BKYI

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How BKYI rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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RESULTS OF OPERATIONS Consolidated Results of Operations Two Year % trend Years ended December 31, 2025 2024 Revenues Services % % License fees % % Hardware % % % % Costs and other expenses Cost of services % % Cost of license fees % % Cost of hardware % % Cost of hardware reserve -9 % -3 % Total cost of goods sold % % Gross Profit % % Operating expenses Selling, general and administrative % % Research, development and engineering % % Impairment of investment % - Total operating expenses % % Operating loss -115 % -58 % Other income (expense) Total other income (expense) -5 % -4 % Loss before provision for income tax benefit -120 % -62 % Provision for income tax benefit % % Net loss -120 % -62 % Revenues and Costs and other expenses 2025-2024 2025 2024 $ Chg % Chg Revenues Services $ 1,172,107 $ 1,108,506 $ 63,601 % License fees 3,423,300 5,189,370 (1,766,070 ) -34 % Hardware 1,342,148 631,695 710,453 % Total Revenue $ 5,937,555 $ 6,929,571 $ (922.016 ) -14 % Costs and other expenses Services $ 387,144 $ 396,274 $ (9,130 ) -2 % License fees 309,829 589,505 (279,676 ) -47 % Hardware 1,189,464 516,611 672,853 % Hardware reserves (513,400 ) (213,005 ) (300,395 ) % Total Costs and other expenses $ 1,373,037 $ 1,289,385 $ 83,652 % Revenues Revenue decreased $922,016 or 142% to $5,937,555 in 2025 as compared to $6,929,571 in 2024.
This reduction was due largely to a significant contract renewal with a foreign retail bank that benefited 2024 that did not recur in 2025 and due to our exit from our distribution agreement with Swivel Secure Limited (SLL) and transition to selling BIO-key branded solutions in the EMEA market and to the factors discussed below.
For the years ended December 31, 2025, and 2024, service revenues included approximately $1,060,000 and $1,017,000, respectively, of recurring maintenance and support revenue, and approximately $112,000 and $91,000, respectively, of non-recurring custom services revenue.
Recurring service revenue increased 4% in 2025 due to the growing customer base.
Non-recurring custom services increased 23% in 2025 due to several new customers requiring supported deployments.
For the years ended December 31, 2025 and 2024 license revenue decreased $1,766,070 or 34% to $3,423,300, due largely to a significant contract renewal with a foreign retail bank that benefited 2024 hat did not recur in 2025, and due to the ramp up of BIO-key EMEA selling only BIO-key product.
Hardware sales increased by $710,453, or 112%, to $1,342,148 in 2025 from $631,695 in 2024.
The increase was attributable to several long-term and new customers expanding their purchase of biometric cybersecurity solutions combined with selling some of fully reserved inventory from the African project.
Costs of goods sold For the year ended December 31, 2025, cost of services decreased approximately 2% to $387,144, due primarily to the decreased costs to support Swivel Secure deployments.
License fees for the year ended December 31, 2025 decreased $279,676, or approximately 47%, to $309,829 from $589,505 due primarily to decreased license revenue and related license fees payable for third-party software distributed by Swivel Secure.
Hardware costs for the year ended December 31, 2024 increased $672,853, or approximately 130%, to $1,189,464 from $516,611 in 2024.
The increase was associated with the increased hardware sales and hardware mix.
Hardware reserve costs for the year ended December 31, 2025 increased $300,395, or approximately 141% from $(213,005) to $(513,400) which represented a removal of the entire reserve for sales of slow-moving inventory purchased for projects in Nigeria, and for other older inventory.
We were successful in our efforts to sell the slow-moving inventory.
Gross Profit Gross profit decreased to $4,564,518 in 2025 from $5,640,186 in 2024, due to lower license fee revenue, and an increase in lower-margin services and hardware revenue.
Our strategic decision to exit the SSL agreement and offer only BIO-key branded solutions in the EMEA market contributed to lower costs to support deployments, including software license fees incurred in connection with sales of Swivel Secure offerings using SLL solutions rather than BIO-key’s internally developed software solutions. 2025 gross profit also benefited from the sale of $513,400 of fully reserved hardware inventory.
