Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock currently trades on the Nasdaq Capital Market under the symbol “BKYI”.
Holders
As of April 21, 2025 the number of stockholders of record of our common stock was 170.
Dividends
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. The declaration and payment of dividends on our common stock is also subject to the discretion of our Board of Directors and certain limitations imposed under the Delaware General Corporation Law. The timing, amount, and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
Securities Authorized for Issuance under Equity Compensation Plans
For information on securities authorized for issuance under the Company’s equity compensation plans, see “Item 12 - Security Ownership of Certain Beneficial Owners and Related Stockholder Matters.”
Unregistered Sales of Equity Securities
There were no unregistered sales of the Company’s equity securities during 2024 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
None.
ITEM 6. RESERVED
Not Applicable.
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ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this Report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “ RISK FACTORS ” in Item 1A and elsewhere in this Report.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand our Company. This discussion is provided as a supplement to and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2024 and 2023 and the accompanying notes included elsewhere in this Report.
All share totals reported herein have been adjusted to reflect our 1-for-18 reverse stock split, which was effective December 21, 2023.
Overview
We are a leading identity access management (IAM) platform provider for the enterprise and large-scale customer and civil ID solutions. Built to leverage BIO-key’s world-class biometric core platform among seventeen strong authentication factors, BIO-key PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems. PortalGuard goes beyond traditional multifactor authentication (MFA) solutions by addressing functional gaps, such as allowing roving users to biometrically authenticate at any workstation without using their phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification.
Our customers use BIO-key every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices. Employees, contractors, students and faculty sign in through PortalGuard to seamlessly and securely access the applications they need to do their important work, without relying on personal phone use or per-user tokens. Organizations use our platform to securely collaborate with their supply chain and partners, and to provide their customers with flexible, resilient user experiences online or in-person.
Large-scale customer and civil ID customers use our scalable biometric management platform and FBI-certified scanner hardware to manage enrollment, de-duplication and authentication for millions of users. One large bank has enrolled and identifies over 21.7 million of their customers using BIO-key fingerprint biometrics in branches on a daily basis.
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 user of a particular scanner.
Security-conscious software developers leverage our platform APIs and federation interfaces to securely and efficiently embed biometric and MFA identity capabilities into their software. Our approach to IDaaS allows our customers to efficiently scale their security and identity infrastructures to protect both internal cloud workforce- and external customer-facing applications.
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.
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.
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Strategic Outlook
We plan to have a more significant role in the IAM market which continues to expand. We plan to continue to offer customers a suite of authentication options that complement our biometric solutions. The more well-rounded offerings of authentication options will allow customers to customize their approach to authentication all under one umbrella.
We expect to grow our business within government services and highly-regulated industries in which we have historically had a strong presence including financial services, higher education, and healthcare. We believe that continued heightened security and privacy requirements in these industries, and as colleges and universities continue operating in remote environments, we will generate increased demand for security solutions, including biometrics. In addition, we expect that the compatible, yet superior portable biometric user experience offered by our technology for Windows 10 users will accelerate the demand for our computer network log-on solutions and fingerprint readers. Through value add-offerings via direct sales, resellers, and strategic partnerships with leading higher education platform providers, we will continue to grow our installed base.
Our primary sales strategies are focused on (i) increased marketing efforts into the IAM market, (ii) dedicated pursuit of large-scale identification projects across the globe and (iii) growing our channel alliance program which we have grown to more than eighty-five participants and continues to generate incremental revenues.
A second component of our growth strategy is to pursue strategic acquisitions of select businesses and assets in the IAM space. In furtherance of this strategy, we are active in the industry and regularly evaluate businesses that we believe will either provide an entry into new market verticals or be synergistic with our existing operations and in either case, be accretive to earnings. We cannot provide any assurance as to whether we will be able to complete any acquisition and if completed, successfully integrate any business we acquire into our operations.
Recent Developments
As discussed under “Item 1A. Risk Factors”, given the uncertainty the current economic and political environment and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature, the related financial impact cannot be reasonably estimated at this time.
The current trend of continued remote work environments increases the risk of unauthorized users, phishing attacks, and hackers who are eager to take advantage of the challenges of securing remote workers. A growing trend of security incidents that highlight potential cybersecurity vulnerabilities, additional regulatory requirements, and increasingly stringent Cyber Insurance underwriting standards that mandate enhanced security solutions has resulted in many businesses requiring MFA for their employees, partners and customers to access their business systems and data. We believe that biometrics should continue to play a key role in remote user authentication.
RESULTS OF OPERATIONS
Consolidated Results of Operations
Two Year % trend
Years ended
December 31,
2024
2023
Revenues
Services
16
%
29
%
License fees
75
%
56
%
Hardware
9
%
15
%
100
%
100
%
Costs and other expenses
Cost of services
6
%
11
%
Cost of license fees
9
%
15
%
Cost of hardware
7
%
9
%
Cost of hardware reserve
-3
%
46
%
Total cost of goods sold
19
%
82
%
Gross Profit
81
%
18
%
Operating expenses
Selling, general and administrative
103
%
101
%
Research, development and engineering
36
%
31
%
Total operating expenses
139
%
132
%
Operating loss
-58
%
-114
%
Other income (expense)
Total other income (expense)
-4
%
2
%
Loss before provision for income tax benefit
-62
%
-112
%
Provision for income tax benefit
0
%
2
%
Net loss
-62
%
-110
%
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Revenues and Costs and other expenses
2024-2023
2024
2023
$ Chg
% Chg
Revenues
Services
$
1,108,506
$
2,218,885
$
(1,110,379
)
-50
%
License fees
5,189,370
4,342,010
847,360
20
%
Hardware
631,695
1,194,010
(562,315
)
-47
%
Total Revenue
$
6,929,571
$
7,754,905
$
(825,334
)
-11
%
Costs and other expenses
Services
$
396,274
$
861,936
$
(465,662
)
-54
%
License fees
589,505
1,174,919
(585,414
)
-50
%
Hardware
516,611
700,231
(183,620
)
-26
%
Hardware reserves
(213,005
)
3,586,500
(3,799,505
)
-106
%
Total Costs and other expenses
$
1,289,385
$
6,323,586
$
(5,034,201
)
-80
%
Revenues
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 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, 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
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.
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Selling, general and administrative
2024-2023
2024
2023
$ Chg
% Chg
$
7,140,147
$
7,862,710
$
(722,563
)
-9
%
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
2024-2023
2024
2023
$ Chg
% Chg
$
2,511,080
$
2,394,926
$
116,154
5
%
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)
2024-2023
2024
2023
$ Chg
% Chg
Interest income
$
110
$
11,533
$
(11,423
)
-99
%
Gain from sale of asset
-
20,000
(20,000
)
100
%
Foreign currency loss
(13,004
)
(39,000
)
25,996
-67
%
Loan transaction costs
(124,000
)
-
(124,000
)
100
%
Change in fair value of convertible note
-
396,203
(396,203
)
-100
%
Interest expense
(175,755
)
(218,270
)
42,515
-19
%
$
(312,649
)
$
170,466
$
(483,115
)
-283
%
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.
Net Loss
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.
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LIQUIDITY AND CAPITAL RESOURCES
Operating activities overview
Net cash used for operations during the year ended December 31, 2024 was $2,914,072. Items of note included:
●
Net positive cash flows related to non-cash expenses of approximately $1,219,000.
●
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
Net cash used in investing activities during the year December 31, 2024 was $13,047 for capital expenditures.
Fi nancing activities overview
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
Since our inception, our capital needs have been principally met through proceeds from the sale of equity and debt securities. We expect capital expenditures to be less than $100,000 during the next twelve months.
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.
On October 30, 2023, we completed a public offering of shares of common stock and warrants resulting in net proceeds of approximately $3.3 million, after deducting placement agent fees and estimated offering expenses. We used approximately $2.2 million of the net proceeds to repay the outstanding amount due under outstanding convertible note payable.
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. 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.
Liquidity Outlook
At December 31, 2024, our total cash and cash equivalents were approximately $438,000, as compared to $511.000 at December 31, 2023. 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. 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. During 2024, we generated approximately $6,930,000 of revenue, which did not generate enough cash to fully fund our average monthly cash requirements. 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. We continue to explore other markets and opportunities to sell or return the product to generate additional cash.
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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 during the next twelve months. Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing. To the extent that we require such additional financing, no assurance can be given that any form of additional financing will be available on terms acceptable to us, if at all, that adequate financing will be obtained to meet our needs, or that such financing would not be dilutive to existing stockholders. If available financing is insufficient or unavailable or we fail to continue to generate sufficient revenue, we may be required to further reduce operating expenses, delay the expansion of operations, be unable to pursue merger or acquisition candidates, or in the extreme case, not continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in Note A of the notes to our consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations, as listed below:
1. Revenue Recognition
2. Allowances for Accounts Receivable
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.