BIO KEY INTERNATIONAL INC

Previous wording

PortalGuard and IBB deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases. PortalGuard operates as a single MFA user experience, providing a wide set of authentication choices to meet every use case. We sell our branded biometric and FIDO authentication hardware as accessories to our IAM platforms, so that customers can have a single vendor providing all components of their IAM solution. We do not mandate the use of BIO-key hardware with our software and services. Our NIST-certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’ fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the use of a particular scanner.

Current wording

PortalGuard and Identity-Bound Biometrics, or IBB, deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases. PortalGuard operates as a single MFA user experience, providing a wide set of authentication choices to meet every use case. We sell our branded biometric and Fast Identity Online, or FIDO, authentication hardware as accessories to our IAM platforms, so that customers can have a single vendor providing all components of their IAM solution. We do not mandate the use of BIO-key hardware with our software and services. Our National Institute of Standards, and Technology, or NIST, certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’ fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the use of a particular scanner.

Previous wording

We operate a SaaS business model with customers subscribing to term use of our software for annual recurring revenue. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners including resellers, system integrators, master agents and other distribution partners. Our subscription fees include a term license of hosted or on-premise product and technical support and maintenance of our platform. We base subscription fees primarily on the products used and the number of users enrolled in our platform. We generate subscription fees pursuant to noncancelable contracts with a weighted average duration of approximately one year.

Current wording

We operate a software as a service, or SaaS, business model with customers subscribing to term use of our software for annual recurring revenue. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners including resellers, system integrators, master agents and other distribution partners. Our subscription fees include a term license of hosted or on-premise product and technical support and maintenance of our platform. We base subscription fees primarily on the products used and the number of users enrolled in our platform. We generate subscription fees pursuant to noncancelable contracts with a weighted average duration of approximately one year.

Previous wording

THREE MONTHS ENDED March 31, 2025 AS COMPARED TOMarch 31, 2024

Current wording

THREE MONTHS ENDED June 30, 2025 AS COMPARED TOJune 30, 2024

Previous wording

For the three months ended March 31, 2025, hardware sales increased 1236% to $235,803 from $17,647 in the corresponding period in 2024. The increase was due largely to several long-term customers expanding their purchase of biometric cybersecurity solutions. For the three months ended March 31 2024 existing customers

Current wording

For the three months ended June 30, 2025, hardware sales increased 581% to $568,824 from $83,492 in the corresponding period in 2024. The increase was due largely to one long-term customer expanding its purchase of biometric cybersecurity solutions.

Previous wording

For the three months ended March 31, 2025, cost of service decreased $40,705 or 29% to $98,144 from $138,849 in the three months ended March 31, 2024, due to absence of costs to support Swivel Secure product deployments. For the three months ended March 31, 2025, license fees decreased to $72,885 from $148,221 in the three months ended March 31, 2024, due the absence in license fees for third-party software included in our previous Swivel Secure product offerings. For the three months ended March 31, 2025, hardware costs increased to $108,469 from $12,573 in the three months ended March 31, 2024, related to increased hardware revenue.

Current wording

For the three months ended June 30, 2025, cost of service increased $44,916 or 61% to $118,301 from $73,385 in the three months ended June 30, 2024, due to an upgrade for one large customer. For the three months ended June 30, 2025, license fees decreased to $86,488 from $148,432 in the three months ended June 30, 2024, due to the absence of license fees for third-party software included in our previous Swivel Secure product offerings. For the three months ended June 30, 2025, hardware costs increased to net cost of $258,391 (after giving effect to the $277,415 reversal of the reserve for inventory) from $40,455 in the three months ended June 30, 2024, related to increased hardware revenue which included sales of a portion of our fully reserved inventory.

Previous wording

Selling, general and administrative expenses for the three months ended March 31, 2025, decreased 23% from $1,782,973 in the corresponding period in 2024 to $1,372,524in the current quarter. The decreases included reductions in administration, sales personnel costs, and professional services fees.

Current wording

Selling, general and administrative expenses for the three months ended June 30, 2025, decreased 13% from $1,941,866 in the corresponding period in 2024 to $1,680,550 in the current quarter. The decreases included reductions in administration, sales personnel costs, and professional services fees.

Previous wording

For the three months ended March 31, 2025, research, development, and engineering costs decreased 2% to $595,775 compared to $607,521 in the corresponding period in 2024. The decrease consisted primarily in a decrease in rent costs.

Current wording

For the three months ended June 30, 2025, research, development, and engineering costs increased 8% to $636,027 compared to $591,234 in the corresponding period in 2024. The increase consisted primarily of professional services and personnel costs, offset by a decrease in rent costs.

Previous wording

Other income (expense) for the three months ended March 31, 2025 consisted of interest income of $3, interest expense of $35,910 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000. Other income (expense) for the three months ended March 31, 2024 consisted of interest income of $5 and interest expense of $1,356 on the government loan through the BBVA bank net of interest.

Current wording

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

Previous wording

For the three months ended March 31, 2025, and 2024, service revenues included approximately $265,000 and $193,000, respectively, of recurring maintenance and support revenue, and approximately $8,000 and $20,000 respectively, of non-recurring custom services revenue. Recurring service revenue increased $72,000 or 37% in 2025 which was due to the updated support for a large customer service agreement. Non-recurring custom services decreased 59% due to loss of one large customer for Swivel Secure customizations and upgrades. We expect the service revenue to remain at these reduced levels in future periods.

