The beneficial ownership set forth above has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), based on 9,234,833, shares of our common stock outstanding on June 9, 2023. Except as indicated by footnote, and subject to applicable community property laws, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares. The selling stockholder is not affiliated with a broker-dealer registered under the Exchange Act of 1934, as amended.

The registration of these shares of common stock does not mean that the selling stockholder will sell or otherwise dispose of all or any of those securities. The selling stockholder may sell or otherwise dispose of all, a portion or none of such shares from time to time. We do not know the number of shares, if any, that will be offered for sale or other disposition by the selling stockholder under this prospectus. Furthermore, the selling stockholder may have sold, transferred or disposed of the shares of common stock covered hereby in transactions exempt from the registration requirements of the Securities Act since the date on which we filed this prospectus.

Information about the selling stockholder may change over time. Any changed information will be set forth in an amendment to the registration statement (of which this prospectus forms a part) or a supplement to this prospectus, to the extent required by law.

USE OF PROCEEDSRecent Developments

We recently disclosed the following results of operation for the three and nine months ended September 30, 2023 and balance sheet data at September 30, 2023.

Revenues in the quarter ended September 30, 2023 rose 33% to $1.8 million as compared to $1.4 million the third quarter of 2022 reflecting increased services, software license, and hardware revenue. Third quarter service revenue was driven by custom service installations for new and existing customer deployments and upgrades, hardware revenue from new contract activity, and progress in reducing hardware inventories. For the first nine months of 2023, total revenues rose 30% to $6.8 million as compared to $5.3 million for the first nine months of 2022, reflecting growth in service and license revenue and a decline in hardware revenue.

Gross profit grew 43% to $1.4 million in the third quarter of 2023 from $1.0 million in third quarter of 2022, reflecting an increase in gross margin to 77% from 71% in the third quarter of 2022. Gross profit and gross margin benefitted from a year-over-year increase in higher margin services and software license revenue and a decrease in third-party software costs, due principally to the seasonal, vacation-related slowdown in third quarter business activity in Europe.

Third quarter 2023 operating expenses decreased 36% to $2.2 million from $3.3 million in the corresponding period in 2022 due primarily to lower selling, general and administrative expenses reflecting progress in our expense reduction initiatives as well as lower research and development investments. We continue to focus on expense reductions to further benefit operating results.

Reflecting higher gross profit and lower operating costs, we reduced our third quarter net loss to $749,000 as compared to $2.4 million in the third quarter of 2022.  Similarly, we reduced our year-to-date 2023 net loss to $2.5 million from a net loss of $5.1 million for the first nine months of 2022.

At September 30, 2023, we had current assets of $7.9 million, including $0.3 million of cash and cash equivalents, $2.9 million of accounts receivable, and $4.3 million of inventory.

General

Our principal executive office is located at 101 Crawfords Corner Road, Suite 4116, Holmdel, New Jersey 07733 and our telephone number is (732) 359-1100. Our website is located at www.bio-key.com. The information on our website or any other website is not incorporated by reference into this prospectus. Our website address is included as an inactive textual reference only.

The selling stockholder will receive all proceeds fromBIO-key logo is our trademark. This prospectus and the saledocuments we incorporate by reference into this prospectus may also contain trademarks and trade names of the shares of common stock offered hereby. We will not receive any proceeds from the sale of common stock by the selling stockholder.

We will, however, receive cash proceeds equal to the exercise price of the Warrant. Accordingly, we may receive aggregate gross proceeds of up to $600,000 assuming that the Warrant is exercised in full at an exercise price of $3.00 per share. We expect to use any proceeds received by us from the exercise of the Warrant for working capital purposes.

We will bear all costs, expenses and fees in connection with the registration of the shares, including, without limitation, all registration and filing fees and fees and expenses of our counsel and our accountants.others. 

PLAN OF DISTRIBUTIONThe Offering

We are registering 900,000

The number of shares of our common stock for possible sale by the selling stockholder. The selling stockholder will act independently of us in making decisions with respect to the timing, manner and size of each sale. The selling stockholder may, from time to time, sell any or all of itsbe outstanding after this offering is based on 9,438,894 shares of our common stock on the Nasdaq Capital Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or moreoutstanding as of the following methods when selling shares:October 20, 2023 and excludes as of such date:

Unless otherwise indicated, this prospectus assumes no issuance of pre-funded warrants in connection with this offering and no exercise of the common warrants offered hereby.

RISK FACTORS

Investing in our securities involves a high degree of risk. Before deciding to invest in our securities, you should consider carefully the risks and uncertainties described below and under Item 1A.“Risk Factors” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on June 1, 2023, which are each incorporated by reference in this prospectus, together with all of the other information contained in this prospectus and documents incorporated by reference herein, and in any free writing prospectus that we have authorized for use in connection with this offering. If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected, the market price of our common stock could decline and you could lose all or part of your investment in our securities. Additional risks and uncertainties not presently known or which we consider immaterial as of the date hereof may also have an adverse effect on our business.

RISKS RELATED TO THIS OFFERING

This is a reasonable best efforts offering, with no minimum amount of securities required to be sold, and we may sell fewer than all of the securities offered hereby.

The selling stockholderplacement agent has agreed to use its reasonable best efforts to solicit offers to purchase the units and pre-funded units in this offering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities that must be sold as a condition to completion of this offering. As there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent fees and proceeds to us are not presently determinable and may alsobe substantially less than the maximum amounts set forth above. We may sell shares under Rule 144 underfewer than all of the Securities Act,securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell all of the units or pre-funded units offered in this offering. The success of this offering will impact our ability to use the proceeds to execute our business plans. We may have insufficient capital to implement our business plans and satisfy current obligations, potentially resulting in greater operating losses or dilution unless we are able to raise the required capital from alternative sources. There is no assurance that alternative capital, if needed, would be available rather than under this prospectus supplement and accompanying prospectus.on terms acceptable to us, or at all.

Broker-dealers engagedIf we do not realize net proceeds in this offering sufficient to repay our $2.2 million principal amount note in full, unless we generate sufficient cash flow from operations we will need to obtain additional financing to operate our business, which may not be available.If we are unable to raise additional capital or generate sufficient revenue, we may not be able to continue operations.

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. During 2022 and the selling stockholderfirst six months of 2023, we did not generate sufficient revenues to cover operating expenses.   Our $2.2 million principal amount note is due December 22, 2023 and we intend to use certain of the proceeds from this offering to repay all or part of the note.  If we do not realize net proceeds in this offering sufficient to repay the note in full and are unable to generate sufficient revenue to repay the balance of the note and cover operating expenses in future periods, we will need to obtain additional third-party financing. We may, arrangetherefore, need to obtain additional financing through the issuance of debt or equity securities. We cannot assure you that we will be able to secure any such additional financing on terms acceptable to us or at all. If we cannot obtain such financing, we will not be able to execute our business plan, will be required to reduce operating expenses, and in the extreme case, discontinue operations. 

You will experience immediate dilution in the net tangible book value per share of the common stock you purchase, and may experience additional dilution in the future.

Because the effective price per share of common stock included in the units or issuable upon exercise of the warrants or pre-funded warrants being offered may be  higher than the net tangible book value per share of our common stock, you may experience  dilution to the extent of the difference between the effective offering price per share of common stock you pay in this offering and the net tangible book value per share of our common stock immediately after this offering. Assuming the sale of 45,454,545 units at a public offering price of $0.22 per unit and our net tangible book value as of June 30, 2023, and assuming no sale of any pre-funded units in this offering, no exercise of any of the common warrants being offered in this offering, and after deducting the placement agent fees and estimated offering expenses payable by us, you will incur immediate dilution in as adjusted net tangible book value of approximately $0.01 per share. As a result of the dilution to investors purchasing securities in this offering, investors may receive  less than the purchase price paid in this offering, if anything, in the event of the liquidation of our company. See the section entitled “Dilution” below for other brokers-dealers toa more detailed discussion of the dilution you will incur if you participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholder does not expect these commissions and discounts to exceed what is customarythis offering.

