What changed in this filing

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Item 1. Financial Statements

2025-05-15 compared with 2024-11-14 · 144 added, 320 removed, 421 unchanged (52% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Cash and cash equivalents

16 unchanged sentences

67,142 73,372

5,000,000 5,000,000

Intangible assets, net

7 unchanged sentences

1,042,411 1,278,732

762,151 1,525,977

Government loan – BBVA Bank, current portion

8 unchanged sentences

136,931 196,237

Deferred tax liability

22,998 22,998

Government loan – BBVA Bank – net of current portion

1 unchanged sentence

Operating lease liabilities, net of current portion

42,410 48,994

Total non-current liabilities

6 unchanged sentences

issued and outstanding;

3,109,288 and 1,032,777 of $ .0001 par value at September 30, 2024 and December 31, 2023, respectively

5,814,041 and 3,715,483 of $ .0001 par value at March 31, 2025 and December 31, 2024, respectively

Additional paid-in capital

8 unchanged sentences

$ 11,183,676 $ 8,615,560

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-18 reverse stock split, which was effective December 21, 2023.

See accompanying notes to the condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Total revenues

3 unchanged sentences

Cost of hardware

Cost of hardware - reserve

Total costs and other expenses

6 unchanged sentences

Interest income

Loss on foreign currency transactions

Loan fee amortization

Change in fair value of convertible note

Interest expense

8 unchanged sentences

Basic and diluted

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-18 reverse stock split, which was effective December 21, 2023.

See accompanying notes to the condensed consolidated financial statements.

8 unchanged sentences

Issuance of common stock to employees

Issuance of common stock for repayment of debt

Restricted stock forfeited

5 unchanged sentences

( 130,044,447

Restricted stock forfeited

Issuance of common stock for Employee stock purchase plan

Share based compensation for employee stock plan

Share-based compensation

Foreign currency translation adjustment

Balance as of June 30, 2024

( 127,184,445

Restricted stock forfeited

Issuance of restricted common stock to employees and directors

Foreign currency translation adjustment

Share-based compensation

Exercise of prefunded warrants

Exercise of warrants

Issuance costs

Balance as of September 30, 2024

( 127,923,404

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-18 reverse stock split, which was effective December 21, 2023.

See accompanying notes to the condensed consolidated financial statements.

7 unchanged sentences

Issuance of common stock for directors’ fees

Issuance of common stock to employees

Restricted stock forfeited

Exercise of warrants

Foreign currency translation adjustment

Share-based compensation

Issuance costs

Balance as of March 31, 2024

( 125,517,495

Issuance of common stock for directors’ fees

Restricted stock forfeited

Issuance of common stock for Employee stock purchase plan

Share based compensation for employee stock plan

Foreign currency translation adjustment

Share-based compensation

Balance as of June 30, 2023

( 120,796,573

Issuance of common stock for directors’ fees

Restricted stock forfeited

Issuance of restricted common stock to employees

Foreign currency translation adjustment

Share-based compensation

Balance as of September 30, 2023

( 122,634,397

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-18 reverse stock split, which was effective December 21, 2023.

See accompanying notes to the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOW FROM OPERATING ACTIVITIES:

1 unchanged sentence

Amortization of intangible assets

Change in fair value of convertible note

Amortization of capitalized contract costs

Amortization of Note Payable

Reserve for inventory

Interest payable on Note

Operating leases right-of-use assets

1 unchanged sentence

Stock based directors’ fees

Deferred income tax benefit

Change in assets and liabilities:

5 unchanged sentences

Accrued liabilities

Income taxes payable

Deferred revenue

5 unchanged sentences

CASH FLOW FROM FINANCING ACTIVITIES:

Proceeds from Note Payable

Offering costs

7 unchanged sentences

CASH AND CASH EQUIVALENTS, END OF PERIOD

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-18 reverse stock split, which was effective December 21, 2023.

See accompanying notes to the condensed consolidated financial statements.

3 unchanged sentences

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for:

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-18 reverse stock split, which was effective December 21, 2023.

Noncash investing and financing activities:

Issuance of stock for repayment of debt

See accompanying notes to the condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 (Unaudited)

March 31, 2025 (Unaudited)

NATURE OF BUSINESS AND BASIS OF PRESENTATION

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In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented.

The balance sheet at September 30, 2024 was derived from the audited financial statements, but does not include all of the disclosures required by GAAP.

The balance sheet at March 31, 2025 was derived from the audited financial statements, but does not include all of the disclosures required by GAAP.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10 -K for the fiscal year ended December 31, 2024 , filed with the SEC on June 5, 2024.

9 unchanged sentences

Recently Issued Accounting Pronouncements

Effective January 1, 2023, the Company adopted ASU 2016 - 13, Financial Instruments-Credit Losses (Topic 326 ), referred to herein as ASU 2016 - 13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016 - 13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments.

Under ASU 2016 - 13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset.

The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset.

Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date.

The new guidance provides no threshold for recognition of impairment allowance.

Therefore, entities must also measure expected credit losses on assets that have a low risk of loss.

For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016 - 13.

The adoption of ASU 2016 - 13 had a material effect on the consolidated financial statements of the Company.

In August 2020, the Financial Accounting Standards Board issued ASU 2020 - 06, Debt - Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging - Contracts in Entity ’ s Own Equity (Subtopic 815 - 40 ) (“ASU 2020 - 06” ) to simplify accounting for certain financial instruments.

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GOING CONCERN

The Company has historically financed operations through access to the capital markets by issuing convertible debt securities, convertible preferred stock, common stock, and through factoring receivables.

As of the date of this report, the Company does not have enough cash for twelve months of operations.

The history of significant losses, the negative cash flow from operations, the limited cash resources on hand and the dependence by the Company on its ability, to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company's ability to continue as a going concern.

The Company has lowered expenses through decreasing spending in marketing, and research and development.

In addition, the Company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and is, therefore looking into other markets and opportunities to sell or return the product to generate additional cash.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

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The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

As of the date of this report, the Company does not have enough cash for twelve months of operations.

The history of significant losses, the negative cash flow from operations, the limited cash resources on hand and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company's ability to continue as a going concern.

In recent periods, the Company has reduced its marketing, research and development, and rent expenses.

In addition, the Company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and is currently exploring other markets and opportunities to sell or return the product to generate additional cash.

REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three month periods ended September 30, 2024 and September 30, 2023 :

September 30,

$ 188,181 $ 34,753 $ 44,437 $ - $ 267,371

738,838 223,703 478,470 - 1,441,011

52,897 - 361,525 22,000 436,422

Total Revenues

$ 979,916 $ 258,456 $ 884,432 $ 22,000 $ 2,144,804

September 30,

$ 294,581 $ 26,009 $ 267,303 $ - $ 587,893

426,059 - 523,956 - 950,015

48,057 - 231,143 - 279,200

Total Revenues

$ 768,697 $ 26,009 $ 1,022,402 $ - $ 1,817,108

The following table summarizes revenue from contracts with customers for the nine month periods ended September 30, 2024 and September 30, 2023 :

September 30,

The following table summarizes revenue from contracts with customers for the three month periods ended March 31, 2025 and March 31, 2024 :

$ 205,843 $ 64,152 $ 142 $ 2,461 $ 272,598

3 unchanged sentences

$ 578,279 $ 589,245 $ 408,134 $ 31,501 $ 1,607,159

September 30,

$ 191,481 $ 20,254 $ 1,387 $ - $ 213,122

9 unchanged sentences

Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services.

At September 30, 2024 and December 31, 2023 , amounts in deferred revenue were approximately $ 961,000 and $ 443,000 , respectively.

Revenue recognized during the three and nine -months ended September 30, 2024 from amounts included in deferred revenue at the beginning of the period was approximately $ 51,000 and $ 482,000 , respectively.

Revenue recognized during the three and nine -months ended September 30, 2023 from amounts included in deferred revenue at the beginning of the period was approximately $ 67,000 and $ 402,000 , respectively.

At March 31, 2025 and December 31, 2024 , amounts in deferred revenue were approximately $ 1,065,000 and $ 485,000 , respectively.

Revenue recognized during the three months ended March 31, 2025 from amounts included in deferred revenue at the beginning of the period was approximately $ 200,000 .

ACCOUNTS RECEIVABLE

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Accounts receivable are written off when deemed uncollectible.

Accounts receivable at September 30, 2024 and December 31, 2023 consisted of the following:

September 30,

Accounts receivable at March 31, 2025 and December 31, 2024 consisted of the following:

Accounts receivable

$ 2,606,064 $ 2,207,311

Allowance for credit losses

( 675,806 ) ( 1,005,785 )

Accounts receivable, net of allowances for credit losses

$ 1,930,258 $ 1,201,526

Bad debt expenses are recorded in selling, general, and administrative expense.

1 unchanged sentence

The following table presents share-based compensation expenses included in the Company’s unaudited condensed interim consolidated statements of operations:

Three Months Ended September 30,

Selling, general and administrative

$ 53,117 $ 56,414

Research, development and engineering

12,936 48,758

$ 66,053 $ 105,172

Nine Months Ended September 30,

Three Months Ended March 31,

Selling, general and administrative

$ 140,142 $ 171,833

Research, development and engineering

31,475 48,758

$ 171,617 $ 220,591

Inventory is stated at the lower of cost, determined on a first in, first out basis, or realizable value.

1 unchanged sentence

The Company also reserves for excess quantities, slow moving goods, and for other impairment of value based upon assumptions of future demand and market conditions.

Approximately $ 3,200,000 of the reserve on inventory is due to slow moving inventory purchased for projects in Nigeria, and the balance for other slow-moving inventory.

The reserve on inventory is due to slow moving inventory purchased for projects in Nigeria, and slow-moving inventory.

The Company has been selling units in small quantities and continues to explore other markets and opportunities to sell the product.

Inventory is comprised of the following as at September 30, 2024 and December 31, 2023 :

September 30,

Inventory is comprised of the following as at March 31, 2025 and December 31, 2024 :

Finished goods

$ 4,220,416 $ 4,373,056

Fabricated assemblies

54,153 59,184

Reserve on finished goods

( 3,887,625 ) ( 3,986,500 )

Total inventory

$ 386,944 $ 445,740

Equity Investment in Privately Held Company

On November 27, 2024, the Company purchased 5,000,000 shares (the “Boumarang Shares”) of common stock of Boumarang, Inc., an early-stage private technology company developing sustainable long-range drone technology for commercial applications.

The Boumarang Shares represent approximately 7.92 % of the issued and outstanding shares of Boumarang, Inc.

and the Company has no corporate governance or control rights.

The Boumarang Shares were purchased from Fiber Food Systems, Inc.

(“Fiber Food”), an early-stage company engaged in developing global food security solutions, in consideration of the issuance of 595,000 shares of the Company’s common stock.

Fiber Food is not a principal stockholder of Boumarang and has no corporate governance or control rights.

The purchase agreement between the Company and Fiber Food contemplates collaboration between the parties regarding potential strategic and commercial transactions, including acquiring assets or equity interests in other operating companies, integrating the Company’s identity access management solutions into Fiber Food’s offerings, and introducing the Company to its customers, affiliates and business contacts who are potential users of the Company’s solutions, in each case pursuant to future definitive agreements on terms to be negotiated by the parties.

The Company has engaged in discussions with Fiber Food and Boumarang regarding the contemplated collaboration, but no definitive agreements have been executed.

In the event that at any time during the nine -month period after the closing of the transaction the Company values the Boumarang Shares at less than $ 5,000,000 on its balance sheet, the Company has the right to cause Fiber Food to repurchase the Boumarang Shares from the Company in exchange for the return of the shares of Company common stock issued in exchange for the Boumarang Shares.

The purchase agreement also contains a standstill which prohibits the Company, Fiber Food, Boomerang and their respective affiliates and representatives for a period of two years, from, among other things, initiating any business combination, restructuring, tender offer, proposal to seek representation on the board of directors, or any proxy solicitation, instigating, encouraging or assisting any third party from doing any of the forgoing, or acquiring any debt or equity securities of any other party.

The Boumarang Shares constitute an investment in a privately held company for which there is no trading market and are carried at fair value.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk.

The Company follows ASC Topic 820 – “Fair Value Measurement,” which establishes a three -level valuation hierarchy for disclosure of fair value measurements.

The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.

The three levels are defined as follows:

Quoted prices (unadjusted) for identical assets or liabilities in active markets.

Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived from observable market data by correlation or other means.

Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Boumarang Shares are classified as a Level 3 asset and have been valued based on a combination of recent sales of Boumarang common stock to third parties and a third party valuation applying a discounted cash flow analysis which included discounts for lack of control and lack of marketability, small company risk premium, and specific company risk premium based on Boumarang being an early-stage pre-revenue company.

The lack of control and marketability discounts were based on published studies and transfer restrictions contained in Boumarang’s corporate governance documents.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Boumarang Shares may fluctuate from period to period and the fair value of the Boumarang Shares may differ significantly from the values that would have been used had a ready market existed for such shares and may differ materially from the values that the Company may ultimately realize.

The early-stage pre-revenue status and unproven technology of Boumarang raise uncertainties that could impact the recoverability of the investment in the Boumarang Shares.

ASC 321 - 10 - 35 requires annual impairment testing for equity securities without readily determinable fair values.

COMMITMENTS AND CONTINGENCIES

Distribution Agreement

Swivel Secure has a distribution agreement with Swivel Secure Limited (“SSL”).

Terms of the agreement include the following:

The initial term of the agreement ends on January 31, 2027 and will be automatically extended for additional one -year terms thereafter unless either party provides written notice to the other party not later than 30 days before the end of the term that it does not wish to extend the term.

SSL appoints Swivel Secure as the exclusive distributor of SSL’s products, to market, sell and distribute in the EMEA (Europe, Middle East and Africa), excluding the United Kingdom and Republic of Ireland, for a defined discount on the sale price.

Swivel Secure is expected to generate a certain minimum level of orders of SSL products each year during the term of the agreement.

If Swivel Secure fails to meet such minimum level of orders in any year, the exclusive distribution rights will terminate and Swivel Secure will serve as a non-exclusive distributer of SSL Products.

The Company expects the revenue targets to continue to be met based on historical performance and increasing distribution by Swivel Secure.

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business.

As of September 30, 2024 , the Company was not a party to any pending lawsuits.

As of March 31, 2025 , the Company was not a party to any pending lawsuits.

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2027.

On August 11, 2023, the Company signed a new one -year lease starting September 1, 2023 for office space in New Jersey.

The property leased in China is paid monthly as used, without a formal agreement.

2 unchanged sentences

3 Months ended

September 30,

Total lease cost

$ 9,702 $ 34,145

9 Months ended

September 30,

Total lease cost

$ 38,808 $ 145,828

September 30,

Balance sheet information

Operating right-of-use assets

$ 73,636 $ 36,905

Operating lease liabilities, current portion

$ 24,545 $ 37,829

Operating lease liabilities, non-current portion

Total operating lease liabilities

$ 73,636 $ 37,829

Weighted average remaining lease term (in years) – operating leases

Weighted average discount rate – operating leases

5.50 % 5.50 %

Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2024 and 2023:

$ 51,950 $ 213,783

Maturities of operating lease liabilities were as follows as of September 30, 2024 :

Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2025 and 2024:

Maturities of operating lease liabilities were as follows as of March 31, 2025 :

2025 (9 months remaining)

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Upon the occurrence of an Event of Default, Lender may ( i) cause interest on the outstanding balance to accrue at an interest rate equal to the lesser of twenty two ( 22 %) or the maximum rate permitted under applicable law, and (ii) accelerate all amounts due under the 2024 Note plus an amount equal to (a) fifteen percent ( 15 %) of the amount due under the 2024 Note for each default that is considered a major trigger event (as defined), and (b) five percent ( 5 %) of the amount due under the 2024 Note for each occurrence of any default that is considered a minor trigger event (as defined), in any case not to exceed twenty five percent ( 25 %).

The Company received gross proceeds of approximately $ 1.9 million in connection with a financing transaction (see Note 12.

In accordance with the terms of the 2024 Note, on October 1, 2024, 40 % of the proceeds received, or approximately $ 762,600 , was used to prepay amounts due under the 2024 Note.

CONVERTIBLE NOTE PAYABLE

Securities Purchase Agreement dated December 22, 2022

On December 22, 2022, the Company entered into and closed a securities purchase agreement (the “Purchase Agreement”) and issued a $ 2,200,000 principal amount senior secured promissory note (the “Note”).

At closing, a total of $ 2,002,000 was funded, with the proceeds to be used for general working capital.

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

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

The Note was secured by a lien on substantially all of the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.

In connection with the issuance of the Note, the Company issued to the investor 38,889 shares of Common Stock (the “Commitment Shares”) valued at $ 18.00 per share and a warrant (the “Warrant”) to purchase 11,112 shares of common stock (the “Warrant Shares”) at an exercise price of $ 54.00 per share, exercisable commencing on the date of issuance with a term of five years.

The warrant was valued at $ 94,316 .

On October 31, 2023, the Company repaid $ 1,400,000 of principal due under the Note, and on December 21, 2023 the Company repaid the remaining principal balance of $ 800,000 due under the Note.

As of December 31, 2023 , the Note was paid in full.

In the third quarter of 2024, the Company received gross proceeds of approximately $ 1.9 million in connection with a financing transaction (see Note 12 Warrants).

In accordance with the terms of the 2024 Note, 40 % of the proceeds received, or approximately $ 762,600 , was used to prepay amounts due under the 2024 Note.

In, January 2025, the Company entered into two Exchange Agreements with the holder of the Note and agreed to partition the original Note new Promissory Notes in the original principal amounts of $ 629,000 and $ 205,000 , respectively, reducing the outstanding principal amount of the original Note to approximately $ 738,400 .

EARNINGS (LOSS) PER SHARE - COMMON STOCK (“EPS”)

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Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of preferred stock.

The following table sets forth options and warrants which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

Three Months ended

Nine Months Ended

September 30,

Items excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares, and they were also excluded from diluted earnings per share due to anti-dilution:

Three Months ended March 31,

Stock options

3,007 9,266 3,007 9,266

2,739,362 207,234 2,739,362 270,234

2,742,369 216,500 2,742,369 279,500

STOCKHOLDERS’ EQUITY

Issuances of Common Stock

During the nine -month periods ended September 30, 2024 , and 2023 , there have not been any shares of common stock issued to anyone outside the Company, except as noted in this Note 12.

During the three -month periods ended March 31, 2025 , and 2024 , there have not been any shares of common stock issued to anyone outside the Company, except as noted in this Note 12.

On June 18, 2021, the stockholders approved the Employee Stock Purchase Plan.

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The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031.

On June 28, 2024, 1,390 shares were issued to employees which resulted in a $ 456 non-cash compensation expense for the Company.

On June 30, 2023, 1,557 shares were issued to employees which resulted in a $ 3,563 non-cash compensation expense for the Company.

There were no shares issued during the three -month periods ended March 31, 2025 and 2024.

Issuances of Restricted Stock

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Nonvested stock is expensed ratably over the term of the restriction period.

During the nine -month periods ended September 30, 2024 and 2023 , the Company issued 168,963 and 16,404 shares of restricted common stock, respectively, to certain employees and directors.

During the three -month periods ended March 31, 2025 and 2024 , the Company issued 2,500 and 0 shares of restricted common stock, respectively, to certain employees and directors.

These shares vest in equal annual installments over a three -year period from the date of grant and had a fair value on the date of issuance of $ 2,525 and $ 0 , respectively.

During the nine -month periods ended September 30, 2024 and 2023 , 1,351 and 2,650 shares of restricted common stock were forfeited, respectively.

Share based compensation for the nine -month periods ended September 30, 2024 and 2023 , was $ 171,617 and $ 220,591 , respectively.

During the three -month periods ended March 31, 2025 and 2024 , 7,572 and 316 shares of restricted common stock were forfeited, respectively.

Share based compensation for the three -month periods ended March 31, 2025 and 2024 , was $ 52,488 and $ 56,793 , respectively.

Issuances to Directors

During the nine -month periods ended September 30, 2024 , and 2023 , the Company issued 4,287 and 3,078 , shares of common stock to its directors in lieu of payment of board and committee fees valued at $ 9,003 and $ 39,006 , respectively.

During the three -month periods ended March 31, 2025 , and 2024 , the Company issued 8,913 and 4,287 , shares of common stock to its directors in lieu of payment of board and committee fees valued at $ 9,002 and $ 9,003 , respectively.

Employees ’ exercise options

During the nine -month periods ended September 30, 2024 and 2023 , no employee stock options were exercised.

During the nine -month period ended September 30, 2024, the entered into a warrant inducement agreement with an existing institutional investor for the immediate exercise of certain outstanding warrants that the Company issued on October 30, 2023.

Pursuant to the warrant inducement agreement, the investor agreed to exercise outstanding warrants to purchase an aggregate of 1,030,556 shares of the Company's common stock at an amended exercise price of $ 1.85 .

The gross proceeds from the exercise of the warrants was approximately $ 1.9 million, prior to deducting placement agent fees and estimated offering expenses.

In consideration for the immediate exercise of the warrants, the Company also agreed to issue 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 Warrants and Series B Warrants share substantially the same terms, are immediately exercisable and will expire five years from the date of issuance.

There were no warrants issued for the nine -month period ended September 31, 2023.

There were 911,672 prefunded warrants exercised during the nine -month period ended September 30, 2024.

During the three -month periods ended March 31, 2025 and 2024 , no employee stock options were exercised.

On January 15, 2025, the Company entered into a warrant exercise agreement with an existing institutional investor to exercise certain outstanding warrants to purchase an aggregate of 2,061,112 shares of the Company’s common stock, $ 0.0001 par value per share (the “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 the Existing Warrants, subject to compliance with the beneficial ownership limitations included in the existing warrants, the Investor received new unregistered Series A warrants to purchase up to an aggregate of 1,545,834 shares of the Company’s Common Stock (the “Series A Warrants”) and new unregistered Series B warrants to purchase up to an aggregate of 1,545,834 shares of the Company’s Common Stock (the “Series B Warrants”, and together with the “Series A Warrants, the “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 Company agreed to file a resale registration statement covering the public resale of the shares of Common Stock issuable upon exercise of the New Warrants with the Securities and Exchange Commission (the “SEC”), and to use commercially reasonable efforts to have such Resale Registration Statement declared effective by the SEC within 90 calendar days following the date of the Warrant Exercise Agreement.

The New Warrants each include a beneficial ownership limitation that prevents the Investor from beneficially owning more than 4.99 % of the Company’s outstanding common stock at any time.

The Company realized gross proceeds under the Warrant Exercise Agreement of approximately $ 3.8 million, prior to deducting placement agent fees and estimated offering expenses.

Net proceeds are being used for working capital and general corporate purposes, including repayment of a portion of the Company’s outstanding secured note.

There were 777,666 prefunded warrants exercised during the three -month period ended March 31, 2024.

FAIR VALUES OF FINANCIAL INSTRUMENTS

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MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE

During each of the three month periods ended September 30, 2024 , and 2023 , three customers accounted for 47 % and two customers accounted for 33 % of the revenue, respectively.

For the nine month periods ended September 30, 2024 , and 2023 , one customer accounted for 29 % and two customers accounted for 23 % of revenue, respectively.

Four customers accounted for 65 % of current accounts receivable at September 30, 2024 .

At December 31, 2023 , one customer accounted for 35 % of current accounts receivable.

During each of the three month periods ended March 31, 2025 , and 2024 , two customers accounted for 47 % and one customers accounted for 59 % of the revenue, respectively.

Two customers accounted for 49 % of current accounts receivable at March 31, 2025 .

At December 31, 2024 , two customers accounted for 36 % of current accounts receivable.

United States, Hong Kong and Nigeria

The Company recorded no income tax expense for the three and nine months ended September 30, 2024 and 2023 because the estimated annual effective tax rate was zero .

The Company recorded no income tax expense for the three months ended March 31, 2025 and 2024 because the estimated annual effective tax rate was zero .

In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

As of September 30, 2024 and December 31, 2023 , the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Due to the current loss for the nine months ended September 30, 2024 , the Company did not record income taxes.

The deferred tax liability presented on the condensed consolidated balance sheet relates to intangible assets from the acquisition of Swivel Secure.

As of March 31, 2025 and December 31, 2024 , the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Due to the current loss for the three months ended March 31, 2025 , the Company did not record income taxes.

SUBSEQUENT EVENTS

On November 7, 2024, the Company issued 7,761 shares of common stock to its directors in payment of meeting fees.

During April 2025, 16,926 shares of restricted common stock were forfeited by employees who left the Company before the lapse of the restriction period applicable to such shares.

On May 8, 2025, the Company issued 11,691 shares of common stock to its directors in payment of meeting fees.

Additionally, the Company issued an aggregate of 12,500 shares of restricted stock to new employees with three -year vesting.

All the shares were issued at $ 1.16 the closing price on November 7, 2024, as reported on the Nasdaq Capital Market.

All the shares were issued at $ 0.77 the closing price on May 8, 2024, as reported on the Nasdaq Capital Market.

The Company has reviewed subsequent events through the date of this filing.

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These risks and uncertainties include, without limitation, our history of losses and limited revenue;

our ability to raise additional capital to satisfy debt repayment obligations and working capital needs;

our ability to raise additional capital;

our ability to continue as a going concern;

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our ability to expand into Asia, Africa and other foreign markets;

our ability to integrate the operations and personnel of Swivel Secure into our business;

fluctuations in foreign currency and exchange rates;

our ability to migrate Swivel Secure customers to BIO-key and Portal Guard offerings;

our ability to execute definitive agreements with Fiber Food Systems and/or its customers to utilize our access management solutions;

our ability to integrate our solutions into any of Fiber Food System’s offerings;

fluctuations in foreign currency exchange rates;

the duration and extent of continued hostilities in Ukraine and its impact on our European customers;

delays in the development of products, the commercial, reputational and regulatory risks to our business that may arise as a consequence the restatement of our financial statements;

if we fail to increase our stockholders' equity to at least $2.5 million, our common stock will be delisted from the Nasdaq Stock Market which could negatively impact the trading price of our common stock and impair our ability to raise capital, our temporary loss of the use of a Registration Statement on Form S-3 to register securities in the future;

any disruption to our business that may occur on a longer-term basis should we be unable to remediate during fiscal year 2024 certain material weaknesses in our internal controls over financial reporting, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and other filings with the SEC.

the impact of tariffs and other trade barriers which may make it more costly for us to import inventory from China and Hong Kong and certain product components from South Korea;

delays in the development of products, the commercial, reputational and regulatory risks to our business that may arise as a consequence of the restatement of our financial statements including any consequences of non-compliance with the Securities and Exchange Commission (“SEC”) and Nasdaq periodic reporting requirements;

our temporary loss of the use of a Registration Statement on Form S-3 to register securities in the future;

any disruption to our business that may occur on a longer-term basis should we be unable to maintain effective controls over financial reporting, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 and other filings with the SEC.

These factors are not intended to represent a complete list of the general or specific factors that may affect us.

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Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

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 is provided as a supplement to and should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as of December 31, 2024.

BIO-key International, Inc.

(the “Company,” “BIO-key,” “we,” or “us”) is a leading identity and access management, or IAM, platform provider enabling secure work-from-anywhere for enterprise, education, and government customers.

Our vision is to enable any organization to secure streamlined and passwordless workforce, employee, customer, student and citizen access to any online service, workstation, or mobile application, without a requirement to use tokens or phones.

Our products include PortalGuard® and PortalGuard Identity-as-a-Service (IDaaS) enterprise IAM, WEB-key® biometric civil and large-scale ID infrastructure, and accessory hardware to provide a complete solution for our customers.

Millions of people use BIO-key multi-factor-authentication, or MFA, solutions every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices.

We go beyond passwordless to offer phone-less and token-less authentication methods.

This critical differentiator is particularly effective for retail, call center, manufacturing, shop-floor, and healthcare environments which utilize roving workers and shared workstations.

Unlike most digital identity solutions, BIO-key also plays a role in securing in-person identity.

For example, a banking customer has enrolled over 25 million of its customers’ biometrics with BIO-key as part of their know your customer, or KYC process, and then uses BIO-key fingerprint technology each time their customers access bank services to ensure positive identification before transacting with them.

BIO-key PortalGuard and hosted PortalGuard IDaaS authentication platforms enable our customers to assure that only the right people can access the right systems by utilizing our world-class biometric capabilities, among 17 other available authentication methods.

PortalGuard goes beyond traditional MFA solutions by allowing roving users to biometrically authenticate at any workstation without using their phones or tokens which addresses sizeable security gaps, including eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification.

Our customers use PortalGuard to manage and secure digital systems access by their employees, contractors and partners, which we call workforce identity.

PortalGuard is also used to manage and secure the identities of an organization’s customers through integration of APIs we have developed and industry-standard federation standards, which we call customer identity.

By using PortalGuard, our customers can securely collaborate with their supply chain and partners, and provide their customers with flexible, resilient user experiences online or in-person.

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

Swivel Secure Europe is a distributer of the 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 PINsafe, 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.

(the “Company,” “BIO-key,” “we,” or “us”) is a leading identity access management, or 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 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.

We sell our branded USB fingerprint 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.

Our fingerprint biometric platform is certified by NIST and unique among fingerprint platforms in that it supports mixing and matching of different manufactures’ fingerprint scanners in a deployment.

This provides our customers with the flexibility to select the right scanner for their specific use case, without mandating the use of a particular scanner.

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 use 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.

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We plan to have a more significant role in the IAM market which continues to expand.

With the adoption of MFA as a cybersecurity requirement, nearly all enterprises are beginning to adopt MFA for their user bases.

We plan to continue to offer customers a suite of authentication options that complement our biometric solutions.

Our ability to add value to or replace the first-generation MFA solutions deployed by these enterprises with our phone-less and token-less biometrics sets us apart from a crowded field of phone- and token-based MFA solutions.

We believe that as enterprises experience the lifecycle costs associated with managing tokens and passwords, they will have an economic incentivize to consider adding BIO-key PortalGuard to their IAM solution.

PortalGuard will allow them to continue to use their existing FIDO devices, while selectively augmenting their authentication options with tokenless and phoneless biometric choices.

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.

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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.

Through Swivel Secure Europe, we also expect to grow our business in EMEA.

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 one hundred and fifty participants and continues to generate incremental revenues.

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.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED September 30, 2024 AS COMPARED TO September 30, 2023

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

Consolidated Results of Operations - Percent Trend

Three Months Ended September 30,

Three Months Ended March 31,

Total Revenues

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Three Months Ended

September 30,

Total Revenue

Three Months Ended

September 30,

Cost of Goods Sold

Hardware - reserve

For the three months ended September 30, 2024, and 2023, service revenues included approximately $214,000 and $279,000, respectively, of recurring maintenance and support revenue, and approximately $53,000 and $291,000 respectively, of non-recurring custom services revenue.

Recurring service revenue decreased $65,000 or 24% in 2024 which was due to the loss of one large customer service agreement.

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 the current lower rate in future periods.

For the three months ended September 30, 2024, license revenue increased $490,996 or 52% to $1,441,011 from $950,015 in the corresponding period in 2023 , as several long-term customers expanded their license deployments.

We expect the service revenue to remain at these reduced levels in future periods.

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.

For the three months ended

September 30, 2024, hardware sales increased 56% to $436,422 from $279,200 in the corresponding period in

The increase was due largely to several long-term customers expanding their biometric cybersecurity solutions.

March 31, 2025, hardware sales increased 1236% to $235,803 from $17,647 in the corresponding period in

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

reduced add-on orders.

Costs of goods sold

For the three months ended September 30, 2024, cost of service decreased approximately $14,000 or 11% to $110,723 from $125,039 in the three months ended September 30, 2023, due to reduced costs to support the PortalGuard and Swivel Secure deployments.

For the three months ended September 30, 2024, license fees decreased to $146,732 from $253,891 in the three months ended September 30, 2023, due largely to a decrease in license fees for third-party software included in our Swivel Secure offerings.

For the three months ended September 30, 2024, hardware costs increased to $207,655 from $97,674 in the three months ended September 30, 2023, related to increase of hardware revenue.

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.

Selling, general and administrative

Three Months Ended

September 30,

Selling, general and administrative

Selling, general and administrative expenses for the three months ended September 30, 2024, decreased 9% from $1,776,305 in the corresponding period in 2023 to $1,607,925 in the current quarter.

The decreases included reductions in administration, sales personnel costs and marketing show expenses, offset by an increase in professional services incurred in connection with financing transactions.

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.

Research, development and engineering

Three Months Ended

September 30,

Research, development, and engineering

For the three months ended September 30, 2024, research, development, and engineering costs increased 23% to $652,174 compared to $529,757 in the corresponding period in 2023.

The increase consisted primarily in an increase in personnel costs.

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.

Other income (expense)

Three Months Ended

September 30,

Interest income

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Other income (expense)

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.

Other income (expense) for the three months ended September 30, 2023 consisted of interest income of $5,917, interest expense of $45,655 on the secured note payable and the government loan through the BBVA bank net of interest, and change in fair value of $167,283 on the convertible note payable.

Nine MONTHS ENDED September 30, 2024 AS COMPARED TO September 30, 2023

Consolidated Results of Operations - Percent Trend

Nine Months Ended September 30,

Total Revenues

Costs and other expenses

Cost of services

Cost of license fees

Cost of hardware

Cost of hardware - reserve

Total Cost of Goods Sold

Operating expenses

Selling, general and administrative

Research, development and engineering

Total Operating Expenses

Operating loss

Other expense

Loss before provision for income tax

Provision for income tax

Revenues and cost of goods sold

Nine Months Ended

September 30,

Total Revenue

Cost of Goods Sold

Hardware - reserve

For the nine months ended September 30, 2024, and 2023, service revenues included approximately $682,000 and $899,000, respectively, of recurring maintenance and support revenue, and approximately $82,000 and $842,000 respectively, of non-recurring custom services revenue.

