What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-04-23 compared with 2024-06-05 · 49 added, 48 removed, 133 unchanged (42% of the section changed)

1 unchanged sentence

Our common stock currently trades on the Nasdaq Capital Market under the symbol “BKYI”.

As of June 4, 2024 the number of stockholders of record of our common stock was 159.

As of April 21, 2025 the number of stockholders of record of our common stock was 170.

We have not paid any cash dividends on our common stock to-date and have no intention of paying any cash dividends on our common stock in the foreseeable future.

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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 rich set of authentication choices to meet every use case.

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.

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In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure, a Madrid, Spain based provider of IAM solutions.

Swivel Secure is 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.

These solutions include 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.

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.

We operate a SaaS business model with customers subscribing to term use of our software for annual recurring revenue.

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Cost of hardware reserve

Total cost of goods sold

Operating expenses

1 unchanged sentence

Research, development and engineering

Reversal of earnout payable-Swivel acquisition

Impairment of goodwill

Total operating expenses

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Total Costs and other expenses

Revenue increased $734,647 or 10% to $8,654,905 in 2023 as compared to $7,020,258 in 2022 due to the factors stated below.

Revenue decreased $825,334 or 11% to $6,929,571 in 2024 as compared to $7,754,905 in 2023.

This reduction was due largely to our exit from our distribution agreement with Swivel Secure Limited (SLL) and transition to selling BIO-key branded solutions in the EMEA market and to the factors discussed below.

For the years ended December 31, 2024, and 2023, service revenues included approximately $1,017.000 and $1,193,000, respectively, of recurring maintenance and support revenue, and approximately $91,000 and $1,026,000, respectively, of non-recurring custom services revenue.

Recurring service revenue decreased 4% in 2023 due to delayed renewals in the fourth quarter.

Non-recurring custom services increased 88% in 2023 due to increased new customer installations, Swivel Secure service fees, and conversion to the cloud platform.

Although inflation has negatively impacted many industries, we have continued to see our pipeline increase for the cybersecurity protection software and services that we offer.

For the year ended December 31, 2023 and 2022 license revenue decreased $242,042 or 5% to $4,342,010, due primarily to lower new customer orders.

We expect do not expect this trend to continue into 2024.

Hardware sales increased by $547,524, or 85%, to $1,194,010 in 2023 from $646,486 in 2022.

The increase was attributable largely to fourth quarter 2023 sales to an international defense agency.

Recurring service revenue decreased 15% in 2024 due to the loss of one large customer service agreement.

Non-recurring custom services decreased 91% in 2024 due to a large product customization and upgrade for a Swivel Secure customer without a similar customization in 2024.

We expect the service fees to increase from the current levels as we expand our deployments worldwide.

For the year ended December 31, 2024 and 2023 license revenue increased $847,360 or 20% to $5,189,370, as several long-term customers expanded their license deployments in addition to several new customer deployments.

We expect this trend to continue into 2025.

Hardware sales decreased by $562,315, or 47%, to $631,695 in 2024 from $1,194,010 in 2023.

The decrease was attributable largely to fourth quarter 2023 sales to an international defense agency that did not reoccur in 2024.

Costs of goods sold

For the year ended December 31, 2023, cost of services increased approximately 19% to $861,936, due to the increased costs to support Swivel Secure deployments.

License fees for the year ended December 31, 2023 increased $268,502, or approximately 30%, to $1,174,919 due primarily to increased license revenue and related license fees payable for third-party software distributed by Swivel Secure.

Hardware costs for the year ended December 31, 2023 increased $289,230, or approximately 70%, to $700,231 from $411,001 in 2022.

The increase was associated with the increased hardware sales and hardware mix described above.

Hardware reserve costs for the year ended December 31, 2023 increased $3,186,500 due to a complete reserve of slow moving inventory purchased for projects in Nigeria, and for other older inventory.

We are continuing to explore other markets and opportunities to sell this inventory.

For the year ended December 31, 2024, cost of services decreased approximately 54% to $396,274, due primarily to the decreased costs to support Swivel Secure deployments.

License fees for the year ended December 31, 2024 decreased $585,414, or approximately 50%, to 589,505 from $1,174,919 due primarily to decreased license revenue and related license fees payable for third-party software distributed by Swivel Secure.