We have broad discretion in the typesuse of transactions involved. Any profitsthe net proceeds we receive from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds we receive in this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether our management is using the net proceeds appropriately. Because of the number and variability of factors that will determine our use of our net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business and cause the price of our common stock to decline. Pending their use, we may invest our net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.

An active trading market for our shares may not be sustained.

Although our shares are listed on the resaleNasdaq Capital Market, the market for our shares has demonstrated varying levels of trading activity. The current level of trading may not be sustained in the future. The lack of an active market for our shares may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.

This offering may cause the trading price of our common stock to decrease.

The number of shares of common stock by a broker-dealer acting as principal might be deemedunderlying the securities we propose to be underwriting discounts or commissions underissue and ultimately will issue if this offering is completed, may result in an immediate decrease in the Securities Act. Discounts, concessions, commissions and similar selling expenses,market price of our common stock. This decrease may continue after the completion of this offering. We cannot predict the effect, if any, attributablethat the availability of shares for future sale represented by the pre-funded warrants or common warrants issued in connection with the offering will have on the market price of our common stock from time to time.

Future sales of substantial amounts of our common stock could adversely affect the market price of our common stock.

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If additional capital is raised through the sale of equity or convertible debt securities, or perceptions that those sales could occur, the issuance of these securities could result in further dilution to investors purchasing our common stock in this offering or result in downward pressure on the price of our common stock, and our ability to raise capital in the future.

If we fail to comply with the continued minimum closing bid requirements or other Nasdaq requirements for continued listing, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

Our common stock is listed for trading on Nasdaq. We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share and minimum stockholders’ agreement. On January 12, 2023, we received a letter from the Nasdaq advising us that we have failed to satisfy the $1.00 minimum bid requirement due to the fact that the closing bid price for our common stock for thirty consecutive days was less than $1.00. Although we initially had 180 days to regain compliance, on July 12, 2023, we received a letter from Nasdaq stating that, although we had not regained compliance with the minimum bid requirement, Nasdaq determined that we are eligible for an additional 180-day period, or until January 8, 2024, to regain compliance with the minimum bid requirement. A delisting of our common stock from Nasdaq could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.

We may not receive any additional funds upon the exercise of the common warrants.

Each common warrant has an exercise price of $[●] per share (equal to 100% of the public offering price of each unit sold in this offering), and may also be exercised in certain circumstances by way of a cashless exercise, meaning that the holder may not pay a cash purchase price upon exercise, but instead would receive upon such exercise the net number of shares of our common stock determined according to the formula set forth in the warrant. Accordingly, we may not receive any additional funds, or any significant additional funds, upon the exercise of the warrants.

There is no public market for the common warrants or pre-funded warrants being offered by us in this offering.

There is no established public trading market for the common warrants or the pre-funded warrants, and we do not expect a market to develop. In addition, we do not intend to apply to list the common warrants or the pre-funded warrants on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the common warrants and the pre-funded warrants will be borne bylimited.

The common warrants included in the selling stockholder.units and in the pre-funded units are speculative in nature.

The selling stockholder may agreecommon warrants represent the right to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act. If we are notified by the selling stockholder that any arrangement has been entered into with a broker-dealer for the sale ofacquire shares of common stock if required, weat a fixed price. Specifically, commencing on the date of issuance, holders of the common warrants may acquire the shares of common stock issuable upon exercise of such warrants at an exercise price of $[●] per share of common stock (equal to 100% of the public offering price of each unit sold in this offering). Moreover, following this offering, the market value of the common warrants is uncertain and there can be no assurance that the market value of the common warrants will file an amendment to this prospectus. Ifequal or exceed the selling stockholder uses this prospectus for any salepublic offering price. There can be no assurance that the market price of the shares of common stock will ever equal or exceed the selling stockholder will be subject to the prospectus delivery requirementsexercise price of the Securities Act.common warrants, and consequently, whether it will ever be profitable for holders of common warrants to exercise the common warrants.

The selling stockholder and any broker-dealer or agents participatingExcept as otherwise set forth in the distributioncommon warrants and pre-funded warrants, holders of the common warrants and the pre-funded warrants offered hereby will have no rights as stockholders with respect to the shares of common stock may be deemed to be “underwriters” withinunderlying the meaning of Section 2(11)common warrants and the pre-funded warrants until such holders exercise their common warrants and pre-funded warrants and acquire our common stock.

Except as otherwise set forth in the common warrants and pre-funded warrants, until holders of the Securities Act in connection withcommon warrants and the pre-funded warrants acquire shares of our common stock upon exercise thereof, such sales. In such event, any commissions paid, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resaleholders of the shares purchased by them may be deemedcommon warrants and the pre-funded warrants will have no rights with respect to be underwriting commissions or discounts under the Securities Act. If the selling stockholder is an “underwriter” within the meaning of Section 2(11) of the Securities Act, it will be subject to the applicable prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.

The selling stockholder also may transfer the shares of our common stock in other circumstances, in whichunderlying such warrants, such as voting rights. Upon exercise of the common warrants or the pre-funded warrants, as the case the transferees or other successors in interest willmay be, the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act supplementing or amending the list of selling stockholders to include the transferees or other successors in interest as selling stockholders under this prospectus.

We will bear all costs, expenses and fees in connection with the registration of the shares.

We will indemnify the selling stockholder against certain liabilities, including liabilities under the Securities Act, or the selling stockholderholder will be entitled to contribution. Weexercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

Purchasers who purchase our securities in this offering pursuant to a securities purchase agreement may have rights not available to purchasers that purchase without the benefit of a securities purchase agreement.

In addition to rights and remedies available to all purchasers in this offering under federal securities and state law, the purchasers that enter into a securities purchase agreement will also be indemnified byable to bring claims for breach of contract against us. The ability to pursue a claim for breach of contract provides those investors with the selling stockholder against civil liabilities, including liabilitiesmeans to enforce the covenants uniquely available to them under the Securities Act, that may arise from any written information furnished to us by the selling stockholder specificallysecurities purchase agreement including timely delivery of shares and indemnification for usebreach of contract.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts contained in this prospectus, 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 weevents and are subject to risks and uncertainties that may be entitledcause actual results to contribution.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock currently tradesdiffer 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 to satisfy debt repayment obligations and working capital needs; 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 integrate the operations and personnel of Swivel Secure into our business; fluctuations in foreign currency exchange rates; the duration and extent of continued hostilities in Ukraine and its impact on our European customers; delays in the Nasdaq Capital Marketdevelopment of products, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the symbol “BKYI”.

Holders

As of June 9, 2023, the number of stockholders of record of our common stock was 131.

Dividends

We have not paid any cash dividends on our common stock to-date and have no intention of paying any cash dividends on our common stock in the foreseeable future. The terms of our secured promissory note issued in December 2022 prohibits us from paying or declaring any dividends or without the consent of the lender. The declaration and payment of dividends on our common stock is also subject to the discretion of our Board of Directors and certain limitations imposed under the Delaware General Corporation Law. The timing, amount, and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

caption “MANAGEMENTRisk Factors’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included” in this prospectus and other filings with the SEC. These factors are based on information availablenot intended to us onrepresent a complete list of the date hereof,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.

You should carefully read this prospectus and the documents we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

Except as required by law, we assume no obligation to update any suchthese forward-looking statements. Ourstatements publicly, or to update the reasons actual results could differ materially from those anticipated in theseany forward-looking statements, whether as a result of new information, future events or otherwise.

This prospectus also refers to estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of factors, including those set forth in the section captioned “Risk Factors”assumptions and elsewhere in this prospectus.

The following Management’s Discussionlimitations, and Analysisyou are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of Financial Condition and Results of Operations is intended to help you understand our Company. This discussion is provided as a supplement to and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2022 and 2021future performance and the three months ended March 31, 2023future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and 2022 and the accompanying notes included elsewhere in this prospectus.

Overview

We are a leading identity access management (IAM) platform provider enabling secure work-from-anywhere for enterprise, education, and government customers using secure multi-factor authentication (MFA). Our vision is to enable any organization to secure streamlined and passwordless workforce, customer, citizen and student access to any online service, workstation, or mobile application, without a requirement to use tokens or phones. Our products include PortalGuard® and PortalGuard Identity-as-a-Service (IDaaS) enterprise IAM, WEB-key® biometric civil and large-scale ID infrastructure, MobileAuth® mobile phone authentication application for iOS and Android, and high-quality, low-cost accessory fingerprint scanner and FIDO-compliant hardware to provide a full and complete solution for identity-innovating customers.