Current wording

For the six months ended June 30, 2025, and 2024, service revenues included approximately $535,000 and $467,000, respectively, of recurring maintenance and support revenue, and approximately $59,000 and $30,000 respectively, of non-recurring custom services revenue. Recurring service revenue increased $68,000 or 15% in 2025 which was due to the updated support for a large customer service agreement. Non-recurring custom services increased 100% due to an upgrade for one large customer. Overall, service revenues increased 20% to $594,594 $496,690 in the corresponding period in 2024.

Previous wording

For the three months ended March 31, 2025, license revenue decreased $851,676 or 44% to $1,098,758 from $1,950,434 in the corresponding period in 2024 , due to the ramp up of BIO-key EMEA selling only BIO-key product which we expect to accelerate in 2025.

Current wording

For the six months ended June 30, 2025, license revenue decreased $819,814 or 30% to $1,904,845 from $2,724,659 in the corresponding period in 2024, due to the ramp up of BIO-key EMEA selling only BIO-key product which we expect to accelerate in 2025.

Previous wording

Net cash used in operations during the three months ended March 31, 2025 was $835,312. Items of note included:

Current wording

Net cash used in operations during the six months ended June 30, 2025 was $1,715,324. Items of note included:

Previous wording

Net cash provided by financing activities during the three months ended March 31, 2025 was $3,529,227 which included $3,813,057 of proceeds from the exercise of warrants, which was offset by repayment of $35,047 of the government loan through the BBVA bank and $248,783 for offering costs.

Current wording

Net cash provided by financing activities during the six months ended June 30, 2025 was $3,493,505 which included $3,813,057 of proceeds from the exercise of warrants, and $876 from the purchase of shares in the Employee Stock Purchase Plan, which was offset by repayment of $71,645 of the government loan through the BBVA bank and $248,783 for offering costs.

Previous wording

Net cash used in investing activities during the three months ended March 31, 2025 consisted of capital expenditures was $4,570.

Current wording

Net cash used in investing activities during the six months ended June 30, 2025 consisted of capital expenditures was $6,048 for capital expenditures.

Previous wording

On January 15, 2025, we entered into a warrant exercise agreement with an existing investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 2,061,112 shares of the Company’s common stock, at an exercise price of $1.85 per share which were originally issued to the Investor on September 12, 2024. In consideration for the exercise of the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the Existing Warrants, the Investor received new warrants to purchase up to an aggregate of 3,091,668 shares of the Company’s Common Stock. The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $2.15 per share and will expire five years from the date of issuance. The gross proceeds to the Company were approximately $3.8 million, prior to deducting placement agent fees and estimated offering expenses.

Current wording

On January 15, 2025, we entered into a warrant exercise agreement with an existing investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 2,061,112 shares of common stock, at an exercise price of $1.85 per share which were originally issued to the Investor on September 12, 2024 (the "Existing Warrants"). In consideration for the exercise of the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the Existing Warrants, the Investor received new warrants to purchase up to an aggregate of 3,091,668 shares of Common Stock ("New Warrants"). The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $2.15 per share and will expire five years from the date of issuance. The gross proceeds to the Company were approximately $3.8 million, prior to deducting placement agent fees and estimated offering expenses.

Previous wording

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.

Current wording

On September 12, 2024, we entered into a warrant exercise agreement with the Investor to exercise certain outstanding warrants to purchase an aggregate of 1,030,556 shares of common stock. 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 common stock and unregistered Series B Warrants to purchase an aggregate of 1,030,556 shares of common stock, each with an exercise price of $1.85 per share. The Series A and Series B warrants share substantially the same terms, are immediately exercisable and will expire five years from the date of issuance. The forgoing transaction resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent fees and estimated offering expenses.

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. In connection with the warrant exercise agreement described above, we prepaid approximately $762,600 of the amount due under the 2024 Note, and during the first quarter of 2025, the lender converted approximately $864,000 of principal amount due under the 2024 Note into common stock. As of the date of this report, the outstanding principal amount due under the 2024 Note is $738,400. For a more complete description of the 2024 Note, please see Note 10 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.

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. In connection with the September 12, 2024 warrant exercise agreement described above, we prepaid approximately $762,600 of the amount due under the 2024 Note. As of the date of this report, the outstanding principal amount due under the 2024 Note is approximately $338,400. For a more complete description of the 2024 Note, please see Note 10 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.

Previous wording

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2025 and may be discontinued at that time. Pursuant to the terms of the arrangement, from time to time, we sell to the Factor a minimum of $150,000 per quarter of certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor remits 35% of the foreign and 75% of the domestic accounts receivable balance to us (the “Advance Amount”), with the remaining balance, less fees, forwarded to us once the Factor collects the full accounts receivable balance from the customer. In addition, from time to time, we receive over advances from the Factor. Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice. We expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements.

Current wording

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2025 and may be discontinued at that time. Pursuant to the terms of the arrangement, from time to time, we sell to the Factor a minimum of $150,000 per quarter of certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor remits 35% of the foreign and 75% of the domestic accounts receivable balance to us, with the remaining balance, less fees, forwarded to us once the Factor collects the full accounts receivable balance from the customer. In addition, from time to time, we receive over advances from the Factor. Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice. We expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements.

Previous wording

At March 31, 2025, our total cash and cash equivalents were $3,133,752, as compared to $437,604 at December 31, 2024. At March 31, 2025, we had working capital of approximately $1,124,000

Current wording

At June 30, 2025, our total cash and cash equivalents were $2,275,344, as compared to $437,604 at December 31, 2024. At June 30, 2025, we had working capital of approximately $503,000

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 $812,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $3.4 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 $812,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $3.1 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.