BIO KEY INTERNATIONAL INC

Previous wording

In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure, a Madrid, Spain based provider of IAM solutions. Until the fourth quarter of 2024, Swivel Secure was the exclusive distributer of AuthControl Sentry, AuthControl Enterprise, and AuthControl MSP product line in Europe, Africa and the Middle East, or EMEA, excluding the United Kingdom and Ireland. Swivel Secure, now operates as BIO-key EMEA maintains a direct sales force with offices in Madrid, Spain and Lisbon, Portugal, and sells only BIO-key products.

Current wording

In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure, a Madrid, Spain based provider of IAM solutions. Until the fourth quarter of 2024, Swivel Secure was the exclusive distributer of AuthControl Sentry, AuthControl Enterprise, and AuthControl MSP product line in Europe, Africa and the Middle East, or EMEA, excluding the United Kingdom and Ireland. Swivel Secure, now operates as BIO-key EMEA and maintains a direct sales force with offices in Madrid, Spain and Lisbon, Portugal, and sells only BIO-key products.

Previous wording

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

Current wording

THREE MONTHS ENDED September 30, 2025 AS COMPARED TOSeptember 30, 2024

Previous wording

For the three months ended June 30, 2025, and 2024, service revenues included approximately $271,000 and $274,000, respectively, of recurring maintenance and support revenue, and approximately $51,000 and $10,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $3,000 or 1% in 2025 which was due to the timing of renewals of service agreements. Non-recurring custom services increased 412% due to an upgrade for one large customer. Overall, service revenues increased 14% to $321,996 from $283,569 in the corresponding period in 2024.

Current wording

For the three months ended September 30, 2025, and 2024, service revenues included approximately $263,000 and $214,000, respectively, of recurring maintenance and support revenue, and approximately $5,000 and $53,000 respectively, of non-recurring custom services revenue. Recurring service revenue increased $49,000 or 23% in 2025 which was due to the timing of renewals of service agreements. Non-recurring custom services decreased 90% due to an upgrade for one large customer in 2024. Overall, service revenues remained flat at $268,113 as compared to $267,371 in the corresponding period in 2024.

Previous 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.

Current wording

For the three months ended September 30, 2025, hardware sales decreased 17% to $363,642 from $436,422 in the corresponding period in 2024. The decrease was one new customer large deploy, several new customer deploys of fully reserved inventory in the 2025 period, and to one long-term customer expanding its purchase of biometric cybersecurity solutions in the 2024 period.

Previous 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.

Current wording

For the three months ended September 30, 2025, cost of service decreased $30,021 or 27% to $80,702 from $110,723 in the three months ended September 30, 2024, due to an upgrade for one large customer for the 2024 period. For the three months ended September 30, 2025, license fees decreased to $74,077 from $146,732 in the three months ended September 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 September 30, 2025, hardware costs decreased to net cost of $203,209 (after giving effect to the $231,625 reversal of the reserve for inventory) from $207,655 in the three months ended September 30, 2024, for a net decrease of 2%

Previous wording

Selling, general and administrative expenses for the six months ended June 30, 2025, decreased 18% from $3,724,839 in the corresponding period in 2024 to $3,053,074 in 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 September 30, 2025, decreased 13% from $1,607,925 in the corresponding period in 2024 to $1,400,288 in the current quarter. The decreases included reductions in administration and professional services fees, and non-recurring write-off of administration fees.

Previous 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.

Current wording

For the three months ended September 30, 2025, research, development, and engineering costs increased 5% to $683,620 compared to $652,174 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 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.

Current wording

Other income (expense) for the three months ended September 30, 2025 consisted of interest income of $515, interest expense of $13,174 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 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.

Previous wording

Six MONTHS ENDED June 30, 2025 AS COMPARED TO June 30, 2024

Current wording

Nine MONTHS ENDED September 30, 2025 AS COMPARED TO September 30, 2024

Previous 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.

Current wording

For the nine months ended September 30, 2025, and 2024, service revenues included approximately $799,000 and $681,000, respectively, of recurring maintenance and support revenue, and approximately $64,000 and $83,000 respectively, of non-recurring custom services revenue. Recurring service revenue increased approximately $117,000 or 17% in 2025 which was due to the updated support for a large customer service agreement. Non-recurring custom services decreased 22% due to an upgrade for one large customer in 2024. Overall, service revenues increased 13% to $862,707 from $764,062 in the corresponding period in 2024.

Previous 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.

Current wording

For the nine months ended September 30, 2025, license revenue decreased $1,342,873 or 32% to $2,822,796 from $4,165,669 in the corresponding period in 2024, due to the ramp up of BIO-key EMEA selling only BIO-key product which has been accelerating in 2025.

Previous wording

For the six months ended June 30, 2025, hardware sales increased 696% to $804,627 from $101,140 in the corresponding period in 2024. The increase was due largely to several long-term customers expanding their purchase of biometric cybersecurity solutions combined with selling some of fully reserved inventory for the African project.

