalents were $1,801,137, as compared to $511,400 at December 31, 2023. At September 30, 2024, we had negative working capital of approximately $1,320,000.
Previous wording
As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. We currently require approximately $732,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $3.6 million of inventory (currently reserved) purchased for projects in Nigeria. We continue to explore other markets and opportunities to sell the product to generate additional cash. If we are unable to generate sufficient revenue to fund current operations and execute our business plan, we will need to obtain additional third-party financing. Unless we generate sufficient positive cash flow from operations or liquidation of existing inventory, we expect that we will need to obtain additional financing during the next twelve months to support operations.
Current wording
As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. We currently require approximately $732,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $3.5 million of inventory (currently reserved) purchased for projects in Nigeria. We continue to explore other markets and opportunities to sell the product to generate additional cash. If we are unable to generate sufficient revenue to fund current operations and execute our business plan, we will need to obtain additional third-party financing. Unless we generate sufficient positive cash flow from operations or liquidation of existing inventory, we expect that we will need to obtain additional financing during the next twelve months to support operations.
Previous wording
In addition, as reported in our Current Report on Form 8-K filed June 14, 2024, we are no longer in compliance with Nasdaq Capital Market continued listing rules which require us to maintain stockholders' equity of at least $2,500,000. Our plan to regain compliance will require us to raise additional equity capital in the near term. There can be no assurance that we will be able to raise such capital or regain compliance with the continued listing requirements.
Current wording
In addition, as reported in our Current Report on Form 8-K filed June 14, 2024, we are no longer in compliance with Nasdaq Capital Market continued listing rules which require us to maintain stockholders' equity of at least $2,500,000. Our plan to regain compliance will require us to raise additional equity capital in the near term, or engage in a strategic transaction. There can be no assurance that we will be able to raise such capital or regain compliance with the continued listing requirements.