Hardware costs for the year ended December 31, 2024 decreased $183,620, or approximately 26%, to $516,611 from $700,231 in 2023.

The decrease was associated with the decreased hardware sales and hardware mix.

Hardware reserve costs for the year ended December 31, 2024 decreased $3,799,505 due to sales of slow-moving inventory after a complete reserve of slow-moving inventory purchased for projects in Nigeria, and for other older inventory in 2023.

We are continuing to explore other markets and opportunities to sell the slow-moving inventory.

Gross profit increased to $5,640,186 in 2024 from $1,431,319 in 2023, due to a $3,000,000 hardware reserve taken in 2023, the impact of growth in higher-margin license sales, and a reduction in lower-margin services and hardware revenue.

Our strategic decision to exit the SSL agreement and offer only BIO-key branded solutions in the EMEA market contributed to lower costs to support deployments, including software license fees incurred in connection with sales of Swivel Secure offerings using SLL solutions rather than BIO-key’s internally developed software solutions.

2024 gross profit also benefited from the sale of $213,005 of fully reserved hardware inventory.

Selling, general and administrative

Selling, general and administrative costs for year ended December 31, 2023 were $7,862,710 representing a 16% decrease from 2022.

The decrease included lower sales and marketing expenses related to show participation and personnel costs, offset by an increase in allowance for doubtful accounts ofr $750,000 compared to $360,000 in 2022.

Selling, general and administrative costs for year ended December 31, 2024 were $7,140,147 in 2024 compared to $7,862,710 representing a 9% decrease from 2023.

The decrease was due to proactive cost reductions including reductions in headquarters expenses, sales personnel costs, marketing show expenses, and audit fees which were partially offset by an increase in professional services, principally related to financing activities in 2024.

Research, development and engineering

For the year ended December 31, 2023, research, development and engineering costs were $2,394,926 representing a 26% decrease from 2022.

Included in the decrease were lower personnel costs associated with wages and benefits for engineering employees.

Reversal of earnout payable – Swivel Secure acquisition

For the year ended December 31, 2022, we recognized income on the elimination of the earnout payable on the acquisition of Swivel Secure as the requirements for the payout were not achieved.

Impairment of goodwill

For the year ended December 31, 2022, we recognized an impairment of our goodwill balances due to the decrease in market value of our common stock compared to the carrying value of our net assets.

For the year ended December 31, 2024, research, development and engineering costs were $2,511,080 compared with $2,394,926 representing a 5% increase from 2023.

Included in the increase were higher personnel costs associated with wages and benefits for engineering employees to support new product development.

Other income (expense)

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Foreign currency loss

Investment-debt security reserve

Loan transaction costs

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Interest expense

The amounts for other income (expense) for the year ended December 31, 2023 consisted of interest income of $11,533, a gain from the sale of a PistolStar domain asset, change in loan transactions costs for payment of the convertible note payable as we elected to value the convertible note under the fair value option, and interest expense of $218,270 on the convertible note payable and the government loan through the BBVA bank.

The amounts for the year ended December 31, 2022, consisted of interest income of $233, a write-off of the investment-debt security as we received the proceeds and the bond issuer defaulted on repayment, loan transactions costs expensed for the convertible note payable as we elected to value the convertible note payable under the fair value option, the change in the fair value of the convertible note, and interest expense of $10,462 on the convertible note and the government loan through the BBVA bank.

The amounts for other income (expense) for the year ended December 31, 2024 consisted of interest income of $110, interest expense of $175,755 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $124,000.

The amounts for the year ended December 31, 2023, consisted of interest income of $11,533, a gain from the sale of a PistolStar domain asset, change in loan transactions costs for payment of the convertible note payable as we elected to value the convertible note under the fair value option, and interest expense of $218,270 on the convertible note payable and the government loan through the BBVA bank.

Reflecting increased gross profit and lower operating expenses, net loss improved to $(4,300,692) in 2024 from a net loss of $(8,521,837) in 2023.

LIQUIDITY AND CAPITAL RESOURCES

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Net positive cash flows related to non-cash expenses of approximately $1,219,000.