BIO-key PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems. PortalGuard goes beyond traditional 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 hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems by utilizing our world-class biometric core platform among 17 other authentication factors. PortalGuard goes beyond traditional multi-factor authentication, or MFA, solutions by addressing sizeable 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.

PortalGuard and IBB deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases. PortalGuard operates as a single MFA user experience, providing a rich set of authentication choices to meet every use case. We sell our branded biometric and FIDO authentication hardware as accessories to our IAM platforms, so that customers can have a single vendor providing all components of their IAM solution. We do not mandate the use of BIO-key hardware with our software and services. Our NIST-certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’ fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the user of a particular scanner.risk.

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. Swivel Secure is 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. These solutions include a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and bring your own device policies.

We operate a 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 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 one hundred and fifty 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

As discussed under “Risk Factors” givenWe recently disclosed the uncertaintyfollowing results of operation for the durationthree and severitynine months ended September 30, 2023 and balance sheet data at September 30, 2023.

Revenues in the quarter ended September 30, 2023 rose 33% to $1.8 million as compared to $1.4 million the third quarter of 2022 reflecting increased services, software license, and hardware revenue. Third quarter service revenue was driven by custom service installations for new and existing customer deployments and upgrades, hardware revenue from new contract activity, and progress in reducing hardware inventories. For the first nine months of 2023, total revenues rose 30% to $6.8 million as compared to $5.3 million for the first nine months of 2022, reflecting growth in service and license revenue and a possible economic recessiondecline in hardware revenue.

Gross profit grew 43% to $1.4 million in the third quarter of 2023 from $1.0 million in third quarter of 2022, reflecting an increase in gross margin to 77% from 71% in the third quarter of 2022. Gross profit and gross margin benefitted from a year-over-year increase in higher margin services and software license revenue and a decrease in third-party software costs, due principally to the seasonal, vacation-related slowdown in third quarter business activity in Europe.

Third quarter 2023 operating expenses decreased 36% to $2.2 million from $3.3 million in the corresponding period in 2022 due primarily to lower selling, general and administrative expenses reflecting progress in our expense reduction initiatives as well as lower research and development investments. We continue to focus on expense reductions to further benefit operating results.

Reflecting higher gross profit and lower operating costs, we reduced our third quarter net loss to $749,000 as compared to $2.4 million in the third quarter of 2022.  Similarly, we reduced our year-to-date 2023 net loss to $2.5 million from a net loss of $5.1 million for the first nine months of 2022.

At September 30, 2023, we had current assets of $7.9 million, including $0.3 million of cash and cash equivalents, $2.9 million of accounts receivable, and $4.3 million of inventory.

General

Our principal executive office is located at 101 Crawfords Corner Road, Suite 4116, Holmdel, New Jersey 07733 and our telephone number is (732) 359-1100. Our website is located at www.bio-key.com. The information on our website or any other website is not incorporated by reference into this prospectus. Our website address is included as an inactive textual reference only.

The BIO-key logo is our trademark. This prospectus and the conflict between Ukrainedocuments we incorporate by reference into this prospectus may also contain trademarks and Russia and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matterstrade names of national, regional and global scale, including those of a political, economic, business and competitive nature, the related financial impact cannot be reasonably estimated at this time.others. 

The Offering

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. We believe that biometrics should continue to play a key role in remote user authentication.

Risk Factors:	Investing in our securities involves a high degree of risk and purchasers of our securities may lose their entire investment. See the information under the caption “Risk Factors” beginning on page 6 of this prospectus and the other information included elsewhere in this prospectus and incorporated by reference herein for a discussion of factors you should consider before deciding to invest in our securities.
Listing of Common Stock:	Our common stock is listed on the Nasdaq Capital Market under the ticker symbol “BKYI”. There is no established trading market for the common warrants or the pre-funded warrants, and we do not expect a trading market to develop. We do not intend to list the common warrants or the pre-funded warrants on any securities exchange or other trading market. Without a trading market, the liquidity of the common warrants and the pre-funded warrants will be extremely limited.
Reasonable Best Efforts Offering:	We have agreed to offer and sell the securities offered hereby to the purchasers through the placement agent. The placement agent is not required to buy or sell any specific number or dollar amount of the securities offered hereby, but it will use its reasonable best efforts to solicit offers to purchase the securities offered by this prospectus. See “Plan of Distribution” beginning on page 19 of this prospectus.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2023 AS COMPARED TO MARCH 31, 2022

Consolidated Results of Operations – Percent Trend

Revenues and Cost of Goods Sold

Revenues

For the three months ended March 31, 2023 and 2022, service revenues included approximately $292,000 and $317,000 respectively, of recurring maintenance and support revenue, and approximately $240,000 and $79,000, respectively, of non-recurring custom services revenue. Recurring service revenue decreased 13% in the first quarter of 2023 as compared to the first quarter of 2022 due largely to the recognition of annual SaaS revenue versus maintenance renewal contracts. Non-recurring custom services increased due to services provided by Swivel Secure. As our customer base continues to grow, we expect the service revenue to increase in future periods.

For the three months ended March 31, 2023, license revenue increased 70% to $2,478,556 from $1,460,183 during the three months ended March 31, 2022. We increased both the variation andThe number of customers, including additional revenue from Swivel Secure which generated 63% of its license revenue from a customer in Central America, one large SaaS renewal, and cloud migrations.

Hardware sales decreased $12,495 during the three months ended March 31, 2023 to $72,689 from $85,184 during the three months ended March 31, 2022. The decrease was attributable to the mix of installations and other projects completed in the periods.

Costs of Goods Sold

For the three months ended March 31, 2023, cost of service decreased approximately $56,000 or 27% to $154,801 from $210,913 for the three months ended March 31, 2022 due to reduced personnel costs associated with the direct support for BIO-key support and maintenance. For the three months ended March 31, 2022, license fees increased to $620,881 from $73,230 during the three months ended March 31, 2022, due largely to the costs related to the license for the Swivel Secure product line. For the three months ended March 31, 2023, hardware costs decreased to $44,592 from $53,298 during the three months ended March 31, 2022, corresponding to the decrease in hardware revenue.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended March 31, 2023 increased 7% to $1,931,732 as compared to $1,797,998 for the corresponding period in 2022. This increase was attributable largely to a full quarter of Swivel Secure sales expenses and a reserve for doubtful accounts of $50,000. These increases were offset, in part, by decreases in marketing personnel and expenses, and non-cash compensation.

Research, Development and Engineering

For the three months ended March 31, 2023, research, development and engineering expenses decreased 14% to $690,159 as compared to $805,266 for the corresponding period in 2022. Included in the decrease were reductions in personnel costs, and outside services related to the completed development of our MobileAuth application.

Other Income (Expense)

Other income (expense) for the three month period ended March 31, 2023 consisted of interest expense of $54,999 on the secured note payable and the government loan through the BBVA bank net of interest income, change in fair value of $141,991 on the convertible note payable, and loss on foreign currency transactions. Other income (expense) for the three month period ending March 31, 2022 consisted of interest income.

YEAR ENDED DECEMBER 31, 2022 AS COMPARED TO YEAR ENDED DECEMBER 31, 2021

Consolidated Results of Operations

Two Year % trend

Revenues and Costs and other expenses

Revenues

Revenue increased $1,905,769 or 37% to $7,020,258 in 2022 as compared to $5,114,489 in 2021 due to the factors stated below.

For the years ended December 31, 2022, and 2021, service revenues included approximately $1,243,000 and $1,100,000, respectively, of recurring maintenance and support revenue, and approximately $546,000 and $173,000, respectively, of non-recurring custom services revenue. Recurring service revenue increased 13% from 2021 to 2022 due largely to the increased maintenance related to increased license revenue. Non-recurring custom services increased 216% due to increased new customer installations, Swivel service fees, and conversion to the cloud platform. Although inflation has negatively impacted many industries, we have continued to see our pipeline increase for the cybersecurity protection software and services that we offer. As our customer base continues to grow, we expect the service revenue to increase in future periods.

