Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-13463
BIO-KEY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
41-1741861
(State or Other Jurisdiction of Incorporation of Organization)
(IRS Employer Identification Number)
101 CRAWFORDS CORNER ROAD, SUITE 4116, HOLMDEL, NJ 07733
(Address of Principal Executive Offices) (Zip Code)
(732) 359-1100
(Registrant’s telephone number, including area code)
Securities registered pursuance to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which
registered
Common Stock, par value $0.0001 per share
BKYI
Nasdaq Capital Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by rule 12b-2 of the Exchange Act) Yes ☐ No ☒
Number of shares of Common Stock, $.0001 par value per share, outstanding as of June 19, 2026, is 1,085,360 (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026).
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1— Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025
3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2026 and 2025 (Unaudited)
4
Condensed Consolidated Statements of Stockholders’ Equity for the three nine months ended March 31, 2026 and 2025 (Unaudited)
5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025 (Unaudited)
7
Notes to Condensed Consolidated Financial Statements
9
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.
17
Item 4—Controls and Procedures.
22
PART II. OTHER INFORMATION
Item 6—Exhibits.
23
Signatures
24
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
2026
2025
(Unaudited)
ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventory
Prepaid expenses and other
Total current assets
Equipment and leasehold improvements, net
Capitalized contract costs, net
Deposits and other assets
Operating lease right-of-use assets
Investments
Intangible assets, net
Total non-current assets
TOTAL ASSETS
LIABILITIES
Accounts payable
Accrued liabilities
Note payable
Government loan – BBVA Bank, current portion
Deferred revenue, current
Operating lease liabilities, current portion
Total current liabilities
Deferred revenue, long term
Deferred tax liability
Operating lease liabilities, net of current portion
Total non-current liabilities
TOTAL LIABILITIES
Commitments and Contingencies
STOCKHOLDERS’ EQUITY
Common stock — authorized, 170,000,000 shares; issued and outstanding; 1,085,360 of $.0001 par value at March 31, 2026 and December 31, 2025, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-10 reverse stock split, which was effective April 30, 2026.
See accompanying notes to the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Three Months Ended
Revenues
Services
License fees
Hardware
Total revenues
Costs and other expenses
Cost of services
Cost of license fees
Cost of hardware
Cost of hardware - reserve
Total costs and other expenses
Gross profit
Operating expenses
Selling, general and administrative
Research, development and engineering
Total operating expenses
Operating loss
Other income (expense)
Interest income
Loan fee amortization
Interest expense
Total other income (expense), net
Loss before provision for income taxes (tax benefits)
Provision for income taxes (tax benefits)
Net loss
Comprehensive loss:
Other comprehensive income (loss) – foreign currency translation adjustment
Comprehensive loss
Basic and diluted loss per common share
Weighted average common shares outstanding:
Basic and diluted
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional
Other
Common Stock
Paid-in
Comprehensive
Shares
Amount
Capital
Income
Deficit
Total
Balance as of January 1, 2026
Issuance of restricted stock to employees
Restricted stock forfeited
Foreign currency translation adjustment
Share-based compensation
Balance as of March 31, 2026
Balance as of January 1, 2025
Issuance of common stock for directors’ fees
Issuance of common stock for repayment of debt
Exercise of warrants
Issuance costs
Balance as of March 31, 2025
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
CASH FLOW FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation
Amortization of intangible assets
Amortization of capitalized contract costs
Amortization of note payable
Interest payable on note
Reserve for inventory
Operating leases right-of-use assets
Share and warrant-based compensation for employees and consultants
Stock based directors’ fees
Bad debts
Change in operating assets and liabilities:
Accounts receivable
Due from factor
Capitalized contract costs
Deferred revenue
Operating lease liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Net cash used in investing activities
CASH FLOW FROM FINANCING ACTIVITIES:
Offering costs
Proceeds for exercise of warrants
Repayment of government loan
Net cash used in financing activities
Effect of exchange rate changes
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest
Noncash investing and financing activities
Issuance of stock for repayment of debt
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2026 (Unaudited)
1.
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
BIO-key International, Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “BIO-key”), founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions enterprise-ready identity access management solutions to commercial, government and education customers throughout the United States and internationally. The Company was a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit cards, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been, and is, used to improve both the accuracy and speed of competing finger-based biometrics.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key and include all normal and recurring adjustments which are necessary for a fair presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim consolidated financial statements and Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year ending December 31, 2026. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.
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. 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/A for the fiscal year ended December 31, 2025, filed with the SEC on June 15, 2026 from which the accompanying condensed consolidated balance sheet dated December 31, 2025 was derived.
Foreign Currencies
The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830”). The functional currency of the Company is the U. S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, monetary balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions and from the remeasurement of the monetary balance sheet items are recorded as gain (loss) on foreign currency transactions.
The functional currency of Swivel Secure Europe, SA is the Euro. Under ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other comprehensive loss.
The functional currency of BIO-key Africa is the Naira, however, the majority of the Company's transactions are U. S. dollars. Under ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. An adjustment will be made for the current value of our bank account in Naira currency if the amount materially changes.
The functional currency of BIO-key Hong Kong is the HKD (Hong Kong dollar). Under ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. An adjustment will be made for the current value of our bank account in Yen currency if the amount materially changes.
Recently Adopted Accounting Pronouncements
Reverse Stock Split
All references to issued and outstanding shares for all periods reflect the 1-for-10 reverse stock split, which was effective April 30, 2026. As a result, all share amounts for all periods, including the number of shares underlying warrants, options, and other convertible securities, and all exercise prices applicable to such warrants, options and convertible securities have been adjusted retrospectively to reflect the 1-for-10 reverse stock split.
Recently Issued Accounting Pronouncements
In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“ASC”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of ASC Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the ASC with the SEC’s regulations. The ASU has an unusual effective date and transition requirements since it is contingent on future SEC rule setting. If the SEC fails to enact required changes by June 30, 2027, this ASU is not effective for any entities. Early adoption is not permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.
.
In November 2024, the FASB issued ASU 2024-03, "Disaggregation of Income Statement Expenses (“DISE”)" ("ASU 2024-03") which applies to all public entities and requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. Public entities must adopt the new standard prospectively for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption and retrospective application are permitted. The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.
2.
GOING CONCERN
In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
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 have enough cash for twelve months of operations. However, the history of losses, the negative cash flow from operations, 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 doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared in conformity with 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. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to increase its revenue and meet its financing requirements on a continuing basis and become profitable in its future operations. The Company has lowered expenses through decreasing spending in marketing, and research and development. In order to mitigate the losses and improve cash flow, the Company is working on the following initiatives. The EMESA subsidiary is now only selling BIO-key and PortalGuard solutions that do not carry the previous license fee of 50% cost of sales and the inventory purchased for projects in Nigeria, which have been delayed in deployment, are being sold into other markets to generate additional cash. The accompanying condensed 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 as a going concern.
3.
REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the three-month periods ended March 31, 2026 and March 31, 2025:
North
America
Africa
EMESA*
Asia
Total Revenues
*EMESA – Europe, Middle East, South America
Deferred Revenue
Deferred revenue includes customer advances and amounts that have been paid by customer for which the contractual maintenance terms have not yet occurred. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12-60 months. Contracts greater than 12 months are segregated as long term deferred revenue. Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services. At March 31, 2026 and December 31, 2025, amounts in deferred revenue were approximately $900,500 and $635,100, respectively. Revenue recognized during the three months ended March 31, 2026 from amounts included in deferred revenue as of December 31, 2025 was approximately $193,000. Revenue recognized during the three months ended March 31, 2025 from amounts included in deferred revenue at December 31, 2024 was approximately $200,000.
4.
ACCOUNTS RECEIVABLE
Accounts receivable are carried at original amount less an estimate made for credit losses based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for credit losses by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, current economic conditions and other relevant factors, including specific reserves for certain accounts. Accounts receivable are written off when deemed uncollectible.
Accounts receivable at March 31, 2026 and December 31, 2025 consisted of the following:
Allowance for credit losses
Accounts receivable, net of allowances for credit losses
Bad debt expenses are recorded in selling, general, and administrative expense.
5.
SHARE-BASED COMPENSATION
The following table presents share-based compensation expenses included in the Company’s unaudited condensed interim consolidated statements of operations:
6.
INVENTORY
Inventory is stated at the lower of cost, determined on a first in, first out basis, or net realizable value. The Company periodically evaluates inventory items and establishes reserves for obsolescence accordingly. 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. The reserve on inventory is due to slow moving inventory purchased for projects in Nigeria, and slow-moving inventory elsewhere. The Company has been selling these units in small quantities and continues to explore other markets and opportunities to sell the product. Inventory is comprised of the following as at March 31, 2026 and December 31, 2025:
Finished goods
Fabricated assemblies
Reserve on finished goods
Total inventory
7. INVESTMENTS
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 59,500 shares of the Company’s common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026). Fiber Food is not a principal stockholder of Boumarang, Inc. 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 purchase agreement 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. In April of 2025, Boumarange acquired all intellectual property rights to the Wavedrone platform from Shore House IVF, a technology developer based in the Faroe Islands, for $3.5 million acquisition which was executed entirely in Boumarang common stock.
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:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: 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.
Level 3: 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, Inc. 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. As of December 31, 2025, management recorded a 50% impairment of the Boumarang shares. The Company did not increase the impairment as of March 31, 2026.
8.
COMMITMENTS AND CONTINGENCIES
Litigation
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 March 31, 2026, the Company was not a party to any pending lawsuits.
9.
LEASES
The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2026 and 2027. The property leased in China is paid monthly as used, without a formal agreement. The following tables present the components of lease expense and supplemental balance sheet information related to the operating leases were:
3 Months ended
Lease cost
Total lease cost
Balance sheet information
Operating right-of-use assets
Operating lease liabilities, non-current portion
Total operating lease liabilities
Weighted average remaining lease term (in years) – operating leases
Weighted average discount rate – operating leases
Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2026 and 2025:
Maturities of operating lease liabilities were as follows as of March 31, 2026:
2026 (9 months remaining)
2027
Total future lease payments
Less: imputed interest
10.
NOTES PAYABLE
Note Purchase Agreement dated June 24, 2024
On June 24, 2024, the Company entered into and closed a note purchase agreement with Streeterville Capital, LLC (the "Lender") which provided for the issuance of a $2,360,000 principal amount senior secured promissory note (the “2024 Note”). The 2024 Note carried an original issue discount of $350,000 and the Company agreed to pay $10,000 to the lender (the "Lender") to cover its transaction costs, which were deducted from the proceeds of the 2024 Note resulting in a total of $2,000,000 being funded to the Company at closing. The proceeds were used for general working capital.
The principal amount of the 2024 Note was due 18 months following the date of issuance. Interest under the 2024 Note accrued at a rate of nine percent (9%) per annum. All repayments of principal due under the 2024 Note were subject to an exit fee of seven percent (7%) of the principal amount being repaid (the “Exit Fee”). Commencing six months after the date of issuance of the 2024 Note (the “Redemption Start Date”), Lender had the right to redeem up to $270,000 of principal amount under the 2024 Note each month which amount plus the Exit Fee will be due and payable three (3) business days after Lender’s delivery of a redemption notice to the Company.
The 2024 Note was secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the 2024 Note were guaranteed by Pistol Star, Inc. (“Pistol”), a wholly owned subsidiary of the Company. The 2024 Note could be prepaid in whole or in part without penalty at any time. In the event that the Company received any proceeds in connection with any fundraising or financing transaction (including any warrant exercises), it would be required to make a mandatory prepayment equal to the lesser of (i) forty percent (40%) of the amount raised in such transaction and (ii) the full amount due under the 2024 Note.
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 Stockholders' Equity). 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.
Between January and September 2025, the Company entered into a number of Exchange Agreements with the holder of the 2024 Note pursuant to which it partitioned from the 2024 Note new promissory notes in the aggregate principal amount of $1,459,000 reducing the outstanding principal amount of the 2024 Note to approximately $338,400. On October 27, 2025, the Company entered into two Exchange Agreements (the “Exchange Agreements”) with the Lender. Pursuant to the Exchange Agreements, the Company and Lender agreed to (i) partition from the 2024 Note two new Promissory Notes (the “Partitioned Notes”) in the original principal amounts of $261,841 and $66,150, respectively, (ii) cause the outstanding balance of the 2024 Note to be reduced by $327,991, the aggregate principal amount of the Partitioned Notes, and (iii) exchange the Partitioned Notes for an aggregate of 429,027 shares of the Company’s Common Stock. As a result of the Exchange Agreements, the 2024 Note has been paid in full.
Note Purchase Agreement dated September 30, 2025
On September 30, 2025, the Company entered into and closed a note purchase agreement with the Lender which provided for the issuance of a $1,130,000 principal amount senior secured promissory note (the “2025 Note”). The 2025 Note carries an original issue discount of $125,000 and the Company agreed to pay $5,000 to the Lender to cover its transaction costs, which were deducted from the proceeds of the 2025 Note resulting in a total of $1,000,000 being funded to the Company at closing. The proceeds will be used for general working capital.
The principal amount of the 2025 Note is due 18 months following the date of issuance. Interest under the 2025 Note accrues at a rate of nine percent (9%) per annum. All repayments of principal due under the 2025 Note will be subject to an exit fee of seven percent (7%) of the principal amount being repaid (the “Exit Fee”). Commencing six months after the date of issuance of the 2025 Note (the “Redemption Start Date”), Lender shall have the right to redeem up to $135,000 of principal amount under the 2025 Note each month which amount plus the Exit Fee will be due and payable three (3) business days after Lender’s delivery of a redemption notice to the Company. At the end of each month following the Redemption Start Date, if the Company has not reduced the outstanding balance under the 2025 Note by at least $135,000, then by the fifth (5th) day of the following month, the Company must either pay to Lender the difference between $135,000 and the amount, if any, redeemed in such month plus the Exit Fee, or the outstanding balance due under the Note will automatically increase by one percent (1%). As of March 31, 2026, there have been no redemptions by the Lender. The 2025 Note is secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the 2025 Note are guaranteed by Pistol. The 2025 Note can be prepaid in whole or in part without penalty at any time. In the event that the Company receives any proceeds in connection with any fundraising or financing transaction (including any warrant exercises), it will be required to make a mandatory prepayment equal to the lesser of (i) forty percent (40%) of the amount raised in such transaction and (ii) the full amount due under the 2025 Note.
In connection with the October 27, 2025 warrant exercise agreement (see Note 12 Stockholders' Equity), the Company prepaid approximately $455,000 of the amount due under the 2025 Note. At March 31, 2026, the principal balance due for the 2025 Note was $651,935.
11.
EARNINGS (LOSS) PER SHARE - COMMON STOCK (“EPS”)
The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) during the reporting period. 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.
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
Stock options
Warrants
12.
Issuances of Common Stock
During the three-month periods ended March 31, 2026, and 2025, 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. Under the terms of this plan (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), 4,384 shares of common stock are reserved for issuance to employees and officers of the Company at a purchase price equal to 85% of the lower of the closing price of the common stock on the first day or the last day of the offering period as reported on the Nasdaq Capital Market. Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions. The Company may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031. On August 8, 2025, at the Company’s Annual Stockholders Meeting (“Annual Meeting”), a proposal was approved to amend the plan to reserve an additional 70,000 shares of common stock. There were no shares issued during the three-month periods ended March 31, 2026 and 2025.
Issuances of Restricted Stock
Restricted stock consists of shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Nonvested stock is expensed ratably over the term of the restriction period.
During the three-month periods ended March 31, 2026 and 2025, the Company issued 250 and 250 shares of restricted common stock, respectively, to certain employees. 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 $1,600 and $2,525, respectively.
During the three-month periods ended March 31, 2026 and 2025, 250 and 757 shares of restricted common stock were forfeited, respectively.
Share based compensation for the three-month periods ended March 31, 2026 and 2025, was $40,744 and $52,488, respectively.
Issuances to Directors
During the three-month periods ended March 31, 2026, and 2025, the Company issued 0 and 891 shares of common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) to its directors in lieu of payment of board and committee fees valued at $0 and $9,002, respectively.
Employees’ exercise options
During the three-month periods ended March 31, 2026 and 2025, no employee stock options were exercised.
On October 27, 2025, the Company entered into and closed a warrant exercise agreement (the “Warrant Exercise Agreement”) with an existing institutional investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 309,167 shares of the Company’s common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026), which were originally issued to the Investor on January 15, 2025 (the “Existing Warrants”). Pursuant to the Warrant Exercise Agreement, the exercise price of the Existing Warrants was reduced from $21.50 per share to $10.20 per share. 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 warrants to purchase up to an aggregate of 618,334 shares of the Company’s Common Stock (the “New Warrants”). The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $10.20 per share and will expire five years from the date of issuance. The New Warrants 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 gross proceeds to the Company under the Warrant Exercise Agreement were approximately $3.1 million, prior to deducting placement agent fees and estimated offering expenses. The Company intends to use the net proceeds for working capital and general corporate purposes, including repayment of a portion of the Company’s outstanding secured note.
On January 15, 2025, the Company entered into a warrant exercise agreement (the "January Warrant Exercise Agreement") with the Investor to exercise certain outstanding warrants to purchase an aggregate of 206,111 shares of the Company’s common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) at an exercise price of $18.50 per share which were originally issued to the Investor on September 13, 2024 (the "Existing Warrants"). 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 warrants which were amended and exercised in full pursuant to the Warrant Exercise Agreement which is more fully described in the preceding paragraph.. The Company realized gross proceeds under the January Warrant Exercise Agreement of approximately $3.8 million, prior to deducting placement agent fees and estimated offering expenses. Net proceeds were used for working capital and general corporate purposes, including repayment of a portion of the 2024 Note.
On September 12, 2024, the Company entered into a Warrant Exercise Agreement ("Inducement Agreement") with the Investor for the immediate exercise of certain outstanding warrants that the Company issued on October 30, 2023. Pursuant to the Inducement Agreement, the Investor agreed to exercise outstanding warrants to purchase an aggregate of 103,056 shares of the Company's common stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026) at an amended exercise price of $18.50. The gross proceeds from the exercise of the warrants were approximately $1.9 million, prior to deducting placement agent fees and estimated offering expenses. In consideration for the immediate exercise of these warrants, the Company issued new unregistered warrants which were amended and exercised in full pursuant to the January Warrant Exercise Agreement which is more fully described in the preceding paragraph.
Exchange Agreements
During the three-month period ended March 31, 2025, exchange agreements in the aggregate principal and interest amount of $859,000 were exchanged for 50,462 shares of common stock as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026. (See Note 10 Note Payable).
13.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, due from factor, accounts payable and accrued liabilities are carried at, or approximate, fair value because of their short-term nature. The carrying value of the Company’s government loan payable approximates fair value as the interest rate related to the financial instruments approximated market.
14.
MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
During each of the three-month periods ended March 31, 2026, and 2025, two customers accounted for 66% and two customers accounted for 47% of the revenue, respectively.
Two customers accounted for 51% of current accounts receivable at March 31, 2026. At December 31, 2025, two customers accounted for 43% of total accounts receivable.
15.
INCOME TAXES
United States, Hong Kong and Nigeria
The Company recorded no income tax expense for the three months ended March 31, 2026 and 2025 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 March 31, 2026 and December 31, 2025, 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.
Spain
Due to the current loss for the three months ended March 31, 2026, the Company did not record income taxes.
16
SEGMENT INFORMATION
The Company operates as one operating segment. The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM used consolidated revenues, gross profit and loss before provision for income taxes to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the need to allocate its budget to operating expenses and invest in additional equipment. The segment assets are equal to the assets presented in the condensed consolidated balance sheets.
The significant expenses that are regularly provided to the CODM are disclosed in the consolidated statements of operations as a part of the condensed consolidated net loss. See the condensed consolidated financial statements for all financial information regarding the Company’s operating segment.
See Note 4 for the Company’s revenues by geographic region.
The Company’s long-lived tangible assets are recognized on the Condensed Consolidated Balance Sheet are located in New Hampshire and Hong Kong. The Company’s operating lease right-of use assets recognized on the Condensed Consolidated Balance Sheet are located in Minnesota.
SUBSEQUENT EVENTS
On April 20, 2026, the Company held a Special Meeting of stockholders at which out stockholders approved a reverse split of our outstanding shares of common stock. After the Special Meeting, the Board set the reverse stock split ratio at 1-for-10, and on April 28, 2026, the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect the reverse stock split which became effective at 5:00 p.m., Eastern Time, on April 29, 2026. The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis on April 30, 2026 under a new CUSIP number, 09060C606 (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026).
On May 6, 2026, the Company received notice from the Nasdaq Capital Market that the Company’s common stock would be suspended from trading on the Nasdaq Capital Market at the opening of business on May 13, 2026 due to the Company’s failure to regain compliance with the $1.00 minimum bid requirement and failure to timely file its periodic reports with the SEC. The Company scheduled an appeal of such determination to Nasdaq’s Hearings Panel and the hearing was June 16, 2026 and the Company is awaiting the decision on the appeal. Effective with the opening of trading on May 13, 2026, the Company’s common stock has been traded on OTC Markets.
On June 5, 2026, the Company received notice from the Nasdaq Stock Market stating that the Company had not yet filed its Quarterly Report on Form 10-Q for the period ended March 31, 2026 with the SEC as required by applicable Nasdaq Listing Rules, that this served as an additional basis for delisting the Company’s common stock from the Nasdaq Capital Market, and would be considered in determining the Company’s continued listing on the Nasdaq Capital Market.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “should,” “estimate,” “will,” “may,” “future,” “plan,” “intend” and “expect” and similar expressions generally identify forward-looking statements. These statements are not guarantees of future performance or events and are subject to risks and uncertainties that may cause actual results to differ materially from those included within or implied by such forward-looking statements. These risks and uncertainties include, without limitation, our history of losses and limited revenue; our ability to raise additional capital; our ability to continue as a going concern; our ability to protect our intellectual property; changes in business conditions; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; security breaches; competition in the biometric technology and identity access management industries; market acceptance of biometric products generally and our products under development; our ability to convert sales opportunities to customer contracts; our ability to expand into Asia, Africa and other foreign markets; 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; 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 non-compliance with the Securities and Exchange Commission (“SEC”) and Nasdaq periodic reporting requirements; the commercial reputational and reputational risk and impact on the trading and liquidity of our common stock as a result as a result of the recent suspension of trading of our common stock on the Nasdaq Capital Market; 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, 2025 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. It should be recognized that other factors, including general economic factors and business strategies, may be significant, presently or in the future. 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.
ITEM 2. 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, 2025.
Overview
BIO-key International, Inc. (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. 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 Identity-Bound Biometrics, or 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 Fast Identity Online, or 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 National Institute of Standards, and Technology, or 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 and maintains a direct sales force with offices in Madrid, Spain and Lisbon, Portugal, and sells only BIO-key products.
We operate a software as a service, or 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.
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
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.
Critical Accounting Policies and Estimates
For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.
Recent Accounting Pronouncements
For detailed information regarding recent account pronouncements, see Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED March 31, 2026 AS COMPARED TO March 31, 2025
Consolidated Results of Operations - Percent Trend
Total Cost of Goods Sold
Total Operating Expenses
Other expense
Loss before provision for income tax
Provision for income tax
Revenues and cost of goods sold
$ Change
% Change
Service
License
Total Revenue
Cost of Goods Sold
Hardware - reserve
Total COGS
For the three months ended March 31, 2026, and 2025, service revenues included approximately $229,000 and $265,000, respectively, of recurring maintenance and support revenue, and approximately $19,000 and $8,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $36,000 or 14% in 2026 which was due to the timing of renewals of service agreements. Non-recurring custom services increased $11,000 due to a small increase in customization. Overall, service revenues decreased to $248,384 as compared to $272,598 in the corresponding period in 2025.
For the three months ended March 31, 2026, license revenue increased $267,135 or 24% to $1,365,893 from $1,098,758 in the corresponding period in 2025 as several long-term customers expanded their license deployments in 2026.
For the three months ended March 31, 2026, hardware sales increased 125% to $531,256 from $235,803 in the corresponding period in 2025. The increase was due to a large deployment from one long-term customer, several customer deploys of fully reserved inventory in the 2026 period, and several long-term customers expanding their deployments of biometric cybersecurity solutions.
For the three months ended March 31, 2026, cost of service decreased $19,646 or 20% to $78,498 from $98,114 in the three months ended March 31, 2025. For the three months ended March 31, 2026, license fees remained relatively flat increasing less than one percent to $73,234 from $72,885 in the three months ended March 31, 2025, For the three months ended March 31, 2026, hardware costs increased to net cost of $224,568 (after giving effect to the $98,970 reversal of the reserve for inventory) from $108,469 in the three months ended March 31, 2025, for a net increase of 100%, based on the increase in hardware revenue.
Selling, general and administrative expenses for the three months ended March 31, 2026, decreased 5% from $1,372,524 in the corresponding period in 2025 to $1,310,066 in the current quarter. The decreases included reductions in administration and professional services fees.
Research, development, and engineering
For the three months ended March 31, 2026, research, development, and engineering costs increased 4% to $616,880 compared to $595,775 in the corresponding period in 2025. The increase consisted primarily of professional services and personnel costs.
Change in fair value of convertible note
Other income (expense) for the three months ended March 31, 2026 consisted of interest income of $675, interest expense of $27,166 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $20,833. Other income (expense) for the three months ended March 31, 2025 consisted of interest income of $3 and interest expense of $35,910 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating activities overview
Net cash used in operations during the three months ended March 31, 2026 was $358,001. Items of note included:
●
Net positive cash flows related to adjustments for non-cash expenses of approximately $107,000.
Net positive cash flows related to inventory, accounts payable and deferred revenue of approximately $399,000.
Negative cash flows related to changes in accounts receivable, capitalized contract costs, prepaid expenses, and accrued liabilities of approximately $657,000, due to working capital management.
Financing activities overview
Net cash used by financing activities during the three months ended March 31, 2026 was $38,179 of the government loan through the BBVA bank.
Investing activities overview
There was no cash used in investing activities during the three months ended March 31, 2026 .
Liquidity and Capital Resources
Since our inception, our capital needs have been met mainly through proceeds from the sale of equity and debt securities, and revenue. We expect capital expenditures to be less than $100,000 during the next twelve months.
The following sets forth our sources of liquidity during the previous two years:
On October 27, 2025, we entered into and closed a warrant exercise agreement with an existing institutional investor to exercise certain outstanding warrants to purchase an aggregate of 309,167 shares of common stock(as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026). The warrants were originally issued on January 15, 2025 and had an exercise price of $21.50 per share. In consideration for the immediate exercise of these warrants, we issued new unregistered warrants to purchase up to an aggregate of 618,334 shares of common stock at an exercise price of $10.20. We realized gross proceeds of approximately $3.1 million, prior to deducting placement agent fees and estimated offering expenses.
On September 30, 2025, we entered into and closed a note purchase agreement which provided for the issuance of a $1,130,000 principal amount senior secured promissory note (the "2025 Note"). This resulted in gross proceeds of approximately $1,000,000 after deducting estimated offering expenses, and the original issue discount. The 2025 Note is due eighteen months (18) following the date of issuance, accrues interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance, the lender shall have the right to redeem up to $135,000 of principal amount each month. In connection with the October 27, 2025 warrant exercise agreement described above, we prepaid approximately $450,000 of the amount due under the 2025 Note. As of the date of this report, the outstanding principal amount due under the 2025 Note is approximately $675,000. For a more complete description of the 2025 Note, please see Note 10 to Our Condensed Consolidated Financial Statements included in Part I Item 1 of this report.
