bkyi20220630

bkyi20220630_10q.htm

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 June 30, 2022

☐

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 Employer Identification Number)

3349 HIGHWAY 138, BUILDING A, SUITE E, WALL, NJ 07719

(Address of Principal Executive Offices)

(732) 359-1100

(Registrant’s telephone number, including area code)

Securities registered pursuance to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which

registered

Common Stock, par value $0.0001 per share

BKYI

Nasdaq Capital Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller Reporting Company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of June 30, 2022 the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $12.8 million based upon the closing price for shares of the registrant’s post-split common stock of $1.77 as reported by the Nasdaq Stock Market on that date.

Number of shares of Common Stock, $.0001 par value per share, outstanding as of August 11, 2022, is 8,450,989.

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1—Condensed Consolidated Financial Statements (unaudited):
Balance sheets as of June 30, 2022 (unaudited) and December 31, 2021	3
Statements of operations for the three and six months ended June 30, 2022 and 2021	4
Statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021	5
Statements of cash flows for the six months ended June 30, 2022 and 2021	7
Notes to condensed consolidated financial statements	9

Item 2—Management’s Discussion and Analysis of Financial Conditions and Results of Operations.	19

Item 4—Controls and Procedures.	26

PART II. OTHER INFORMATION

Item 6—Exhibits.	27

Signatures	28

PART I -- FINANCIAL INFORMATION

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2022			December 31, 2021
	(Unaudited)
ASSETS
Cash and cash equivalents	$	4,893,042		$	7,754,046
Accounts receivable, net		2,039,062			970,626
Due from factor		76,940			49,500
Note receivable, net of allowance		119,644			82,000
Inventory		4,888,601			4,940,660
Prepaid expenses and other		331,697			216,041
Total current assets		12,348,986			14,012,873
Resalable software license rights		43,768			48,752
Investment – debt security, net		302,821			452,821
Equipment and leasehold improvements, net		135,237			69,168
Capitalized contract costs, net		301,225			249,012
Deposits and other assets		8,712			8,712
Note receivable, net of allowance		68,356			113,000
Operating lease right-of-use assets		206,792			254,100
Intangible assets, net		1,952,606			1,298,077
Goodwill		2,256,402			1,262,526
Total non-current assets		5,275,919			3,756,168
TOTAL ASSETS	$	17,624,905		$	17,769,041

LIABILITIES
Accounts payable	$	1,279,302		$	427,772
Accrued liabilities		849,719			828,997
Earnout payable – Swivel acquisition		500,000			-
Government loan – BBVA Bank, current portion		122,000			-
Deferred revenue, current portion		588,949			565,355
Operating lease liabilities, current portion		192,581			177,188
Total current liabilities		3,532,551			1,999,312
Deferred revenue, net of current portion		71,524			67,300
Operating lease liabilities, net of current portion		22,004			86,974
Government loan – BBVA Bank, net of current portion		379,287			-
Total non-current liabilities		472,815			154,274
TOTAL LIABILITIES		4,005,366			2,153,586

Commitments and Contingencies

STOCKHOLDERS’ EQUITY

Common stock — authorized, 170,000,000 shares; issued and outstanding; 8,441,574 and 7,853,759 of $.0001 par value at June 30, 2022 and December 31, 2021, respectively		844			786
Additional paid-in capital		121,022,606			120,190,139
Accumulated other comprehensive loss		(110,081	)		-
Accumulated deficit		(107,293,830	)		(104,575,470	)
TOTAL STOCKHOLDERS’ EQUITY		13,619,539			15,615,455
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	17,624,905		$	17,769,041

See accompanying notes to the condensed consolidated financial statements.

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
Revenues
Services	$	435,106		$	286,641		$	830,910		$	666,663
License fees		1,162,148			662,193			2,622,331			1,141,151
Hardware		349,861			43,256			435,045			1,072,914
Total revenues		1,947,115			992,090			3,888,286			2,880,728
Costs and other expenses
Cost of services		180,677			158,440			391,590			334,384
Cost of license fees		358,136			48,373			431,366			87,342
Cost of hardware		185,140			32,756			238,438			584,478
Total costs and other expenses		723,953			239,569			1,061,394			1,006,204
Gross profit		1,223,162			752,521			2,826,892			1,874,524

Operating Expenses
Selling, general and administrative		2,006,573			1,374,084			3,804,571			2,890,482
Research, development and engineering		784,083			490,952			1,589,349			932,603
Total Operating Expenses		2,790,656			1,865,036			5,393,920			3,823,085
Operating loss		(1,567,494	)		(1,112,515	)		(2,567,028	)		(1,948,561	)
Other income (expense)
Interest income		77			832			208			3,447
Loss on foreign currency transactions		-			(50,000	)		-			(50,000	)
Investment-debt security reserve		(150,000	)		-			(150,000	)		-
Interest expense		(1,540	)		-			(1,540	)		(18,000	)
Total other income (expense), net		(151,463	)		(49,168	)		(151,332	)		(64,553	)
Net loss	$	(1,718,957	)	$	(1,161,683	)	$	(2,718,360	)	$	(2,013,114	)

Comprehensive loss:
Net loss	$	(1,718,957	)	$	(1,161,683	)	$	(2,718,360	)	$	(2,013,114	)
Other comprehensive loss – Foreign currency translation adjustment		(165,883	)		-			(110,081	)		-
Comprehensive loss	$	(1,884,840	)	$	(1,161,683	)	$	(2,828,441	)	$	(2,013,114	)
Basic and Diluted Loss per Common Share	$	(0.21	)	$	(0.15	)	$	(0.34	)	$	(0.26	)

Weighted Average Common Shares Outstanding:
Basic and diluted		8,098,020			7,776,190			7,992,102			7,774,946

See accompanying notes to the condensed consolidated financial statements.

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock					Additional Paid-in			Accumulated Other Comprehensive			Accumulated
	Shares			Amount		Capital			Income (Loss)			Deficit			Total
Balance as of January 1, 2022		7,853,759		$	786	$	120,190,139		$	-		$	(104,575,470	)	$	15,615,455
Issuance of common stock for directors’ fees		9,382			1		22,019			-			-			22,020
Issuance of common stock pursuant to Swivel purchase agreement		269,060			27		599,977			-			-			600,004
Issuance of restricted common stock to employees and directors		274,250			27		(27	)		-			-			-
Foreign currency translation adjustment		-			-		-			55,802			-			55,802
Share-based compensation		-			-		87,677			-			-			87,677
Net loss		-			-		-			-			(999,403	)		(999,403	)
Balance as of March 31, 2022		8,406,451		$	841	$	120,899,785		$	55,802		$	(105,574,873	)	$	15,381,555
Issuance of common stock for directors’ fees		9,117			1		18,005			-			-			18,006
Issuance of restricted common stock to employees		1,250			-		-			-			-			-
Restricted stock forfeited		(1,250	)		-		-			-			-			-
Issuance of common stock for Employee stock purchase plan		26,006			2		39,123			-			-			39,125
Share based compensation for employee stock plan		-			-		8,314			-			-			8,314
Foreign currency translation adjustment		-			-		-			(165,883	)		-			(165,883	)
Share-based compensation		-			-		57,379			-			-			57,379
Net loss		-			-		-			-			(1,718,957	)		(1,718,957	)
Balance as of June 30, 2022		8,441,574		$	844	$	121,022,606		$	(110,081	)	$	(107,293,830	)	$	13,619,539

See accompanying notes to the condensed consolidated financial statements.

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock					Additional Paid-in			Accumulated
	Shares			Amount		Capital			Deficit			Total
Balance as of January 1, 2021		7,814,572		$	782	$	119,844,026		$	(99,509,689	)	$	20,335,119
Issuance of common stock for directors’ fees		2,091			-		7,510			-			7,510
Legal and commitment fees		-			-		(2,709	)		-			(2,709
Issuance of restricted common stock to employees		1,250			-		-			-			-
Share-based compensation		-			-		133,638			-			133,638
Net loss		-			-		-			(851,431	)		(851,431
Balance as of March 31, 2021		7,817,913		$	782	$	119,982,465		$	(100,361,120	)	$	19,622,127
Issuance of common stock for directors’ fees		1,748			-		5,505			-			5,505
Legal and commitment fees		-			-		(2,519	)		-			(2,519	)
Issuance of restricted common stock to employees		1,250			-		-			-			-
Restricted stock forfeited		(1,250	)		-		-			-			-
Share-based compensation		-			-		35,618			-			35,618
Net loss		-			-		-			(1,161,683	)		(1,161,683	)
Balance as of June 30, 2021		7,819,661		$	782	$	120,021,069		$	(101,522,803	)	$	18,499,048

See accompanying notes to the condensed consolidated financial statements.

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2022			2021

CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(2,718,360	)	$	(2,013,114	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation		21,781			37,234
Amortization of intangible assets		106,403			108,034
Amortization of capitalized contract costs		57,945			48,997
Operating leases right-of-use assets		47,308			115,022
Loss on foreign currency transactions		-			50,000
Reserve for Investment – debt security		150,000			-
Share and warrant-based compensation for employees and consultants		153,370			169,256
Stock based directors’ fees		40,026			13,015
Bad debts		25,111			-
Amortization of debt discount		-			18,000
Change in assets and liabilities:
Accounts receivable		(390,660	)		(849,628	)
Due from factor		(27,440	)		10,953
Capitalized contract costs		(110,158	)		(76,191	)
Inventory		52,059			(1,959,681	)
Resalable software license rights		4,984			5,009
Prepaid expenses and other		(94,947	)		(1,410,592	)
Accounts payable		450,667			620,689
Accrued liabilities		(33,776	)		66,727
Deferred revenue		27,818			(81,507	)
Operating lease liabilities		(49,577	)		(114,700	)
Net cash used for operating activities		(2,287,446	)		(5,242,477	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Swivel Secure, net of cash acquired of $729,905		(543,578	)		-
Receipt of cash from note receivable		7,000			-
Receipt of cash from Employee stock purchase plan		39,125			-
Capital expenditures		(22,888	)		(15,700	)
Net cash used for investing activities		(520,341	)		(15,700	)
CASH FLOW FROM FINANCING ACTIVITIES:
Costs to issue convertible notes		-			(5,228	)
Repayment of convertible note		-			(250,000	)
Net cash used for financing activities

SEC Form 10-Q filed by BIO-key International Inc.