For the years ended December 31, 2022 and 2021, license revenue increased $2,028,243 or 79% to $4,584,052, due primarily to new customer orders, revenues from Swivel Secure for approximately $1.9 million, and existing recurring revenue contracts. We expect the recurring revenue to continue to grow in 2023.

Hardware sales decreased by $638,840, or 50%, to $646,486 in 2022 from $1,285,326 in 2021. The decrease was attributable largely to Q1 2021 sales in Nigeria to an international government agency, which did not recur in 2022 due to delayed roll out of the government project.

Costs of goods sold

For the year ended December 31, 2022, cost of services increased approximately 5% to $722,152, due to the increased costs to support for the PortalGuard deployments.

License fees for the year ended December 31, 2022 increased $732,218, or approximately 395%, to $906,417 related to increased license revenue and license fees payable for third-party software distributed by Swivel Secure.

Hardware costs for the year ended December 31, 2022 increased $7,446, or approximately 1%, to $811,001. The increase was associated with the decreased hardware sales and hardware mix described above, offset by the $400,000 reserve on inventory due to slow moving inventory purchased for projects in Nigeria. The Company is looking into other markets and opportunities to sell or return the product.

Selling, general and administrative

Selling, general and administrative costs for year ended December 31, 2022 were $9,364,887 representing a 55% increase from 2021. The increase included higher sales and marketing expenses incurred by Swivel Secure which we acquired in 2022, increased legal, professional, and other fees and expenses incurred in connection with the acquisition of Swivel Secure and the AJB Capital loan, bad debt expense related to a reserve on a note receivable, and an increase in the allowance for doubtful accounts of $360,000.

Research, development and engineering

For the year ended December 31, 2022, research, development and engineering costs were $3,252,236 representing a 38% increase over 2021. Included in the increase were personnel costs associated with retaining outside services related to the development of our MobileAuth application, and wages and benefits for new engineering employees.

Reversal of earnout payable – Swivel acquisition

For the year ended December 31, 2022, we recognized income on the elimination of the earnout payable on the acquisition of Swivel Secure as the certain requirements for the payout were not achieved.

Impairment of goodwill

For the year ended December 31, 2022, we recognized an impairment of our goodwill balances due to the decrease in market valueshares of our common stock compared to the carrying valuebe outstanding after this offering is based on 9,438,894 shares of our net assets.

Other income (expense)

The amounts for other income (expense) for the year ended December 31, 2022 consistedcommon stock outstanding as of interest incomeOctober 20, 2023 and excludes as of $233, a write-off of the investment-debt security as the Company received the proceeds and the bond issuer defaulted on repayment, loan transactions costs expensed for the convertible note payable as the Company elected to value the convertible note payable under the fair value option, the change in the fair value of the convertible note payable, and interest expense of $10,462 on the convertible note payable and the government loan through the BBVA bank. The amounts for the year ended December 31, 2021, related to a loss on a reserve on the investment in the debt security due to a delay in receiving the funds, interest expense from the amortization of debt discounts, and a foreign currency adjustment to an accounts receivable invoice, offset by interest income.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities overview

Net cash used for operations during the three months ended March 31, 2023 was $1,928,811. Items of note included:such date:

Net cash used for operations during the year ended December 31, 2022 was $6,229,034. Items of note included:

Investing activities overviewThis is a reasonable best efforts offering, with no minimum amount of securities required to be sold, and we may sell fewer than all of the securities offered hereby.

The placement agent has agreed to use its reasonable best efforts to solicit offers to purchase the units and pre-funded units in this offering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities that must be sold as a condition to completion of this offering. As there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell all of the units or pre-funded units offered in this offering. The success of this offering will impact our ability to use the proceeds to execute our business plans. We may have insufficient capital to implement our business plans and satisfy current obligations, potentially resulting in greater operating losses or dilution unless we are able to raise the required capital from alternative sources. There is no assurance that alternative capital, if needed, would be available on terms acceptable to us, or at all.

If we do not realize net proceeds in this offering sufficient to repay our $2.2 million principal amount note in full, unless we generate sufficient cash flow from operations we will need to obtain additional financing to operate our business, which may not be available.If we are unable to raise additional capital or generate sufficient revenue, we may not be able to continue operations.

We did not use or generate any cash for investing activities during the three months ended March 31, 2023.

Net cash used in investing activities during the year December 31, 2022 was $696,618. This consisted of approximately $82,000 of capital expenditures, $9,000 of receipts from a note receivable and $624,000 (net of cash acquired and currency adjustment) to fund the cash portion of the purchase price for Swivel Secure.

Financing activities overview

Net cash used for financing activities during the three months ended March 31, 2023 was $34,289 for repayment of the government loan through the BBVA bank.

Net cash from financing activities was $1,903,240 during the year ended December 31, 2022 consisting of proceeds of $2,002,000 from the issuance of a convertible note, costs paid to acquire the convertible note of $155,140 and proceeds of $56,380 from sales of common stock under the employee stock purchase plan.

Sources of Liquidity

Since our inception, our capital needs have been principally met through proceeds from the sale of equity and debt securities. We expect capital expenditures to be less than $100,000 during the next twelve months.

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

In December 2022, we entered into and closed a securities purchase agreement (the “Purchase Agreement”) with AJB Capital Investments, LLC under which we issued a $2,200,000 principal amount senior secured promissory note (the “Note”). The principal amount of the Note is due six months following the date of issuance, subject to one six-month extension. Interest under the Note accrues at a rate of 10% per annum, payable monthly through month six. In the event the maturity date of the Note is extended, interest will accrue at the rate of 12% per annum in months seven through twelve, payable monthly. The Note is secured by a lien on substantially all of the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.

In March 2022, in connection with the acquisition of Swivel Secure, we assumed a €500,000 government loan that was issued through BBVA Bank during the COVID-19 pandemic. The loan bears interest at the rate of 1.75% per annum and is payable in monthly installments of approximately $11,900 inclusive of interest from May 2022 through maturity in April 2026. Upon closing of the acquisition, Swivel Secure had cash equal to the outstanding balance.

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2023 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 (the “Advance Amount”), 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, 2023, our total cash and cash equivalents were $722,335, as compared to approximately $2,635,522 at December 31, 2022. At March 31, 2023, we had working capital of approximately $3,359,000.

At December 31, 2022, our total cash and cash equivalents were approximately $2,600,000, as compared to $7,800,000 at December 31, 2021. At December 31, 2022, we had working capital of approximately $3,529,000.

As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. We currently require approximately $798,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. During 2022 and the first threesix months of 2023, we generated $3,083,767 of revenue which did not generate enough cashsufficient revenues to fully fund our average monthly requirements. During 2022,cover operating expenses.   Our $2.2 million principal amount note is due December 22, 2023 and we generated approximately $7,020,000intend to use certain of revenue, which didthe proceeds from this offering to repay all or part of the note.  If we do not generate enough cashrealize net proceeds in this offering sufficient to fully fund our average monthly cash requirements. We expect that Swivel Secure will continuerepay the note in full and are unable to generate positive cash flowsufficient revenue to repay the balance of the note and cover operating expenses in 2023.future periods, we will need to obtain additional third-party financing. We alsomay, therefore, need to obtain additional financing through the issuance of debt or equity securities. We cannot assure you that we will be able to secure any such additional financing on terms acceptable to us or at all. If we cannot obtain such financing, we will not be able to execute our business plan, will be required to reduce operating expenses, and in the extreme case, discontinue operations. 

You will experience immediate dilution in the net tangible book value per share of the common stock you purchase, and may experience additional dilution in the future.