Recurring service revenue decreased $217,000 or 24% in 2024 which was due to the loss of one large customer service agreement.

Non-recurring custom services decreased 90% due to loss of one large customer for Swivel Secure customizations and upgrades.

We expect the service revenue to remain at the current lower rate in future periods.

For the nine months ended September 30, 2024, license revenue increased $401,327 or 11% to $4,165,6699 from $3,764,342 in the corresponding period in 2023.

Several long-term customers expanded their license deployments which contributed to the increase.

nine months ended

September 30, 2024, hardware sales increased 27% to $537,562 from $424,582 in the corresponding period in

The increase was due largely to add-on orders from existing customers in

2024, compared to increased new hardware deployments in

Costs of goods sold

For the nine months ended September 30, 2024, cost of service decreased approximately $317,000 or 50% to $322,957 from $639,996 in the nine months ended September 30, 2023, due to reduced costs to support the PortalGuard and Swivel Secure deployments.

For the nine months ended September 30, 2024, license fees decreased to $443,384 from $1,022,919 in the nine months ended September 30, 2023, due largely to a decrease in license fees for third-party software included in our Swivel Secure offerings.

For the nine months ended September 30, 2024, hardware costs increased to $260,684 from $240,074 in the nine months ended September 30, 2023, related to costs associated with increased hardware revenue.

Selling, general and administrative

Nine Months Ended

September 30,

Selling, general and administrative

Selling, general and administrative expenses for the nine months ended September 30, 2024, decreased 9% from $5,851,201in the corresponding period in 2023 to $5,332,764.

The decreases included reductions in administration, sales personnel costs and marketing show expenses, offset by an increase in professional fees incurred in connection with financing transactions.

Research, development and engineering

Nine Months Ended

September 30,

Research, development and engineering

For the nine months ended September 30, 2024, research, development, and engineering costs increased 4% to $1,850,929 compared to $1,778,097 in the corresponding period in 2023.

The increase consisted primarily of changes in personnel costs and reductions in outside services.

Other income (expense)

Nine Months Ended

September 30,

Interest income

Loss on foreign currency transactions

Loan fee amortization

Change in fair value of convertible note

Interest expense

Other income (expense)

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

Other income (expense) for the nine months ended September 30, 2023 consisted of interest income of $5,944, a loss on foreign currency of $15,000, a change in fair value of $264,706 on the convertible note payable, and interest expense of $159,379 on the secured note payable and the government loan through the BBVA bank.

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.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities overview

Net cash used in operations during the nine months ended September 30, 2024 was $2,399,508.

Net cash used in operations during the three months ended March 31, 2025 was $835,312.

Items of note included:

Net positive cash flows related to adjustments for non-cash expenses of approximately $322,000.

Net positive cash flows related to inventory, amount due from factor, accounts payable, and deferred revenue of approximately $875,000.

Negative cash flows related to changes in accounts receivable, prepaid expenses, and accrued liabilities of approximately $469,000, due to working capital management.

Net positive cash flows related to inventory, amount due from factor, prepaid expenses, and deferred revenue of approximately $174,000.

Negative cash flows related to changes in accounts receivable, accounts payable, and accrued liabilities of approximately $583,000, due to working capital management.

Financing activities overview

Net cash provided by financing activities during the nine months ended September 30, 2024 was $3,660,414 which included $2,000,000 of proceeds from the 2024 Note, $1,906,528 from the exercise of warrants, $1,571 from the exercise of prefunded warrants, and $1,939 from the purchase of shares in the Employee Stock Purchase Plan, which amounts were offset by $101,762 in repayment of the government loan through the BBVA bank and $147,862 for offering costs.

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.

Investing activities overview

Net cash used in investing activities during the nine months ended September 30, 2024 was $23,047 for capital expenditures.

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

Liquidity and Capital Resources

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

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.

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.

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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.

In connection with the warrant exercise agreement described above, we prepaid approximately $762,600 of the amount due under the 2024 Note.

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 units consisting of shares of common stock, pre-funded warrants to purchase shares of common stock, and warrants to purchase share of common stock.

Each Unit was sold at a public offering price of $0.175.

resulting in net proceeds of $3.3 million, after deducting the placement agent fees and offering expenses.

In December 2022, we entered into and closed a securities purchase agreement with AJB Capital Investments, LLC under which we issued a $2,2 million 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 2023.

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.

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Liquidity outlook

At September 30, 2024, our total cash and cash equivalents were $1,801,137, as compared to $511,400 at December 31, 2023.

At September 30, 2024, we had negative working capital of approximately $1,320,000.

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

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.

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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.

In addition, as reported in our Current Report on Form 8-K filed June 14, 2024, we are no longer in compliance with Nasdaq Capital Market continued listing rules which require us to maintain stockholders' equity of at least $2,500,000.

Our plan to regain compliance will require us to raise additional equity capital in the near term, or engage in a strategic transaction.

There can be no assurance that we will be able to raise such capital or regain compliance with the continued listing requirements.

Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing.

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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-Q

Item 1. Financial Statements