Selling, general and administrative 2025-2024 2025 2024 $ Chg % Chg $ 6,282,232 $ 7,140,147 $ (857,915 ) -12 % Selling, general and administrative costs for year ended December 31, 2025 were $6,282,232 compared to $7,140,147 in 2024, representing an 12% decrease.
The decrease was due to a reorganization of sales personnel costs, lower marketing show expenses, and audit fees which were partially offset by an increase in professional services, principally related to financing activities in 2025.
Research, development and engineering 2025-2024 2025 2024 $ Chg % Chg $ 2,609,893 $ 2,511,080 $ 98,813 % For the year ended December 31, 2025 research, development and engineering costs were $2,609,893 compared with $2,511,080 representing a 4% increase from 2024.
Impairment of investment 2025-2024 2025 2024 $ Chg % Chg $ 2,500,000 $ - $ 2,500,000 % For the year ended December 31, 2025 impairment of investment was $2,500,000 compared with $0 representing a 100% increase from 2024.
The amount of $2,500,000 represents a 50% impairment of the investment based on expected revenue that has not occurred to date.
Other income (expense) 2025-2024 2025 2024 $ Chg % Chg Interest income $ 3,787 $ $ 3,677 3343 % Foreign currency loss - (13,004 ) 13,004 -100 % Loan transaction costs (256,833 ) (124,000 ) (132,833 ) % Interest expense (60,793 ) (175,755 ) 114,962 -65 % $ (313,839 ) $ (312,649 ) $ (2,501,190 ) % The amounts for other income (expense) for the year ended December 31, 2025 consisted of interest income of $3,787, interest expense of $60,793 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $256,833.
The amounts for the year ended December 31, 2024, consisted of interest income of $110, interest expense of $175,755 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $124,000.
Net Loss Reflecting decreased gross profit and an impairment expense, net loss increased to $(7,157,946) in 2025 from a net loss of $(4,300,692) in 2024.
LIQUIDITY AND CAPITAL RESOURCES Operating activities overview Net cash used for operations during the year ended December 31, 2025 was $4,668,689.
Items of note included: ● Net positive cash flows related to non-cash expenses of approximately $3,568,000. ● Net negative cash flows related to changes in accounts receivable, lease liabilities, accounts payable, deferred revenue and prepaid expenses in the aggregate amount of approximately $984,000 and our net loss for the period.
Investing activities overview Net cash used in investing activities during the year December 31, 2025 was $12,012 for capital expenditures.
Fi nancing activities overview Approximately $7,967,000 was provided by financing activities during the year ended December 31, 2025 consisting of the proceeds of $1,000,000 advanced under a secured note, proceeds from the exercise of warrants totaling approximately $6,500,000, and $10,076 from sales of common stock under our employee stock purchase plan.
The following sets forth our primary sources of capital 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 3,091,668 shares of common stock.
The warrants were originally issued on January 15, 2025 and had an exercise price of $2.15 per share.
In consideration for the immediate exercise of these warrants, we issued new unregistered warrants to purchase up to an aggregate of 6,183,336 shares of common stock at an exercise price of $1.02.
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 J to our Consolidated Financial Statements included in Part II Item 8 of this report.
On January 15, 2025, we entered into a warrant exercise agreement with an existing institutional 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 13, 2024.
In consideration for the exercise of these warrants, we issued new warrants to the investor to purchase an aggregate 309,167 shares of common stock at an exercise price of $21.50 per share.