On January 15, 2025, we entered into a warrant exercise agreement with an existing investor to exercise certain outstanding warrants to purchase an aggregate of 206,112 shares of common stock, at an exercise price of $18.50 per share which were originally issued to the investor on September 12, 2024 (the "Existing Warrants"). In consideration for the exercise of the Existing Warrants, the investor received new warrants to purchase up to an aggregate of 309,167 shares of Common Stock ("New Warrants"). The New Warrants have substantially the same terms, are immediately exercisable at an exercise price of $21.50 per share and will expire five years from the date of issuance. The gross proceeds to the Company were approximately $3.8 million, prior to deducting placement agent fees and estimated offering expenses.
On September 12, 2024, we entered into a warrant exercise agreement with an existing investor to exercise certain outstanding warrants to purchase an aggregate of 103,056 shares of common stock. The warrants were originally issued to the Investor on October 31, 2023 and had an original exercise price of $31.50 per share. In consideration for the immediate exercise of the warrants, we reduced the exercise price of the warrants to $18.50 per share and issued to the Investor unregistered Series A Warrants to purchase an aggregate of 103,056 shares of common stock and unregistered Series B Warrants to purchase an aggregate of 103,056 shares of common stock, each with an exercise price of $18.50 per share and issued additional warrants to purchase an aggregate of 206,112 shares of common stock, at an exercise price of $18.50 per share. The forgoing transaction resulted in gross proceeds of approximately $1.9 million prior to deducting placement agent fees and estimated offering expenses.
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 was due eighteen months (18) following the date of issuance, accrued interest at a rate of nine percent (9%) per annum, and commencing six months after the date of issuance of, the lender had the right to redeem up to $270,000 of principal amount each month. In connection with the September 12, 2024 warrant exercise agreement described above, we prepaid approximately $762,600 of the amount due under the 2024 Note. As of the date of this report, the loan has been paid in full. 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.
We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2026 and may be discontinued at that time. Pursuant to the terms of the arrangement, from time to time, we sell to the Factor a minimum of $150,000 per quarter of certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor remits 35% of the foreign and 75% of the domestic accounts receivable balance to us, with the remaining balance, less fees, forwarded to us once the Factor collects the full accounts receivable balance from the customer. In addition, from time to time, we receive over advances from the Factor. Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice. We expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements.
Liquidity outlook
At March 31, 2026, our total cash and cash equivalents were $2,247,984, as compared to $2,694,663 at December 31, 2025. At March 31, 2026, we had a working capital of approximately $1,296,000.
As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, warrants, and through factoring receivables. We currently require approximately $750,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. We also have approximately $2.8 million of inventory (currently reserved) initially purchased for projects in Nigeria. We continue to explore other markets and opportunities to sell the product to generate additional cash. If we are unable to generate sufficient revenue and positive cash flow from operations or liquidation of existing inventory to fund current operations and execute our business plan, we will need to obtain additional third-party financing over the next twelve months.
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, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2026. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of March 31, 2026, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this report, we are not a party to any pending lawsuits.
ITEM 1A. RISK FACTORS
Investors are encouraged to consider the risks described in our 2025 Form 10-K, our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report, and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2026, none of our directors or “officers” (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Securities and Exchange Commission Regulation S-K.
ITEM 6. EXHIBITS
Exhibit
No.
Description
31.1
Certificate of CEO of Registrant required under Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended
31.2
Certificate of CFO of Registrant required under Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended
32.1
Certificate of CEO of Registrant required under 18 U.S.C. Section 1350
32.2
Certificate of CFO of Registrant required under 18 U.S.C. Section 1350
101.INS
Inline XBRL Instance
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation
101.DEF
Inline XBRL Taxonomy Extension Definition
101.LAB
Inline XBRL Taxonomy Extension Labels
101.PRE
Inline XBRL Taxonomy Extension Presentation
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIO-Key International, Inc.
Dated: June 22, 2026
/s/ Michael W. DePasquale
Michael W. DePasquale
Chief Executive Officer
(Principal Executive Officer)
/s/ Cecilia C. Welch
Cecilia C. Welch
Chief Financial Officer
(Principal Financial Officer)