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BIO-key(BKYI) - 2018 Q4 - Annual Report

Part I Business BIO-key develops and markets advanced fingerprint biometric identification technologies, software, and hardware for diverse markets - The company develops and markets advanced fingerprint biometric identification technologies, along with related hardware and software solutions, targeting commercial, government, and consumer markets1415 - Key software products include the ID Director™ suite for single sign-on integration, the Vector Segment Technology™ (VST) SDK for developers, and the WEB-key® platform for secure cloud-based authentication303441 - The company markets a range of hardware products, including USB finger scanners (SideSwipe™, EcoID™, SideTouch™) compatible with Microsoft Windows Hello, and biometric-enabled locks (TouchLock™)162138 - BIO-key holds numerous U.S. patents for its core technologies, including VST™, a biometric authentication security framework, and image processing methods, with expiration dates ranging from 2022 to 2035454655 Research and Development Expenses | Year | R&D Expense ($) | | :--- | :--- | | 2018 | $1,415,401 | | 2017 | $1,659,875 | Risk Factors Significant risks include going concern doubt, financing needs, limited market acceptance, and intense competition - The company's independent registered public accounting firm has expressed substantial doubt about its ability to continue as a going concern due to a history of losses and limited revenue8687 - As of December 31, 2018, the company had an accumulated deficit of approximately $75.1 million and requires about $537,000 per month for operations, a level it has not consistently achieved through revenue89119 - The market for biometric technology has limited acceptance, and the company's success depends on its adoption over traditional security methods like passwords and tokens9192 - The company faces intense competition from established biometric companies and providers of traditional access control, many of whom have substantially greater financial and marketing resources102103 - A substantial number of outstanding securities (approximately 5.6 million shares reserved for options and warrants) could be converted into common stock, leading to significant dilution for existing shareholders128129 - The company's common stock may be delisted from Nasdaq if it fails to meet the minimum closing bid price requirement of $1.00 per share, which could negatively impact liquidity and access to capital134135 Properties The company leases all its operational facilities across the U.S., Hong Kong, and China - The company leases all its operational facilities, with locations in the U.S. (Minnesota and New Jersey) and internationally (Hong Kong and China)145 Legal Proceedings The company is not currently involved in any pending litigation - The company is not currently involved in any pending litigation146 Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable147 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on Nasdaq; the company has 140 stockholders and does not pay cash dividends - Common stock trades on the Nasdaq Capital Market under the symbol "BKYI"150 - As of March 27, 2019, there were 140 stockholders of record151 - The company has not paid and does not intend to pay cash dividends in the foreseeable future152 Selected Financial Data This item is not applicable as the company qualifies as a smaller reporting company - Not Applicable155 Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased 36% to $4.0 million in 2018, widening operating loss and raising significant liquidity concerns Results of Operations (2018 vs. 2017) | Financial Metric | 2018 ($) | 2017 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $4,044,542 | $6,302,984 | -36% | | Gross Profit (Loss) | ($119,648) | $3,060,833 | N/A | | Operating Loss | ($6,868,955) | ($4,275,365) | 61% | | Net Loss | ($6,868,875) | ($4,275,338) | 61% | - Revenue from license fees decreased by 46% to $1.7 million in 2018, mainly because a large 2017 order was not repeated at the same scale in 2018183 - Hardware sales decreased by 32% to $1.3 million in 2018 due to fewer large customer deployments and lower retail sales of fingerprint readers and biometric locks184 - The company requires approximately $537,000 per month for operations. With 2018 revenue of ~$4.0 million, it fell short of covering its monthly requirements, necessitating additional financing200 - The company adopted the new revenue recognition standard, ASC 606, on January 1, 2018, using the modified retrospective method. This resulted in capitalizing certain sales commission costs206216 Financial Statements and Supplementary Data Audited financials show recurring losses, a 'going concern' warning, declining assets, and widening net loss - The Report of Independent Registered Public Accounting Firm contains a 'Going Concern' paragraph, citing substantial net losses, an accumulated deficit, and dependency on financing as factors that raise substantial doubt about the company's ability to continue as a going concern239 Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $323,943 | $288,721 | | Total current assets | $4,229,297 | $7,014,033 | | Total Assets | $11,692,332 | $16,078,822 | | Total current liabilities | $1,226,110 | $2,325,527 | | Total Stockholders' Equity | $10,466,222 | $13,753,295 | Consolidated Statement of Operations Data (for year ended Dec 31) | Metric | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | Total revenues | $4,044,542 | $6,302,984 | | Gross Profit (Loss) | ($119,648) | $3,060,833 | | Operating loss | ($6,868,955) | ($4,275,365) | | Net loss | ($6,868,875) | ($4,275,338) | | Basic and Diluted Loss per Share | ($0.73) | ($0.76) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - None reported223 Controls and Procedures Management concluded disclosure controls and internal financial reporting controls were effective as of December 31, 2018 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2018224 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018226 - As a smaller reporting company, the annual report does not include an attestation report from its registered public accounting firm regarding internal control over financial reporting227 Other Information No other information to report for this period - None229 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy - Information is incorporated by reference from the 2019 Proxy Statement230 Executive Compensation Executive and director compensation information is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement231 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan information is incorporated by reference from the 2019 Proxy Statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the 2019 Proxy Statement231232 Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement233 Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement234 Part IV Exhibits and Financial Statement Schedules This section lists financial statements and provides an index to all exhibits filed with the Form 10-K - This section lists the financial statements and provides an index to all exhibits filed with the Form 10-K235412 Form 10-K Summary No summary is provided in this section of the Form 10-K - None235