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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/17/22 Bio Key International Inc. 10-Q 6/30/22 75:5.4M RDG Filings/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.05M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
11: R1 Document And Entity Information HTML 73K
12: R2 Condensed Consolidated Balance Sheets (Current HTML 155K
Period Unaudited)
13: R3 Condensed Consolidated Balance Sheets (Current HTML 28K
Period Unaudited) (Parentheticals)
14: R4 Condensed Consolidated Statements of Operations HTML 106K
and Comprehensive Loss (Unaudited)
15: R5 Condensed Consolidated Statements of Stockholders' HTML 97K
Equity (Unaudited)
16: R6 Condensed Consolidated Statements of Cash Flows HTML 146K
(Unaudited)
17: R7 Condensed Consolidated Statements of Cash Flows HTML 21K
(Unaudited) (Parentheticals)
18: R8 Note 1 - Nature of Business and Basis of HTML 35K
Presentation
19: R9 Note 2 - Going Concern HTML 25K
20: R10 Note 3 - Revenue From Contracts With Customers HTML 91K
21: R11 Note 4 - Swivel Secure Europe, SA Acquisition HTML 43K
22: R12 Note 5 - Accounts Receivable HTML 31K
23: R13 Note 6 - Share Based Compensation HTML 34K
24: R14 Note 7 - Factoring HTML 36K
25: R15 Note 8 - Note Receivable HTML 36K
26: R16 Note 9 - Inventory HTML 29K
27: R17 Note 10 - Resalable Software License Rights HTML 29K
28: R18 Note 11 - Investment in Debt Security HTML 25K
29: R19 Note 12 - Commitments and Contingencies HTML 31K
30: R20 Note 13 - Leases HTML 42K
31: R21 Note 14 - Earnings Per Share ("Eps") HTML 33K
32: R22 Note 15 - Stockholders' Equity HTML 38K
33: R23 Note 16 - Fair Values of Financial Instruments HTML 25K
34: R24 Note 17 - Major Customers and Accounts Receivables HTML 24K
35: R25 Note 18 - Income Taxes HTML 27K
36: R26 Note 19 - Subsequent Events HTML 24K
37: R27 Significant Accounting Policies (Policies) HTML 38K
38: R28 Note 3 - Revenue From Contracts With Customers HTML 71K
(Tables)
39: R29 Note 4 - Swivel Secure Europe, SA Acquisition HTML 38K
(Tables)
40: R30 Note 5 - Accounts Receivable (Tables) HTML 29K
41: R31 Note 6 - Share Based Compensation (Tables) HTML 32K
42: R32 Note 7 - Factoring (Tables) HTML 44K
43: R33 Note 8 - Note Receivable (Tables) HTML 43K
44: R34 Note 9 - Inventory (Tables) HTML 29K
45: R35 Note 10 - Resalable Software License Rights HTML 27K
(Tables)
46: R36 Note 13 - Leases (Tables) HTML 40K
47: R37 Note 14 - Earnings Per Share ("Eps") (Tables) HTML 31K
48: R38 Note 2 - Going Concern (Details Textual) HTML 30K
49: R39 Note 3 - Revenue From Contracts With Customers HTML 32K
(Details Textual)
50: R40 Note 3 - Revenue From Contracts With Customers - HTML 51K
Disaggregation of Revenue (Details)
51: R41 Note 4 - Swivel Secure Europe, SA Acquisition HTML 59K
(Details Textual)
52: R42 Note 4 - Swivel Secure Europe, SA Acquisition - HTML 59K
Assets Acquired and Liabilities Assumed (Details)
53: R43 Note 5 - Accounts Receivable - Summary of Accounts HTML 29K
Receivable (Details)
54: R44 Note 6 - Share Based Compensation - Expenses for HTML 25K
Continuing Operations (Details)
55: R45 Note 7 - Factoring (Details Textual) HTML 30K
56: R46 Note 7 - Factoring - Due From Factor (Details) HTML 24K
57: R47 Note 7 - Factoring - Fees (Details) HTML 21K
58: R48 Note 8 - Note Receivable (Details Textual) HTML 32K
59: R49 Note 8 - Note Receivable - Summary of Note HTML 37K
Receivable (Details)
60: R50 Note 9 - Inventory - Components of Inventory HTML 26K
(Details)
61: R51 Note 10 - Resalable Software License Rights HTML 35K
(Details Textual)
62: R52 Note 10 - Resalable Software License Rights - HTML 29K
Amortization Expense (Details)
63: R53 Note 11 - Investment in Debt Security (Details HTML 29K
Textual)
64: R54 Note 12 - Commitments and Contingencies (Details HTML 51K
Textual)
65: R55 Note 13 - Leases - Operating Lease Balance Sheet HTML 49K
Information (Details)
66: R56 Note 14 - Earnings Per Share ("EPS") - Securities HTML 28K
Excluded From the Diluted Per Share Calculation
(Details)
67: R57 Note 15 - Stockholders' Equity (Details Textual) HTML 83K
68: R58 Note 17 - Major Customers and Accounts Receivables HTML 35K
(Details Textual)
69: R59 Note 18 - Income Taxes (Details Textual) HTML 23K
70: R60 Note 19 - Subsequent Events (Details Textual) HTML 34K
73: XML IDEA XML File -- Filing Summary XML 137K
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74: JSON XBRL Instance as JSON Data -- MetaLinks 340± 534K
75: ZIP XBRL Zipped Folder -- 0001437749-22-020831-xbrl Zip 199K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
| i ☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i June 30, 2022
or
| i ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT |
For the Transition Period from to
Commission file number i 1-13463
BIO-KEY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
| i Delaware | i 41-1741861 |
| (State or Other Jurisdiction of Incorporation of Organization) | (IRS Employer Identification Number) |
i 3349 HIGHWAY 138, BUILDING A, SUITE E, i WALL, i NJ i 07719
(Address of Principal Executive Offices)
( i 732) i 359-1100
(Registrant’s telephone number, including area code)
Securities registered pursuance to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| i Common Stock, par value $0.0001 per share | i BKYI | i Nasdaq Capital Market |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| i Non-accelerated filer ☒ | Smaller Reporting Company i ☒ | |
| Emerging growth company i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by rule 12b-2 of the Exchange Act) Yes i ☐ No ☒
As of June 30, 2022 the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $12.8 million based upon the closing price for shares of the registrant’s post-split common stock of $1.77 as reported by the Nasdaq Stock Market on that date.