Because the effective price per share of common stock included in the units or issuable upon exercise of the warrants or pre-funded warrants being offered may be  higher than the net tangible book value per share of our common stock, you may experience  dilution to the extent of the difference between the effective offering price per share of common stock you pay in this offering and the net tangible book value per share of our common stock immediately after this offering. Assuming the sale of 45,454,545 units at a public offering price of $0.22 per unit and our net tangible book value as of June 30, 2023, and assuming no sale of any pre-funded units in this offering, no exercise of any of the common warrants being offered in this offering, and after deducting the placement agent fees and estimated offering expenses payable by us, you will incur immediate dilution in as adjusted net tangible book value of approximately $0.01 per share. As a result of the dilution to investors purchasing securities in this offering, investors may receive  less than the purchase price paid in this offering, if anything, in the event of the liquidation of our company. See the section entitled “Dilution” below for a more detailed discussion of the dilution you will incur if you participate in this offering.

We have approximately $3.8 millionbroad discretion in the use of inventory purchasedthe net proceeds we receive from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds we receive in this offering, including for projectsany of the purposes described in Nigeria. We are looking into other marketsthe section entitled “Use of Proceeds,” and opportunitiesyou will not have the opportunity as part of your investment decision to sell orassess whether our management is using the net proceeds appropriately. Because of the number and variability of factors that will determine our use of our net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business and cause the price of our common stock to decline. Pending their use, we may invest our net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return the product to generate additional cash.our stockholders.

An active trading market for our shares may not be sustained.

Although our shares are listed on the Nasdaq Capital Market, the market for our shares has demonstrated varying levels of trading activity. The current level of trading may not be sustained in the future. The lack of an active market for our shares may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.

This offering may cause the trading price of our common stock to decrease.

The number of shares of common stock underlying the securities we propose to issue and ultimately will issue if this offering is completed, may result in an immediate decrease in the market price of our common stock. This decrease may continue after the completion of this offering. We cannot predict the effect, if any, that the availability of shares for future sale represented by the pre-funded warrants or common warrants issued in connection with the offering will have on the market price of our common stock from time to time.

Future sales of substantial amounts of our common stock could adversely affect the market price of our common stock.

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If additional capital is raised through the sale of equity or convertible debt securities, or perceptions that those sales could occur, the issuance of these securities could result in further dilution to investors purchasing our common stock in this offering or result in downward pressure on the price of our common stock, and our ability to raise capital in the future.

If we fail to comply with the continued minimum closing bid requirements or other Nasdaq requirements for continued listing, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

Our common stock is listed for trading on Nasdaq. We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share and minimum stockholders’ agreement. On January 12, 2023, we received a letter from the Nasdaq advising us that we have failed to satisfy the $1.00 minimum bid requirement due to the fact that the closing bid price for our common stock for thirty consecutive days was less than $1.00. Although we initially had 180 days to regain compliance, on July 12, 2023, we received a letter from Nasdaq stating that, although we had not regained compliance with the minimum bid requirement, Nasdaq determined that we are unable to generate sufficient revenue to fund current operations and execute our business plan, we may need to obtain additional third-party financing. Our second note is due on June 22, 2023, which we expect to extendeligible for an additional 180-day period, or until January 8, 2024, to regain compliance with the minimum bid requirement. A delisting of our common stock from Nasdaq could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.

We may not receive any additional funds upon the exercise of the common warrants.

Each common warrant has an exercise price of $[●] per share (equal to 100% of the public offering price of each unit sold in this offering), and may also be exercised in certain circumstances by way of a cashless exercise, meaning that the holder may not pay a cash purchase price upon exercise, but instead would receive upon such exercise the net number of shares of our common stock determined according to the formula set forth in the warrant. Accordingly, we may not receive any additional funds, or any significant additional funds, upon the exercise of the warrants.

There is no public market for the common warrants or pre-funded warrants being offered by us in this offering.

There is no established public trading market for the common warrants or the pre-funded warrants, and we do not expect a market to develop. In addition, we do not intend to apply to list the common warrants or the pre-funded warrants on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the common warrants and the pre-funded warrants will be limited.

The common warrants included in the units and in the pre-funded units are speculative in nature.

The common warrants represent the right to acquire shares of common stock at a fixed price. Specifically, commencing on the date of issuance, holders of the common warrants may acquire the shares of common stock issuable upon exercise of such warrants at an exercise price of $[●] per share of common stock (equal to 100% of the public offering price of each unit sold in this offering). Moreover, following this offering, the market value of the common warrants is uncertain and there can be no assurance that the market value of the common warrants will equal or exceed the public offering price. There can be no assurance that the market price of the shares of common stock will ever equal or exceed the exercise price of the common warrants, and consequently, whether it will ever be profitable for holders of common warrants to exercise the common warrants.

Except as otherwise set forth in the common warrants and pre-funded warrants, holders of the common warrants and the pre-funded warrants offered hereby will have no rights as stockholders with respect to the shares of common stock underlying the common warrants and the pre-funded warrants until such holders exercise their common warrants and pre-funded warrants and acquire our common stock.

Except as otherwise set forth in the common warrants and pre-funded warrants, until holders of the common warrants and the pre-funded warrants acquire shares of our common stock upon exercise thereof, such holders of the common warrants and the pre-funded warrants will have no rights with respect to the shares of our common stock underlying such warrants, such as voting rights. Upon exercise of the common warrants or the pre-funded warrants, as the case may be, the holder will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

Purchasers who purchase our securities in this offering pursuant to a securities purchase agreement may have rights not available to purchasers that purchase without the benefit of a securities purchase agreement.

In addition to rights and remedies available to all purchasers in this offering under federal securities and state law, the purchasers that enter into a securities purchase agreement will also be able to bring claims for breach of contract against us. The ability to pursue a claim for breach of contract provides those investors with the means to enforce the covenants uniquely available to them under the securities purchase agreement including timely delivery of shares and indemnification for breach of contract.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts contained in this prospectus, 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 to satisfy debt repayment obligations and working capital needs; 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 integrate the operations and personnel of Swivel Secure into our business; fluctuations in foreign currency exchange rates; the duration and extent of continued hostilities in Ukraine and its impact on our European customers; delays in the development of products, 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 this prospectus 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.

You should carefully read this prospectus and the documents we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

This prospectus also refers to estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.

USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $9,120,000 (assuming the sale of all units offered hereby at the assumed public offering price of $0.22 per unit, which represents the closing sale price of our common stock on the Nasdaq Capital Market on October 20, 2023, and assuming no issuance of pre-funded warrants), after deducting placement agent fees and estimated offering expenses payable by us, and assuming no sale of any pre-funded units offered hereunder. However, because this is a reasonable best efforts offering with no minimum number of securities or amount of proceeds as a condition to closing, the actual offering amount, placement agent fees and net proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth on the cover page of this prospectus, and we may not sell all or any of the securities we are offering. As a result, we may receive significantly less in net proceeds. Based on the assumed offering price set forth above, we estimate that our net proceeds from the sale of 75% or 50% of the units offered in this offering would be approximately $6,795,000 and $4,470,000, respectively, after deducting placement agent fees and estimated offering expenses payable by us.

A $0.05 increase or decrease in the assumed public offering price of $0.22 per unit would increase or decrease the net proceeds from this offering by $2,113,636, assuming that the number of units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting placement agent fees and estimated offering expenses payable by us, and assuming no sale of any pre-funded units offered hereunder.

We currently intend to use the net proceeds of this offering as follows: (i) up to $2.2 million will be used to repay indebtedness due under a $2.2 million principal amount secured convertible note due December 22, 2023 (the “Note”), as determined by the Company; and (ii) the balance, if any, will be used for general corporate and working capital purposes and to fund ongoing operations and expansion of our business. We cannot currently allocate specific percentages of the net proceeds to us from this offering that we may use for these purposes and our management will have broad discretion in the allocation of such net proceeds.

The Note accrues interest at the rate of 10% per annum in months one through six months. Unlessand 12% per annum in months seven through twelve, payable monthly. The Note is secured by a lien on substantially all of our assets and properties and can be prepaid in whole or in part without penalty at any time. Proceeds were used for general working capital and corporate purposes.

If we do not realize net proceeds from this offering sufficient to repay the Note in full, unless we are able to extend the maturity date of the Note or generate sufficient positive cash flow from operations or liquidation of existing inventory we expect thatto repay the Note in full and fund operations, we will need to obtain additional financing during the next twelve months to be used in part to repay out outstanding secured note.

Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing.operate.  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.See “Risk Factors.”

DILUTION

CRITICAL ACCOUNTING POLICIES AND ESTIMATESIf you purchase securities in this offering, your ownership interest will be diluted immediately to the extent of the difference between the assumed public offering price per unit and as adjusted, net tangible book value per share of common stock immediately after this offering. Tangible assets equal our total assets less goodwill and intangible assets. As of June 30, 2023, our historical net tangible book value was $1,882,941 or $0.20 per share of common stock. Historical net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding as of June 30, 2023.

Our financial statements are preparedAfter giving effect to (i) the sale by us in accordance with accounting principles generally acceptedthis offering of 45,454,545 units at an assumed public offering price of $0.22 per unit (the closing sale price of our common stock on the Nasdaq Capital Market on October 20, 2023), assuming no sale of any pre-funded units in this offering and no exercise of any of the United States. The preparationcommon warrants being offered in this offering and deducting the placement agent fees and estimated offering expenses payable by us and (ii) the repayment of these financial statementsthe Note, our pro forma as adjusted net tangible book value as of June 30, 2023, would have been $11,301,721, or $0.21 per share of common stock. This amount represents an immediate increase  in net tangible book value of $.01 per share to our existing shareholders and foran immediate dilution of $0.01 per share to purchasers of our securities in this offering. We determine dilution per share to investors participating in this offering by subtracting the year ended December 31, 2022 requires thatpro forma as adjusted net tangible book value per share after this offering from the offering price per share paid by investors participating in this offering.

The following table illustrates this per share dilution:

If we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dateonly sell 75% or 50% of the financial statementsmaximum offering amount, our pro forma as adjusted net tangible book value per share after this offering would be $0.207, or $0.208, respectively, and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believedilution per share to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presentedinvestors purchasing securities in this prospectus.offering would be $.013 or $.012, respectively, assuming no pre-funded warrants are issued and no warrants are exercised, and after deducting placement agent fees and estimated offering expenses payable by us.

We believe that of our significant accounting policies, which are described in Note A of the notes to our consolidated financial statements included in this prospectus, the following accounting policies involve a greater degree of judgmentThe information discussed above is illustrative only and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations, as listed below:

1. Business Combinations We allocate the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired customer relationships, proprietary software, and trade names are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revisionwill adjust based on the final determinationactual public offering price, the actual number of fair values during the measurement period, which may be up to one year from the acquisition date. We include the results of operations of the businessunits that we have acquired in our consolidated results prospectively from the date of acquisition.

2. Impairment of Goodwill Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, the Company estimates the fair value of the reporting unit based on the Company’s market capitalization and compares this amount to the carrying value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. The effect of any impairment would be reflected in operating income in the consolidated statement of operations. The annual goodwill impairment test is performed as of December 31st of each year.

3. Income Taxes We account for income taxes under the asset and liability method, based on the income tax laws and rates in the jurisdictions in which operations are conducted and income is earned. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using expected rates in effect for the tax year in which the differences are expected to reverse. Developing the provision for income taxes requires significant judgment including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. The Company has recorded a valuation allowance in the current and prior years to reduce net deferred tax assets to zero. If we were to subsequently determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase net income for the period in which such determination was made. We will continue to assess the adequacy of the valuation allowance on a quarterly basis. Our judgments and tax strategies are subject to audit by various taxing authorities.

4. Fair Value of Convertible Note Payable We elected the fair value option to account for the convertible note payable. The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We elected the fair value option to better depict the ultimate liability associated with the note, including all features and embedded derivatives. The note accounted for under the fair value option election represents the debt host financial instrument containing certain embedded features that would otherwise be required to be bifurcated from the debt host and recognized as separate derivative liabilities subject to initial and subsequent periodic fair value measurement in accordance with U.S. GAAP. When the fair value option election is applied to financial liabilities, bifurcation of embedded derivatives is not required, and the financial liability in totality is recorded at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each balance sheet date thereafter. We estimated the fair value of the note using a probability-weighted discounted cash flow model with significant assumptions including the present value discount rate and the likelihood of default.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Effective February 1, 2022, the Company’s independent registered public accounting firm, Rotenberg Meril Solomon Bertiger & Guttilla, P.C. Certified Public Accountants (“Rotenberg”), combined with Marcum LLP. Rotenberg continued to operate as an independent registered public accounting firm as a wholly-owned subsidiary of Marcum LLP.

Rotenberg continued to serve as the Company’s independent registered public accounting firm through the filing of the Company’s Report on Form 10-Q for the quarter ended March 31, 2022. On July 20, 2022, the Audit Committee of BIO-key approved the engagement of Marcum LLP to serve as the independent registered public accounting firm of the Company for the year ended December 31, 2022.

During the two years ended December 31, 2021 and through July 20, 2022, the Company did not consult Marcum LLP with respect to any of (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company’s financial statements; or (iii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or an event of the type described in Item 304(a)(1)(v) of Regulation S-K.

Rotenberg formally resigned on July 20, 2022, as our independent registered public accounting firm and the services previously provided by Rotenberg are now provided by Marcum LLP.

Rotenberg’s report on our financial statements for the fiscal years ended December 31, 2021 and 2020 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to audit scope or accounting principles.

During the years ended December 31, 2021 and 2020 and the subsequent interim period through the quarter ended March 31, 2022 (i) we did not have any disagreements with Rotenberg on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Rotenberg’s satisfaction, would have caused them to make reference thereto in their reports on the Company’s financial statements for such periods, and (ii) there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

BUSINESS

Solely for convenience, trademarks and tradenames referred tooffer in this prospectus appear (after the first usage) without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.

Overview

BIO-key International, Inc. is a leading identity and access management (IAM) platform provider enabling secure work-from-anywhere for enterprise, education, and government customers using secure multi-factor authentication (MFA). Our vision is to enable any organization to secure streamlined and passwordless workforce, customer, citizen and student access to any online service, workstation, or mobile application, without a requirement to use tokens or phones. Our products include PortalGuard® and PortalGuard Identity-as-a-Service (IDaaS) enterprise IAM, WEB-key® biometric civil and large-scale ID infrastructure, MobileAuth® mobile phone authentication application for iOS and Android, and high-quality, low-cost accessory fingerprint scanner and FIDO-compliant hardware to provide a full and complete solution for identity-innovating customers.

BIO-key PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems. PortalGuard goes beyond traditional 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 hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems by utilizing our world-class biometric core platform among 17 other authentication factors. PortalGuard goes beyond traditional multi-factor authentication, or MFA, solutions by addressing sizeable 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.

PortalGuard and IBB deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases. PortalGuard operates as a single MFA user experience, providing a rich set of authentication choices to meet every use case. We sell our branded biometric and FIDO authentication hardware as accessories to our IAM platforms, so that customers can have a single vendor providing all components of their IAM solution. We do not mandate the use of BIO-key hardware with our software and services. Our NIST-certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’ fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the user 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. Swivel Secure is 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. These solutions include a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and bring your own device policies.

We operate a 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 agentsoffering, and other distribution partners. Our subscription fees include a term licenseterms of hosted or on-premise productthis offering determined at the time of pricing. The foregoing discussion and technical support and maintenancetable assumes no sale of our platform. We base subscription fees primarily on the products used andpre-funded units, which if sold, would reduce the number of users enrolledunits that we are offering on a one-for-one basis. In addition, we may choose to raise additional capital due to market conditions or strategic considerations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our platform. We generate subscription fees pursuant to noncancelable contracts with a weighted average duration of approximately one year.stockholders.

DevelopmentThe number of Business

BIO-key was founded in 1993shares of our common stock to develop and market advanced fingerprint biometric technology and related security software solutions. First incorporatedbe outstanding after this offering is based on 9,262,853 shares of our common stock outstanding as BBG Engineering, the company was renamed SAC Technologies in 1994 and renamed BIO-key International, Inc. in 2002. Our principal executive office is located at 3349 Highway 138, Building A, Suite E, Wall, New Jersey 07719.

BIO-key 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, credit card, passports, driver’s licenses, or other form of possession or knowledge-based credentialing. Our advanced technology and is used to improve both the accuracy and speed of fingerprint biometrics in some of the largest biometric systems in the world.