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Gone since FY2024

RESULTS OF OPERATIONS Consolidated Results of Operations Two Year % trend Years ended December 31, 2024 2023 Revenues Services % % License fees % % Hardware % % % % Costs and other expenses Cost of services % % Cost of license fees % % Cost of hardware % % Cost of hardware reserve -3 % % Total cost of goods sold % % Gross Profit % % Operating expenses Selling, general and administrative % % Research, development and engineering % % Total operating expenses % % Operating loss -58 % -114 % Other income (expense) Total other income (expense) -4 % % Loss before provision for income tax benefit -62 % -112 % Provision for income tax benefit % % Net loss -62 % -110 % Revenues and Costs and other expenses 2024-2023 2024 2023 $ Chg % Chg Revenues Services $ 1,108,506 $ 2,218,885 $ (1,110,379 ) -50 % License fees 5,189,370 4,342,010 847,360 % Hardware 631,695 1,194,010 (562,315 ) -47 % Total Revenue $ 6,929,571 $ 7,754,905 $ (825,334 ) -11 % Costs and other expenses Services $ 396,274 $ 861,936 $ (465,662 ) -54 % License fees 589,505 1,174,919 (585,414 ) -50 % Hardware 516,611 700,231 (183,620 ) -26 % Hardware reserves (213,005 ) 3,586,500 (3,799,505 ) -106 % Total Costs and other expenses $ 1,289,385 $ 6,323,586 $ (5,034,201 ) -80 % Revenues Revenue decreased $825,334 or 11% to $6,929,571 in 2024 as compared to $7,754,905 in 2023.
This reduction was due largely to our exit from our distribution agreement with Swivel Secure Limited (SLL) and transition to selling BIO-key branded solutions in the EMEA market and to the factors discussed below.
For the years ended December 31, 2024, and 2023, service revenues included approximately $1,017.000 and $1,193,000, respectively, of recurring maintenance and support revenue, and approximately $91,000 and $1,026,000, respectively, of non-recurring custom services revenue.
Recurring service revenue decreased 15% in 2024 due to the loss of one large customer service agreement.
Non-recurring custom services decreased 91% in 2024 due to a large product customization and upgrade for a Swivel Secure customer without a similar customization in 2024.
For the year ended December 31, 2024 and 2023 license revenue increased $847,360 or 20% to $5,189,370, as several long-term customers expanded their license deployments in addition to several new customer deployments.
We expect this trend to continue into 2025.
Hardware sales decreased by $562,315, or 47%, to $631,695 in 2024 from $1,194,010 in 2023.
The decrease was attributable largely to fourth quarter 2023 sales to an international defense agency that did not reoccur in 2024.
Costs of goods sold For the year ended December 31, 2024, cost of services decreased approximately 54% to $396,274, due primarily to the decreased costs to support Swivel Secure deployments.
License fees for the year ended December 31, 2024 decreased $585,414, or approximately 50%, to 589,505 from $1,174,919 due primarily to decreased license revenue and related license fees payable for third-party software distributed by Swivel Secure.
Hardware costs for the year ended December 31, 2024 decreased $183,620, or approximately 26%, to $516,611 from $700,231 in 2023.
The decrease was associated with the decreased hardware sales and hardware mix.
Hardware reserve costs for the year ended December 31, 2024 decreased $3,799,505 due to sales of slow-moving inventory after a complete reserve of slow-moving inventory purchased for projects in Nigeria, and for other older inventory in 2023.
We are continuing to explore other markets and opportunities to sell the slow-moving inventory.
Gross Profit Gross profit increased to $5,640,186 in 2024 from $1,431,319 in 2023, due to a $3,000,000 hardware reserve taken in 2023, the impact of growth in higher-margin license sales, and a reduction in lower-margin services and hardware revenue.
Our strategic decision to exit the SSL agreement and offer only BIO-key branded solutions in the EMEA market contributed to lower costs to support deployments, including software license fees incurred in connection with sales of Swivel Secure offerings using SLL solutions rather than BIO-key’s internally developed software solutions. 2024 gross profit also benefited from the sale of $213,005 of fully reserved hardware inventory.
Selling, general and administrative 2024-2023 2024 2023 $ Chg % Chg $ 7,140,147 $ 7,862,710 $ (722,563 ) -9 % Selling, general and administrative costs for year ended December 31, 2024 were $7,140,147 in 2024 compared to $7,862,710 representing a 9% decrease from 2023.
The decrease was due to proactive cost reductions including reductions in headquarters expenses, sales personnel costs, marketing show expenses, and audit fees which were partially offset by an increase in professional services, principally related to financing activities in 2024.
Research, development and engineering 2024-2023 2024 2023 $ Chg % Chg $ 2,511,080 $ 2,394,926 $ 116,154 % For the year ended December 31, 2024, research, development and engineering costs were $2,511,080 compared with $2,394,926 representing a 5% increase from 2023.
Other income (expense) 2024-2023 2024 2023 $ Chg % Chg Interest income $ $ 11,533 $ (11,423 ) -99 % Gain from sale of asset - 20,000 (20,000 ) % Foreign currency loss (13,004 ) (39,000 ) 25,996 -67 % Loan transaction costs (124,000 ) - (124,000 ) % Change in fair value of convertible note - 396,203 (396,203 ) -100 % Interest expense (175,755 ) (218,270 ) 42,515 -19 % $ (312,649 ) $ 170,466 $ (483,115 ) -283 % The amounts for other income (expense) for the year ended December 31, 2024 consisted of interest income of $110, interest expense of $175,755 on the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $124,000.
The amounts for the year ended December 31, 2023, consisted of interest income of $11,533, a gain from the sale of a PistolStar domain asset, change in loan transactions costs for payment of the convertible note payable as we elected to value the convertible note under the fair value option, and interest expense of $218,270 on the convertible note payable and the government loan through the BBVA bank.
Net Loss Reflecting increased gross profit and lower operating expenses, net loss improved to $(4,300,692) in 2024 from a net loss of $(8,521,837) in 2023.
LIQUIDITY AND CAPITAL RESOURCES Operating activities overview Net cash used for operations during the year ended December 31, 2024 was $2,914,072.
Items of note included: ● Net positive cash flows related to non-cash expenses of approximately $1,219,000. ● Net negative cash flows related to changes in lease liabilities, accounts payable, deposits and accrued liabilities in the aggregate amount of approximately $605,000 and our net loss for the period.
Investing activities overview Net cash used in investing activities during the year December 31, 2024 was $13,047 for capital expenditures.
Fi nancing activities overview Approximately $3,908,000 was provided by financing activities during the year ended December 31, 2024 consisting of the proceeds advanced under a secured note, proceeds from the exercise of warrants, and $3,740 from sales of common stock under our employee stock purchase plan.
The following sets forth our primary sources of capital during the previous two years: On January 15, 2025, we entered into a warrant exercise agreement with an existing institutional investor (the “Investor”) to exercise certain outstanding warrants to purchase an aggregate of 2,061,112 shares of common stock at an exercise price of $1.85 per share which were originally issued to the Investor on September 13, 2024.
In consideration for the exercise of these warrants, we issued new warrants to the Investor to purchase an aggregate 3,091,668 shares of common stock at an exercise price of $2.15 per share.
On September 12, 2024, we entered into a warrant exercise agreement with the Investor to exercise certain outstanding warrants to purchase an aggregate of 1,030,556 shares of common stock.
The warrants were originally issued to the Investor on October 31, 2023 and had an original exercise price of $3.15 per share.
In consideration for the immediate exercise of these warrants, we reduced the exercise price of the warrants to $1.85 per share and issued to the Investor additional warrants to purchase an aggregate of 2,061,112 shares of common stock at an exercise price of $1.85 per share.
The 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.
Pursuant to a series of exchange agreements in January 2025, the lender exchanged $859,000 principal amount due under the 2024 Note for 504,605 shares of common stock.
As of the date of this report, the outstanding principal amount due under the 2024 Note is $738,400.
On November 20, 2023, we completed a private placement of shares of common stock and warrants resulting in net proceeds of approximately $435,000, after deducting placement agent fees and estimated offering expenses.
On October 30, 2023, we completed a public offering of shares of common stock and warrants resulting in net proceeds of approximately $3.3 million, after deducting placement agent fees and estimated offering expenses.
We used approximately $2.2 million of the net proceeds to repay the outstanding amount due under outstanding convertible note payable.
We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 2025 and may be discontinued at that time.
Liquidity Outlook At December 31, 2024, our total cash and cash equivalents were approximately $438,000, as compared to $511.000 at December 31, 2023.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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