Net negative cash flows related to changes in accounts receivable, prepayments, lease liabilities, and deferred revenue in the aggregate amount of approximately $244,000 and our net loss for the period.

Net negative cash flows related to changes in lease liabilities, accounts payable, deposits and accrued liabilities in the aggregate amount of approximately $605,000 and our net loss for the period.

Investing activities overview

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Fi nancing activities overview

Approximately $4,297,000 was provided by financing activities during the year ended December 31, 2023 consisting of the issuance of common stock and warrants in public and private securities offerings, and exercise of warrants.

These amounts were offset by repayment of convertible note payable, costs associated with the issuance of our securities, and proceeds of $17,478 from sales of common stock under the employee stock purchase plan.

Approximately $3,908,000 was provided by financing activities during the year ended December 31, 2024 consisting of the proceeds advanced under a secured note, proceeds from the exercise of warrants, and $3,740 from sales of common stock under our employee stock purchase plan.

These amounts were offset by a partial repayment of note payable, repayment of a government loan, and costs associated with the issuance of our securities.

Sources of Liquidity

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

On January 15, 2025, we entered into a warrant exercise agreement with an existing institutional 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 13, 2024.

In consideration for the exercise of these warrants, we issued new warrants to the Investor to purchase an aggregate 3,091,668 shares of common stock at an exercise price of $2.15 per share.

We realized gross proceeds of approximately $3.8 million, prior to deducting placement agent fees and estimated offering expenses.

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 these warrants, we reduced the exercise price of the warrants to $1.85 per share and issued to the Investor additional warrants to purchase an aggregate of 2,061,112 shares of common stock at an exercise price of $1.85 per share.

The forgoing transaction resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent fees and estimated offering expenses.

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 agreements described above, we prepaid approximately $762,600 of the amount due under the 2024 Note.

Pursuant to a series of exchange agreements in January 2025, the lender exchanged $859,000 principal amount due under the 2024 Note for 504,605 shares of 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 J to Our Consolidated Financial Statements included in Part II Item 8 of this report.

On November 20, 2023, we completed a private placement of shares of common stock and warrants resulting in net proceeds of approximately $435,000, after deducting placement agent fees and estimated offering expenses.

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We used approximately $2.2 million of the net proceeds to repay the outstanding amount due under outstanding convertible note payable.

In December 2022, we entered into and closed a securities purchase agreement (the “Purchase Agreement”) with AJB Capital Investments, LLC under which we issued a $2,200,000 principal amount senior secured promissory note (the “Note”).

The principal amount of the Note was due six months following the date of issuance, subject to one six-month extension.

Interest under the Note accrued at a rate of 10% per annum, payable monthly through month six and at 12% per annum in months seven through twelve, payable monthly.

The Note was secured by a lien on substantially all of our assets and properties.

The Note was repaid in December 2022.

In March 2022, in connection with the acquisition of Swivel Secure, we assumed a €500,000 government loan that was issued through BBVA Bank during the COVID-19 pandemic.

The loan bears interest at the rate of 1.75% per annum and is payable in monthly installments of approximately $11,900 inclusive of interest from May 2022 through maturity in April 2026.

Upon closing of the acquisition, Swivel Secure had cash equal to the outstanding balance.

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 2025 and may be discontinued at that time.

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At December 31, 2024, our total cash and cash equivalents were approximately $438,000, as compared to $511.000 at December 31, 2023.

At December 31, 2023, we had working capital of approximately $(777,000) as a result of the allowance for doubtful accounts and reserve on inventory.

As of the date of this report, our total cash and cash equivalents are approximately $3,000,000.

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.

1 unchanged sentence

During 2024, we generated approximately $6,930,000 of revenue, which did not generate enough cash to fully fund our average monthly cash requirements.

We expect that Swivel Secure Europe will continue to generate positive cash flow in 2024.

The 2024 Note is due on or about December 24, 2025 and we are subject to monthly redemptions request at the option of the lender.

We also have approximately $3.4 million of inventory (currently reserved) purchased for projects in Nigeria.

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Revenue Recognition

Impairment or Disposal of Long Lived Assets, including Intangible Assets

Allowances for Accounts Receivable

1 unchanged sentence

Not Applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See financial statements appearing at pages 37-64 of this Annual Report on Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity