10-Q: BIO-key International Q3 2025: Cash Surges, Losses Persist

BIO-key International reported a significant increase in cash and working capital for Q3 2025, driven by financing activities, despite continued operating losses and a decline in overall revenue.

Summary

• Cash and cash equivalents increased to $2,039,853 as of September 30, 2025, from $437,604 at December 31, 2024.
• Working capital improved significantly to approximately $782,000 at September 30, 2025, from a deficit of approximately $(2,666,578) at December 31, 2024.
• Total revenues for the three months ended September 30, 2025, decreased by 28% to $1,549,706 compared to $2,144,804 in the prior year period.
• Net loss for the three months ended September 30, 2025, worsened to $(964,849) from $(738,959) in the prior year period.
• For the nine months ended September 30, 2025, total revenues decreased by 11% to $4,853,772 compared to $5,467,293 in the prior year period.
• Net loss for the nine months ended September 30, 2025, slightly improved to $(2,868,790) from $(2,916,195) in the prior year period.
• Hardware sales for the nine months ended September 30, 2025, increased by 117% to $1,168,269, partly due to selling reserved inventory for African projects.
• The 2024 Note, with an original principal amount of $2,360,000, was paid in full subsequent to the quarter end through a combination of prepayments and conversion to common stock.
• A new $1,130,000 principal amount senior secured promissory note (the 2025 Note) was issued on September 30, 2025, providing $1,000,000 in proceeds for working capital.
• Subsequent to the quarter, approximately $3.1 million in gross proceeds were raised from a warrant exercise agreement, with net proceeds used for working capital and partial repayment of the 2025 Note.

Sentiment

Score: 4

Explanation: The company significantly improved its liquidity and working capital through recent financing activities and debt reduction. However, it continues to report operating losses and declining revenues for both the quarter and year-to-date periods. The 'going concern' warning persists, indicating ongoing financial challenges and a reliance on future capital raises or significant operational improvements. The increase in hardware sales is a positive, but overall revenue decline and increased cash burn from operations are concerning.

Positives

• Significant increase in cash and cash equivalents to $2,039,853 as of September 30, 2025.
• Substantial improvement in working capital to approximately $782,000 as of September 30, 2025.
• Net cash provided by financing activities increased to $4,456,013 for the nine months ended September 30, 2025.
• Hardware sales for the nine months ended September 30, 2025, increased by 117% to $1,168,269.
• The 2024 Note was paid in full subsequent to the quarter end, reducing debt obligations.
• Successful capital raise of approximately $3.1 million gross proceeds from warrant exercises post-quarter end, enhancing liquidity.
• Recurring service revenue increased by $117,000 or 17% for the nine months ended September 30, 2025.
• Selling, general and administrative expenses decreased by 16% for the nine months ended September 30, 2025, to $4,453,362.
• Interest expense decreased significantly for both the three-month and nine-month periods.

Negatives

• Total revenues decreased by 28% for the three months ended September 30, 2025, and by 11% for the nine months ended September 30, 2025.
• License fee revenue decreased by 36% for the three months and 32% for the nine months ended September 30, 2025.
• Net loss worsened for the three months ended September 30, 2025, to $(964,849).
• Net cash used in operating activities increased to $(2,838,088) for the nine months ended September 30, 2025, indicating higher cash burn from operations.
• The company has a history of losses and negative cash flow from operations.
• A substantial doubt about the company's ability to continue as a going concern exists due to historical losses and dependence on additional financing.
• Approximately $2.8 million of inventory is currently reserved, initially purchased for delayed projects in Nigeria.
• The company requires approximately $830,000 per month to conduct operations, which it has been unable to consistently achieve through revenue generation.

Risks

• History of losses and limited revenue.
• Ability to raise additional capital.
• Ability to continue as a going concern.
• Ability to protect intellectual property.
• Changes in business conditions, sales strategy, and product development plans.
• Changes in the marketplace.
• Dependence on continued services of the executive management team.
• Security breaches.
• Competition in the biometric technology and identity access management industries.
• Market acceptance of biometric products generally and products under development.
• Ability to convert sales opportunities to customer contracts.
• Ability to expand into Asia, Africa, and other foreign markets.
• Ability to migrate Swivel Secure customers to BIO-key and Portal Guard offerings.
• Ability to execute definitive agreements with Fiber Food Systems and/or its customers to utilize access management solutions.
• Ability to integrate solutions into Fiber Food Systems offerings.
• Fluctuations in foreign currency exchange rates.
• Duration and extent of continued hostilities in Ukraine and its impact on European customers.
• Impact of tariffs and other trade barriers which may make it more costly to import inventory from China and Hong Kong and certain product components from South Korea.
• Delays in the development of products.
• Commercial, reputational, and regulatory risks to the business that may arise as a consequence of the restatement of financial statements, including any consequences of non-compliance with SEC and Nasdaq periodic reporting requirements.
• Temporary loss of the use of a Registration Statement on Form S-3 to register securities in the future.
• Disruption to the business that may occur on a longer-term basis if unable to maintain effective controls over financial reporting.
• Uncertainties regarding the recoverability of the $5,000,000 investment in Boumarang, Inc. due to its early-stage, pre-revenue status and unproven technology.
• Customer concentration risk: two customers accounted for 42% of revenue for the three months ended September 30, 2025, and 45% of current accounts receivable.

Future Outlook

The company plans to expand its role in the Identity Access Management (IAM) market by offering a comprehensive suite of authentication options, complementing its biometric solutions. It expects to grow its business within government services and highly-regulated industries such as financial services, higher education, and healthcare, driven by increased security and privacy requirements and the demand for remote work security solutions. Key strategies include increased marketing, pursuing large-scale identification projects globally, and growing its channel alliance program. Additionally, the company intends to pursue strategic acquisitions in the IAM space that are synergistic and accretive to earnings.

Management Comments

• The company has lowered expenses through decreasing spending in marketing, and research and development.
• The company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and has slowly been selling into other markets to generate additional cash.
• 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.
• 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.
• We believe that biometrics should continue to play a key role in remote user authentication.
• 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.

Industry Context

The company operates in the expanding Identity Access Management (IAM) market, which is experiencing increased demand due to the prevalence of remote work environments, rising cybersecurity threats (phishing, hacking), and more stringent regulatory requirements and cyber insurance underwriting standards mandating enhanced security solutions like Multi-Factor Authentication (MFA). BIO-key positions its PortalGuard and Identity-Bound Biometrics (IBB) solutions as addressing functional gaps in mainstream MFA, particularly for roving users and in-person identification, and leverages its NIST-certified biometric platform for interoperable scanner use. The acquisition of Swivel Secure (now BIO-key EMEA) reflects a strategy to expand its global footprint and product offerings.

Comparison to Industry Standards

• The company's NIST-certified fingerprint biometric platform is unique in supporting interoperable mixing and matching combinations of different manufacturers' fingerprint scanners, allowing for flexible deployment based on specific use cases, unlike solutions that mandate a particular scanner.
• BIO-key's PortalGuard and Identity-Bound Biometrics (IBB) deliver unique value to enterprises by addressing functional gaps in mainstream MFA solutions, such as allowing roving users to biometrically authenticate at any workstation without using phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification.
• A large bank customer has enrolled and identifies over 21.7 million customers using BIO-key fingerprint biometrics in branches daily, demonstrating significant scale and adoption in the financial services sector.

Corporate Governance

Legal Proceedings

• As of September 30, 2025, the company was not a party to any pending lawsuits.

Related Party Transactions

• The note purchase agreements (2024 Note and 2025 Note) were with Streeterville Capital, LLC, an existing institutional investor.
• The warrant exercise agreements on January 15, 2025, and October 27, 2025, were with an existing institutional investor.
• The purchase of Boumarang, Inc. shares was from Fiber Food Systems, Inc., with contemplated collaboration between the parties.

Stakeholder Impact

• Shareholders: Potential for dilution from ongoing equity raises (warrant exercises, debt-to-equity conversions). Improved liquidity and debt reduction are positive, but persistent losses and going concern risk are negative.
• Employees: Issuance of restricted stock to employees and directors, and shares under the Employee Stock Purchase Plan, indicates ongoing compensation and retention efforts.
• Customers: Continued investment in IAM solutions and expansion of authentication options aim to provide enhanced security and user experience. Delays in Nigeria projects could impact customer relationships in that region.
• Creditors: Repayment of the 2024 Note in full and partial prepayment of the 2025 Note reduce immediate debt obligations, improving creditworthiness.

Next Steps

• Continue to explore other markets and opportunities to sell the reserved inventory from Nigeria projects to generate additional cash.
• Obtain additional third-party financing during the next twelve months if unable to generate sufficient revenue or liquidate existing inventory.
• File a resale registration statement covering the public resale of shares of Common Stock issuable upon exercise of the New Warrants with the SEC within 90 calendar days following October 27, 2025.
• Use commercially reasonable efforts to have the Resale Registration Statement declared effective by the SEC within 90 calendar days following October 27, 2025.
• Pursue strategic acquisitions of select businesses and assets in the IAM space.
• Continue increased marketing efforts into the IAM market.
• Dedicated pursuit of large-scale identification projects across the globe.
• Grow the channel alliance program.

Key Dates

Recommendation

While BIO-key International has significantly improved its liquidity and working capital through recent financing activities and debt reduction, the company continues to face substantial challenges, including persistent operating losses and declining overall revenues. The 'going concern' warning, coupled with the ongoing need for external financing to cover monthly operating expenses, indicates a high level of risk. The increase in hardware sales and strategic focus on the IAM market are positive, but the company's ability to achieve consistent profitability and reduce its reliance on capital raises remains unproven. Investors should hold, monitoring for sustained revenue growth and a clear path to profitability before considering further investment, given the inherent risks.

Keywords

Biometrics, Identity Access Management (IAM), Cybersecurity, MFA (Multi-Factor Authentication), Fingerprint identification, SEC 10-Q, Financial results, Quarterly report, Going concern, Capital raise, Warrants, Debt repayment, Hardware sales, Software as a Service (SaaS), Enterprise solutions, Government contracts, Education sector, Healthcare IT, Financial services technology