BKYI 10-K & 10-Q changes, risk factors and insider trading

Based on our limited cash resources, history of significant losses, negative cash flow,flow from operations, and dependence on debt and equity financing to fund operations, our independent registered public accounting firm has included an explanatory paragraph in their opinion as to the substantial doubt about our ability to continue as a going concern.

Due to, among other factors, our history of significant losses, limited cash resources, negative cash flow,flow from operations, and dependence on debt and equity financing to fund operations, our independent registered public accounting firm has included an explanatory paragraph in their opinion for the year ended December 31, 20242025 as to the substantial doubt about our ability to continue as a going concern.concern within one year after issuance. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which contemplate that we will continue to operate as a going concern. Our financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.

WeHistorically, we have historically not generated significant revenue and have sustained substantial operating losses.

Our failure to timely file our annual report on Form 10-K for the year ended December 31, 2023 and our quarterly report on Form 10-Q for the period ended March 31, 20242025 has made us ineligible to use a Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital.

As a result of our failure to timely file our annual report on Form 10-K for the year ended December 31, 2023 and our Quarterly Report on SEC Form 10-Q for the period ended March 31, 2024,2025 we are not eligible to register the offer and sale of our securities using a registration statement on Form S-3 until one year from the date we regain and maintain status as a current filer.filer, assuming that we remain listed on the Nasdaq Capital Market. Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.

Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or applicable laws or regulations relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others, and could result in significant liability or cause our customers to lose trust in us, which could cause them to cease or reduce use of our products and services and otherwise have an adverse effect on our reputation and business. Any similar failure or perceived failure by users of our products or services may also have an adverse effect on our reputation and business. In addition, legal, regulatory, contractual and other obligations as well as public concerns relating to privacy, data protection or information security could restrict our ability to store and process data as part of our solutions or otherwise impact our ability to provide our solutions in certain jurisdictions and may result in the loss of business opportunities from customers operating in, or seeking to expand into, those jurisdictions. Additionally, inwe 2023,are thesubject to SEC adopted new rules related to cybersecurity risk management, which may further increase our regulatory burden and the cost of compliance in such events.

Our business is subject to the imposition 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. The newcurrent presidential administration recentlyhas imposed new tariffs on imports to the United States from China, Mexico, Canada, and Europe and is expected tomay impose newadditional tariffs onin importsthe fromfuture. other countries. In addition, theseOther countries have, and in the future other countries may, impose retaliatory tariffs. The resulting environment of retaliatory trade or other practices or additional trade restrictions or barriers could harm our ability to obtain inventory and product components or sell our products and services at prices customers are willing to pay, which could have a material adverse effect on our business, prospects, results of operations, and cash flows. Relatedly, trade policies could lead to an increasing number of competitors entering the United States, thereby creating more competition. If we experience cost increases as a result of existing or future tariffs and are unable to pass on such additional costs to our customers, or otherwise mitigate the costs, our business, prospects, financial condition, results of operations, and cash flows could be materially and adversely affected.

The warimpact inof Ukrainethe Russian invasion of Ukraine, and the US-Iran war, and the international community’s response have created substantial political and economic disruption, uncertainty, and risk.

As of the date of this report, approximately 4,275,056794,073 shares of our common stock (as adjusted to reflect our 1-for-181-for-10 reverse stock split, which was effective DecemberApril 21,30, 20232026) were reserved for issuance upon exercise or conversion of outstanding stock options and warrants. The exercise or conversion of these securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing stockholders.

AlthoughOn May 13, 2026 trading of our common stock is listed on the Nasdaq Capital Market,Market was suspended which could adversely impact the trading and liquidity of our common stock. Our common stock currently trades on OTC Markets and an active trading market for our shares may not be developed on OTC Markets and if developed, sustained. If an active market for our common stock is not developed or sustained, it may be difficult for you to sell your shares without depressing the market price for the shares or sell your shares at all. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Trading of our common stock on the Nasdaq Capital Market was suspended on May 13, 2026. If we failare not successful in our appeal of Nasdaq’s decision and are unable to complyregain compliance with the continued listing requirements of The Nasdaq Stock Market, our Common Stock maywill be delisted and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.

All share totals reported herein have been adjusted to reflect our 1-for-181-for-10 reverse stock split, which was effective DecemberApril 21,30, 2023.2026.

Revenue decreased $825,334$922,016 or 11%142% to $5,937,555 in 2025 as compared to $6,929,571 in 2024 as compared to $7,754,905 in 2023.2024. 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, 2024,2025, and 2023,2024, service revenues included approximately $1,017.000$1,060,000 and $1,193,000,$1,017,000, respectively, of recurring maintenance and support revenue, and approximately $91,000$112,000 and $1,026,000,$91,000, respectively, of non-recurring custom services revenue. Recurring service revenue decreasedincreased 15%4% in 20242025 due to the loss of one largegrowing customer service agreement.base. Non-recurring custom services decreasedincreased 91%23% in 20242025 due to aseveral largenew productcustomers customizationrequiring andsupported upgrade for a Swivel Secure customer without a similar customization in 2024.deployments. We expect the service fees to increase from the current levels as we expand our deployments worldwide.

Hardware costs for the year ended December 31, 2024 decreasedincreased $183,620,$672,853, or approximately 26%,130%, to $516,611$1,189,464 from $700,231$516,611 in 2023.2024. The decreaseincrease was associated with the decreasedincreased hardware sales and hardware mix. Hardware reserve costs for the year ended December 31, 20242025 decreasedincreased $3,799,505$300,395, dueor approximately 141% from $(213,005) to sales$(513,400) which represented a removal of slow-movingthe inventory after a completeentire reserve for sales of slow-moving inventory purchased for projects in Nigeria, and for other older inventoryinventory. We were successful in 2023.our We are continuing to explore other markets and opportunitiesefforts to sell the slow-moving inventory.

Gross profit increaseddecreased to $4,564,518 in 2025 from $5,640,186 in 2024 from $1,431,319 in 2023,2024, due to a $3,000,000 hardware reserve taken in 2023, the impact of growth in higher-marginlower license sales,fee revenue, and aan reductionincrease in lower-margin services and hardware revenue.

Selling, general and administrative costs for year ended December 31, 20242025 were $6,282,232 compared to $7,140,147 in 2024 compared to $7,862,7102024, representing aan 9%12% decrease from 2023.decrease. The decrease was due to proactivea costreorganization reductions including reductions in headquarters expenses,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 2024.2025.

Reflecting increaseddecreased gross profit and loweran operatingimpairment expenses,expense, net loss improvedincreased to $(4,300,6927,157,946) in 20242025 from a net loss of $(8,521,8374,300,692) in 2023.2024.

Approximately $3,908,000$7,967,000 was provided by financing activities during the year ended December 31, 20242025 consisting of the proceeds of $1,000,000 advanced under a secured note, proceeds from the exercise of warrants,warrants totaling approximately $6,500,000, and $3,740$10,076 from sales of common stock under our employee stock purchase plan. These amounts were offset by a partial repayment of note payable, repayment of a government loan, and costs associated with the issuance of our securities.

On SeptemberOctober 12,27, 2024,2025, we entered into and closed a warrant exercise agreement with thean Investorexisting institutional investor to exercise certain outstanding warrants to purchase an aggregate of 1,030,5563,091,668 shares of common stock. The warrants were originally issued to the Investor on OctoberJanuary 31,15, 20232025 and had an original exercise price of $3.15$2.15 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 tonew the Investor additionalunregistered warrants to purchase up to an aggregate of 2,061,1126,183,336 shares of common stock at an exercise price of $1.85$1.02. perWe share. The forgoing transaction resulted inrealized gross proceeds of approximately $1.9$3.1 millionmillion, prior to deducting placement agent fees and estimated offering expenses.

On JuneSeptember 24,30, 2024,2025, we entered into and closed a note purchase agreement which provided for the issuance of a $2,360,000$1,130,000 principal amount senior secured promissory note (the "20242025 Note"). This resulted in gross proceeds of approximately $1,826,000$1,000,000 after deducting placement agent fees, estimated offering expenses, and the original issue discount. The 20242025 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,issuance, the lender shall have the right to redeem up to $270,000$135,000 of principal amount each month. In connection with the October 27, 2025 warrant exercise agreementsagreement described above, we prepaid approximately $762,600$450,000 of the amount due under the 20242025 Note. Pursuant to a series of exchange agreements in January 2025, the lender exchanged $859,000 principal amount due under the 2024 Note for 504,605 shares of common stock. As of the date of this report, the outstanding principal amount due under the 20242025 Note is $738,400.approximately $675,000. For a more complete description of the 20242025 Note, please see Note J to Ourour Consolidated Financial Statements included in Part II Item 8 of this report.

At December 31, 2024,2025, our total cash and cash equivalents were approximately $438,000,$2,694,000, as compared to $511.000$438,000 at December 31, 2023. As of the date of this report, our total cash and cash equivalents are approximately $3,000,000.2024.

As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. We currently require approximately $812,000$750,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. During 2024,2025, we generated approximately $6,930,000$5,900,000 of revenue, which did not generate enough cash to fully fund our average monthly cash requirements. The 2024 Note is due on or about December 24, 2025 and we are subject to monthly redemptions request at the option of the lender. We also have approximately $3.4$2.9 million of inventory (currently reserved) purchased for projects in Nigeria. We continue to explore other markets and opportunities to sell or return the product to continue to generate additional cash.

Investors are encouraged to consider the risks described in our 2025 Form 10-K,10-K/A, 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.

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/A 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.10-K/A.

THREE MONTHS ENDED MarchJune 31,30, 2026 AS COMPARED TO MarchJune 31,30, 2025

For the three months ended MarchJune 31,30, 2026, and 2025, service revenues included approximately $229,000$227,000 and $265,000,$271,000, respectively, of recurring maintenance and support revenue, and approximately $19,000$4,000 and $8,000$51,000 respectively, of non-recurring custom services revenue. Recurring service revenue decreased $36,000$44,000 or 14%16% in 2026 which was due to the timing of renewals of service agreements. Non-recurring custom services increaseddecreased $11,000$47,000 due to a small increasedecrease in customization. Overall, service revenues decreased to $248,384$231,005 as compared to $272,598$321,996 in the corresponding period in 2025.

For the three months ended MarchJune 31,30, 2026, license revenue increased $267,135$423,258 or 24%53% to $1,365,893$1,229,345 from $1,098,758$806,087 in the corresponding period in 2025 as several long-termnew customers expandeddeployed theirnew license deploymentslicenses in 2026.

For the three months ended MarchJune 31,30, 2026, hardware sales increaseddecreased 125%19% to $531,256$459,641 from $235,803$568,824 in the corresponding period in 2025. The increasedecrease was due to a large deployment from one long-term customer, several customer deploys of fully reserved inventory in the 2026 period, and one large deployment from one long-term customer and several long-term customers expanding their deployments of biometric cybersecurity solutions.solutions in 2025.

For the three months ended MarchJune 31,30, 2026, cost of service decreased $19,646$38,585 or 20%33% to $78,498$79,716 from $98,114$118,301 in the three months ended MarchJune 31,30, 2025. For the three months ended MarchJune 31,30, 2026, license feescosts remaineddecreased relatively flat increasing less than one percent13% to $73,234$74,972 from $72,885$86,488 in the three months ended MarchJune 31,30, 2025,2025. For the three months ended MarchJune 31,30, 2026, hardware costs increaseddecreased to net cost of $224,568$91,263 (after giving effect to the $98,970$703,050 reversal of the reservepreviously forfully reserved inventory) from $108,469$259,391 in the three months ended MarchJune 31,30, 2025, for a net increasedecrease of 100%,65%, based on the increasedecrease in hardware revenue.revenue and different models of hardware shipped.

Selling, general and administrative expenses for the three months ended MarchJune 31,30, 2026, decreased 5%7% from $1,372,524$1,680,550 in the corresponding period in 2025 to $1,310,066$1,563,027 in the current quarter. The decreases included reductions in administration and professional services fees.fees, offset by one-time costs incurred in connection with our reverse split and increases in our accrued audit expenses and accrued taxes.

For the three months ended MarchJune 31,30, 2026, research, development, and engineering costs increased 4%1% to $616,880$640,418 compared to $595,775$636,027 in the corresponding period in 2025. The increase consisted primarily of professional services and personnel costs.

Other income (expense) for the three months ended MarchJune 31,30, 2026 consisted of interest income of $675,$386, interest expense of $27,166$27,000 on the note payable and the government loan through the BBVA bank,payable, and a loan fee amortization amount of $20,833. Other income (expense) for the three months ended MarchJune 31,30, 2025 consisted of interest income of $3$2,092 and interest expense of $35,910$25,638 comprised of the note payable and the government loan through the BBVA bank, and a loan fee amortization amount of $60,000.

Net cash used by financing activities during the threesix months ended MarchJune 31,30, 2026 was $38,179$30,519 consisting of the repayment of $38,179 government loan through the BBVA bank.bank, offset by receipt of $7,660 cash for the purchases under the Employee Stock Purchase Plan.

There was no cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 .2026.

The following sets forth our sources of liquidity during the previous two years through the date of this filling:

On OctoberAugust 27,11, 2025,2026, we entered into and closed a warrant exercise agreementtransaction 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 atin consideration for reducing the per share exercise price from $10.20 to $4.06 and issuing additional warrants to the investor to purchase up to an aggregate of 1,236,668 shares of common stock at exercise price of $10.20.$4.06 Weper realizedshare. The forgoing resulted in gross proceeds of approximately $3.1$2.5 million, prior to deducting placement agent fees and estimated offering expenses.

On SeptemberOctober 12,27, 2024,2025, we entered into and closed a warrant exercise agreement with an existing institutional investor to exercise certain outstanding warrants to purchase an aggregate of 103,056309,167 shares of common stock.stock (as adjusted to reflect our 1-for-10 reverse stock split, which was effective April 30, 2026). The warrants were originally issued to the Investor on OctoberJanuary 31,15, 20232025 and had an original exercise price of $31.50$21.50 per share. In consideration for the immediate exercise of thethese warrants, we reducedissued thenew exercise price of theunregistered warrants to $18.50purchase per share and issuedup to the Investor unregistered Series A Warrants to purchase an aggregate of 103,056618,334 shares of common stock and(as unregistered Series B Warrantsadjusted to purchasereflect anour aggregate1-for-10 ofreverse 103,056stock sharessplit, ofwhich commonwas stock,effective eachApril with30, an exercise price of $18.50 per share and issued additional warrants to purchase an aggregate of 206,112 shares of common stock,2026) at an exercise price of $18.50$10.20. perWe share. The forgoing transaction resulted inrealized gross proceeds of approximately $1.9$3.1 millionmillion, prior to deducting placement agent fees and estimated offering expenses.

We enteredare intoparty to 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.

At MarchJune 31,30, 2026, our total cash and cash equivalents were $2,247,984,$1,379,300, as compared to $2,694,663 at December 31, 2025. At MarchJune 31,30, 2026, we had a working capital of approximately $1,296,000.$793,000.