Number of shares of Common Stock, $.0001 par value per share, outstanding as of August 11, 2022, is i 8,450,989.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
| PART I. FINANCIAL INFORMATION |
|
| Item 1—Condensed Consolidated Financial Statements (unaudited): |
|
| Balance sheets as of June 30, 2022 (unaudited) and December 31, 2021 |
3 |
| Statements of operations for the three and six months ended June 30, 2022 and 2021 |
4 |
| Statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021 |
5 |
| Statements of cash flows for the six months ended June 30, 2022 and 2021 |
7 |
| Notes to condensed consolidated financial statements |
9 |
| Item 2—Management’s Discussion and Analysis of Financial Conditions and Results of Operations. |
19 |
| Item 4—Controls and Procedures. |
26 |
| PART II. OTHER INFORMATION |
|
| Item 6—Exhibits. |
27 |
| Signatures |
28 |
PART I -- FINANCIAL INFORMATION
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | i 4,893,042 | $ | i 7,754,046 | ||||
| Accounts receivable, net | i 2,039,062 | i 970,626 | ||||||
| Due from factor | i 76,940 | i 49,500 | ||||||
| Note receivable, net of allowance | i 119,644 | i 82,000 | ||||||
| Inventory | i 4,888,601 | i 4,940,660 | ||||||
| Prepaid expenses and other | i 331,697 | i 216,041 | ||||||
| Total current assets | i 12,348,986 | i 14,012,873 | ||||||
| Resalable software license rights | i 43,768 | i 48,752 | ||||||
| Investment – debt security, net | i 302,821 | i 452,821 | ||||||
| Equipment and leasehold improvements, net | i 135,237 | i 69,168 | ||||||
| Capitalized contract costs, net | i 301,225 | i 249,012 | ||||||
| Deposits and other assets | i 8,712 | i 8,712 | ||||||
| Note receivable, net of allowance | i 68,356 | i 113,000 | ||||||
| Operating lease right-of-use assets | i 206,792 | i 254,100 | ||||||
| Intangible assets, net | i 1,952,606 | i 1,298,077 | ||||||
| Goodwill | i 2,256,402 | i 1,262,526 | ||||||
| Total non-current assets | i 5,275,919 | i 3,756,168 | ||||||
| TOTAL ASSETS | $ | i 17,624,905 | $ | i 17,769,041 | ||||
| LIABILITIES | ||||||||
| Accounts payable | $ | i 1,279,302 | $ | i 427,772 | ||||
| Accrued liabilities | i 849,719 | i 828,997 | ||||||
| Earnout payable – Swivel acquisition | i 500,000 | i - | ||||||
| Government loan – BBVA Bank, current portion | i 122,000 | i - | ||||||
| Deferred revenue, current portion | i 588,949 | i 565,355 | ||||||
| Operating lease liabilities, current portion | i 192,581 | i 177,188 | ||||||
| Total current liabilities | i 3,532,551 | i 1,999,312 | ||||||
| Deferred revenue, net of current portion | i 71,524 | i 67,300 | ||||||
| Operating lease liabilities, net of current portion | i 22,004 | i 86,974 | ||||||
| Government loan – BBVA Bank, net of current portion | i 379,287 | - | ||||||
| Total non-current liabilities | i 472,815 | i 154,274 | ||||||
| TOTAL LIABILITIES | i 4,005,366 | i 2,153,586 | ||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock — authorized, 170,000,000 shares; issued and outstanding; 8,441,574 and 7,853,759 of $.0001 par value at June 30, 2022 and December 31, 2021, respectively | i 844 | i 786 | ||||||
| Additional paid-in capital | i 121,022,606 | i 120,190,139 | ||||||
| Accumulated other comprehensive loss | ( i 110,081 | ) | i - | |||||
| Accumulated deficit | ( i 107,293,830 | ) | ( i 104,575,470 |
) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | i 13,619,539 | i 15,615,455 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | i 17,624,905 | $ | i 17,769,041 | ||||
See accompanying notes to the condensed consolidated financial statements.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three months ended June 30, |
Six months ended |
|||||||||||||||
| 2021 |
2022 |
2021 |
||||||||||||||
| Revenues |
||||||||||||||||
| Services |
$ | i 435,106 | $ | i 286,641 | $ | i 830,910 | $ | i 666,663 | ||||||||
| License fees |
i 1,162,148 | i 662,193 | i 2,622,331 | i 1,141,151 | ||||||||||||
| Hardware |
i 349,861 | i 43,256 | i 435,045 | i 1,072,914 | ||||||||||||
| Total revenues |
i 1,947,115 | i 992,090 | i 3,888,286 | i 2,880,728 | ||||||||||||
| Costs and other expenses |
||||||||||||||||
| Cost of services |
i 180,677 | i 158,440 | i 391,590 | i 334,384 | ||||||||||||
| Cost of license fees |
i 358,136 | i 48,373 | i 431,366 | i 87,342 | ||||||||||||
| Cost of hardware |
i 185,140 | i 32,756 | i 238,438 | i 584,478 | ||||||||||||
| Total costs and other expenses |
i 723,953 | i 239,569 | i 1,061,394 | i 1,006,204 | ||||||||||||
| Gross profit |
i 1,223,162 | i 752,521 | i 2,826,892 | i 1,874,524 | ||||||||||||
| Operating Expenses |
||||||||||||||||
| Selling, general and administrative |
i 2,006,573 | i 1,374,084 | i 3,804,571 | i 2,890,482 | ||||||||||||
| Research, development and engineering |
i 784,083 | i 490,952 | i 1,589,349 | i 932,603 | ||||||||||||
| Total Operating Expenses |
i 2,790,656 | i 1,865,036 | i 5,393,920 | i 3,823,085 | ||||||||||||
| Operating loss |
( i 1,567,494 | ) |
( i 1,112,515 | ) |
( i 2,567,028 | ) |
( i 1,948,561 | ) |
||||||||
| Other income (expense) |
||||||||||||||||
| Interest income |
i 77 | i 832 | i 208 | i 3,447 | ||||||||||||
| Loss on foreign currency transactions |
i - | ( i 50,000 | ) |
i - | ( i 50,000 | ) |
||||||||||
| Investment-debt security reserve |
( i 150,000 | ) |
i - | ( i 150,000 | ) |
i - | ||||||||||
| Interest expense |
( i 1,540 | ) |
i - | ( i 1,540 | ) |
( i 18,000 | ) |
|||||||||
| Total other income (expense), net |
( i 151,463 | ) |
( i 49,168 | ) |
( i 151,332 | ) |
( i 64,553 | ) |
||||||||
| Net loss |
$ | ( i 1,718,957 | ) |
$ | ( i 1,161,683 | ) |
$ | ( i 2,718,360 | ) |
$ | ( i 2,013,114 | ) |
||||
| Comprehensive loss: |
||||||||||||||||
| Net loss |
$ | ( i 1,718,957 | ) |
$ | ( i 1,161,683 | ) |
$ | ( i 2,718,360 | ) |
$ | ( i 2,013,114 | ) |
||||
| Other comprehensive loss – Foreign currency translation adjustment |
( i 165,883 | ) |
i - | ( i 110,081 | ) |
i - | ||||||||||
| Comprehensive loss |
$ | ( i 1,884,840 | ) |
$ | ( i 1,161,683 | ) |
$ | ( i 2,828,441 | ) |
$ | ( i 2,013,114 | ) |
||||
| Basic and Diluted Loss per Common Share |
$ | ( i 0.21 | ) |
$ | ( i 0.15 | ) |
$ | ( i 0.34 | ) |
$ | ( i 0.26 | ) |
||||
| Weighted Average Common Shares Outstanding: |
||||||||||||||||
| Basic and diluted |
i 8,098,020 | i 7,776,190 | i 7,992,102 | i 7,774,946 | ||||||||||||
See accompanying notes to the condensed consolidated financial statements.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock |
Additional Paid-in |
Accumulated Other Comprehensive |
Accumulated |
|||||||||||||||||||||
| Shares |
Amount |
Capital |
Income (Loss) |
Deficit |
Total |
|||||||||||||||||||
| Balance as of January 1, 2022 |
i 7,853,759 | $ | i 786 | $ | i 120,190,139 | $ | i - | $ | ( i 104,575,470 | ) |
$ | i 15,615,455 | ||||||||||||
| Issuance of common stock for directors’ fees |
i 9,382 | i 1 | i 22,019 | i - | i - | i 22,020 | ||||||||||||||||||
| Issuance of common stock pursuant to Swivel purchase agreement |
i 269,060 | i 27 | i 599,977 | i - | i - | i 600,004 | ||||||||||||||||||
| Issuance of restricted common stock to employees and directors |
i 274,250 | i 27 | ( i 27 | ) |
i - | i - | i - | |||||||||||||||||
| Foreign currency translation adjustment |
- | i - | i - | i 55,802 | i - | i 55,802 | ||||||||||||||||||
| Share-based compensation |
- | i - | i 87,677 | i - | i - | i 87,677 | ||||||||||||||||||
| Net loss |
- | i - | i - | i - | ( i 999,403 | ) |
( i 999,403 | ) |
||||||||||||||||
| Balance as of March 31, 2022 |
i 8,406,451 | $ | i 841 | $ | i 120,899,785 | $ | i 55,802 | $ | ( i 105,574,873 | ) |
$ | i 15,381,555 | ||||||||||||
| Issuance of common stock for directors’ fees |
i 9,117 | i 1 | i 18,005 | i - | i - | i 18,006 | ||||||||||||||||||
| Issuance of restricted common stock to employees |
i 1,250 | - | - | - | - | - | ||||||||||||||||||
| Restricted stock forfeited |
( i 1,250 | ) |
- | - | - | - | - | |||||||||||||||||
| Issuance of common stock for Employee stock purchase plan |
i 26,006 | i 2 | i 39,123 | i - | i - | i 39,125 | ||||||||||||||||||
| Share based compensation for employee stock plan |
- | i - | i 8,314 | i - | i - | i 8,314 | ||||||||||||||||||
| Foreign currency translation adjustment |
- | i - | i - |
|
( i 165,883 | ) |
i - | ( i 165,883 | ) |
|||||||||||||||
| Share-based compensation |
- | i - | i 57,379 | i - | i - | i 57,379 | ||||||||||||||||||
| Net loss |
- | i - | i - | i - | ( i 1,718,957 | ) |
( i 1,718,957 | ) |
||||||||||||||||
| Balance as of June 30, 2022 |
i 8,441,574 | $ | i 844 | $ | i 121,022,606 | $ | ( i 110,081 | ) |
$ | ( i 107,293,830 | ) |
$ | i 13,619,539 | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock |
Additional Paid-in |
Accumulated |
||||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Total |
||||||||||||||||
| Balance as of January 1, 2021 |
i 7,814,572 | $ | i 782 | $ | i 119,844,026 | $ | ( i 99,509,689 | ) |
$ | i 20,335,119 | ||||||||||
| Issuance of common stock for directors’ fees |
i 2,091 | i - | i 7,510 | i - | i 7,510 | |||||||||||||||
| Legal and commitment fees |
- | i - | ( i 2,709 | ) |
i - | ( i 2,709 | ||||||||||||||
| Issuance of restricted common stock to employees |
i 1,250 | i - | i - | i - | i - | |||||||||||||||
| Share-based compensation |
- | i - | i 133,638 | i - | i 133,638 | |||||||||||||||
| Net loss |
- | i - | i - | ( i 851,431 | ) |
( i 851,431 | ||||||||||||||
| Balance as of March 31, 2021 |
i 7,817,913 | $ | i 782 | $ | i 119,982,465 | $ | ( i 100,361,120 | ) |
$ | i 19,622,127 | ||||||||||
| Issuance of common stock for directors’ fees |
i 1,748 | i - | i 5,505 | i - | i 5,505 | |||||||||||||||
| Legal and commitment fees |
- | i - | ( i 2,519 | ) |
i - | ( i 2,519 | ) |
|||||||||||||
| Issuance of restricted common stock to employees |
i 1,250 | - | - | - | - | |||||||||||||||
| Restricted stock forfeited |
( i 1,250 | ) |
- | - | - | - | ||||||||||||||
| Share-based compensation |
- | i - | i 35,618 | i - | i 35,618 | |||||||||||||||
| Net loss |
- | i - | i - | ( i 1,161,683 | ) |
( i 1,161,683 | ) |
|||||||||||||
| Balance as of June 30, 2021 |
i 7,819,661 | $ | i 782 | $ | i 120,021,069 | $ | ( i 101,522,803 | ) |
$ | i 18,499,048 | ||||||||||
See accompanying notes to the condensed consolidated financial statements.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2021 | ||||||||
| CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( i 2,718,360 | ) | $ | ( i 2,013,114 |
) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
| Depreciation | i 21,781 | i 37,234 | ||||||
| Amortization of intangible assets | i 106,403 | i 108,034 | ||||||
| Amortization of capitalized contract costs | i 57,945 | i 48,997 | ||||||
| Operating leases right-of-use assets | i 47,308 | i 115,022 | ||||||
| Loss on foreign currency transactions | i - | i 50,000 | ||||||
| Reserve for Investment – debt security | i 150,000 | i - | ||||||
| Share and warrant-based compensation for employees and consultants | i 153,370 | i 169,256 | ||||||
| Stock based directors’ fees | i 40,026 | i 13,015 | ||||||
| Bad debts | i 25,111 | i - | ||||||
| Amortization of debt discount | i - | i 18,000 | ||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ( i 390,660 | ) | ( i 849,628 |
) | ||||
| Due from factor | ( i 27,440 | ) | i 10,953 | |||||
| Capitalized contract costs | ( i 110,158 | ) | ( i 76,191 |
) | ||||
| Inventory | i 52,059 | ( i 1,959,681 |
) | |||||
| Resalable software license rights | i 4,984 | i 5,009 | ||||||
| Prepaid expenses and other | ( i 94,947 | ) | ( i 1,410,592 |
) | ||||
| Accounts payable | i 450,667 | i 620,689 | ||||||
| Accrued liabilities | ( i 33,776 | ) | i 66,727 | |||||
| Deferred revenue | i 27,818 | ( i 81,507 |
) | |||||
| Operating lease liabilities | ( i 49,577 | ) | ( i 114,700 |
) | ||||
| Net cash used for operating activities | ( i 2,287,446 | ) | ( i 5,242,477 |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of Swivel Secure, net of cash acquired of $729,905 | ( i 543,578 | ) | i - | |||||
| Receipt of cash from note receivable | i 7,000 | i - | ||||||
| Receipt of cash from Employee stock purchase plan | i 39,125 | i - | ||||||
| Capital expenditures | ( i 22,888 | ) | ( i 15,700 |
) | ||||
| Net cash used for investing activities | ( i 520,341 | ) | ( i 15,700 |
) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Costs to issue convertible notes | i - | ( i 5,228 |
) | |||||
| Repayment of convertible note | i - | ( i 250,000 |
) | |||||
| Net cash used for financing activities | i - | ( i 255,228 |
) | |||||
| Effect of exchange rate changes | ( i 53,217 | ) | i - | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | ( i 2,861,004 | ) | ( i 5,513,405 |
) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | i 7,754,046 | i 16,993,096 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | i 4,893,042 | $ | i 11,479,691 | ||||
See accompanying notes to the condensed consolidated financial statements.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
| Six Months Ended June 30, |
||||||||
| 2021 |
||||||||
| Cash paid for: |
||||||||
| Interest |
$ | i 1,540 | $ | i 18,000 | ||||
| Noncash investing and financing activities |
||||||||
| Accounts receivable acquired from Swivel Secure |
$ | i 702,886 | $ | i - | ||||
| Equipment acquired from Swivel Secure |
$ | i 65,640 | $ | i - | ||||
| Other assets acquired from Swivel Secure |
$ | i 20,708 | $ | i - | ||||
| Intangible assets acquired from Swivel Secure |
$ | i 762,860 | $ | i - | ||||
| Goodwill resulting from the acquisition from Swivel Secure |
$ | i 1,067,372 | $ | i - | ||||
| Accounts payable and accrued expenses acquired from Swivel Secure |
$ | i 431,884 | $ | i - | ||||
| Government loan acquired from Swivel Secure |
$ | i 544.000 | $ | i - | ||||
| Common stock issued for acquisition of Swivel Secure |
$ | i 600,004 | $ | i - | ||||
See accompanying notes to the condensed consolidated financial statements.
BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 (Unaudited)
| 1. | NATURE OF BUSINESS AND BASIS OF PRESENTATION |
Nature of Business
The Company, founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions enterprise-ready identity access management solutions to commercial, government and education customers throughout the United States and internationally. The Company was a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit cards, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been, and is, used to improve both the accuracy and speed of competing finger-based biometrics.
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Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “BIO-key”) and are stated in conformity with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The balance sheet at December 31, 2021 was derived from the audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on April 31, 2022.
i
Foreign Currency
The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830”). The functional currency of the Company is the U.S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, monetary balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions and from the remeasurement of the monetary balance sheet items are recorded as gain (loss) on foreign currency transactions.
The functional currency of Swivel Secure Europe, SA is the Euro. Under ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other comprehensive loss.
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Goodwill and acquired intangible assets
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 annual goodwill impairment test will be performed as of December 31st of each year. To date, the Company has not identified any impairment to goodwill.
Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition. The Company amortizes acquired definite-lived intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.
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Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016-13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.
/
| 2. | GOING CONCERN |
The Company has historically financed our operations through access to the capital markets by issuing convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. The Company currently requires approximately $ i 814,000 per month to conduct operations, a monthly amount that it has been unable to consistently achieve through revenue generation. During the first half of 2022, the Company generated approximately $ i 3,888,286 of revenue, which is below its average monthly requirements. With the addition of Swivel, $ i 1,000,000 of additional cash flows is projected to support operations (see Note 4), due to Swivel’s historical profits, growing revenue and decreased cost of goods sold. In addition, the Company is beginning to sell hardware purchased directly for the Nigerian projects to alternative customers. Given the uncertainty of the duration and severity of the current COVID-19 pandemic and the conflict between Ukraine and Russia and their effects on the Company’s business operations, sales cycles, personnel, and the geographic markets in which the Company operates, and numerous other matters 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. As of the date of this report, the Company has enough cash and receivables for twelve months of operations.
/
| 3. | REVENUE FROM CONTRACTS WITH CUSTOMERS |
In accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
| ● | Identify the contract with a customer | |
| ● | Identify the performance obligations in the contract | |
| ● | Determine the transaction price | |
| ● | Allocate the transaction price to performance obligations in the contract | |
| ● | Recognize revenue when or as the Company satisfies a performance obligation |
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the three month periods ended June 30, 2022 and June 30, 2021:
i
| North America | Africa | EMESA* | Asia | 2022 | ||||||||||||||||
| Services | $ | i 301,087 | $ | i 22,677 | $ | i 111,342 | $ | i - | $ | i 435,106 | ||||||||||
| License fees | i 495,543 | i - | i 666,605 | i - | i 1,162,148 | |||||||||||||||
| Hardware | i 203,212 | i - | i 5,679 | i 140,970 | i 349,861 | |||||||||||||||
| Total Revenues | $ | i 999,842 | $ | i 22,677 | $ | i 783,626 | $ | i 140,970 | $ | i 1,947,115 | ||||||||||
| North America | Africa | EMESA* | Asia | 2021 | ||||||||||||||||
| Services | $ | i 272,277 | $ | i - | $ | i 10,462 | $ | 3,902 | $ | 286,641 | ||||||||||
| License fees | i 403,689 | i 249,484 | i 9,020 | i - | 662,193 | |||||||||||||||
| Hardware | i 43,175 | i - | i - | i 81 | 43,256 | |||||||||||||||
| Total Revenues | $ | i 719,141 | $ | i 249,484 | $ | i 19,482 | $ | 3,983 | $ | 992,090 | ||||||||||
The following table summarizes revenue from contracts with customers for the six month periods ended June 30, 2022 and June 30, 2021:
| North America | Africa | EMESA* | Asia | 2022 | ||||||||||||||||
| Services | $ | i 656,719 | $ | i 37,952 | $ | i 136,186 | $ | i 53 | $ | i 830,910 | ||||||||||
| License fees | i 968,613 | i 517,161 | i 1,056,882 | i 79,675 | i 2,622,331 | |||||||||||||||
| Hardware | i 275,112 | i 12,033 | i 6,930 | i 140,970 | i 435,045 | |||||||||||||||
| Total Revenues | $ | i 1,900,444 | $ | i 567,146 | $ | i 1,199,998 | $ | i 220,698 | $ | i 3,888,286 | ||||||||||
| North America | Africa | EMESA* | Asia | 2021 | ||||||||||||||||
| Services | $ | i 631,891 | $ | i - | $ | i 28,350 | $ | i 6,422 | $ | i 666,663 | ||||||||||
| License fees | i 772,489 | i 249,484 | i 51,528 | i 67,650 | i 1,141,151 | |||||||||||||||
| Hardware | i 91,970 | i 684,839 | i 265,995 | i 30,110 | i 1,072,914 | |||||||||||||||
| Total Revenues | $ | i 1,496,350 | $ | i 934,323 | $ | i 345,873 | $ | i 104,182 | $ | i 2,880,728 | ||||||||||
*EMESA – Europe, Middle East, South America
Software licenses
Software license revenue consist of fees for perpetual and subscription licenses for one or more of the Company’s biometric fingerprint solutions or identity access management solutions. Revenue is recognized at a point in time once the software is available to the customer for download. Software license contracts are generally invoiced in full on execution of the arrangement.
Hardware
Hardware revenue consists of fees for associated equipment sold with or without a software license arrangement, such as servers, FIDO keys, and fingerprint readers. Customers are not obligated to buy third party hardware from the Company and may procure these items from a number of suppliers. Revenue is recognized at a point in time once the hardware is shipped to the customer. Hardware items are generally invoiced in full on execution of the arrangement.
Support and Maintenance
Support and maintenance revenue consists of fees for unspecified upgrades, telephone assistance and bug fixes. The Company satisfies its support and maintenance performance obligation by providing “stand-ready” assistance as required over the contract period. The Company records deferred revenue (contract liability) at time of prepayment until the term of the contract ends. Revenue is recognized over time on a ratable basis over the contract term. Support and maintenance contracts are from one to five years in length and are generally invoiced in advance at the beginning of the term. Support and maintenance revenue for subscription licenses is carved out of the total license cost at i 18% and recognized on a ratable basis over the license term.
Professional Services
Professional services revenue consist primarily of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts are billed on a time and materials basis, and revenue is recognized based on the amount billable to the customer in accordance with practical expedient ASC 606-10-55-18. For other professional services contracts, the Company utilizes an input method and recognizes revenue based on labor hours expended to date relative to the total labor hours expected to be required to satisfy its performance obligation.
Contracts with Multiple Performance Obligations
Some contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The standalone selling prices are determined based on overall pricing objectives, taking into consideration market conditions and other factors, including the value of the contracts, the cloud applications sold, customer demographics, geographic locations, and the number and types of users within the contracts.
The Company considered several factors in determining that control transfers to the customer upon shipment of hardware and availability of download of software. These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risks and rewards of ownership upon shipment of hardware and availability of download of software.
Accounts receivable from customers are typically due within 30 days of invoicing. The Company does not record a reserve for product returns or warranties as amounts are deemed immaterial based on historical experience.
Costs to Obtain and Fulfill a Contract
Costs to obtain and fulfill a contract are predominantly sales commissions earned by the sales force and are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit determined to be four years. These costs are included as capitalized contract costs on the balance sheet. The period of benefit was determined by taking into consideration customer contracts, technology, and other factors based on historical evidence. Amortization expense is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
Transaction Price Allocated to the Remaining Performance Obligations
ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2022. The Company’s contracts satisfy the following applicable guidance that limits this requirement:
| ● | The performance obligation is part of a contract that has an original expected duration of one year or less, in accordance with ASC 606-10-50-14. |
Deferred revenue represents the Company’s remaining performance obligations related to prepaid support and maintenance, all of which is expected to be recognized from one to five years.
All of the Company's performance obligations, and associated revenue, are generally transferred to customers at a point in time, with the exception of support and maintenance, and professional services, which are generally transferred to the customer over time.
Deferred Revenue
Deferred revenue includes customer advances and amounts that have been paid by customer for which the contractual maintenance terms have not yet occurred. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which is generally i 12- i 60 months. Maintenance revenue which would be recognized based on contract periods that extend beyond 12 months from the balance sheet date, is segregated as long term deferred revenue. Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services. At June 30, 2022 and December 31, 2021, amounts in deferred revenue were approximately $ i 660,000 and $ i 633,000, respectively. Revenue recognized during the three and six-months ended June 30, 2022 from amounts included in deferred revenue at the beginning of the period was approximately $ i 153,000 and $ i 387,000, respectively. Revenue recognized during the three and six-months ended June 30, 2021 from amounts included in deferred revenue at the beginning of the period was approximately $ i 124,000 and $ i 430,000, respectively. The Company did not recognize any revenue from performance obligations satisfied in prior periods.
| 4. | SWIVEL SECURE EUROPE, SA ACQUISITION |
On March 8, 2022, the Company completed the acquisition of i 100% of the issued and outstanding capital stock of Swivel Secure based in Madrid, Spain, pursuant to the terms of a stock purchase agreement. The aggregate purchase price consisted of a base purchase price of $ i 1.75 million, subject to closing adjustments based on the closing date working capital, indebtedness and unpaid transaction expenses, and an earn-out of up to $ i 500,000. The earn-out is payable based on Swivel Secure generating $ i 3,000,000 of revenue and $ i 1,000,000 of operating profit during an earn-out period commencing on the closing date and ending on January 31, 2023. The earn-out payment, if any, will be paid at the Company’s option, in cash or shares of Company common stock priced at the 20 day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market. At the closing, the Company made a cash payment of $ i 1.27 million and issued i 269,060 shares of common stock of which i 89,687 shares were held back by the Company to secure certain indemnification obligations under the stock purchase agreement. The shares of Company common stock were priced at $ i 2.23, the contractual 20 day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market.
The business combination has been accounted for as an acquisition and, in accordance with ASC 805. The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The following table summarizes the purchase price allocation, assuming the earnout will be paid:
i
| Purchase consideration: | ||||
| Total cash paid, including working capital adjustment | $ | i 1,273,483 | ||
| Earnout payable | i 500,000 | |||
| Common stock issued | i 600,004 | |||
| Total purchase price consideration | $ | i 2,373,487 | ||
| Fair value of assets acquired and liabilities assumed: | ||||
| Cash and cash equivalents | $ | i 729,905 | ||
| Accounts receivable | i 702,886 | |||
| Equipment acquired | i 65,640 | |||
| Other assets | i 20,708 | |||
| Intangible assets | i 762,860 | |||
| Goodwill | i 1,067,372 | |||
| Total estimated assets acquired | i 3,349,371 | |||
| Accounts payable and accrued expenses | i 431,884 | |||
| Government loan | i 544,000 | |||
| Total liabilities assumed | i 975,884 | |||
| Total estimated fair value of assets acquired and liabilities assumed | $ | i 2,373,487 |
The fair value of the assets acquired and liabilities assumed was less than the purchase price, resulting in the recognition of goodwill. The goodwill reflected the value of the synergies the Company expected to realize and the assembled workforce.
The significant intangible asset identified in the purchase price allocation discussed above include Customer Relationships. To value the Customer Relationships, with a useful life between six to eight years. The Company utilized the Excess Earnings Method, which isolates the value of the specific intangible asset by discounting its income stream to present value. The Company previously reported an estimated value of $ i 1,379,589, which was reduced to $ i 762,860 during the purchase price allocation analysis, and the difference was allocated to goodwill. Any other difference in reported amounts is from foreign currency adjustments only.
The government loan was issued through BBVA Bank during the COVID-19 pandemic. The loan bears interest at the rate of i 1.75% per annum and is payable in monthly installments of approximately $ i 11,900 inclusive of interest from May 2022 through April 2026. The installment payments have been paid monthly as per the schedule, as of the date of this report.
/
| 5. | ACCOUNTS RECEIVABLE |
Accounts receivable are carried at original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful receivables by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible.
Accounts receivable at June 30, 2022 and December 31, 2021 consisted of the following:
i
| June 30, | ||||||||
| 2021 | ||||||||
| Accounts receivable - current | $ | i 2,302,847 | $ | i 1,234,411 | ||||
| Loss on foreign currency | ( i 50,000 | ) | ( i 50,000 | ) | ||||
| Allowance for doubtful account | ( i 213,785 | ) | ( i 213,785 |
) | ||||
| Accounts receivable, net of allowances for doubtful accounts | $ | i 2,039,062 | $ | i 970,626 | ||||
| 6. | SHARE BASED COMPENSATION |
The following table presents share-based compensation expenses included in the Company’s unaudited condensed interim consolidated statements of operations:
i
| Three Months Ended June 30, | ||||||||
| 2021 | ||||||||
| Selling, general and administrative | $ | i 66,152 | $ | i 30,704 | ||||
| Research, development and engineering | i 17,547 | i 10,419 | ||||||
| $ | i 83,699 | $ | i 41,123 | |||||
| Six Months Ended June 30, | ||||||||
| 2021 | ||||||||
| Selling, general and administrative | $ | i 158,578 | $ | i 159,648 | ||||
| Research, development and engineering | i 34,818 | i 22,623 | ||||||
| $ | i 193,396 | $ | i 182,271 | |||||
/
| 7. | FACTORING |
Due from factor consisted of the following as of:
i
| June 30, | ||||||||
| 2021 | ||||||||
| Original invoice value | $ | i 209,000 | $ | i 99,000 | ||||
| Factored amount | ( i 132,060 | ) | ( i 49,500 |
) | ||||
| Due from factor | $ | i 76,940 | $ | i 49,500 | ||||
The Company entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2022. Pursuant to the terms of the arrangement, the Company, from time to time, sells to the Factor a minimum of $ i 150,000 per quarter of certain of its accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor remits i 35% of the foreign and i 75% of the domestic accounts receivable balance to the Company (the “Advance Amount”), with the remaining balance, less fees, forwarded to the Company once the Factor collects the full accounts receivable balance from the customer. In addition, the Company, from time to time, receives over advances from the Factor. Factoring fees range from i 2.75% to i 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice. The cost of factoring is included in selling, general and administrative expenses. The cost of factoring was as follows:
i
| Three Months ended | ||||||||
| 2021 | ||||||||
| Factoring fees | $ | i 20,800 | $ | i 18,900 | ||||
| Six Months ended | ||||||||
| 2021 | ||||||||
| Factoring fees | $ | i 39,527 | $ | i 32,247 | ||||
| 8. | NOTE RECEIVABLE |
During the third quarter 2020, the Company loaned $ i 295,000 as an advance to Technology Transfer Institute (“TTI”) to aid in fulfilling the African contracts. The note does not bear any interest if paid within the nine (9) monthly installments beginning December 31, 2020. The note bears a default rate of i 5%. Due to the ongoing delays in payment, the Company reserved $ i 100,000 of the note as an allowance. On February 17, 2022, the Company amended the note to modify the payment terms to provide for lower monthly payments, with an updated maturity date on or before December 6, 2023. On May 5, 2022, the Company amended the note to modify the payment terms to eight biweekly installments of $ i 1,000 beginning February 25, 2022, nineteen consecutive monthly installments of $ i 15,000 beginning on July 6, 2022, and $ i 2,000 on or before February 6, 2024. A member of our board of directors served as Chief Executive Officer of TTI until August 12, 2020.
i
| June 30, | ||||||||
| 2021 | ||||||||
| Note receivable | $ | i 295,000 | $ | i 295,000 | ||||
| Repayment of note | ( i 7,000 | ) | i - | |||||
| Allowance for doubtful account | ( i 100,000 | ) | ( i 100,000 |
) | ||||
| Note receivable, net of allowance | i 188,000 | i 195,000 | ||||||
| Current portion, net of allowance | $ | i 119,644 | $ | i 82,000 | ||||
| Noncurrent portion, net of allowance | $ | i 68,356 | $ | i 113,000 | ||||
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| 9. | INVENTORY |
Inventory is stated at the lower of cost, determined on a first in, first out basis, or net realizable value, Inventory is comprised of the following as of:
i
| June 30, | ||||||||
| 2021 | ||||||||
| Finished goods | $ | i 4,787,957 | $ | i 4,798,203 | ||||
| Fabricated assemblies | i 100,644 | i 142,457 | ||||||
| Total inventory | $ | i 4,888,601 | $ | i 4,940,660 | ||||
/
| 10. | RESALABLE SOFTWARE LICENSE RIGHTS |
On December 31, 2015, the Company purchased third-party software licenses in the amount of $ i 180,000 in anticipation of a large pending deployment that has yet to materialize. The Company is amortizing the total cost over the greater of actual unit cost of licenses sold or the straight line method over i 10 years with the greater of the two approaches being the actual unit cost per license sold. A total of $ i 2,479 and $ i 2,488 was expensed during the three month periods ended June 30, 2022 and 2021, respectively. A total of $ i 4,984 and $ i 5,009 was expensed during the six month periods ended June 30, 2022 and 2021, respectively. Since the license purchase, the cumulative amount of $ i 126,127 has been expensed, with a carrying balance of $ i 43,768 and $ i 48,752 as of June 30, 2022 and December 31, 2021, respectively.
The Company has classified the balance as non-current until a larger deployment occurs.
Estimated minimum amortization expense based on straight-line amortization of the software license rights over the remaining useful life approximates the following:
i
| Years ending December 31 | ||||
| 2022 (six months remaining) | $ | i 13,095 | ||
| 2023 | i 18,000 | |||
| 2024 | i 12,673 | |||
| Total | $ | i 43,768 |
/
| 11. | INVESTMENT IN DEBT SECURITY |
The Company purchased a i 4,000,000 Hong Kong dollar denominated Bond Certificate with a financial institution in Hong Kong in June 2020. The Bond Certificate translated to $ i 512,821 U.S. Dollars, based on the what exchange rate was at the purchase date. The Company can invest up to i 20,000,000 Hong Kong dollars under the terms of the certificate, bearing interest at i 5% per annum. The investment was originally recorded at amortized cost. The Company has yet to receive the proceeds and accrued interest from the investment and as such, the debt security, due to the delay in the receipt of the proceeds, recorded a $ i 210,000 reserve.
| 12. | COMMITMENTS |
Sales Incentive Agreement with TTI
On March 25, 2020, the Company entered into a sales incentive agreement with TTI. Terms of the agreement include the following:
| 1. | The original term of the agreement was one year unless notice to terminate (as defined) was given. The agreement is automatically extended for additional one-year terms unless terminated. |
| 2. | For each $ i 5,000,000 in revenue (up to a maximum of $ i 20,000,000) TTI generates during the first year that generates net income of at least i 20% (as defined), the Company will pay TTI a sales incentive fee of $ i 500,000 payable by the issuance of i 62,500 shares of common stock. |
| 3. | In the event that TTI generates revenue in excess of $20,000,000 during the first year, the Company will issue TTI a five-year warrant to purchase i 12,500 shares of Common Stock at an exercise price of $ i 12.00 per share for each $1,000,000 of revenue in excess of $20,000,000 (up to a maximum of $ i 25,000,000). |
In no event will the Company be obligated to issue more than i 250,000 shares of common stock or warrants to purchase more than i 62,500 shares of common stock pursuant to this agreement.
There has been no revenue generated from this agreement.
Distribution Agreement
Swivel Secure has a distribution agreement with Swivel Secure Limited (“SSL”). Terms of the agreement include the following:
| 1. | The initial term of the agreement ends on January 31, 2027 and will be automatically extended for additional one-year terms thereafter unless either party provides written notice to the other party not later than 30 days before the end of the term that it does not want to extend the term. |
| 2. | SSL appoints Swivel Secure as the exclusive distributor of SSL’s products, to market, sell and distribute in the EMEA (Europe, Middle East and Africa), excluding the United Kingdom and Republic of Ireland, for a defined discount. |
| 3. | Swivel Secure is expected to generate a certain minimum level of orders of SSL products each year during the term of the agreement. If the Company fails to meet such minimum level of orders in any year, the exclusive distribution rights will terminate and the Company will serve as a non-exclusive distributer of SSL Products. |
The Company expects the revenue targets to continue to be agreed to, based on historical negotiations and increasing distribution by Swivel Secure.
Litigation
From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of June 30, 2022, the Company was not a party to any pending lawsuits.
/
| 13. | LEASES |
The Company leases office space in New Jersey, Hong Kong, Minnesota, New Hampshire with lease termination dates of 2023, 2020, 2022, and 2022, respectively. The leases include non-lease components with variable payments. The following tables present the components of lease expense and supplemental balance sheet information related to the operating leases, for the three and six months ended as of:
i
| 6 Months ended 2022 | 6 Months ended 2021 | |||||||
| Lease cost | ||||||||
| Operating lease cost | $ | i 111,161 | $ | i 127,946 | ||||
| Total lease cost | $ | i 111,161 | $ | i 127,946 | ||||
| Balance sheet information | 2022 | 2021 | ||||||
| Operating right-of-use assets | $ | i 206,792 | $ | i 254,100 | ||||
| Operating lease liabilities, current portion | $ | i 192,581 | $ | i 177,188 | ||||
| Operating lease liabilities, non-current portion | i 22,004 | i 86,974 | ||||||
| Total operating lease liabilities | $ | i 214,585 | $ | i 264,162 | ||||
| Weighted average remaining lease term (in years) – operating leases | i 1.03 | i 1.45 | ||||||
| Weighted average discount rate – operating leases | i 5.50 | % | i 5.50 |
% | ||||
| Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2022 and 2021: | $ | i 65,108 | $ | i 63,812 |
Maturities of operating lease liabilities were as follows as of June 30, 2022:
| 2022 (6 months remaining) | $ | i 112,466 | ||
| 2023 | i 107.911 | |||
| Total future lease payments | $ | i 220,377 | ||
| Less: imputed interest | ( i 5,792 | ) | ||
| Total | $ | i 214,585 |
/
| 14. | EARNINGS (LOSS) PER SHARE - COMMON STOCK (“EPS”) |
The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of preferred stock.
The following table sets forth options and warrants which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:
i
| Three Months ended June 30, | Six Months ended | |||||||||||||||
| 2021 | 2022 | 2021 | ||||||||||||||
| Stock options | i 212,461 | i 212,545 | i 212,461 | i 212,545 | ||||||||||||
| Warrants | i 4,689,387 | i 4,689,387 | i 4,689,387 | i 4,689,387 | ||||||||||||
| Total | i 4,901,848 | i 4,901,932 | i 4,901,848 | i 4,901,932 | ||||||||||||
/
| 15. | STOCKHOLDERS’ EQUITY |
1. Preferred Stock
Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to i 5,000,000 shares of preferred stock, $. i 0001 par value per share, in one or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.
2. Common Stock
Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights.
Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.
Issuances of Common Stock
On March 8, 2022, the Company issued i 269,060 shares of common stock of which i 89,687 shares were held back by the Company to secure certain indemnification obligations under the Swivel Secure stock purchase agreement. The shares of Company common stock were issued at a total cost of $ i 600,004, priced at $ i 2.23, based on the contractual 20 day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market
On June 18, 2021, the stockholders approved the Employee Stock Purchase Plan. Under the terms of this plan, i 789,000 shares of common stock are reserved for issuance to employees and officers of the Company at a purchase price equal to i 85% of the lower of the closing price of the common stock on the first day or the last day of the offering period as reported on the Nasdaq Capital Market. Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions. The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031. On December 31, 2021, i 19,484 shares were issued to employees which resulted in a $ i 10,680 non-cash compensation expense for the Company. On June 30, 2022, i 26,006 shares were issued to employees which resulted in a $ i 8,314 non-cash compensation expense for the Company.
Issuances of Restricted Stock
Restricted stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Nonvested stock is expensed ratably over the term of the restriction period.
During the six-month periods ended June 30, 2022 and 2021, the Company issued i 275,500 and i 2,500 shares of restricted common stock to certain employees and the board, respectively. These shares vest in equal annual installments over a three-year period from the date of grant and had a fair value on the date of issuance of $ i 592,075 and $ i 8,425, respectively.
During the six-month periods ended June 30, 2022 and 2021, i 1,250 and i 1,250 shares of restricted common stock were forfeited, respectively.
Restricted stock compensation for the three-month periods ended June 30, 2022 and 2021, was $ i 51,204 and $ i 16,346, respectively.
Restricted stock compensation for the six-month periods ended June 30, 2022 and 2021, was $ i 91,044 and $ i 33,721, respectively.
Issuances to Directors, Executive Officers & Consultants
During the three and six-month periods ended June 30, 2022, the Company issued i 9,117 and i 18,499 shares of common stock to its directors in lieu of payment of board and committee fees valued at $ i 18,006 and $ i 40,026, respectively.
During the three and six-month periods ended June 30, 2021, the Company issued i 1,748 and i 3,839 shares of common stock to its directors in lieu of payment of board and committee fees valued at $ i 5,505 and $ i 13,015, respectively.
Employees’ exercise options
During the three and six-month periods ended June 30, 2022 and 2021, no employee stock options were exercised.
3. Warrants
There were no warrants issued during the three and six-month periods ended June 30, 2022 and 2021.
/
| 16. | FAIR VALUES OF FINANCIAL INSTRUMENTS |
Cash and cash equivalents, accounts receivable, due from factor, accounts payable and accrued liabilities are carried at, or approximate, fair value because of their short-term nature. The carrying value of the Company’s government loan payable approximates fair value as the interest rate related to the financial instruments approximated market.
| 17. | MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE |
For the three month periods ended June 30, 2022, and 2021, one customer accounted for i 12% and two customers accounted for i 36% of revenue, respectively. For the six month periods ended June 30, 2022, and 2021, i one customer accounted for i 14% and i two customers accounted for i 34% of revenue, respectively.
One customer accounted for i 20% of current accounts receivable at June 30, 2022. At December 31, 2021, three customers accounted for i 87% of current accounts receivable.
/
| 18. | INCOME TAXES |
The Company recorded i no income tax expense for the three and six months ended June 30, 2022 and 2021 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyses various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.
As of June 30, 2022, and December 31, 2021, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.
/
| 19. | SUBSEQUENT EVENTS |
On August 11, 2022, the Company issued i 6,915 shares of common stock to its directors in payment of meeting fees. Additionally, the Company issued an aggregate of i 2,500 shares of restricted stock with three-year vesting period to three new employees. All the shares were issued at $ i 2.17 the closing price on August 11, 2022, as reported on the Nasdaq Capital Market.
The Company has reviewed subsequent events through the date of this filing.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “should,” “estimate,” “will,” “may,” “future,” “plan,” “intend” and “expect” and similar expressions generally identify forward-looking statements. These statements are not guarantees of future performance or events and are subject to risks and uncertainties that may cause actual results to differ materially from those included within or implied by such forward-looking statements. These risks and uncertainties include, without limitation, our history of losses and limited revenue; our ability to raise additional capital; our ability to 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 execute and deliver on contracts in Africa; our ability to expand into Asia, Africa and other foreign markets; our ability to integrate the operations and personnel of PistolStar and Swivel Secure into our business; fluctuations in foreign currency exchange rates; the duration and severity of the current coronavirus COVID-19 pandemic and its effect on our business operations, sales cycles, personnel, and the geographic markets in which we operate; 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 our Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Except as required by law, we undertake no obligation to disclose any revisions to these forward-looking statements, whether as a result of new information, future events, or otherwise.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to and should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as of December 31, 2021.
Overview
BIO-key International, Inc. (the “Company,” “BIO-key,” “we,” or “us”) is a leading identity and access management (IAM) platform provider enabling secure work-from-anywhere for enterprise, education, and government customers. 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, PINsafe, WEB-key® biometric civil and large-scale ID infrastructure, and high-quality, low-cost accessory hardware to provide a full and complete solution for identity-innovating customers.
Built to leverage BIO-key’s world-class biometric core platform among 16 other strong authentication factors, 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 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.
With our recent acquisition of Swivel Secure, we have added AuthControl Sentry, AuthControl Enterprise and AuthControl MSP product lines to our solutions set. The software includes a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and bring you own device policies.
Millions of people 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 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 19 million of their customers in branches on a daily basis.
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.
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.
PortalGuard is used by our customers to manage and secure IT access by their employees, contractors and partners, which we call workforce identity. PortalGuard is also used to manage and secure the identities of an organization’s customers through integration of APIs we have developed and industry-standard federation standards, which we call customer identity. We invoice customers in advance in annual and multi-year prepaid installments for subscriptions to our platforms.
Strategic Outlook
Historically, our largest market has been access control within highly regulated industries such as government, financial services, and healthcare. In 2019 we became the go-to biometric authentication provider for board of election offices which continue to deploy our hardware and software to secure internal access to the voter registration database. Upon acquiring PortalGuard in 2020, we now serve the higher education vertical. We have and expect to continue to extend this footprint in 2022 and beyond.
In 2020, we announced that we had secured two contracts with our partner Technology Transfer Institute. The contracts are for large-scale identification projects in Africa and Nigeria. Under the first contract, we will provide biometric authentication to support the infrastructure of a new e-commerce project developed with the expectation to generate more than one million jobs in Nigeria. The second contract provides for BIO-key hardware and software to be used by a leading African telecommunications company to secure internal access to customer data. Currently Africa and the surrounding regions are receiving government funding to expand the use of biometric authentication solutions to help establish trustworthy government programs and reduce fraud. We received our first purchase order related to these contracts in the fourth quarter of 2020 which we shipped in the first quarter of 2021. The COVID-19 pandemic has and may continue to delay the rollout of these programs.
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.
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") for up to $2.25 million. Swivel Secure is a Madrid, Spain based provider of IAM solutions serving over 300 customers through a network of channel partners throughout EMEA. Swivel Secure is the exclusive distributer of AuthControl Sentry, AuthControl Enterprise and AuthControl MSP product line in EMEA, excluding the United Kingdom and Ireland. Swivel Secure maintains a direct sales force with offices in Madrid, Spain and Lisbon, Portugal. There can be no assurance that we will be able to manage Swivel Secure’s business or successfully integrate the business with our historic operations without substantial costs, delays or other operational or financial challenges.
Given the uncertainty of the duration and severity of the current COVID-19 pandemic and the conflict between Ukraine and Russia and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matters 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.
The complications caused by COVID-19 has forced organizations to quickly adapt to a work from home remote business model. This 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.
Critical Accounting Policies and Estimates
For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.
Recent Accounting Pronouncements
For detailed information regarding recent account pronouncements, see Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2022 AS COMPARED TO JUNE 30, 2021
Consolidated Results of Operations - Percent Trend
| Three Months Ended June 30, |
||||||||
| 2021 |
||||||||
| Revenues |
||||||||
| Services |
22 | % |
29 | % |
||||
| License fees |
60 | % |
67 | % |
||||
| Hardware |
18 | % |
4 | % |
||||
| Total Revenues |
100 | % |
100 | % |
||||
| Costs and other expenses |
||||||||
| Cost of services |
9 | % |
16 | % |
||||
| Cost of license fees |
18 | % |
5 | % |
||||
| Cost of hardware |
10 | % |
3 | % |
||||
| Total Cost of Goods Sold |
37 | % |
24 | % |
||||
| Gross profit |
63 | % |
76 | % |
||||
| Operating expenses |
||||||||
| Selling, general and administrative |
103 | % |
139 | % |
||||
| Research, development and engineering |
40 | % |
49 | % |
||||
| Total Operating Expenses |
143 | % |
188 | % |
||||
| Operating loss |
-80 | % |
-112 | % |
||||
| Other expense |
-8 | % |
-5 | % |
||||
| Net loss |
-88 | % |
-117 | % |
||||
Revenues and cost of goods sold
| Three months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Revenues |
||||||||||||||||
| Service |
$ | 435,106 | $ | 286,641 | $ | 146,465 | 52 | % |
||||||||
| License |
1,162,148 | 662,193 | 499,955 | 75 | % |
|||||||||||
| Hardware |
349,861 | 43,256 | 306,605 | 709 | % |
|||||||||||
| Total Revenue |
$ | 1,947,115 | $ | 992,090 | $ | 955,025 | 96 | % |
||||||||
| Three months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Cost of Goods Sold |
||||||||||||||||
| Service |
$ | 180,677 | $ | 158,440 | $ | 22,237 | 14 | % |
||||||||
| License |
358,136 | 48,373 | 309,763 | 640 | % |
|||||||||||
| Hardware |
185,140 | 32,756 | 152,384 | 465 | % |
|||||||||||
| Total COGS |
$ | 723,953 | $ | 239,569 | $ | 484,384 | 202 | % |
||||||||
Revenues
For the three months ended June 30, 2022, and 2021, service revenues included approximately $324,000 and $226,000, respectively, of recurring maintenance and support revenue, and approximately $111,000 and $61,000 respectively, of non-recurring custom services revenue. Recurring service revenue increased $98,000 or 44% in 2022 which was due largely to the additional service revenue from Swivel Secure customers. Non-recurring custom services increased 82% due to additional new customer customizations and upgrades from on-premise to cloud deployments. As our customer base continues to grow, we expect the service revenue to increase in future periods.
For the three months ended June 30, 2022, license revenue increased $499,955 or 57% to $1,162,148 from $662,193 in the corresponding period in 2021. We increased both the variation and number of customers, including additional revenue from the Swivel Secure customers, and PistolStar cloud migrations primarily in the higher education market.
For the three months ended June 30, 2022, hardware sales increased by 709% to $349,861 from $43,256 in the corresponding period in 2021. The increase was due largely to two add-on orders from an existing customer in Asia, and a large order for our Pocket 10 product from a new customer in 2022, as compared to 2021.
Costs of goods sold
For the three months ended June 30, 2022, cost of service increased approximately $22,000 or 14% to $180,033 due to the increased costs to support the PortalGuard and Swivel Secure deployments, compared to the three months ended June 30, 2021. For the three months ended June 30, 2022, license fees increased to $358,136 from $48,373 during the three months ended June 30, 2021, due largely to an increase in revenue and third-party software for the Swivel Secure licenses. For the three months ended June 30, 2022, hardware costs increased to $185,140 from $32,756 during the three months ended June 30, 2021, related to costs associated with increased hardware revenue.
Selling, general and administrative
| Three months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Selling, general and administrative |
$ | 2,006,576 | $ | 1,374,084 | $ | 632,489 | 46 | % |
||||||||
Selling, general and administrative expenses for the three months ended June 30, 2022, increased 46% from the corresponding period in 2021. The increases included sales costs related to Swivel Secure operations, expenses for the annual shareholders meeting, share based compensation, travel, and wages and benefits for new employees
Research, development and engineering
| Three months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Research, development, and engineering |
$ | 784,083 | $ | 490,952 | $ | 293,131 | 60 | % |
||||||||
For the three months ended June 30, 2022, research, development, and engineering costs increased 60% to $784,083 as compared to $490,952 for the corresponding period in 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 employees.
Other income (expense)
| Three months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Other income (expense) |
||||||||||||||||
| Interest income |
$ | 77 | $ | 832 | $ | (755 | ) |
-91 | % |
|||||||
| Loss on foreign currency transactions |
- | (50,000 | ) |
(50,000 | ) |
100 | % |
|||||||||
| Investment-debt security reserve |
(150,000 | ) |
- | (150,000 | ) |
100 | % |
|||||||||
| Interest expense |
(1,540 | ) |
- | (1,540 | ) |
100 | % |
|||||||||
| Other expense |
$ | (151,463 | ) |
$ | (49,168 | ) |
$ | (152,295 | ) |
310 | % |
|||||
The amounts for other income (expense) for the three month period ended June 30, 2022 consisted of interest income of $77, a reserve on the investment-debt security as adjustment for collections in the amount of $150,000, and interest expense of $1,540 on the government loan through the BBVA bank for $1,540. The amounts for the three months ended June 30, 2021, related to interest income of $832, offset by the foreign currency adjustment to an accounts receivable invoice of $50,000.
SIX MONTHS ENDED JUNE 30, 2022 AS COMPARED TO JUNE 30, 2021
Consolidated Results of Operations - Percent Trend
| Six Months Ended June 30, |
||||||||
| 2021 |
||||||||
| Revenues |
||||||||
| Services |
21 | % |
23 | % |
||||
| License fees |
67 | % |
40 | % |
||||
| Hardware |
12 | % |
37 | % |
||||
| Total Revenues |
100 | % |
100 | % |
||||
| Costs and other expenses |
||||||||
| Cost of services |
10 | % |
12 | % |
||||
| Cost of license fees |
11 | % |
3 | % |
||||
| Cost of hardware |
6 | % |
20 | % |
||||
| Total Cost of Goods Sold |
27 | % |
35 | % |
||||
| Gross profit |
73 | % |
65 | % |
||||
| Operating expenses |
||||||||
| Selling, general and administrative |
98 | % |
101 | % |
||||
| Research, development and engineering |
41 | % |
32 | % |
||||
| Total Operating Expenses |
139 | % |
133 | % |
||||
| Operating loss |
-66 | % |
-68 | % |
||||
| Other expense |
-4 | % |
-2 | % |
||||
| Net loss |
-70 | % |
-70 | % |
||||
Revenues and cost of goods sold
| Six months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Revenues |
||||||||||||||||
| Service |
$ | 830,910 | $ | 666,663 | $ | 164,247 | 25 | % |
||||||||
| License |
2,622,331 | 1,141,151 | 1,481,180 | 130 | % |
|||||||||||
| Hardware |
435,045 | 1,072,914 | (637,869 | ) |
-59 | % |
||||||||||
| Total Revenue |
$ | 3,888,286 | $ | 2,880,728 | $ | 1,007,558 | 35 | % |
||||||||
| Cost of Goods Sold |
||||||||||||||||
| Service |
391,590 | 334,384 | 57,206 | 17 | % |
|||||||||||
| License |
431,366 | 87,342 | 344,024 | 394 | % |
|||||||||||
| Hardware |
238,438 | 584,478 | (346,040 | ) |
-59 | % |
||||||||||
| Total COGS |
$ | 1,061,394 | $ | 1,006,204 | $ | 54,546 | 5 | % |
||||||||
Revenues
For the six months ended June 30, 2022, and 2021, service revenues included approximately $640,000 and $573,000, respectively, of recurring maintenance and support revenue, and approximately $191,000 and $93,000, respectively, of non-recurring custom services revenue. Recurring service revenue increased 12% in the first six months of 2022 due largely to the additional service revenue from PistolStar customers. Non-recurring custom services increased 104% in the first six months of 2022 due largely to the additional service revenue from Swivel Secure customers. As our customer base continues to grow, we expect the service revenue to increase in future periods.
For the six months ended June 30, 2022, license revenue increased 130% to $2,622,331 from $1,141,151 during the corresponding period in 2021. We increased both the variation and number of customers, including additional revenue from the Swivel Secure customers, and PistolStar cloud migrations primarily in the higher education market.
Hardware sales decreased $637,869 during the six months ended June 30, 2022, to $435,045 from $1,072,914 during the six months ended June 30, 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 six months ended June 30, 2021, cost of service increased $57,206 or 17% to $390,946 due to the increased costs to support the PortalGuard and Swivel Secure deployments, compared to the six months ended June 30, 2021. For the six months ended June 30, 2021, license fees increased to $344,024 from $87,342 during the six months ended June 30, 2021, due largely to an increase in revenue and third-party software for the Swivel Secure licenses. For the six months ended June 30, 2022, hardware costs decreased to $238,438 from $584,478 during the six months ended June 30, 2021, corresponding to decreased hardware revenue.
Selling, general and administrative
| Six months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Selling, general and administrative |
$ | 3,804,571 | $ | 2,890,482 | $ | 914,089 | 32 | % |
||||||||
Selling, general and administrative expenses for the six months ended June 30, 2022, increased 32% from the corresponding period in 2021. The increases included sales expenses related to Swivel Secure operations, expenses for the annual shareholder meeting, share based compensation, travel, to legal and professional fees and expenses incurred in connection with the acquisition of Swivel Secure and increased sales and marketing personnel costs.
Research, development and engineering
| Six months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Research, development and engineering |
$ | 1,589,349 | $ | 932,603 | $ | 656,746 | 70 | % |
||||||||
For the six months ended June 30, 2022, research, development and engineering costs increased 70% from $932,603 to $1,585,158. 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 employees.
Other income (expense)
| Six months ended |
||||||||||||||||
| 2021 |
$ Change |
% Change |
||||||||||||||
| Interest income (expense) |
||||||||||||||||
| Interest income |
$ | 208 | $ | 3,447 | $ | (3,239 | ) |
-94 | % |
|||||||
| Loss on foreign currency transactions |
- | (50,000 | ) |
50,000 | 100 | % |
||||||||||
| Investment-debt security reserve |
(150,000 | ) |
- | (150,000 | ) |
-100 | % |
|||||||||
| Interest expense |
(1,540 | ) |
(18,000 | ) |
(16,460 | ) |
91 | % |
||||||||
| Other expense |
$ | (151,332 | ) |
$ | (64,553 | ) |
$ | (86,779 | ) |
134 | % |
|||||
The amounts for other income (expense) for the six month period ended June 30, 2022 consisted of interest income of $208, a reserve on the investment-debt security as adjustment for collections of such security of $150,000, and interest expense on the government loan through the BBVA bank for $1,540. Other expense for the 2021 period related to 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
Cash Flows
Operating activities overview
| Net cash used by operations during the six months ended June 30, 2022 was $2.3 million. Items of note included: |
| ● |
Net positive cash flows related to adjustments for non-cash expenses of approximately $602,000. |
| ● |
Net positive cash flows related to inventory, accounts payable and deferred revenue of approximately $530,000. |
| ● |
Negative cash flows related to changes in accounts receivable, prepayments and accrued liabilities of approximately $519,000, due to working capital management. |
Investing activities overview
Net cash used in investing activities during the six months ended June 30, 2022 was $520,000. This consisted of approximately $23,000 of capital expenditures, $7,000 of receipts from notes receivable, $544,000 (net of cash acquired and currency adjustment) to fund the cash portion of the purchase price for Swivel Secure, and $39,000 for sales of common stock under the employee stock purchase plan.
Liquidity and Capital Resources
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.
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 April 2026. Upon closing of the acquisition, Swivel Secure had cash equal to the outstanding balance.
Liquidity outlook
At June 30, 2022, our total cash and cash equivalents were approximately $4,893,000, as compared to approximately $7,754,000 at December 31, 2021. At June 30, 2022 we had working capital of approximately $8,796,000.
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 $814,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. During for the first six months of 2022, we generated approximately $3,888,000 of revenue, which is below our average monthly requirements. We expect that Swivel Secure will generate positive cash flow in 2022 to further support operations. If 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. As of the date of this report, we do not expect that we will need to obtain additional financing during the next twelve months.
Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing. To the extent that we require such additional financing, no assurance can be given that any form of additional financing will be available on terms acceptable to us, that adequate financing will be obtained to meet our needs, or that such financing would not be dilutive to existing stockholders. If available financing is insufficient or unavailable or we fail to continue to generate sufficient revenue, we may be required to further reduce operating expenses, delay the expansion of operations, be unable to pursue merger or acquisition candidates, or in the extreme case, not continue as a going concern.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the fiscal quarter ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 6. EXHIBITS
| Exhibit No. |
Description |
|
| 31.1 |
||
| 31.2 |
||
| 32.1 |
Certificate of CEO of Registrant required under 18 U.S.C. Section 1350 |
|
| 32.2 |
Certificate of CFO of Registrant required under 18 U.S.C. Section 1350 |
|
| 101.INS |
Inline XBRL Instance |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Labels |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIO-Key International, Inc. |
||
| Dated: August 17, 2022 |
||
| Chief Executive Officer |
||
| (Principal Executive Officer) |
||
| Dated: August 17, 2022 |
/s/ Cecilia C. Welch |
|
| Chief Financial Officer |
||
| (Principal Financial Officer) |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 6/17/31 | ||||
| 1/31/27 | ||||
| 2/6/24 | ||||
| 12/6/23 | ||||
| 1/31/23 | ||||
| 12/31/22 | ||||
| 12/15/22 | ||||
| 10/31/22 | ||||
| Filed on: | 8/17/22 | |||
| 8/11/22 | 4 | |||
| 7/6/22 | ||||
| For Period end: | 6/30/22 | 4, NT 10-Q | ||
| 5/5/22 | DEF 14A | |||
| 3/31/22 | 10-K, 10-Q, NT 10-K, NT 10-Q | |||
| 3/8/22 | ||||
| 2/25/22 | ||||
| 2/17/22 | ||||
| 1/1/22 | ||||
| 12/31/21 | 10-K, 4, NT 10-K | |||
| 6/30/21 | 10-Q | |||
| 6/18/21 | 8-K, DEF 14A | |||
| 3/31/21 | 10-Q | |||
| 1/1/21 | ||||
| 12/31/20 | 10-K | |||
| 8/12/20 | ||||
| 3/25/20 | 8-K | |||
| 12/31/15 | 10-K | |||
| List all Filings | ||||