BIO-key(BKYI) - 2021 Q3 - Quarterly Report

Report Information Filing Details 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] - As of November 12, 2021, 7,833,789 shares of common stock were outstanding[2] PART I. FINANCIAL INFORMATION Item 1 Condensed Consolidated Financial Statements (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) 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 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 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 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 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 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] - 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] Recently Issued Accounting Pronouncements 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] - 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] 2. GOING CONCERN 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] - For the first nine months of 2021, the company's revenue of $4,179,557 was below its average monthly cash needs[32] - As of the filing date, the company believes it has sufficient cash to support operations for at least twelve months[32] 3. REVENUE FROM CONTRACTS WITH CUSTOMERS 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] 4. PISTOLSTAR, INC. ACQUISITION 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] - The acquisition resulted in goodwill, reflecting anticipated synergies and an integrated workforce[50] - The $250,000 promissory note balance related to the PistolStar acquisition was fully paid as of January 21, 2021[49] 5. ACCOUNTS RECEIVABLE 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 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 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] - Factoring fees range from 2.75% to 15% of the invoice face value, depending on the number of days to collection[57] | 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 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] - The note is currently in default and was reclassified as a non-current asset on June 30, 2021[58] - The company has recorded a $100,000 allowance for doubtful accounts for this note[58] 9. PREPAID EXPENSES AND OTHER 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 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 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] - As of September 30, 2021, $128,706 had been amortized, leaving a book balance of $51,294[64] 12. INVESTMENT - DEBT SECURITY 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] - Due to non-receipt of principal and accrued interest, the debt security was reclassified as a non-current asset on September 30, 2021[65] - The company has recorded a $30,000 allowance for this debt security[65] 13. COMMITMENT 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] - Warrants will be issued if revenue exceeds $20 million (up to $25 million)[68] - No revenue or sales incentives were generated or paid under this agreement for the nine months ended September 30, 2021, and 2020[70] 14. CONVERTIBLE NOTES PAYABLE 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] - 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][88] - 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] 15. LEASES 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] | 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") 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 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][96] - 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] - 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][104] - 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] 18. FAIR VALUES OF FINANCIAL INSTRUMENTS 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] 19. MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE 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] - As of September 30, 2021, a Nigerian customer accounted for 41% of current accounts receivable, and a second customer accounted for 26%[114] - The Nigerian customer's payment terms have been verbally modified, with payment processing contingent on World Bank and local bank task completion[114] 20. SUBSEQUENT EVENTS 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] - The company issued a total of 6,875 restricted shares to three new employees, with a three-year vesting period[115] Item 2 Management's Discussion and Analysis of Financial Conditions and Results of Operations 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 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] - The company operates on a SaaS business model, with customers subscribing to software for annual recurring revenue[126] - 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] Strategic Outlook and Recent Developments 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][131] - The company has secured large-scale identification project contracts in Africa and Nigeria totaling $75 million[129] - Key sales strategies include increasing IAM marketing, actively pursuing global large-scale identification projects, and developing channel alliance programs[132] - The company plans to drive growth through strategic acquisitions of selected businesses and assets in the IAM space[133] - The COVID-19 pandemic has increased demand for secure remote work solutions, with biometrics playing a critical role in remote user authentication[135] Critical Accounting Policies 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] Recent Accounting Pronouncements 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 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 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 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] - For the nine months ended September 30, 2021, net cash used in investing activities was approximately $38,000 for capital expenditures[164] - For the nine months ended September 30, 2021, net cash used in financing activities was approximately $255,000, primarily for promissory note repayments[166] - 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] 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] - As of the filing date, the company anticipates no need for additional financing within the next twelve months[172] Off-Balance Sheet Arrangements 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] Item 4 Controls and Procedures 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 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] Changes in Internal Control Over Financial Reporting 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] PART II. OTHER INFORMATION Item 6 Exhibits 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] - Exhibits also include Inline XBRL instance, taxonomy extension schema, calculation, definition, label, and presentation files[179] 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]