Current wording

For the nine months ended September 30, 2025, hardware sales increased 117% to $1,168,2697 from $537,562 in the corresponding period in 2024. The increase was due to several long-term and new customers expanding their purchase of biometric cybersecurity solutions combined with selling some of fully reserved inventory initially for the African project.

Previous wording

For the six months ended June 30, 2025, cost of service increased $4,211 or 2% to $216,445 from $212,234 in the six months ended June 30, 2024, due to the costs associated with the upgrade for one large customer. For the six months ended June 30, 2025, license fees decreased to $159,373 from $296,652 in the six 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 six months ended June 30, 2025, hardware costs increased to a net cost of $314,831 (after giving effect to the $277,415 reversal of the reserve for inventory) from $53,0293 in the six months ended June 30, 2024, related to increased hardware revenue which included sales of a portion of our fully reserved inventory.

Current wording

For the nine months ended September 30, 2025, cost of service decreased $25,810 or 8% to $297,147 from $322,957 in the nine months ended September 30, 2024, due to the costs associated with the upgrade for one large customer. For the nine months ended September 30, 2025, license fees decreased to $233,450 from $443,384 in the nine months ended September 30, 2024, due to the absence of license fees for third-party software included in our previous Swivel Secure product offerings. For the nine months ended September 30, 2025, hardware costs increased to a net cost of $571,069 (after giving effect to the $509,040 reversal of the reserve for inventory) from $260,684 in the nine months ended September 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 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.

Current wording

Selling, general and administrative expenses for the nine months ended September 30, 2025, decreased 16% from $5,332,764 in the corresponding period in 2024 to $4,453,362 in the current quarter. The decreases included reductions in administration, administrative write-offs, sales personnel costs, and professional services fees.

Previous wording

For the six months ended June 30, 2025, research, development, and engineering costs increased 3% to $1,231,802 compared to $1,198,755 in the corresponding period in 2024. The increase consisted primarily of professional services and personnel costs, offset by a decrease in rent costs.

Current wording

For the nine months ended September 30, 2025, research, development, and engineering costs increased 3% to $1,915,422 compared to $1,850,929 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 six months ended June 30, 2025 consisted of interest income of $2,095, interest expense of $61,548 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 six months ended June 30, 2024 consisted of interest income of $51 and interest expense of $10,267 consisting of approximately $2,700 on the government loan through the BBVA bank and the balance for interest accrued on the 2024 Note, as defined below, and a loan fee amortization amount of $4,000.

Current wording

Other income (expense) for the nine months ended September 30, 2025 consisted of interest income of $2,610, interest expense of $74,722 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 nine months ended September 30, 2024 consisted of interest income of $53 and interest expense of $108,823 consisting of approximately $8,100 on the government loan through the BBVA bank and the balance for interest accrued on the 2024 Note, as defined below, and a loan fee amortization amount of $64,000.

Previous wording

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

Current wording

Net cash used in operations during the nine months ended September 30, 2025 was $2,838,088. Items of note included:

Previous 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.

Current wording

Net cash provided by financing activities during the nine months ended September 30, 2025 was $4,456,013 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 $109,137 of the government loan through the BBVA bank and $248,783 for offering costs.

Previous 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.

Current wording

Net cash used in investing activities during the nine months ended September 30, 2025 consisted of capital expenditures of $7,373 for computers.

Previous wording

Since our inception, our capital needs have been met through proceeds from the sale of equity and debt securities, and revenue. We expect capital expenditures to be less than $100,000 during the next twelve months.

Current wording

Since our inception, our capital needs have been met mainly through proceeds from the sale of equity and debt securities, and revenue. We expect capital expenditures to be less than $100,000 during the next twelve months.

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 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.

Current wording

On September 30, 2025, we entered into and closed a note purchase agreement which provided for the issuance of a $1,130,000 principal amount senior secured promissory note (the "2025 Note"). This resulted in gross proceeds of approximately $1,000,000 after deducting 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 $135,000 of principal amount each month. In connection with the October 27, 2025 warrant exercise agreement described above, we prepaid approximately $450,000 of the amount due under the 2025 Note. As of the date of this report, the outstanding principal amount due under the 2025 Note is approximately $675,000. For a more complete description of the 2025 Note, please see Note 10 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.

Previous 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

Current wording

At September 30, 2025, our total cash and cash equivalents were $2,039,853, as compared to $437,604 at December 31, 2024. At September 30, 2025, we had a working capital of approximately $782,000. On October 27, 2025, we enhanced our liquidity by closing a warrant exchange agreement resulting in net proceeds of approximately $2,500,000, after deduction of placement fees and repayment of certain indebtedness.

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 $3.1 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.

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, warrants, and through factoring receivables. We currently require approximately $830,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $2.8 million of inventory (currently reserved) initially 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.