UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.0001 par value per share BKYI Nasdaq Capital Market ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___ COMMISSION FIL ...

BIO-key International, Inc. (NASDAQ:BKYI) Q4 2021 Earnings Conference Call March 29, 2022 10:00 AM ET Company Participants Kimberly Biddings - Vice President of Product Mike DePasquale - Chairman and Chief Executive Officer Alex Rocha - President, BIO-key EMEA Ceci Welch - Chief Financial Officer Conference Call Participants Jack Vander Aarde - Maxim Group Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are des ...

| --- | --- | |----------------------------------------------------------------------------------|-------| | | | | Identity & Access Management and IdentityBound Biometric Cybersecurity Solutions | | | March 2022 | | | www.BIO-key.com | | | | | | | | 2 Safe Harbor All statements contained herein other than statements of historical facts are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "Act"). The words "estimate," "project," "intends," "expects," "anti ...

Report Information [Filing Details](index=1&type=section&id=Filing%20Details) This Form 10-Q quarterly report for BIO-KEY INTERNATIONAL, INC. covers the period ended September 30, 2021, identifying the company as a smaller reporting and non-accelerated filer - The company is classified as a **Smaller Reporting Company** and a **Non-accelerated Filer**[2](index=2&type=chunk) - As of November 12, 2021, **7,833,789 shares of common stock** were outstanding[2](index=2&type=chunk) PART I. FINANCIAL INFORMATION [Item 1 Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the company's condensed consolidated balance sheets, statements of operations, stockholders' equity (deficit), and cash flows, along with detailed notes to the financial statements [Balance sheets as of September 30, 2021 (unaudited) and December 31, 2020 (audited)](index=4&type=section&id=Balance%20sheets%20as%20of%20September%2030%2C%202021%20(unaudited)%20and%20December%2031%2C%202020%20(audited)) As of September 30, 2021, total assets decreased to **$20,728,106** from **$22,520,572** at December 31, 2020, driven by a decline in cash and an increase in receivables and inventory | Metric | September 30, 2021 (Unaudited) (USD) | December 31, 2020 (Audited) (USD) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $9,591,863 | $16,993,096 | | Accounts receivable, net | $1,541,239 | $548,049 | | Inventory | $4,634,835 | $330,947 | | Total current assets | $16,771,989 | $18,941,873 | | Total assets | $20,728,106 | $22,520,572 | | **Liabilities** | | | | Accounts payable | $1,437,045 | $244,158 | | Accrued liabilities | $699,422 | $508,487 | | Total current liabilities | $3,014,367 | $1,876,303 | | Total liabilities | $3,194,655 | $2,185,453 | | **Stockholders' Equity** | | | | Accumulated deficit | $(102,546,450) | $(99,509,689) | | Total stockholders' equity | $17,533,451 | $20,335,119 | [Statements of operations for the three and nine months ended September 30, 2021 and 2020](index=5&type=section&id=Statements%20of%20operations%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) For the three months ended September 30, 2021, total revenue increased by **38%** to **$1,298,829**, driven by significant growth in license fees, while net loss narrowed substantially to **$1,023,647** | Metric | Three Months Ended September 30, 2021 (USD) | Three Months Ended September 30, 2020 (USD) | Nine Months Ended September 30, 2021 (USD) | Nine Months Ended September 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | | | | | | Services | $318,500 | $491,535 | $985,163 | $928,561 | | License fees | $870,459 | $346,479 | $2,011,610 | $605,366 | | Hardware | $109,870 | $105,311 | $1,182,784 | $239,025 | | **Total Revenue** | **$1,298,829** | **$943,325** | **$4,179,557** | **$1,772,952** | | **Gross Profit** | **$1,004,155** | **$731,716** | **$2,878,679** | **$1,288,626** | | Operating Loss | $(993,976) | $(1,089,738) | $(2,942,537) | $(3,781,617) | | **Net Loss** | **$(1,023,647)** | **$(3,293,552)** | **$(3,036,761)** | **$(8,236,543)** | | Basic and Diluted Loss Per Share | $(0.13) | $(0.51) | $(0.39) | $(2.28) | [Statements of Stockholders' Equity (deficit) for the three and nine months ended September 30, 2021 and 2020](index=6&type=section&id=Statements%20of%20Stockholders'%20Equity%20(deficit)%20for%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) Total stockholders' equity decreased to **$17,533,451** as of September 30, 2021, from **$20,335,119** at January 1, 2021, primarily due to net losses, despite increases in paid-in capital from stock issuances | Metric | Balance as of January 1, 2021 (USD) | Balance as of September 30, 2021 (USD) | | :--- | :--- | :--- | | Common stock shares | 7,814,572 | 7,825,299 | | Common stock amount | $782 | $783 | | Additional paid-in capital | $119,844,026 | $120,079,118 | | Accumulated deficit | $(99,509,689) | $(102,546,450) | | **Total Stockholders' Equity** | **$20,335,119** | **$17,533,451** | | Metric | Balance as of January 1, 2020 (USD) | Balance as of September 30, 2020 (USD) | | :--- | :--- | :--- | | Common stock shares | 1,812,483 | 7,808,110 | | Common stock amount | $182 | $782 | | Additional paid-in capital | $87,437,661 | $119,753,918 | | Accumulated deficit | $(89,723,016) | $(98,072,245) | | **Total Stockholders' Equity** | **$(2,285,173)** | **$21,682,455** | [Statements of cash flows for the nine months ended September 30, 2021 and 2020](index=8&type=section&id=Statements%20of%20cash%20flows%20for%20the%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) For the nine months ended September 30, 2021, net cash decreased by **$7,401,233** due to significant outflows from operating, investing, and financing activities, contrasting with a substantial increase in cash during the prior year due to financing inflows | Cash Flow Activity | Nine Months Ended September 30, 2021 (USD) | Nine Months Ended September 30, 2020 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,108,122) | $(3,686,069) | | Net cash used in investing activities | $(37,883) | $(2,203,647) | | Net cash used in (provided by) financing activities | $(255,228) | $24,206,211 | | Net increase (decrease) in cash and cash equivalents | $(7,401,233) | $18,316,495 | | Cash and cash equivalents at beginning of period | $16,993,096 | $79,013 | | Cash and cash equivalents at end of period | $9,591,863 | $18,395,508 | **Non-cash investing and financing activities (Nine Months Ended September 30, 2020):** | Item | Amount (USD) | | :--- | :--- | | Accounts receivable from PistolStar acquisition | $184,792 | | Prepaid expenses from PistolStar acquisition | $9,485 | | Equipment from PistolStar acquisition | $36,467 | | Intangible assets from PistolStar acquisition | $1,480,000 | | Goodwill related to PistolStar acquisition | $1,154,526 | | Notes payable issued for PistolStar acquisition | $356,000 | | Accrued expenses from PistolStar acquisition | $20,017 | | Deferred revenue from PistolStar acquisition | $590,000 | | Right-of-use assets increased under ASC 842 | $141,761 | | Operating lease liabilities under ASC 842 | $141,761 | | Common stock issued under securities purchase agreement | $277,833 | | Warrants issued with convertible notes | $1,388,339 | | Common stock issued upon conversion of convertible notes | $3,789,000 | | Beneficial conversion feature | $641,215 | | Deemed dividend related to down-round feature | $112,686 | [Notes to condensed consolidated financial statements](index=10&type=section&id=Notes%20to%20condensed%20consolidated%20financial%20statements) This section provides detailed notes to the financial statements, covering business nature, accounting policies, going concern, revenue recognition, the PistolStar acquisition, receivables, share-based compensation, factoring, notes receivable, prepaid expenses, inventory, software licenses, debt securities, commitments, convertible notes, leases, earnings per share, stockholders' equity, fair value of financial instruments, major customers, and subsequent events [1. NATURE OF BUSINESS AND BASIS OF PRESENTATION](index=10&type=section&id=1.%20NATURE%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) BIO-key International, Inc., founded in 1993, develops and sells proprietary fingerprint biometric technology and enterprise-grade identity access management software solutions, with financial statements prepared under US GAAP - The company develops and sells proprietary fingerprint biometric technology and enterprise-grade identity access management software solutions for commercial, government, and education clients[23](index=23&type=chunk) - The company effected an **1-for-8 reverse stock split** on November 20, 2020, with all share data presented on a post-split basis[26](index=26&type=chunk) [Recently Issued Accounting Pronouncements](index=11&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) The company is evaluating the impact of ASU 2016-13 (Financial Instruments—Credit Losses), effective March 31, 2023, which replaces the incurred loss model with an expected credit loss model - ASU 2016-13 (Financial Instruments—Credit Losses) will be effective for the company on **March 31, 2023**, replacing the incurred loss model with an expected credit loss model requiring estimation of lifetime expected credit losses for financial assets[28](index=28&type=chunk) - The company adopted ASU 2019-12 (Simplifying the Accounting for Income Taxes) on **January 1, 2021**, with no material impact on its consolidated financial statements[29](index=29&type=chunk) [2. GOING CONCERN](index=11&type=section&id=2.%20GOING%20CONCERN) The company's historical operations relied on capital market financing, with current monthly needs of **$710,000**, and expects sufficient cash for at least twelve months despite lower 2021 nine-month revenue - The company currently requires approximately **$710,000 per month** for operations[32](index=32&type=chunk) - For the first nine months of 2021, the company's revenue of **$4,179,557** was below its average monthly cash needs[32](index=32&type=chunk) - As of the filing date, the company believes it has **sufficient cash to support operations for at least twelve months**[32](index=32&type=chunk) [3. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=11&type=section&id=3.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Revenue is recognized under ASC 606, primarily from license fees, hardware, and services, with North America being the largest contributor and significant growth in Africa for the nine months ended September 30, 2021 **Revenue by Geography and Type for the Three Months Ended September 30, 2021 (USD)** | Revenue Type | North America | Africa | Europe, Middle East, South America* | Asia | Total September 30, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | License fees | $534,775 | $308,000 | $20,678 | $7,006 | $870,459 | | Hardware | $84,445 | $13,425 | - | $12,000 | $109,870 | | Services | $259,965 | $42,000 | $12,759 | $3,776 | $318,500 | | **Total Revenue** | **$879,185** | **$363,425** | **$33,437** | **$22,782** | **$1,298,829** | **Revenue by Geography and Type for the Nine Months Ended September 30, 2021 (USD)** | Revenue Type | North America | Africa | Europe, Middle East, South America* | Asia | Total September 30, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | License fees | $1,307,265 | $557,484 | $72,205 | $74,656 | $2,011,610 | | Hardware | $176,414 | $698,264 | $265,996 | $42,110 | $1,182,784 | | Services | $891,856 | $42,000 | $41,109 | $10,198 | $985,163 | | **Total Revenue** | **$2,375,535** | **$1,297,748** | **$379,310** | **$126,964** | **$4,179,557** | - Deferred revenue was approximately **$733,000** as of September 30, 2021, and **$702,000** as of December 31, 2020[46](index=46&type=chunk) [4. PISTOLSTAR, INC. ACQUISITION](index=14&type=section&id=4.%20PISTOLSTAR%20INC.%20ACQUISITION) The company acquired PistolStar, Inc. on June 30, 2020, for **$2.5 million** (comprising **$2 million** cash and a **$0.5 million** promissory note), generating goodwill from expected synergies and an integrated workforce - The company acquired PistolStar, Inc. on **June 30, 2020**, for a total purchase price of **$2.5 million**, including **$2 million** in cash and a **$0.5 million** promissory note[49](index=49&type=chunk) - The acquisition resulted in **goodwill**, reflecting anticipated synergies and an integrated workforce[50](index=50&type=chunk) - The **$250,000** promissory note balance related to the PistolStar acquisition was fully paid as of **January 21, 2021**[49](index=49&type=chunk) [5. ACCOUNTS RECEIVABLE](index=15&type=section&id=5.%20ACCOUNTS%20RECEIVABLE) Accounts receivable, net, significantly increased to **$1,541,239** as of September 30, 2021, from **$548,049** at December 31, 2020, presented at original amounts less an allowance for doubtful accounts | Metric | September 30, 2021 (USD) | December 31, 2020 (USD) | | :--- | :--- | :--- | | Accounts receivable - current | $1,605,024 | $561,834 | | Foreign currency loss | $(50,000) | - | | Allowance for doubtful accounts | $(13,785) | $(13,785) | | **Accounts receivable, net of allowance for doubtful accounts** | **$1,541,239** | **$548,049** | [6. SHARE-BASED COMPENSATION](index=15&type=section&id=6.%20SHARE-BASED%20COMPENSATION) Total share-based compensation for the three months ended September 30, 2021, was **$58,050**, with **$47,694** in selling, general, and administrative expenses and **$10,356** in research and development | Expense Category | Three Months Ended September 30, 2021 (USD) | Three Months Ended September 30, 2020 (USD) | Nine Months Ended September 30, 2021 (USD) | Nine Months Ended September 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Selling, general and administrative | $47,694 | $51,157 | $207,342 | $632,793 | | Research and development | $10,356 | $3,073 | $32,979 | $76,995 | | **Total** | **$58,050** | **$54,230** | **$240,321** | **$709,788** | [7. FACTORING](index=15&type=section&id=7.%20FACTORING) The company has a non-recourse accounts receivable factoring agreement, effective until October 31, 2022, with factoring fees ranging from **2.75% to 15%** based on collection days - The company has a non-recourse accounts receivable factoring agreement with a financial institution, effective until **October 31, 2022**[57](index=57&type=chunk) - Factoring fees range from **2.75% to 15%** of the invoice face value, depending on the number of days to collection[57](index=57&type=chunk) | Metric | Three Months Ended September 30, 2021 (USD) | Three Months Ended September 30, 2020 (USD) | Nine Months Ended September 30, 2021 (USD) | Nine Months Ended September 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Factoring fees | $1,055 | $15,934 | $33,302 | $81,164 | [8. NOTE RECEIVABLE](index=16&type=section&id=8.%20NOTE%20RECEIVABLE) The company provided a **$295,000** note receivable to Exponential Launch Partners (ELP) for an African contract, which is now in default and reclassified as a non-current asset, with a **$100,000** allowance for doubtful accounts - The company provided a **$295,000** note receivable to Exponential Launch Partners (ELP) to support an African contract[58](index=58&type=chunk) - The note is currently in default and was reclassified as a **non-current asset** on June 30, 2021[58](index=58&type=chunk) - The company has recorded a **$100,000 allowance for doubtful accounts** for this note[58](index=58&type=chunk) [9. PREPAID EXPENSES AND OTHER](index=16&type=section&id=9.%20PREPAID%20EXPENSES%20AND%20OTHER) Total prepaid expenses and other amounted to **$950,552** as of September 30, 2021, including approximately **$755,000** in inventory deposits for an African contract and EcoID II fingerprint readers | Item | September 30, 2021 (USD) | December 31, 2020 (USD) | | :--- | :--- | :--- | | Inventory deposits | $755,205 | $66,995 | | Other prepaid expenses | $141,793 | $64,178 | | Insurance | $17,754 | $45,468 | | Software licenses | $35,800 | $24,866 | | **Total Prepaid Expenses** | **$950,552** | **$201,507** | [10. INVENTORY](index=18&type=section&id=10.%20INVENTORY) Inventory, measured at the lower of cost (FIFO) or net realizable value, primarily consists of finished goods and work-in-process, significantly increasing to **$4,634,835** as of September 30, 2021, from **$330,947** at December 31, 2020 | Item | September 30, 2021 (USD) | December 31, 2020 (USD) | | :--- | :--- | :--- | | Finished goods | $4,459,012 | $221,130 | | Work-in-process | $175,823 | $109,817 | | **Total Inventory** | **$4,634,835** | **$330,947** | [11. RESALABLE SOFTWARE LICENSE RIGHTS](index=18&type=section&id=11.%20RESALABLE%20SOFTWARE%20LICENSE%20RIGHTS) The company purchased **$180,000** in third-party software licenses in 2015, amortized over 10 years or by actual unit cost, with a remaining book balance of **$51,294** as of September 30, 2021 - The company purchased **$180,000** in third-party software licenses in 2015[64](index=64&type=chunk) - As of September 30, 2021, **$128,706** had been amortized, leaving a book balance of **$51,294**[64](index=64&type=chunk) [12. INVESTMENT - DEBT SECURITY](index=18&type=section&id=12.%20INVESTMENT%20-%20DEBT%20SECURITY) A **$512,821** HKD-denominated bond certificate purchased in June 2020 matured in June 2021 but remains unpaid, leading to its reclassification as a non-current asset and a **$30,000** allowance for doubtful accounts - The company purchased a **$512,821** HKD-denominated bond certificate in June 2020, which matured in June 2021[65](index=65&type=chunk) - Due to non-receipt of principal and accrued interest, the debt security was reclassified as a **non-current asset** on September 30, 2021[65](index=65&type=chunk) - The company has recorded a **$30,000 allowance** for this debt security[65](index=65&type=chunk) [13. COMMITMENT](index=18&type=section&id=13.%20COMMITMENT) The company has a sales incentive agreement with Technology Transfer Institute (TTI) to pay **$500,000** in common stock for up to **$20 million** in contract revenue, with warrants issued for revenue exceeding that threshold - The company has a sales incentive agreement with TTI to pay **$500,000** in sales incentives, in the form of **62,500 shares of common stock**, for up to **$20 million** in contract revenue facilitated by TTI[67](index=67&type=chunk) - Warrants will be issued if revenue exceeds **$20 million** (up to **$25 million**)[68](index=68&type=chunk) - No revenue or sales incentives were generated or paid under this agreement for the nine months ended September 30, 2021, and 2020[70](index=70&type=chunk) [14. CONVERTIBLE NOTES PAYABLE](index=19&type=section&id=14.%20CONVERTIBLE%20NOTES%20PAYABLE) As of September 30, 2021, and December 31, 2020, the company had no outstanding convertible notes, with all notes issued in 2020 fully repaid through public offering proceeds - As of September 30, 2021, and December 31, 2020, the company had **no outstanding convertible notes payable**[71](index=71&type=chunk) - Convertible notes issued in May and June 2020 (totaling approximately **$4.226 million** in principal) were fully repaid in the third quarter of 2020 using proceeds from a public offering[85](index=85&type=chunk)[88](index=88&type=chunk) - On March 12, 2020, the company issued **$3,789,000** in amended notes, replacing original notes and accounted for as a debt extinguishment, resulting in the write-off of unamortized discounts and debt issuance costs[75](index=75&type=chunk) [15. LEASES](index=21&type=section&id=15.%20LEASES) The company leases office spaces in New Jersey, Hong Kong, Minnesota, and New Hampshire, with operating lease costs of **$63,973** for the three months ended September 30, 2021 - The company leases office spaces in New Jersey, Hong Kong, Minnesota, and New Hampshire, with lease terms expiring in **2023 and 2022**, respectively[89](index=89&type=chunk) | Metric | Three Months Ended September 30, 2021 (USD) | Nine Months Ended September 30, 2021 (USD) | | :--- | :--- | :--- | | Operating lease cost | $63,973 | $191,919 | | Operating lease right-of-use assets | - | $313,607 | | Operating lease liabilities, current portion | - | $206,004 | | Operating lease liabilities, non-current portion | - | $118,800 | | **Total Operating Lease Liabilities** | - | **$324,804** | [16. EARNINGS (LOSS) PER SHARE - COMMON STOCK ("EPS")](index=23&type=section&id=16.%20EARNINGS%20(LOSS)%20PER%20SHARE%20-%20COMMON%20STOCK%20(%22EPS%22)) Basic and diluted loss per share for the three and nine months ended September 30, 2021, were **$0.13** and **$0.39**, respectively, with numerous stock options and warrants excluded from diluted EPS due to anti-dilutive effects | Metric | Three Months Ended September 30, 2021 (USD) | Three Months Ended September 30, 2020 (USD) | Nine Months Ended September 30, 2021 (USD) | Nine Months Ended September 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Net loss attributable to common stockholders (basic and diluted) | $(1,023,647) | $(3,293,552) | $(3,036,761) | $(8,349,229) | | Basic and diluted loss per share | $(0.13) | $(0.51) | $(0.39) | $(2.28) | | Securities Excluded from Diluted EPS Calculation | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Stock options | 212,545 | 200,382 | 212,545 | 200,382 | | Warrants | 4,689,387 | 706,487 | 4,689,387 | 706,487 | | **Total** | **4,901,932** | **906,869** | **4,901,932** | **906,869** | [17. STOCKHOLDERS' EQUITY](index=24&type=section&id=17.%20STOCKHOLDERS'%20EQUITY) The company is authorized to issue **5 million** shares of preferred stock and **170 million** shares of common stock, with significant common stock issuances in 2020 from a public offering and convertible note conversions - The company is authorized to issue **5,000,000 shares of preferred stock** and **170,000,000 shares of common stock**[95](index=95&type=chunk)[96](index=96&type=chunk) - On July 23, 2020, the company completed a public offering, generating approximately **$22.7 million** in net proceeds and issuing **4,264,312 shares of common stock**[100](index=100&type=chunk) - For the first nine months of 2021, the company issued **5,727 shares of common stock** (valued at **$19,023**) to directors and **6,250 shares of restricted common stock** (valued at **$18,456**) to employees[102](index=102&type=chunk)[104](index=104&type=chunk) - In the first quarter of 2020, a down-round anti-dilution feature of 2015 warrants was triggered, increasing exercisable common shares to **48,078** at an exercise price of **$5.20 per share**, and recording a **$41,688 non-cash deemed dividend**[111](index=111&type=chunk) [18. FAIR VALUES OF FINANCIAL INSTRUMENTS](index=26&type=section&id=18.%20FAIR%20VALUES%20OF%20FINANCIAL%20INSTRUMENTS) The carrying amounts of the company's cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, factored receivables, notes payable, and operating lease liabilities approximate their fair values - The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, factored receivables, notes payable, and operating lease liabilities approximate their fair values[112](index=112&type=chunk) [19. MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE](index=26&type=section&id=19.%20MAJOR%20CUSTOMERS%20AND%20ACCOUNTS%20RECEIVABLE) For the three months ended September 30, 2021, one customer accounted for **28%** of revenue, while a Nigerian customer represented **41%** of current accounts receivable as of September 30, 2021 - For the three months ended September 30, 2021, one customer contributed **28% of revenue**; for the nine months, one customer contributed **16% of revenue**[113](index=113&type=chunk) - As of September 30, 2021, a Nigerian customer accounted for **41% of current accounts receivable**, and a second customer accounted for **26%**[114](index=114&type=chunk) - The Nigerian customer's payment terms have been verbally modified, with payment processing contingent on World Bank and local bank task completion[114](index=114&type=chunk) [20. SUBSEQUENT EVENTS](index=26&type=section&id=20.%20SUBSEQUENT%20EVENTS) As of November 11, 2021, the company issued **1,615 shares of common stock** to directors for meeting fees and **6,875 restricted shares** to three new employees with a three-year vesting period - On November 11, 2021, the company issued **1,615 shares of common stock** to directors as meeting fees[115](index=115&type=chunk) - The company issued a total of **6,875 restricted shares** to three new employees, with a three-year vesting period[115](index=115&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Conditions and Results of Operations](index=27&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Conditions%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of the company's financial condition and operating results, including business overview, strategic outlook, recent developments, key accounting policies, recent accounting pronouncements, operating performance, liquidity, capital resources, and off-balance sheet arrangements [OVERVIEW](index=27&type=section&id=OVERVIEW) BIO-key is a leading Identity Access Management (IAM) platform provider, offering secure access solutions for enterprises and large-scale customers using biometrics and other strong authentication factors through its PortalGuard® and hosted PortalGuard IDaaS platforms - The company is a leading Identity Access Management (IAM) platform provider, leveraging its biometric core platform and **14 other strong authentication factors**[120](index=120&type=chunk) - The company operates on a **SaaS business model**, with customers subscribing to software for annual recurring revenue[126](index=126&type=chunk) - Subscription fees are primarily based on product usage and the number of registered users on the platform, with an average contract term of approximately **one year**[126](index=126&type=chunk) [Strategic Outlook and Recent Developments](index=28&type=section&id=Strategic%20Outlook%20and%20Recent%20Developments) The company's strategic focus is to expand market share in highly regulated industries like government, financial services, and healthcare, with plans to grow biometric authentication in election offices and pursue strategic acquisitions - The company's strategic focus is to expand market share in highly regulated industries such as **government, financial services, and healthcare**[128](index=128&type=chunk)[131](index=131&type=chunk) - The company has secured large-scale identification project contracts in Africa and Nigeria totaling **$75 million**[129](index=129&type=chunk) - Key sales strategies include increasing IAM marketing, actively pursuing global large-scale identification projects, and developing channel alliance programs[132](index=132&type=chunk) - The company plans to drive growth through **strategic acquisitions** of selected businesses and assets in the IAM space[133](index=133&type=chunk) - The COVID-19 pandemic has increased demand for secure remote work solutions, with biometrics playing a critical role in remote user authentication[135](index=135&type=chunk) [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) Detailed information on the company's critical accounting policies and estimates can be found in the notes to the financial statements within this report and the Form 10-K annual report for the period ended December 31, 2020 - No material changes were made to critical accounting policies and estimates in this report[137](index=137&type=chunk) [Recent Accounting Pronouncements](index=29&type=section&id=Recent%20Accounting%20Pronouncements) Detailed information on recent accounting pronouncements is provided in the notes to the condensed consolidated financial statements in Part I, Item 1 of this report [RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2021, AS COMPARED TO SEPTEMBER 30, 2020](index=29&type=section&id=RESULTS%20OF%20OPERATIONS%20-%20THREE%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202021%2C%20AS%20COMPARED%20TO%20SEPTEMBER%2030%2C%202020) For the three months ended September 30, 2021, total revenue increased by **38%** to **$1,298,829**, driven by a **151%** rise in license fees, while net other income (expense) significantly improved **Revenue and Cost of Sales (Three Months Ended September 30, 2021, Compared to September 30, 2020) (USD)** | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Services Revenue | $318,500 | $491,535 | $(173,035) | -35% | | License Revenue | $870,459 | $346,479 | $523,980 | 151% | | Hardware Revenue | $109,870 | $105,311 | $4,559 | 4% | | **Total Revenue** | **$1,298,829** | **$943,325** | **$355,504** | **38%** | | Services Cost | $176,976 | $173,823 | $3,153 | 2% | | License Cost | $45,986 | $10,775 | $35,211 | 327% | | Hardware Cost | $71,712 | $27,011 | $44,701 | 165% | | **Total Cost of Sales** | **$294,674** | **$211,609** | **$83,065** | **39%** | **Operating Expenses (Three Months Ended September 30, 2021, Compared to September 30, 2020) (USD)** | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Selling, General and Administrative | $1,385,534 | $1,490,241 | $(104,707) | -7% | | Research and Development | $612,597 | $331,213 | $281,384 | 85% | | **Other Income (Expense), Net** | **$(29,671)** | **$(2,203,814)** | **$2,174,143** | **99%** | [RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2020, AS COMPARED TO SEPTEMBER 30, 2019](index=31&type=section&id=RESULTS%20OF%20OPERATIONS%20-%20NINE%20MONTHS%20ENDED%20SEPTEMBER%2030%2C%202020%2C%20AS%20COMPARED%20TO%20SEPTEMBER%2030%2C%202019) For the nine months ended September 30, 2021, total revenue surged by **136%** to **$4,179,557**, driven by strong growth in license fees (**232%**) and hardware sales (**395%**), while net other income (expense) significantly improved **Revenue and Cost of Sales (Nine Months Ended September 30, 2021, Compared to September 30, 2020) (USD)** | Metric | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Services Revenue | $985,163 | $928,561 | $56,602 | 6% | | License Revenue | $2,011,610 | $605,366 | $1,406,244 | 232% | | Hardware Revenue | $1,182,784 | $239,025 | $943,759 | 395% | | **Total Revenue** | **$4,179,557** | **$1,772,952** | **$2,406,605** | **136%** | | Services Cost | $511,360 | $336,940 | $174,420 | 52% | | License Cost | $133,328 | $29,486 | $103,842 | 352% | | Hardware Cost | $656,190 | $117,900 | $538,290 | 457% | | **Total Cost of Sales** | **$1,300,878** | **$484,326** | **$816,552** | **169%** | **Operating Expenses (Nine Months Ended September 30, 2021, Compared to September 30, 2020) (USD)** | Metric | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Selling, General and Administrative | $4,276,016 | $4,083,568 | $192,448 | 5% | | Research and Development | $1,545,200 | $986,675 | $558,525 | 57% | | **Other Income (Expense), Net** | **$(94,224)** | **$(4,454,926)** | **$4,360,702** | **99%** | [LIQUIDITY AND CAPITAL RESOURCES](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) For the nine months ended September 30, 2021, the company experienced net cash outflows from operating, investing, and financing activities, resulting in a decrease in cash and cash equivalents to **$9.6 million** from **$17 million** at December 31, 2020 - For the nine months ended September 30, 2021, net cash used in operating activities was approximately **$7,108,000**[161](index=161&type=chunk) - For the nine months ended September 30, 2021, net cash used in investing activities was approximately **$38,000** for capital expenditures[164](index=164&type=chunk) - For the nine months ended September 30, 2021, net cash used in financing activities was approximately **$255,000**, primarily for promissory note repayments[166](index=166&type=chunk) - On July 23, 2020, the company completed a public offering, generating approximately **$22.7 million** in net proceeds, with about **$4.2 million** used to repay convertible notes[169](index=169&type=chunk) **Cash and Cash Equivalents (USD)** | Date | Amount | | :--- | :--- | | September 30, 2021 | $9,600,000 | | December 31, 2020 | $17,000,000 | - The company requires approximately **$710,000 per month** for operations, and 2021 nine-month revenue (**$4,179,557**) was below this requirement[172](index=172&type=chunk) - As of the filing date, the company anticipates **no need for additional financing** within the next twelve months[172](index=172&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements that could have a current or future material effect on its financial condition or results of operations - The company has no off-balance sheet arrangements that could have a current or future material effect on its financial condition or results of operations[174](index=174&type=chunk) [Item 4 Controls and Procedures](index=35&type=section&id=Item%204%20Controls%20and%20Procedures) This section discusses the effectiveness of the company's disclosure controls and procedures and changes in internal control over financial reporting as of September 30, 2021 [Disclosure Controls and Procedures](index=35&type=section&id=Disclosure%20Controls%20and%20Procedures) As of September 30, 2021, the company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective at a reasonable assurance level - As of September 30, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level[176](index=176&type=chunk) [Changes in Internal Control Over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) There were no material changes in the company's internal control over financial reporting during the quarter ended September 30, 2021 - There were no material changes in the company's internal control over financial reporting during the quarter ended September 30, 2021[178](index=178&type=chunk) PART II. OTHER INFORMATION [Item 6 Exhibits](index=37&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, including certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL data files - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Securities Exchange Act and 18 U.S.C. Section 1350[179](index=179&type=chunk) - Exhibits also include Inline XBRL instance, taxonomy extension schema, calculation, definition, label, and presentation files[179](index=179&type=chunk) [Signatures](index=38&type=section&id=Signatures) This report was formally signed by Michael W. DePasquale, Chief Executive Officer, and Cecilia Welch, Chief Financial Officer of BIO-key International, Inc. on November 15, 2021 - The report was signed by Chief Executive Officer Michael W. DePasquale and Chief Financial Officer Cecilia Welch on **November 15, 2021**[182](index=182&type=chunk)

BIO-key International, Inc. (NASDAQ:BKYI) Q2 2021 Earnings Conference Call August 17, 2021 10:00 AM ET Company Participants Kimberly Johnson - VP, Product Marketing Michael DePasquale - Chairman and CEO Fred Corsentino - Chief Revenue Officer Cecilia Welch - Chief Financial Officer Conference Call Participants Jack Vander Aarde - Maxim Group Operator Good morning, ladies and gentlemen. And thank you for standing by and welcome to BIO-key International’s Second Quarter 2021 Conference Call. During management ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis of financial condition, and disclosures on internal controls [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201%E2%80%94Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, highlighting significant revenue growth, narrowed net losses, and strategic investments in inventory [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a comparative overview of the company's financial position at two distinct periods Balance Sheet Comparison (as of June 30, 2021 vs. December 31, 2020) | Financial Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $11,479,691 | $16,993,096 | | Accounts receivable, net | $1,347,677 | $548,049 | | Inventory | $2,290,628 | $330,947 | | Total current assets | $17,292,416 | $18,941,873 | | TOTAL ASSETS | $20,943,710 | $22,520,572 | | **Liabilities & Equity** | | | | Total current liabilities | $2,211,252 | $1,876,303 | | TOTAL LIABILITIES | $2,444,662 | $2,185,453 | | TOTAL STOCKHOLDERS' EQUITY | $18,499,048 | $20,335,119 | - Key changes from year-end 2020 include a **$5.5 million** decrease in cash, a significant increase in accounts receivable and inventory, and a **$1.8 million** decrease in total stockholders' equity[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, gross profit, and net loss over specified periods Statement of Operations Highlights (Unaudited) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $992,090 | $307,142 | $2,880,728 | $829,627 | | Gross Profit | $752,521 | $158,688 | $1,874,524 | $556,910 | | Operating Loss | ($1,112,515) | ($1,371,813) | ($1,948,561) | ($2,691,879) | | Net Loss | ($1,161,683) | ($1,572,709) | ($2,013,114) | ($4,942,991) | | Basic & Diluted Loss Per Share | ($0.15) | ($0.60) | ($0.26) | ($2.24) | - Revenues for the second quarter and first six months of 2021 grew by **223%** and **247%** year-over-year, respectively. Net losses narrowed significantly in both periods, and loss per share improved accordingly[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for the Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used for operating activities | ($5,242,477) | ($1,969,640) | | Net cash used for investing activities | ($15,700) | ($1,906,042) | | Net cash (used in) provided by financing activities | ($255,228) | $4,683,333 | | **Net (Decrease) Increase in Cash** | **($5,513,405)** | **$807,651** | - The company experienced a significant net cash decrease of **$5.5 million** in the first six months of 2021, contrasted with a net cash increase in the same period of 2020. The cash outflow was primarily driven by operating activities, including a large investment in inventory and prepayments[24](index=24&type=chunk)[174](index=174&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations supporting the condensed consolidated financial statements - **Going Concern:** The company requires approximately **$735,000** per month for operations. While revenue has not consistently met this level, management believes its cash balance of **$11.5 million** as of June 30, 2021, is sufficient to fund operations for at least the next twelve months[43](index=43&type=chunk) - **PistolStar Acquisition:** The company acquired PistolStar, Inc. on June 30, 2020, for a total price of **$2.5 million**, consisting of **$2.0 million** in cash and a **$500,000** promissory note. The note was fully paid in January 2021[60](index=60&type=chunk)[62](index=62&type=chunk) - **Inventory and Prepayments:** As of June 30, 2021, the company had made significant investments in inventory (**$2.3 million**) and prepaid deposits for hardware (**$1.4 million**), primarily to support recently secured license contracts in Africa[72](index=72&type=chunk)[74](index=74&type=chunk) - **Major Customers:** The company has significant customer concentration. For the first six months of 2021, two customers accounted for **34%** of total revenue. As of June 30, 2021, two customers represented **47%** and **19%** of accounts receivable[121](index=121&type=chunk)[122](index=122&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=28&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITIONS%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial performance, attributing revenue growth to acquisitions and African projects, while addressing liquidity and strategic outlook [Overview and Strategic Outlook](index=28&type=section&id=Overview%20and%20Strategic%20Outlook) This section provides an overview of the company's business model and its key strategic initiatives for future growth - The company is an Identity Access Management (IAM) platform provider, offering solutions like PortalGuard® for enterprise, customer, and civil ID applications[129](index=129&type=chunk) - Key strategic developments include securing two large-scale identification project contracts in Africa valued at a combined **$75 million**, with initial purchase orders received in late 2020 and early 2021[138](index=138&type=chunk) - Primary growth strategies are focused on: (i) increased marketing into the IAM market, (ii) pursuing large-scale identification projects globally, and (iii) expanding the channel alliance program[141](index=141&type=chunk) [Results of Operations (Q2 2021 vs. Q2 2020)](index=30&type=section&id=Results%20of%20Operations%20(Q2%202021%20vs.%20Q2%202020)) This section analyzes the company's financial performance for the second quarter of 2021 compared to the prior year Q2 Revenue Comparison (in thousands) | Revenue Type | Q2 2021 | Q2 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Service | $286.6 | $229.5 | $57.1 | 25% | | License | $662.2 | $23.5 | $638.7 | 2,713% | | Hardware | $43.3 | $54.1 | ($10.8) | -20% | | **Total Revenue** | **$992.1** | **$307.1** | **$685.0** | **223%** | - The dramatic increase in Q2 revenue was driven by a **2,713%** surge in license revenue, largely from PistolStar software and cloud migrations, particularly in the higher education market[151](index=151&type=chunk) - Selling, general and administrative (SG&A) expenses increased **13%** to **$1.37 million**, while Research, development and engineering (R&D) costs rose **54%** to **$491,000**, mainly due to costs associated with the PistolStar acquisition and new product development[154](index=154&type=chunk)[155](index=155&type=chunk) [Results of Operations (H1 2021 vs. H1 2020)](index=34&type=section&id=Results%20of%20Operations%20(H1%202021%20vs.%20H1%202020)) This section analyzes the company's financial performance for the first half of 2021 compared to the prior year H1 Revenue Comparison (in thousands) | Revenue Type | H1 2021 | H1 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Service | $666.7 | $437.0 | $229.7 | 53% | | License | $1,141.2 | $258.9 | $882.3 | 341% | | Hardware | $1,072.9 | $133.7 | $939.2 | 702% | | **Total Revenue** | **$2,880.7** | **$829.6** | **$2,051.1** | **247%** | - The **702%** increase in hardware sales during the first half of 2021 was primarily attributable to sales in Nigeria for an international government agency[166](index=166&type=chunk) - Operating expenses increased moderately, with SG&A up **11%** and R&D up **42%**, reflecting the integration of PistolStar and investments in marketing and personnel[168](index=168&type=chunk)[170](index=170&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, cash flow activities, and ability to meet its financial obligations - Cash and cash equivalents decreased from **$17.0 million** at Dec 31, 2020, to **$11.5 million** at June 30, 2021[180](index=180&type=chunk) - Net cash used in operations for H1 2021 was approximately **$5.2 million**, largely due to a **$4.3 million** use of cash for working capital, including a **$4 million** investment in inventory and deposits to support African contracts[173](index=173&type=chunk)[174](index=174&type=chunk)[179](index=179&type=chunk) - The company requires approximately **$735,000** per month to operate. Despite not consistently achieving this through revenue, management believes current cash reserves are sufficient for the next twelve months[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls during the quarter - Based on an evaluation as of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[185](index=185&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[186](index=186&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes additional information such as exhibits filed with the report [Item 6. Exhibits](index=39&type=section&id=Item%206%E2%80%94Exhibits.) This section lists the exhibits filed with the Form 10-Q, including required certifications and financial data files - The exhibits filed include certifications by the CEO and CFO as required by Rule 13a-15(f) and 18 U.S.C. Section 1350, along with Inline XBRL financial data files[188](index=188&type=chunk)

U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the Transition Period from to Commission file number 1-13463 BIO-KEY INTERNATIONAL, INC. (Exact Name of registrant as specified in its charter) DELAWARE 41-1741861 (State or Other Jurisdiction of Incorporation of Organization) (IRS Employe ...

BIO-key International, Inc. (NASDAQ:BKYI) Q1 2021 Earnings Conference Call May 14, 2021 10:00 AM ET Company Participants Kimberly Johnson - VP, Product Marketing Michael W. DePasquale - Chairman and CEO Fred Corsentino - CRO Cecilia Welch - CFO Conference Call Participants Jack Vander Aarde - Maxim Group Unidentified Analyst - Private Investor Operator Good morning, ladies and gentlemen. Thank you for standing by and welcome to BIO-key International’s First Quarter 2021 Conference Call. During management’s ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) BIO-key International, Inc. is an Identity and Access Management (IAM) platform provider, offering secure, passwordless access solutions - BIO-key is an Identity and Access Management (IAM) platform provider specializing in secure, passwordless access solutions for enterprise, education, and government customers[15](index=15&type=chunk) - On June 30, 2020, the company acquired PistolStar, Inc. for **$2.5 million**, adding the PortalGuard line of software and services to its portfolio[25](index=25&type=chunk) - The company's core products include PortalGuard® (enterprise IAM), WEB-key® (large-scale biometric ID), and accessory hardware like fingerprint scanners[15](index=15&type=chunk) - The business model focuses on organic growth and strategic acquisitions, with a sales strategy that includes direct sales, a Channel Alliance Partner (CAP) program, and OEM agreements[51](index=51&type=chunk)[53](index=53&type=chunk)[46](index=46&type=chunk) | Category | 2020 | 2019 | | :--- | :--- | :--- | | **Research & Development Expenses** | $1,396,436 | $1,331,667 | [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks, including substantial operating losses and the need for wider market acceptance of its biometric technology - The company has a history of significant operating losses, with an accumulated deficit of approximately **$99 million** as of December 31, 2020[99](index=99&type=chunk) - The COVID-19 pandemic poses a significant risk, having already extended sales cycles, delayed deployments, and created uncertainty that could materially affect business operations and financial condition[137](index=137&type=chunk)[139](index=139&type=chunk) - There are risks associated with integrating the newly acquired PistolStar, including potential difficulties in managing the business, retaining customers and employees, and realizing expected synergies[149](index=149&type=chunk)[150](index=150&type=chunk) - A substantial number of outstanding options and warrants (approximately **4,917,000 shares** reserved) could lead to significant dilution for existing stockholders upon exercise[160](index=160&type=chunk) - The company faces risks in international operations, including currency fluctuations and difficulties in enforcing contract rights and collecting receivables, particularly in Asia and Africa[114](index=114&type=chunk)[117](index=117&type=chunk) [Description of Property](index=26&type=section&id=Item%202.%20Description%20of%20Property) The company leases all its properties, with key operational sites in New Jersey, Minnesota, New Hampshire, Hong Kong, and China - The company leases all its properties, with key locations in Wall, NJ (corporate HQ); Eagan, MN and Bedford, NH (R&D); Tsuen Wan, Hong Kong (warehouse/sales); and Jiangmen, China (hardware R&D/manufacturing)[174](index=174&type=chunk) [Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings) As of the report date, BIO-key International, Inc. is not a party to any pending lawsuits - As of the report date, the company is not a party to any pending lawsuits[177](index=177&type=chunk) [Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[178](index=178&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'BKYI', with 112 stockholders of record and no plans for cash dividends - Common stock is traded on the Nasdaq Capital Market under the symbol **'BKYI'**[181](index=181&type=chunk) - As of March 26, 2021, there were **112 stockholders of record**[182](index=182&type=chunk) - The company has never paid cash dividends and does not intend to in the foreseeable future[183](index=183&type=chunk) [Selected Financial Data](index=29&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as the company is a smaller reporting company - Not Applicable[186](index=186&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, total revenue grew 25% to $2.84 million, driven by service and license fees, with liquidity improved by a July 2020 public offering | Metric | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $2,836,782 | $2,267,528 | $569,254 | 25% | | Service Revenue | $1,432,228 | $925,245 | $506,983 | 55% | | License Fees | $962,038 | $442,649 | $519,389 | 117% | | Hardware Revenue | $442,516 | $899,634 | ($457,118) | -51% | | **Gross Profit (Loss)** | $2,041,956 | ($193,717) | - | - | | **Operating Loss** | ($5,203,167) | ($13,519,720) | - | - | | **Net Loss** | ($9,673,987) | ($14,588,700) | - | - | - The increase in service and license revenue was largely due to the acquisition of PistolStar in the second half of 2020[209](index=209&type=chunk)[210](index=210&type=chunk) - The company secured two large contracts in Africa valued at a combined **$75 million**, with the first purchase order received in Q4 2020, expected to ship in H1 2021 upon prepayment[198](index=198&type=chunk) - A July 2020 underwritten public offering resulted in net proceeds of approximately **$22.7 million**, significantly improving the company's liquidity, with cash and cash equivalents increasing from **$79,013** at year-end 2019 to **$16,993,096** at year-end 2020[239](index=239&type=chunk)[241](index=241&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a smaller reporting company - Not Applicable[249](index=249&type=chunk) [Financial Statements and Supplementary Data](index=41&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2020 and 2019, including the independent auditor's report and detailed notes - The independent auditor's report identified two critical audit matters: Revenue Recognition due to significant judgment in contracts with multiple performance obligations, and the PistolStar, Inc. Acquisition due to judgment in determining the fair value of acquired intangible assets[344](index=344&type=chunk)[348](index=348&type=chunk) | Balance Sheet Item | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | $22,520,572 | $2,496,698 | | Cash and cash equivalents | $16,993,096 | $79,013 | | Goodwill | $1,262,526 | $0 | | **Total Liabilities** | $2,185,453 | $4,781,871 | | **Total Stockholders' Equity (Deficit)** | $20,335,119 | ($2,285,173) | | Cash Flow Item | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash used for operating activities | ($4,950,108) | ($1,850,347) | | Net cash used for investing activities | ($2,229,821) | ($543,310) | | Net cash provided by financing activities | $24,094,012 | $2,148,727 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=41&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes or disagreements occurred with the company's accountants regarding accounting principles or financial disclosure - None[250](index=250&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[251](index=251&type=chunk) - Management concluded that the internal control over financial reporting was effective as of December 31, 2020[253](index=253&type=chunk) [Other Information](index=41&type=section&id=Item%209B.%20Other%20Information) There was no other information to report in this section - None[256](index=256&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=42&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's directors, executive officers, and Board committee composition, including the audit committee financial expert - The report lists key executive officers: Michael W. DePasquale (Chairman & CEO), Cecilia Welch (CFO), Mira K. LaCous (CTO), and James Sullivan (Chief Legal Officer)[259](index=259&type=chunk) - The Audit Committee is comprised of independent directors Robert J. Michel (Chair), Pieter Knook, and Emmanuel Alia; Mr. Michel is qualified as an 'audit committee financial expert'[273](index=273&type=chunk) - The company has adopted a Code of Ethics for its principal executive and financial officers to promote honest and ethical conduct and compliance[277](index=277&type=chunk) [Executive Compensation](index=46&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation includes base salary, performance bonuses, and equity awards, detailing CEO, CTO, employment agreements, and non-employee director fees | Name | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Michael W. DePasquale, CEO | 2020 | 275,000 | 50,000 | 21,450 | 348,669 | | Mira K. LaCous, CTO | 2020 | 213,000 | - | 21,450 | 236,943 | | James Sullivan, CLO | 2020 | 150,000 | 35,000 | 21,450 | 343,688 | - In 2020, due to extraordinary efforts during the pandemic and the PistolStar acquisition, CEO DePasquale and CLO Sullivan received cash bonuses of **$50,000** and **$35,000**, respectively[290](index=290&type=chunk) - Non-employee directors are compensated with fees per meeting attended, which are primarily paid through the issuance of common stock[310](index=310&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=51&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details security ownership by major beneficial owners, directors, and officers, and securities authorized under equity compensation plans | Name of Beneficial Owner | Percentage of Class | | :--- | :--- | | Wong Kwok Fong (Kelvin) | 7.4% | | Lind Global Micro Fund, LP | 9.6% | | All officers and directors as a group (10 persons) | 9.6% | | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities remaining for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 94,183 | $10.73 | 36,086 | | Equity compensation plans not approved by security holders | 133,091 | $22.48 | — | | **Total** | **227,274** | **$17.61** | **36,086** | [Certain Relationships and Related Transactions, and Director Independence](index=54&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company discloses related party transactions, including advances from a director and CEO, a sales incentive agreement, and independent director determinations - The company received non-interest-bearing advances from director Wong Kwok Fong (**$217,360**) and CEO Michael DePasquale (**$114,000**), which were fully repaid during fiscal year 2020[322](index=322&type=chunk)[323](index=323&type=chunk) - A sales incentive agreement exists with Technology Transfer Institute (TTI), whose CEO at the time of the agreement was director Manny Alia[324](index=324&type=chunk) - The Board has determined that directors Robert Michel, Pieter Knook, Emmanuel Alia, Thomas Bush, III, and Thomas Gilley are independent[326](index=326&type=chunk) [Principal Accountant Fees and Services](index=56&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section details fees billed by the principal accountant, RMSBG, for 2020 and 2019, categorized into Audit, Audit-Related, and Tax Fees, all pre-approved by the Audit Committee | Fee Category | 2020 | 2019 | | :--- | :--- | :--- | | Audit Fees | $124,200 | $104,743 | | Audit-Related Fees | $76,925 | $7,204 | | Tax Fees | $16,000 | $18,500 | | **Total Fees** | **$217,125** | **$130,447** | - All audit and non-audit services provided by the independent auditor were pre-approved by the Audit Committee[331](index=331&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=56&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K report, including financial statements, corporate governance, and executive certifications - This section provides an index of all exhibits filed with the 10-K, including corporate governance documents, material contracts, and executive certifications[335](index=335&type=chunk)[535](index=535&type=chunk) [Form 10-K Summary](index=58&type=section&id=Item%2016.%20Form%2010-K%20Summary) There is no Form 10-K summary provided in this report - None[337](index=337&type=chunk)

Financial Data and Key Metrics Changes - Q4 2020 revenues doubled to $1.1 million from $535,000 in Q4 2019, primarily due to PortalGuard's contribution [27][38] - Full year 2020 revenues increased 25% to $2.8 million from $2.3 million in 2019, largely driven by the PortalGuard acquisition [27][38] - Gross margin improved to 71% in Q4 and 72% for the full year, compared to negative levels in prior years [38] - Q4 operating loss improved 34% to $1.4 million from a loss of $2.2 million in Q4 2019 [39] - Net loss to stockholders was $1.4 million or $0.18 per share in Q4 2020, compared to a net loss of $9.5 million or $5.29 per share in Q4 2019 [40] Business Line Data and Key Metrics Changes - The acquisition of PortalGuard significantly enhanced the company's security, ID, and authentication solutions, contributing to second-half performance [9][10] - The company launched PortalGuard IDaaS in Q4 2020, which has been well received in the market [14] - The company is focusing on expanding its sales and marketing initiatives for its biometric and identity management solutions [12][30] Market Data and Key Metrics Changes - The company anticipates revenues of $8 million to $12 million for 2021, representing over 250% growth compared to fiscal 2020 [28] - The company sees significant upside potential from its African business, particularly in Nigeria [45][88] - The company is developing interest in its solutions across North America, Africa, and Asia [27] Company Strategy and Development Direction - The company is ramping up its sales and marketing initiatives to engage with a growing list of customer prospects [12] - The focus is on a software-as-a-service model for PortalGuard to align with the trend towards cloud-based IT infrastructure [30] - The company is expanding its Channel Alliance Partner Program to enhance market reach and support [32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong financial position and a growing pipeline of opportunities [25][27] - The company believes that hybrid work models are here to stay, creating significant IT security challenges that it is well-positioned to address [15][36] - Management noted that the pandemic has accelerated the demand for identity and access management solutions [10][16] Other Important Information - The company has established a presence in large projects in Africa and is pursuing additional opportunities [21] - The company has a strong balance sheet with over $19 million in current assets, including approximately $17 million in cash [42] Q&A Session Summary Question: Can you provide more color on the revenue guidance for 2021? - Management indicated that the guidance of $8 million to $12 million is conservative, with significant upside potential from the African business [44][46] Question: What are the expected growth rates for the core BIO-key business versus PortalGuard? - Management expects both businesses to grow together, with significant growth anticipated in the PortalGuard platform [48][49] Question: What is the confidence level for recognizing the $500,000 revenue from Africa contracts in Q1? - Management expressed high confidence in recognizing the revenue [54] Question: Can you quantify the backlog or pipeline? - Management stated that the backlog is growing, with significant opportunities in both Africa and the core business [60][61] Question: What is the status of the telecom deal in Africa? - Management confirmed that both contracts are moving forward [70] Question: What is the expected breakeven revenue number going forward? - Management indicated that the breakeven number is now estimated to be around $2 million to $2.2 million [75] Question: What is the expected revenue from the African contracts over the next two years? - Management confirmed the expectation of $75 million over the two-year period, with a gradual ramp-up [88]