On June 30, 2020, we enhanced our product offering by acquiring PistolStar, Inc. (“PistolStar”). PistolStar provides enterprise-ready identity access management solutions to commercial, government2023 and education customers throughout the United States and internationally. PistolStar develops and markets our PortalGuard lineexcludes as of software and services.

On March 8, 2022, we expanded our sales and support operation into Europe, Africa and the Middle East (“EMEA”) by acquiring Swivel Secure Europe, SA. Swivel Secure Europe is a Madrid, Spain based provider of IAM solutions serving over 300 customers through a network of dozens of channel partners throughout EMEA. Swivel Secure Europe is the exclusive distributer of AuthControl® Sentry, AuthControl Enterprise and AuthControl MSP product line in Europe, Middle East, and Africa, excluding the United Kingdom. Swivel Secure maintains a direct sales force with offices in Madrid, Spain and Lisbon, Portugal.

Our Products

BIO-key PortalGuard and PortalGuard IDaaS

BIO-key PortalGuard is an independent, customer-controlled and neutral-by-design cloud-based identity platform that allows our customers to integrate with any cloud or on-premise SaaS application, service or cloud host, as well as Windows device authentication through a single secure, reliable and scalable IAM platform. It provides identical capabilities in both a SaaS (PortalGuard IDaaS) or on-premise (PortalGuard) delivery model. PortalGuard integrates BIO-key’s Identity Bound Biometric (IBB) authentication as what-you-are authentication options that are not tied to a device or “what you have” authentication, allowing our customers to positively identify who is accessing their systems, not the device they might have handed off to another user. Our three-way IAM neutrality consists of:such date:

These capabilities allow our customers to combine and authenticate legacy and future technologies and to securely connect users to the technology that they choose. We design transparent compatibility of the BIO-key PortalGuard IDaaS with on-premise infrastructures and public and hybrid clouds.

Our customers use the BIO-key PortalGuard IDaaS to secure their workforces and student populations and make their partner networks more collaborative. PortalGuard IDaaS provides more and secure experiences for their customers and end users, which enables our customers to future-proof their environments. PortalGuard IDaaS can be used as the central system for an organization’s connectivity, access, authentication and identity lifecycle management needs across all of its users, technology and applications. We enable our customers to easily deploy, manage and secure applications and devices, and offer provisioning services using open source tools.

Developers can leverage an extensive suite of API and modular SDK tools to build custom cloud, mobile and web application enrollment and authentication experiences that leverage BIO-key PortalGuard and WEB-key as the underlying identity management platform. Once deployed, PortalGuard allows administrators to enforce contextual access management decisions based on conditions such as user identity, device, geolocation, application destination identity, IP range, and time of day.

Our customers use BIO-key to (i) manage and secure work-related IT access of their employees, contractors and supply chain partners, which we call workforce identity; and (ii) manage and secure the identities of users of their web properties, which we call customer identity.

BIO-key PortalGuard and PortalGuard IDaaS for Workforce Identity. PortalGuard streamlines the way an organization’s employees, contractors and supply chain partners connect to its applications and data from any device, while increasing user efficiency, preventing unauthorized delegation, credential sharing, and keeping digital environments secure through our MFA capabilities. We enable organizations to provide their workforces with immediate and secure access to every application from any device they use, without maintaining multiple credentials. Our multi-directory support interfaces with the directories in place at an organization, while allowing SQL-based custom directories where none presently exist. BIO-key PortalGuard Desktop allows customers to extend the BIO-key PortalGuard IDaaS to their existing on-premises and remote workstation Windows sign in.

BIO-key PortalGuard and PortalGuard IDaaS for Customer Identity. BIO-key PortalGuard allows organizations to secure access to their online properties, while upgrading their customers’ user experience by delivering self-enrollment and management for customer-facing cloud, mobile or web applications. We enable an organization’s product team to layer BIO-key’s MFA, SSO and self-service password reset, or SSPR, functionality into their cloud, web and mobile applications through federation standards or using our APIs. Our customers are able to centrally manage policies, audit and log access across their properties, leading to more seamless customer experiences.

BIO-key VST and WEB-key; Products; Civil and Large-Scale ID Infrastructure

We have developed what we believe is the most discriminating and effective commercially available finger-based biometric technology. This technology is embedded in our PortalGuard product for enterprise security, providing customers with a unique capability to authenticate users without a phone or token, where appropriate, such as manufacturing, retail, call centers, and health care workers. Other markets for scalable biometric engines include government markets, large scale identity projects such as voter’s registration, driver’s license, national ID programs, and SIM card registration.

We also offer a full line of easy to use finger scanners for both enterprise and consumer markets. Our PIV Pro, SidePass®, EcoID II® and SideSwipes® finger readers can be used on any laptop, tablet or other device which contains a USB A or C port. We market and sell these fingerprint scanners through distributors and directly to end users via Amazon.

AuthControl Sentry; AuthControl Enterprise; AuthControl MSP

Swivel Secure is 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. These solutions include a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and bring your own device policies.

Fingerprint Readers

Our series of compact fingerprint readers, we from both commercial companies use SidePass®, SideSwipe® or EcoID II® to replace their Windows passwords and enable Windows Hello for Business without replacing or upgrading laptops or tablets.

Identity and Access Management, User Multi-Factor Authentication, Single Sign On, Privilege Entitlement and Access Control

Our products simplify the authentication process for enterprise users and consumers, while raising security levels. This allows our customers to meet new, stronger authentication requirements and security best practices across many industries, while delivering a superior end-user experience. Customers use our products to reduce risk of theft, fraud, loss, account takeover attacks, and unauthorized account sharing by limiting access to valuable assets, privileges, data, services, networks and places to only authorized individuals. Our products provide stronger identity binding and a superior user experience versus traditional credentialing systems, which utilize a physical or knowledge-based electronic credential to authenticate the holder but fail to authenticate the actual user in addition to the token. Both commercial enterprises and the public sector have seen a shift in the requirement for stronger authentication, and the FBI, NIST and industry thought leaders such as SalesForce and Microsoft have encouraged entities to enhance their security posture by implementing stronger 2-factor authentication (2FA) or MFA. We believe the market for advanced user MFA, including fingerprint biometrics, extends to nearly every industry segment and the market opportunity for our products is massive, global and growing.

Our Markets

Historically, our largest market has been identity and access management for highly regulated industries like government and healthcare. However, we are witnessing a change in the landscape as organizations within all industries and of all sizes are embracing biometric technology and MFA as a security and workflow solution. Millions of users have been successfully using biometrics in phones from Apple and Samsung and they welcome the same user experience to access applications without passwords or tokens.

Our acquisition of PistolStar added a large customer base in the state and local government and higher education (SLED) vertical. Colleges and universities throughout the United States use our PortalGuard MFA and SSO platform. As governments, colleges and universities continue to operate in remote environments, we have seen additional demand for our solutions.

We believe there is potential for significant market growth in the following key areas:

CAPITALIZATION

The following table summarizes our unaudited capitalization as of June 30, 2023. Such information is set forth on the following basis:

You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” as well as our financial statements and related notes and the other financial information, incorporated by reference into this prospectus from our SEC filings, including our most recent Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. The information presented in the capitalization table below is unaudited.

The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

The number of shares of our common stock to be outstanding after this offering is based on 9,262,853 shares of our common stock outstanding as of June 30, 2023 and excludes as of such date:

Business Model

Our business model is focused on the following key areas:

We have grown our business through a combination of organic growth and the strategic acquisitions of PistolStar and Swivel Secure Europe. We expect to continue 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. Please see the section captioned “Risk Factors” for additional information regarding acquisition risks.

Marketing and DistributionDESCRIPTION OF SECURITIES

We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners. Through our Channel Alliance Program, we have partnered with more than 40 resellers, system integrators and other distribution partners. We are committed to continue to aggressively grow this program in 2023.

We partner with leading application, managed service and infrastructure vendors, such as Intelisyss, Insight, NGEN, Amazon Web Services, Pathify (formerly UCROO Campus), Software House International (SHI), Virtual Graffiti, Atlassian, and ProCirrus.

