BIO KEY INTERNATIONAL INC

Previous wording

For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.

Current wording

For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K/A for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K/A.

Previous wording

THREE MONTHS ENDED March 31, 2026 AS COMPARED TOMarch 31, 2025

Current wording

THREE MONTHS ENDED June 30, 2026 AS COMPARED TOJune 30, 2025

Previous wording

For the three months ended March 31, 2026, and 2025, service revenues included approximately $229,000 and $265,000, respectively, of recurring maintenance and support revenue, and approximately $19,000 and $8,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $36,000 or 14% in 2026 which was due to the timing of renewals of service agreements. Non-recurring custom services increased $11,000 due to a small increase in customization. Overall, service revenues decreased to $248,384 as compared to $272,598 in the corresponding period in 2025.

Current wording

For the three months ended June 30, 2026, and 2025, service revenues included approximately $227,000 and $271,000, respectively, of recurring maintenance and support revenue, and approximately $4,000 and $51,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $44,000 or 16% in 2026 which was due to the timing of renewals of service agreements. Non-recurring custom services decreased $47,000 due to a decrease in customization. Overall, service revenues decreased to $231,005 as compared to $321,996 in the corresponding period in 2025.

Previous wording

For the three months ended March 31, 2026, hardware sales increased 125% to $531,256 from $235,803 in the corresponding period in 2025. The increase was due to a large deployment from one long-term customer, several customer deploys of fully reserved inventory in the 2026 period, and several long-term customers expanding their deployments of biometric cybersecurity solutions.

Current wording

For the three months ended June 30, 2026, hardware sales decreased 19% to $459,641 from $568,824 in the corresponding period in 2025. The decrease was due to several customer deploys of fully reserved inventory in the 2026 period, and one large deployment from one long-term customer and several long-term customers expanding their deployments of biometric cybersecurity solutions in 2025.

Previous wording

For the three months ended March 31, 2026, cost of service decreased $19,646 or 20% to $78,498 from $98,114 in the three months ended March 31, 2025. For the three months ended March 31, 2026, license fees remained relatively flat increasing less than one percent to $73,234 from $72,885 in the three months ended March 31, 2025, For the three months ended March 31, 2026, hardware costs increased to net cost of $224,568 (after giving effect to the $98,970 reversal of the reserve for inventory) from $108,469 in the three months ended March 31, 2025, for a net increase of 100%, based on the increase in hardware revenue.

Current wording

For the three months ended June 30, 2026, cost of service decreased $38,585 or 33% to $79,716 from $118,301 in the three months ended June 30, 2025. For the three months ended June 30, 2026, license costs decreased 13% to $74,972 from $86,488 in the three months ended June 30, 2025. For the three months ended June 30, 2026, hardware costs decreased to net cost of $91,263 (after giving effect to the $703,050 reversal of the previously fully reserved inventory) from $259,391 in the three months ended June 30, 2025, for a net decrease of 65%, based on the decrease in hardware revenue and different models of hardware shipped.

Previous wording

For the three months ended March 31, 2026, license revenue increased $267,135 or 24% to $1,365,893 from $1,098,758 in the corresponding period in 2025 as several long-term customers expanded their license deployments in 2026.

Current wording

For the six months ended June 30, 2026, license revenue increased $690,393 or 36% to $2,595,238 from $1,904,845 in the corresponding period in 2025 as several new customers initiated license deployments in 2026.

Previous wording

Selling, general and administrative expenses for the three months ended March 31, 2026, decreased 5% from $1,372,524 in the corresponding period in 2025 to $1,310,066 in the current quarter. The decreases included reductions in administration and professional services fees.

Current wording

Selling, general and administrative expenses for the six months ended June 30, 2026, decreased 6% from $3,053,074 in the corresponding period in 2025 to $2,873,093 in the six months. The decreases included reductions in administration and professional services fees.

Previous wording

For the three months ended March 31, 2026, research, development, and engineering costs increased 4% to $616,880 compared to $595,775 in the corresponding period in 2025. The increase consisted primarily of professional services and personnel costs.

Current wording

For the six months ended June 30, 2026, research, development, and engineering costs increased 2% to $1,257,299 compared to $1,231,802 in the corresponding period in 2025. The increase consisted primarily of professional services and personnel costs.

Previous wording

Other income (expense) for the three months ended March 31, 2026 consisted of interest income of $675, interest expense of $27,166 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $20,833. Other income (expense) for the three months ended March 31, 2025 consisted of interest income of $3 and interest expense of $35,910 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.

Current wording

Other income (expense) for the six months ended June 30, 2026 consisted of interest income of $1,062, interest expense of $54,166 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $41,666. Other income (expense) for the six months ended June 30, 2025 consisted of interest income of $2,095 and interest expense of $61,548 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $120,000.

Previous wording

Net cash used in operations during the three months ended March 31, 2026 was $358,001. Items of note included:

Current wording

Net cash used in operations during the six months ended June 30, 2026 was $1,203,750. Items of note included:

Previous wording

Net cash used by financing activities during the three months ended March 31, 2026 was $38,179 of the government loan through the BBVA bank.

Current wording

Net cash used by financing activities during the six months ended June 30, 2026 was $30,519 consisting of the repayment of $38,179 government loan through the BBVA bank, offset by receipt of $7,660 cash for the purchases under the Employee Stock Purchase Plan.

Previous wording

There was no cash used in investing activities during the three months ended March 31, 2026 .

Current wording

There was no cash used in investing activities during the six months ended June 30, 2026.

Previous wording

The following sets forth our sources of liquidity during the previous two years:

Current wording

The following sets forth our sources of liquidity during the previous two years through the date of this filling:

Previous wording

On October 27, 2025, we entered into and closed a warrant exercise agreement with an existing institutional investor to exercise certain outstanding warrants to purchase an aggregate of 309,167 shares of common stock(as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026). The warrants were originally issued on January 15, 2025 and had an exercise price of $21.50 per share. In consideration for the immediate exercise of these warrants, we issued new unregistered warrants to purchase up to an aggregate of 618,334 shares of common stock at an exercise price of $10.20. We realized gross proceeds of approximately $3.1 million, prior to deducting placement agent fees and estimated offering expenses.

Current wording

On October 27, 2025, we entered into and closed a warrant exercise agreement with an existing institutional investor to exercise certain outstanding warrants to purchase an aggregate of 309,167 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026). The warrants were originally issued on January 15, 2025 and had an exercise price of $21.50 per share. In consideration for the immediate exercise of these warrants, we issued new unregistered warrants to purchase up to an aggregate of 618,334 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) at an exercise price of $10.20. We realized gross proceeds of approximately $3.1 million, prior to deducting placement agent fees and estimated offering expenses.

Previous 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 2025 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, 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.

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 2025 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, 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.

Previous wording

On January 15, 2025, we entered into a warrant exercise agreement with an existing investor to exercise certain outstanding warrants to purchase an aggregate of 206,112 shares of common stock, at an exercise price of $18.50 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, the investor received new warrants to purchase up to an aggregate of 309,167 shares of Common Stock ("New Warrants"). The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $21.50 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 to exercise certain outstanding warrants to purchase an aggregate of 206,112 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), at an exercise price of $18.50 per share which were originally issued to the investor on September 12, 2024 (the "Existing Warrants"). In consideration for the exercise of the Existing Warrants, the investor received new warrants to purchase up to an aggregate of 309,167 shares of Common Stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), ("New Warrants"). The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $21.50 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 to exercise certain outstanding warrants to purchase an aggregate of 103,056 shares of common stock. The warrants were originally issued to the Investor on October 31, 2023 and had an original exercise price of $31.50 per share. In consideration for the immediate exercise of the warrants, we reduced the exercise price of the warrants to $18.50 per share and issued to the Investor unregistered Series A Warrants to purchase an aggregate of 103,056 shares of common stock and unregistered Series B Warrants to purchase an aggregate of 103,056 shares of common stock, each with an exercise price of $18.50 per share and issued additional warrants to purchase an aggregate of 206,112 shares of common stock, at an exercise price of $18.50 per share. 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 an existing investor to exercise certain outstanding warrants to purchase an aggregate of 103,056 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026). The warrants were originally issued to the Investor on October 31, 2023 and had an original exercise price of $31.50 per share. In consideration for the immediate exercise of the warrants, we reduced the exercise price of the warrants to $18.50 per share and issued to the Investor unregistered Series A Warrants to purchase an aggregate of 103,056 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), and unregistered Series B Warrants to purchase an aggregate of 103,056 shares of common stock(as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), each with an exercise price of $18.50 per share and issued additional warrants to purchase an aggregate of 206,112 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), at an exercise price of $18.50 per share. The forgoing transaction resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent fees and estimated offering expenses.

Previous wording

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2026 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.

Current wording

We are party to an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2026 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, 2026, our total cash and cash equivalents were $2,247,984, as compared to $2,694,663 at December 31, 2025. At March 31, 2026, we had a working capital of approximately $1,296,000.

Current wording

At June 30, 2026, our total cash and cash equivalents were $1,379,300, as compared to $2,694,663 at December 31, 2025. At June 30, 2026, we had a working capital of approximately $793,000.

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, warrants, and through factoring receivables. We currently require approximately $750,000 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 and positive cash flow from operations or liquidation of existing inventory to fund current operations and execute our business plan, we will need to obtain additional third-party financing over the next twelve months.

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 $750,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $2.1 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 and positive cash flow from operations or liquidation of existing inventory to fund current operations and execute our business plan, we will need to obtain additional third-party financing over the next twelve months.