BIO-key(BKYI) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION 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 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 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] Condensed Consolidated Statements of Operations 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] Condensed Consolidated Statements of Cash Flows 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][174] Notes to Condensed Consolidated Financial Statements 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] - 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][62] - 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][74] - 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][122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, attributing revenue growth to acquisitions and African projects, while addressing liquidity and strategic outlook Overview and Strategic Outlook 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] - 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] - 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] Results of Operations (Q2 2021 vs. Q2 2020) 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] - 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][155] Results of Operations (H1 2021 vs. H1 2020) 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] - 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][170] Liquidity and Capital Resources 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] - 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][174][179] - 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] Item 4. Controls and Procedures 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] - 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] PART II. OTHER INFORMATION This section includes additional information such as exhibits filed with the report Item 6. Exhibits 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]