We offer our software under a SaaS term license and generate annual recurring revenue (ARR) primarily by selling multi-year subscriptions to our software. We employ a customer success team, focused on customer satisfaction and early remediation.

Intellectual Property Rights

We develop and own significant intellectual property and believe that our intellectual property is fundamental to our biometric and IAM product operation: We own patented technologies and trade secrets developed or acquired by us.

Patents

On December 26, 2006, we were issued US patent No. 7,155,040 covering our unique image processing technology, which is critical for enhancing information used in the extraction of biometric minutiae. The issued patent protects a critical part of an innovative four-phase image enhancement process developed by us. With the payment of all maintenance fees, this patent will expire on January 29, 2025.

On April 15, 2008, we were issued US patent No. 7,359,553 covering our image enhancement and data extraction core algorithm components. The solution protected under this patent provides the capability to quickly and accurately transform a fingerprint image into a computer image that can be analyzed to determine the critical data elements. With the payment of all maintenance fees, this patent will expire on January 3, 2025.

On November 18, 2008, we were issued US patent No. 7,454,624 for our “Match Template Protection within a Biometric Security System” method. The solution protected under this patent limits the scope of enrollment templates usage and also eliminates the need for revocation or encryption processes, which can be expensive and time consuming. With the payment of all maintenance fees, this patent will expire on May 17, 2025.

On March 10, 2009, we were issued US patent No. 7,502,938 for our “Trusted Biometric Device” which covers a simple, yet secure method of protecting a user’s biometric information. It covers the transmission of information from the point the information is collected at the biometric reader until the data reaches the computer or device that is authenticating the user’s identity. With the payment of all maintenance fees, this patent will expire on October 25, 2025.

On November 8, 2011, we were issued US Patent No. 8,055,027 for our “Generation of Directional Information in the Context of Image Processing” method for image enhancement and processing. With the payment of all maintenance fees, this patent will expire on October 10, 2027.

On June 5, 2012, PistolStar was issued US Patent No. 8,196,193 for “Method For Retrofitting Password Enabled Computer Software with a Redirectional User Authentication Method”, where a device, method, and system may be used to integrate and control authentication and passwords among various applications and platforms. With the payment of all maintenance fees, this patent will expire on November 1, 2030.

On July 3, 2012, we were issued US Patent No. 8,214,652 for our “Biometric Identification Network Security”, an expanded method of network and related network authentication security systems utilizing hardware-based support for encryption and key management for authentication purposes. With the payment of all maintenance fees, this patent will expire on April 24, 2024.

On March 12, 2013, PistolStar was issued US Patent No. 8,397,077 for “Client Side Authentication Redirection”, where user specific attributes may be accessed and used to produce a generated password, using an algorithm and the user attributes. With the payment of all maintenance fees, this patent will expire on August 7, 2030.

On May 3, 2017, we were issued US Patent No. 9,646,146 for our “Utilization of Biometric Data”, a method enables existing small area sensors to capture substantially more fingerprint surface area, leading to a higher degree of accuracy when performing a match. With the payment of all maintenance fees, this patent will expire on March 6, 2035.

On June 19, 2018, we were issued U.S. Patent No. 10,002,244 for our “Utilization of Biometric Data” to allow continuous, passive user authentication on a mobile device. With the payment of all maintenance fees, this patent will expire on March 6, 2035.

On July 27, 2018, we were issued U.S. Patent No. 10,025,831 for “Adaptive Short Lists and Acceleration of Biometric Database Search”, a method to quickly and iteratively search a database of biometric data. With the payment of all maintenance fees, this patent will expire on August 10, 2036.

On September 3, 2019, we were issued U.S. Patent No. 10,400,481 for “Fingerprint Lock”, a lock design method of the shackle and spring integration to electronics. With the payment of all maintenance fees, this patent will expire on June 27, 2037.

On September 10, 2019, we were issued U.S. Patent No. 10,410,040 for “Fingerprint Lock Control method and Fingerprint Lock System”, a lock design method of the control process of scanning, and server communications for user profile management. With the payment of all maintenance fees, this patent will expire on July 26, 2037.

On April 20, 2021, we were issued U.S. Patent No. 10,984,085 for “Biometric Recognition for Uncontrolled Acquisition Environments”, expected to be deployed in mobile devices, the patent provides a method of continuous capture of the users biometric data before the need of the authentication or enrollment, as well as during an active session with a user, to assure the user has not changed. With the payment of all maintenance fees, this patent will expire on March 13, 2039.

We have also been granted parallel patents to the US Patent portfolio to certain of our patents in many foreign countries offering protection of our intellectual property rights around the world.

Trademarks

We have registered our trademarks “BIO-key”, “True User Identification”, “Intelligent Image Indexing”, “WEB-key”, “SideSwipe”, “SidePass”, “EcoID”, “PistolStar®”, “PortalGuard”, “MobileAuth”, “PASSIVEKEY®” and “PISTOLSTAR®” with the U.S. Patent & Trademark Office, as well as many foreign countries, protecting the names of our companies and our key technology offerings.

We also own the following unregistered trademarks: “PortalGuard Nebula™”, “Password Power™” and “Scooch™”.

Copyrights and trade secrets

We take measures to ensure copyright and license protection for our software releases prior to distribution. When possible, the software is licensed in an attempt to ensure that only licensed and activated software functions to its full potential. We also take measures to protect the confidentiality of our trade secrets.

Research and Development

Our PortalGuard IAM product line is mature, with hundreds of active customers, and we are adding additional factors and capabilities to the product, as well as enhancing the self-management for the functionally equivalent PortalGuard IDaaS offering. A significant new authentication factor set will come via our MobileAuth application for users to experience multiple biometric secure authentication via their mobile phone devices. Our VST and WEB-key biometric platforms are mature, stable, and widely-deployed. We concentrate our research and development efforts on enhancing the functionality, reliability and integration of our current products as well as acquiring and developing new and innovative products and solutions for providing broader access to the BIO-key user experience.

Although we believe that our identification technology is one of the most advanced and discriminating fingerprint technologies available today, the markets in which we compete are characterized by rapid technological change and evolving standards and use-cases. In order to maintain our position in the market, we will need to continue to upgrade and refine our existing technologies as new standards become relevant to our customers and markets.

During the years ended December 31, 2022 and 2021, we incurred expenses of $3,252,236 and $2,355,056, respectively, for research and development.

In future periods our R&D efforts will remain focused on updating and advancing our core software products including PortalGuard and PortalGuard IDaaS, MobileAuth, WEB-key and VST. These products are critical to support the anticipated growth in enterprise IAM.

Competition

The IAM, MFA and SSO market is characterized by multiple solution providers of solutions in either standalone or IAM suite delivery models. We believe that our unique differentiator in this market is the incorporation of an unparalleled server-secured biometric authentication capability among our 17 authentication factors. There are numerous companies involved in the development, manufacturing and marketing of fingerprint biometrics products to commercial, government, law enforcement and prison markets. These companies include, but are not limited to, IDEMIA, Thales, NEC, Neurotechnology, and Innovatrics.

The majority of sales for automated fingerprint identification products in the market to date have been deployed for government agencies, healthcare facilities, and law enforcement applications. The consumer and commercial markets represent areas of growth potential for biometrics, led by the use of mobile devices.

The epidemic of security and data breaches reported over the past few years is one of the driving factors for identifying new methods of protecting valuable data. After attempting to create a more sophisticated password, or more efficient token or PIN, it has become apparent that each of these methods are easily compromised, and the downside risks are significant.

We have also seen FIDO-compliant keys enter the market, led by Yubico’s YubiKey, a hardware token device that acts as a credential for access. FIDO officially recommends enterprises purchase two or more keys for every user, to prevent lockout in the event of a lost or misplaced FIDO token. These hardware tokens alone do not meet the needs of large organizations for which key sharing and lost keys are concerns, establishing the opportunity for our Identity Bound Biometric differentiation. Where FIDO is needed, we offer a line of equivalent function and quality, but lower-cost FIDO 2.0 keys.

With respect to competing biometrics technologies, each has its strengths and weaknesses and none has emerged as a market leader: