10-Q

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, 2023

or

☐ 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  ☒

Number of shares of Common Stock, $.0001 par value per share, outstanding as of August 17, 2023, is 9,255,256.

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION
Item 1— Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 (Unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)	5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)	7
Notes to Condensed Consolidated Financial Statements	9
Item 2—Management’s Discussion and Analysis of Financial Conditions and Results of Operations.	17
Item 4—Controls and Procedures.	24
PART II. OTHER INFORMATION
Item 6—Exhibits.	25
Signatures	26

PART I -- FINANCIAL INFORMATION

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2023			2022
	(Unaudited)
ASSETS
Cash and cash equivalents	$	565,513		$	2,635,522
Accounts receivable, net		3,178,785			1,522,784
Due from factor		74,250			49,500
Inventory		4,384,098			4,434,369
Prepaid expenses and other		328,684			342,706
Total current assets		8,531,330			8,984,881
Equipment and leasehold improvements, net		81,053			107,413
Capitalized contract costs, net		277,448			283,069
Deposits and other assets		8,712			8,712
Operating lease right-of-use assets		84,610			197,355
Intangible assets, net		1,600,092			1,762,825
Total non-current assets		2,051,915			2,359,374
TOTAL ASSETS	$	10,583,245		$	11,344,255
LIABILITIES
Accounts payable	$	1,855,988		$	1,108,279
Accrued liabilities		900,924			1,009,123
Income taxes payable		156,000			-
Convertible note payable		2,498,780			2,596,203
Government loan – BBVA Bank, current portion		135,308			120,000
Deferred revenue, current		651,709			462,418
Operating lease liabilities, current portion		77,379			159,665
Total current liabilities		6,276,088			5,455,688
Deferred revenue, long term		37,280			52,134
Deferred tax liability		159,997			170,281
Government loan – BBVA Bank – net of current portion		255,219			326,767
Operating lease liabilities, net of current portion		9,570			37,829
Total non-current liabilities		462,066			587,011
TOTAL LIABILITIES		6,738,154			6,042,699
Commitments and Contingencies
STOCKHOLDERS’ EQUITY
Common stock — authorized, 170,000,000 shares; issued and outstanding; 9,262,853 and 9,190,504 of $.0001 par value at June 30, 2023 and December 31, 2022, respectively		926			919
Additional paid-in capital		122,191,310			122,028,612
Accumulated other comprehensive loss		(150,572	)		(242,602	)
Accumulated deficit		(118,196,573	)		(116,485,373	)
TOTAL STOCKHOLDERS’ EQUITY		3,845,091			5,301,556
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,583,245		$	11,344,255

See accompanying notes to the condensed consolidated financial statements.

3

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenues
Services	$	620,465		$	435,106		$	1,152,987		$	830,910
License fees		1,235,771			1,162,148			3,714,327			2,622,331
Hardware		72,693			349,861			145,382			435,045
Total revenues		1,928,929			1,947,115			5,012,696			3,888,286
Costs and other expenses
Cost of services		360,156			180,677			514,957			391,590
Cost of license fees		198,147			358,136			819,028			431,366
Cost of hardware		47,808			185,140			92,400			238,438
Total costs and other expenses		606,111			723,953			1,426,385			1,061,394
Gross profit		1,322,818			1,223,162			3,586,311			2,826,892
Operating Expenses
Selling, general and administrative		1,943,164			2,006,573			3,874,896			3,804,571
Research, development and engineering		558,181			784,083			1,248,341			1,589,349
Total Operating Expenses		2,501,345			2,790,656			5,123,237			5,393,920
Operating loss		(1,178,527	)		(1,567,494	)		(1,536,926	)		(2,567,028	)
Other income (expense)
Interest income		23			77			27			208
Loss on foreign currency transactions		-			-			(15,000	)		-
Investment-debt security reserve		-			(150,000	)		-			(150,000	)
Change in fair value of convertible note		(44,568	)		-			97,423			-
Interest expense		(56,806	)		(1,540	)		(113,724	)		(1,540	)
Total other income (expense), net		(101,351	)		(151,463	)		(31,274	)		(151,332	)
Loss before provision for income tax		(1,279,878	)		(1,718,957	)		(1,568,200	)		(2,718,360	)
Provision for income tax		(143,000	)		-			(143,000	)		-
Net loss	$	(1,422,878	)	$	(1,718,957	)	$	(1,711,200	)	$	(2,718,360	)
Comprehensive loss:
Net loss	$	(1,422,878	)	$	(1,718,957	)	$	(1,711,200	)	$	(2,718,360	)
Other comprehensive loss – Foreign currency translation adjustment		19,884			(165,883	)		92,030			(110,081	)
Comprehensive loss	$	(1,402,994	)	$	(1,884,840	)	$	(1,619,170	)	$	(2,828,441	)
Basic and Diluted Loss per Common Share	$	(0.16	)	$	(0.21	)	$	(0.19	)	$	(0.34	)
Weighted Average Common Shares Outstanding:
Basic and diluted		9,021,426			8,098,020			9,008,631			7,992,102

See accompanying notes to the condensed consolidated financial statements. 

4

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

										Accumulated
							Additional			Other
	Common Stock						Paid-in			Comprehensive			Accumulated
	Shares			Amount			Capital			Income (Loss)			Deficit			Total
Balance as of January 1, 2023		9,190,504		$	919		$	122,028,612		$	(242,602	)	$	(116,485,373	)	$	5,301,556
Issuance of common stock for directors’ fees		15,388			1			12,001			-			-			12,002
Issuance of common stock to employees		40,000			4			-			-			-			4
Restricted stock forfeited		(19,834	)		(2	)		(3,103	)		-			-			(3,105	)
Foreign currency translation adjustment											72,146			-			72,146
Share-based compensation		-			-			62,474			-			-			62,474
Net loss		-			-			-			-			(288,322	)		(288,322	)
Balance as of March 31, 2023		9,226,058		$	922		$	122,099,984		$	(170,456	)	$	(116,773,695	)	$	5,156,755
Issuance of common stock for directors’ fees		23,150			2			16,000			-			-			16,002
Issuance of restricted common stock to employees					-			-			-			-			-
Restricted stock forfeited		(14,375	)		(1	)		1			-			-			-
Issuance of common stock for Employee stock purchase plan		28,020			3			13,931			-			-			13,934
Share based compensation for employee stock plan		-			-			3,563			-			-			3,563
Foreign currency translation adjustment		-			-			-			19,884			-			19,884
Share-based compensation		-			-			57,831			-			-			57,831
Net loss		-			-			-			-			(1,422,878	)		(1,422,878	)
Balance as of June 30, 2023		9,262,853		$	926		$	122,191,310		$	(150,572	)	$	(118,196,573	)	$	3,845,091

See accompanying notes to the condensed consolidated financial statements. 

5

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

									Accumulated
						Additional			Other
	Common Stock					Paid-in			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.

6

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2023			2022
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(1,711,200	)	$	(2,718,360	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation		26,637			21,781
Amortization of intangible assets		162,166			106,403
Amortization of capitalized contract costs		80,717			57,945
Operating leases right-of-use assets		112,745			47,308
Reserve for Investment – debt security		-			150,000
Share and warrant-based compensation for employees and consultants		120,767			153,370
Stock based directors’ fees		28,004			40,026
Change in fair value of convertible note		(97,423	)		-
Deferred income tax benefit		(13,000	)		-
Bad debts		50,000			25,111
Change in assets and liabilities:
Accounts receivable		(1,657,170	)		(390,660	)
Due from factor		(24,750	)		(27,440	)
Capitalized contract costs		(75,096	)		(110,158	)
Inventory		50,271			52,059
Resalable software license rights		-			4,984
Prepaid expenses and other		14,799			(94,947	)
Accounts payable		726,657			450,667
Accrued liabilities		(109,208	)		(33,776	)
Income taxes payable		156,000			-
Deferred revenue		174,437			27,818
Operating lease liabilities		(110,545	)		(49,577	)
Net cash used for operating activities		(2,095,192	)		(2,287,446	)
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
Capital expenditures		-			(22,888	)
Net cash used for investing activities		-			(559,466	)
CASH FLOW FROM FINANCING ACTIVITIES:
Receipt of cash from Employee stock purchase plan		13,934			39,125
Repayment of government loan		(56,241	)		-
Net cash used for financing activities		(42,307	)		39,125
Effect of exchange rate changes		67,490			(53,217	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,070,009	)		(2,861,004	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		2,635,522			7,754,046
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	565,513		$	4,893,042

See accompanying notes to the condensed consolidated financial statements. 

7

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

	Six Months Ended June 30,
	2023		2022
Cash paid for:
Interest	$	113,724	$	1,540
Noncash investing and financing activities
Accounts receivable acquired from Swivel Secure	$	-	$	702,886
Equipment acquired from Swivel Secure	$	-	$	65,640
Other assets acquired from Swivel Secure	$	-	$	20,708
Intangible assets acquired from Swivel Secure	$	-	$	762,860
Goodwill resulting from the acquisition from Swivel Secure	$	-	$	1,067,372
Accounts payable and accrued expenses acquired from Swivel Secure	$	-	$	431,884
Government loan acquired from Swivel Secure	$	-	$	544,000
Common stock issued for acquisition of Swivel Secure	$	-	$	600,004

See accompanying notes to the condensed consolidated financial statements. 

8

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 (Unaudited)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

The Company, founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions enterprise-ready identity access management solutions to commercial, government and education customers throughout the United States and internationally. The Company was a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit cards, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been, and is, used to improve both the accuracy and speed of competing finger-based biometrics.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “BIO-key”) and are stated in conformity with accounting principles generally accepted in the United States of America (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The balance sheet at  December 31, 2022 was derived from the audited financial statements, but does not include all of the disclosures required by GAAP. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on June 1, 2023.

Foreign Currencies

The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830”). The functional currency of the Company is the U.S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other comprehensive income (loss).

Recently Issued Accounting Pronouncements

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016-13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. The adoption of ASU 2016-13 did not have a material effect on the consolidated financial statements of the Company. 

9

 

In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for the Company on January 1, 2024 and should be applied on a full or modified retrospective basis. The Company is currently assessing the impact ASU 2020-06 will have on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

2. GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has suffered substantial net losses and negative cash flows from operations in recent years and is dependent on debt and equity financing to fund its operations all of which raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to increase its revenue and meet its financing requirements on a continuing basis and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

As of the date of this report, the Company does not have enough cash for twelve months of operations. The history of significant losses, the negative cash flow from operations, the limited cash resources on hand and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company's ability to continue as a going concern. The Company has lowered its expenses through decreasing spending in marketing and research and development. In addition, the Company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and is, therefore, looking into other markets and opportunities to sell or return the product to generate additional cash.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three month periods ended June 30, 2023 and June 30, 2022:

	North								June 30,
	America		Africa		EMESA*		Asia		2023
Services	$	281,607	$	26,009	$	305,424	$	7,425	$	620,465
License fees		780,383		-		455,388		-		1,235,771
Hardware		61,551		-		142		11,000		72,693
Total Revenues	$	1,123,541	$	26,009	$	760,954	$	18,425	$	1,928,929

	North								June 30,
	America		Africa		EMESA*		Asia		2022
Services	$	301,087	$	22,677	$	111,342	$	-	$	435,106
License fees		495,543		-		666,605		-		1,162,148
Hardware		203,212		-		5,679		140,970		349,861
Total Revenues	$	999,842	$	22,677	$	783,626	$	140,970	$	1,947,115

10

 

The following table summarizes revenue from contracts with customers for the six month periods ended June 30, 2023 and June 30, 2022:

	North								June 30,
	America		Africa		EMESA*		Asia		2023
Services	$	545,464	$	49,797	$	545,351	$	12,375	$	1,152,987
License fees		1,188,913		552,630		1,902,134		70,650		3,714,327
Hardware		86,332		-		47,150		11,900		145,382
Total Revenues	$	1,820,709	$	602,427	$	2,494,635	$	94,925	$	5,012,696

	North								June 30,
	America		Africa		EMESA*		Asia		2022
Services	$	656,719	$	37,952	$	136,186	$	53	$	830,910
License fees		968,613		517,161		1,056,882		79,675		2,622,331
Hardware		275,112		12,033		6,930		140,970		435,045
Total Revenues	$	1,900,444	$	567,146	$	1,199,998	$	220,698	$	3,888,286

*EMESA – Europe, Middle East, South America

Deferred Revenue 

Deferred revenue includes customer advances and amounts that have been paid by customer for which the contractual maintenance terms have not yet occurred. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12-60 months. Contracts greater than 12 months are segregated as long term deferred revenue. Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services. At June 30, 2023 and December 31, 2022, amounts in deferred revenue were approximately $689,000 and $515,000, respectively. Revenue recognized during the three and six-months ended June 30, 2023 from amounts included in deferred revenue at the beginning of the period was approximately $102,000 and $335,000, respectively. Revenue recognized during the three and six-months ended June 30, 2022 from amounts included in deferred revenue at the beginning of the period was approximately $153,000 and $387,000, respectively. The Company did not recognize any revenue from performance obligations satisfied in prior periods.

4. ACCOUNTS RECEIVABLE

Accounts receivable are carried at original amount less an estimate made for credit losses based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for credit losses by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, current economic conditions and other relevant factors, including specific reserves for certain accounts. Accounts receivable are written off when deemed uncollectible.

Accounts receivable at June 30, 2023 and December 31, 2022 consisted of the following: 

	June 30,			December 31,
	2023			2022
Accounts receivable	$	3,802,570		$	2,096,569
Allowance for credit losses		(623,785	)		(573,785	)
Accounts receivable, net of allowances for credit losses	$	3,178,785		$	1,522,784

Bad debt expenses (if any) are recorded in selling, general, and administrative expense.

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5. SHARE BASED COMPENSATION

The following table presents share-based compensation expenses included in the Company’s unaudited condensed interim consolidated statements of operations:

	Three Months Ended June 30,
	2023		2022
Selling, general and administrative	$	59,966	$	66,152
Research, development and engineering		17,430		17,547
	$	77,396	$	83,699

	Six Months Ended June 30,
	2023		2022
Selling, general and administrative	$	115,419	$	158,578
Research, development and engineering		33,352		34,818
	$	148,771	$	193,396

6. INVENTORY

Inventory is stated at the lower of cost, determined on a first in, first out basis, or realizable value. The Company periodically evaluates inventory items and establishes reserves for obsolescence accordingly. The Company also reserves for excess quantities, slow moving goods, and for other impairment of value based upon assumptions of future demand and market conditions. The $400,000 reserve on inventory is due to slow moving inventory purchased for projects in Nigeria. The Company is looking into other markets and opportunities to sell or return the product. Inventory is comprised of the following as of:

	June 30,			December 31,
	2023			2022
Finished goods	$	4,714,372		$	4,764,643
Fabricated assemblies		69,726			69,726
Reserve on finished goods		(400,000	)		(400,000	)
Total inventory	$	4,384,098		$	4,434,369

7. COMMITMENTS AND CONTINGENCIES

Distribution Agreement

Swivel Secure has a distribution agreement with Swivel Secure Limited (“SSL”). Terms of the agreement include the following:

1. The initial term of the agreement ends on January 31, 2027 and will be automatically extended for additional one-year terms thereafter unless either party provides written notice to the other party not later than 30 days before the end of the term that it does not wish to extend the term.

2. SSL appoints Swivel Secure as the exclusive distributor of SSL’s products, to market, sell and distribute in the EMEA (Europe, Middle East and Africa), excluding the United Kingdom and Republic of Ireland, for a defined discount on the sale price.

3. Swivel Secure is expected to generate a certain minimum level of orders of SSL products each year during the term of the agreement. If Swivel Secure fails to meet such minimum level of orders in any year, the exclusive distribution rights will terminate and Swivel Secure will serve as a non-exclusive distributer of SSL Products.

The Company expects the revenue targets to continue to be met based on historical performance and increasing distribution by Swivel Secure.

Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of June 30, 2023, the Company was not a party to any pending lawsuits.

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8. LEASES

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2023 and 2024. On August 11, 2023, the Company signed a new one-year lease starting September 1, 2023 for office space in New Jersey. The property leased in China is paid monthly as used, without a formal agreement. The following tables present the components of lease expense and supplemental balance sheet information related to the operating leases were:

	3 Months ended		3 Months ended
	June 30,		June 30,
	2023		2022
Lease cost
Total lease cost	$	48,543	$	55,942

	6 Months ended		6 Months ended
	June 30,		June 30,
	2023		2022
Lease cost
Total lease cost	$	111,682	$	111,161

	June 30,			December 31,
Balance sheet information	2023			2022
Operating right-of-use assets	$	84,610		$	197,355
Operating lease liabilities, current portion	$	77,379		$	159,665
Operating lease liabilities, non-current portion		9,570			37,829
Total operating lease liabilities	$	86,949		$	197,494
Weighted average remaining lease term (in years) – operating leases		0.93			0.96
Weighted average discount rate – operating leases		5.50	%		5.50	%
Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2023 and 2022:	$	138,634		$	144,985

Maturities of operating lease liabilities were as follows as of June 30, 2023:

2023 (6 months remaining)	$	50,950
2024		38,808
Total future lease payments	$	89,758
Less: imputed interest		(2,809	)
Total	$	86,949

9. CONVERTIBLE NOTE PAYABLE

Securities Purchase Agreement dated December 22, 2022

On December 22, 2022, the Company entered into and closed a securities purchase agreement (the “Purchase Agreement”) and issued a $2,200,000 principal amount senior secured promissory note (the “Note”). At closing, a total of $2,002,000 was funded, with the proceeds to be used for general working capital.

The principal amount of the Note was due six months following the date of issuance, subject to one six-month extension by the Company. The Company elected to extend the due date to December 22, 2023. Interest under the Note accrued at a rate of 10% per annum through month six and accrues at a rate of 12% per annum in months seven through twelve, payable monthly. The Note is secured by a lien on substantially all of the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.

In connection with the issuance of the Note, the Company issued to the investor 700,000 shares of Common Stock (the “Commitment Shares”) valued at $1.00 per share and a warrant (the “Warrant”) to purchase 200,000 shares of common stock (the “Warrant Shares”) at an exercise price of $3.00 per share, exercisable commencing on the date of issuance with a term of five years. 

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Upon issuance, the Note was not convertible into common stock or any other securities of the Company. Only after a date that is six (6) months following the issuance date of the Note and upon the occurrence of any events of default (as defined) and expiration of any applicable cure periods, all amounts due under the Note will immediately and automatically become due and payable in full, interest will accrue at the higher of 18% per annum or the maximum amount permitted by applicable law, the outstanding principal amount due under the Note will be increased by 30%, and the Investor will have the right to convert all amounts due under the Note into shares of common stock (the “Conversion Shares”) at a conversion price equal to the 10 day volume weighted average sales price of the Company’s common stock on the date of conversion, subject to the Share Cap described in the paragraph below.

The aggregate number of shares of common stock issuable in the forgoing transaction consisting of the Commitment Shares, the Warrant Shares, and the Conversion Shares are capped at 1,684,576 which is 19.9% of the Company’s issued and outstanding shares of common stock on December 22, 2022, the date the definitive transaction documents were executed (the “Share Cap”).

The Company elected the fair value measurement option for the Note as the Note had embedded derivatives that required bifurcation and recorded the entire hybrid financing instrument at fair value under the guidance of ASC 825, Financial Instruments. As a result, the Note was recorded at fair value upon issuance and is subsequently remeasured at each reporting date until settled or converted. The Company reports interest expense, including accrued interest, related to the Note under the fair value option, separately from within the change in fair value of the Note in the accompanying consolidated statement of operations. See Note 13.

As of June 30, 2023 and December 31, 2022, the Note with principal balance of $2,200,000, at fair value, was recorded at $2,498,780 and $2,596,203, respectively. 

10. EARNINGS (LOSS) PER SHARE - COMMON STOCK (“EPS”)

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of preferred stock.

The following table sets forth options and warrants which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

	Three Months ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock options		172,734		212,461		172,734		212,461
Warrants		4,872,025		4,689,387		4,872,025		4,689,387
Total		5,044,759		4,901,848		5,044,759		4,901,848

11. STOCKHOLDERS’ EQUITY

Issuances of Common Stock

During the six-month periods ended June 30, 2023, there have not been any shares of common stock issued to anyone outside the Company, except as noted below under Issuances to Directors, Executive Officers & Consultants

On June 18, 2021, the stockholders approved the Employee Stock Purchase Plan. Under the terms of this plan, 789,000 shares of common stock are reserved for issuance to employees and officers of the Company at a purchase price equal to 85% of the lower of the closing price of the common stock on the first day or the last day of the offering period as reported on the Nasdaq Capital Market. Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions. The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031. On June 30, 2023, 28,020 shares were issued to employees which resulted in a $3,563 non-cash compensation expense for the Company. On June 30, 2022, 26,006 shares were issued to employees which resulted in a $8,314 non-cash compensation expense for the Company.

On March 8, 2022, the Company issued 269,060 shares of common stock of which 89,687 shares were held back by the Company to secure certain indemnification obligations under the Swivel Secure stock purchase agreement. The shares of Company common stock were issued at a total cost of $600,004, priced at $2.23, based on the contractual 20 day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market

Issuances of Restricted Stock

Restricted stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Nonvested stock is expensed ratably over the term of the restriction period.

During the six-month periods ended June 30, 2023 and 2022, the Company issued 40,000 and 275,000 shares of restricted common stock, respectively, to certain employees and directors. These shares vest in equal annual installments over a three-year period from the date of grant and had a fair value on the date of issuance of $31,200 and $592,075, respectively.

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During the six-month periods ended June 30, 2023 and 2022, 34,209 and 1,250 shares of restricted common stock were forfeited, respectively.

Restricted stock compensation for the three-month periods ended June 30, 2023 and 2022, was $54,781 and $51,204, respectively.

Restricted stock compensation for the six-month periods ended June 30, 2023 and 2022, was $113,837 and $91,044, respectively.

Issuances to Directors, Executive Officers & Consultants

During the three and six-month periods ended June 30, 2023, the Company issued 23,150 and 38,538 shares of common stock to its directors in lieu of payment of board and committee fees valued at $16,002 and $28,004, respectively. 

During the three and six-month periods ended June 30, 2022, the Company issued 9,117 and 18,499 shares of common stock to its directors in lieu of payment of board and committee fees valued at $18,006 and $40,026, respectively. 

Employees’ exercise options

During the three and six-month periods ended June 30, 2023 and 2022, no employee stock options were exercised.

3. Warrants

There were no warrants issued during the three and six-month periods ended June 30, 2023 and 2022.

12. FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts receivable, due from factor, accounts payable and accrued liabilities are carried at, or approximate, fair value because of their short-term nature. The carrying value of the Company’s government loan payable approximates fair value as the interest rate related to the financial instruments approximated market.

13. FAIR VALUE MEASUREMENT OF CONVERTIBLE NOTE PAYABLE

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The following tables summarize the Note measured at fair value at June 30, 2023 and December 31, 2022:

June 30, 2023	Total		Level 1		Level 2		Level 3
Convertible note at fair value	$	2,498,780	$	-	$	-	$	2,498,780

December 31, 2022	Total		Level 1		Level 2		Level 3
Convertible note at fair value	$	2,596,203	$	-	$	-	$	2,596,203

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The Company estimated the fair value of the convertible note using a probability-weighted discounted cash flow model with the following assumptions and significant terms of the convertible note at both June 30, 2023 and December 31, 2022:

1. Face amount - $2,200,000

2. Nominal interest rate – 12% at June 30, 2023, 10% - 12% at March 31, 2023 and December 31, 2022

3. Default interest rate – 18%

4. Increase in principal upon a default – 30%

5. Present value discount rate – 13.80% at June 30, 2023, 15.04% at March 31, 2023 and 15.18% at December 31, 2022

6. Likelihood of default – estimated to be 50% at the extended maturity date

The following table shows the changes in fair value measurements for the convertible note using significant unobservable inputs (Level 3) during the three months ended June 30, 2023:

Beginning balance	$	2,596,203
Purchases and issuances		-
Change in fair value for the three months ended March 31, 2023		(141,991	)
Balance at March 31, 2023	$	2,454,212
Change in fair value for the three months ended June 30, 2023		44,568
Ending balance at June 30, 2023	$	2,498,780

14. MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE

During each of the three month periods ended June 30, 2023, and 2022, one customer accounted for 12% of revenue. For the six month periods ended June 30, 2023, and 2022, two customers accounted for 30% and one customer accounted for 14% of revenue, respectively.

Three customers accounted for 63% of current accounts receivable at June 30, 2023. At December 31, 2022, one customer accounted for 35% of current accounts receivable.

15. INCOME TAXES

United States, Hong Kong and Nigeria

The Company recorded no income tax expense for the three and six months ended June 30, 2023 and 2022 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyses various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

As of June 30, 2023 and December 31, 2022, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Spain

The provision for income taxes amounted to $143,000.  Current income taxes totaled $156,000 and deferred tax benefit totaled $13,000.  The deferred tax liability presented on the condensed consolidated balance sheet relates to intangible assets from the acquisition of Swivel Secure.

16 SUBSEQUENT EVENTS

On July 19, 2023 and July 20, 2023, 20,000 and 13,333 shares of restricted common stock, respectively were cancelled as a result of employees leaving the Company before the vesting periods were completed.

On August 10, 2023, the Company issued 13,236 shares of common stock to its directors in payment of meeting fees. Additionally, the Company issued an aggregate of 12,500 shares of restricted stock with three-year vesting period to two new employees. All shares were issued at $0.68 the closing price on August 10, 2023, as reported on the Nasdaq Capital Market.

The Company has reviewed subsequent events through the date of this filing. 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “should,” “estimate,” “will,” “may,” “future,” “plan,” “intend” and “expect” and similar expressions generally identify forward-looking statements. These statements are not guarantees of future performance or events and are subject to risks and uncertainties that may cause actual results to differ materially from those included within or implied by such forward-looking statements. These risks and uncertainties include, without limitation, our history of losses and limited revenue; our ability to raise additional capital; our ability to continue as a going concern; our ability to protect our intellectual property; changes in business conditions; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; security breaches; competition in the biometric technology and identity access management industries; market acceptance of biometric products generally and our products under development; our ability to execute and deliver on contracts in Africa; our ability to expand into Asia, Africa and other foreign markets; our ability to integrate the operations and personnel of Swivel Secure into our business; fluctuations in foreign currency and exchange rates; the duration and extent of continued hostilities in Ukraine and its impact on our European customers; delays in the development of products, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and other filings with the Securities and Exchange Commission (“SEC”). These factors are not intended to represent a complete list of the general or specific factors that may affect us. It should be recognized that other factors, including general economic factors and business strategies, may be significant, presently or in the future. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to and should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as of December 31, 2022.

Overview

BIO-key International, Inc. (the “Company,” “BIO-key,” “we,” or “us”) is a leading identity and access management (IAM) platform provider enabling secure work-from-anywhere for enterprise, education, and government customers using secure multi-factor authentication (MFA).  Our vision is to enable any organization to secure streamlined and passwordless workforce, customer, citizen and student access to any online service, workstation, or mobile application, without a requirement to use tokens or phones.  Our products include PortalGuard® and PortalGuard Identity-as-a-Service (IDaaS) enterprise IAM, WEB-key® biometric civil and large-scale ID infrastructure, MobileAuth® mobile phone authentication application for iOS and Android, and high-quality, low-cost accessory fingerprint scanner and FIDO-compliant hardware to provide a full and complete solution for identity-innovating customers.

BIO-key PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems.  PortalGuard goes beyond traditional MFA solutions by addressing functional gaps, such as allowing roving users to biometrically authenticate at any workstation without using their phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification.

Our customers use BIO-key every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices. Employees, contractors, students and faculty sign in through PortalGuard to seamlessly and securely access the applications they need to do their important work, without relying on personal phone use or per-user tokens. Organizations use our platform to securely collaborate with their supply chain and partners, and to provide their customers with flexible, resilient user experiences online or in-person.

Large-scale customer and civil ID customers use our scalable biometric management platform and FBI-certified scanner hardware to manage enrollment, de-duplication and authentication for millions of users. One large bank has enrolled and identifies over 21.7 million of their customers using BIO-key fingerprint biometrics in branches on a daily basis.

PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems by utilizing our world-class biometric core platform among 17 other authentication factors.  PortalGuard goes beyond traditional multi-factor authentication, or MFA, solutions by addressing sizeable gaps, such as allowing roving users to biometrically authenticate at any workstation without using their phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification.

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PortalGuard and IBB deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases.  PortalGuard operates as a single MFA user experience, providing a rich set of authentication choices to meet every use case.  We sell our branded biometric and FIDO authentication hardware as accessories to our IAM platforms, so that customers can have a single vendor providing all components of their IAM solution. We do not mandate the use of BIO-key hardware with our software and services. Our NIST-certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’ fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the user of a particular scanner.

Security-conscious software developers leverage our platform APIs and federation interfaces to securely and efficiently embed biometric and MFA identity capabilities into their software.   Our approach to IDaaS allows our customers to efficiently scale their security and identity infrastructures to protect both internal cloud workforce- and external customer-facing applications.

In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure, a Madrid, Spain based provider of IAM solutions.  Swivel Secure is the exclusive distributer of AuthControl Sentry, AuthControl Enterprise, and AuthControl MSP product line in Europe, Africa and the Middle East, or EMEA, excluding the United Kingdom and Ireland.  These solutions include a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and bring your own device policies.

We operate a SaaS business model with customers subscribing to term use of our software for annual recurring revenue. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners including resellers, system integrators, master agents and other distribution partners. Our subscription fees include a term license of hosted or on-premise product and technical support and maintenance of our platform. We base subscription fees primarily on the products used and the number of users enrolled in our platform. We generate subscription fees pursuant to noncancelable contracts with a weighted average duration of approximately one year.

Strategic Outlook

We plan to have a more significant role in the IAM market which continues to expand. We plan to offer customers a suite of authentication options that complement our biometric solutions. The more well-rounded offerings of authentication options will allow customers to customize their approach to authentication all under one umbrella.

We expect to grow our business within government services and highly-regulated industries in which we have historically had a strong presence including financial services, higher education, and healthcare.  We believe that continued heightened security and privacy requirements in these industries, and as colleges and universities continue operating in remote environments, we will generate increased demand for security solutions, including biometrics. In addition, we expect that the compatible, yet superior portable biometric user experience offered by our technology for Windows 10 users will accelerate the demand for our computer network log-on solutions and fingerprint readers.  Through value add-offerings via direct sales, resellers, and strategic partnerships with leading higher education platform providers, we will continue to grow our installed base.

Our primary sales strategies are focused on (i) increased marketing efforts into the IAM market, (ii) dedicated pursuit of large-scale identification projects across the globe and (iii) growing our channel alliance program which we have grown to more than one hundred and fifty participants and continues to generate incremental revenues.

A second component of our growth strategy is to pursue strategic acquisitions of select businesses and assets in the IAM space.  In furtherance of this strategy, we are active in the industry and regularly evaluate businesses that we believe will either provide an entry into new market verticals or be synergistic with our existing operations and in either case, be accretive to earnings.  We cannot provide any assurance as to whether we will be able to complete any acquisition and if completed, successfully integrate any business we acquire into our operations.

Critical Accounting Policies and Estimates

For detailed information regarding our critical accounting policies and estimates, see our financial statements and notes thereto included in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2022.  There have been no material changes to our critical accounting policies and estimates from those disclosed in our most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements

For detailed information regarding recent account pronouncements, see Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED June 30, 2023 AS COMPARED TO June 30, 2022

Consolidated Results of Operations - Percent Trend

	Three Months Ended June 30,
	2023			2022
Revenues
Services		32	%		22	%
License fees		64	%		60	%
Hardware		4	%		18	%
Total Revenues		100	%		100	%
Costs and other expenses
Cost of services		19	%		9	%
Cost of license fees		10	%		18	%
Cost of hardware		2	%		10	%
Total Cost of Goods Sold		31	%		37	%
Gross profit		69	%		63	%
Operating expenses
Selling, general and administrative		101	%		103	%
Research, development and engineering		29	%		40	%
Total Operating Expenses		130	%		143	%
Operating loss		-61	%		-80	%
Other expense		-5	%		-8	%
Loss before provision for income tax		-66	%		-88	%
Provision for income tax		-8	%		0	%
Net loss		-74	%		-88	%

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Revenues and cost of goods sold

	Three Months Ended
	June 30,
	2023		2022		$ Change			% Change
Revenues
Service	$	620,465	$	435,106	$	185,359			43	%
License		1,235,771		1,162,148		73,623			6	%
Hardware		72,693		349,861		(277,168	)		-79	%
Total Revenue	$	1,928,929	$	1,947,115	$	(18,186	)		-1	%

	Three Months Ended
	June 30,
	2023		2022		$ Change			% Change
Cost of Goods Sold
Service	$	360,156	$	180,677	$	179,479			99	%
License		198,147		358,136		(159,989	)		-45	%
Hardware		47,808		185,140		(137,332	)		-74	%
Total COGS	$	606,111	$	723,953	$	(117,842	)		-16	%

Revenues

For the three months ended June 30, 2023, and 2022, service revenues included approximately $310,000 and $324,000, respectively, of recurring maintenance and support revenue, and approximately $310,000 and $111,000 respectively, of non-recurring custom services revenue.  Recurring service revenue decreased $14,000 or 4% in 2023 which was due to the timing of certain quarter end renewals. Non-recurring custom services increased 179% due to additional new customer customizations and upgrades. As our customer base continues to grow, we expect the service revenue to increase in future periods.

For the three months ended June 30, 2023, license revenue increased $73,623 or 6% to $1,235,771 from $1,162,148 in the corresponding period in 2022. We increased both the variation and number of customers, including additional revenue from the Swivel Secure customers and customers in the higher education market. 

For the three months ended  June 30, 2023, hardware sales decreased by 79% to $72,693 from $349,861 in the corresponding period in  2022. The decrease was due largely to the absence of any large deployments in  2023, as compared to two add-on orders from an existing customer in Asia, and a large order for our Pocket 10 product from a new customer in  2022

.

Costs of goods sold

For the three months ended June 30, 2023, cost of service increased approximately $179,000 or 99% to $360,156 from 180,667 in the three months ended June 30, 2022, due to the increased costs to support the PortalGuard and Swivel Secure deployments. For the three months ended June 30, 2023, license fees decreased to $198,147 from $358,136 in the three months ended June 30, 2022, due largely to a decrease in revenue for third-party software. For the three months ended June 30, 2023, hardware costs decreased to $47,808 from $185,140 in the three months ended June 30, 2022, related to costs associated with decreased hardware revenue.

Selling, general and administrative

	Three Months Ended
	June 30,
	2023		2022		$ Change			% Change
Selling, general and administrative	$	1,943,164	$	2,006,573	$	(63,409	)		-3	%

Selling, general and administrative expenses for the three months ended June 30, 2023, decreased 3% from the corresponding period in 2022. The decreases included reductions in marketing personnel costs, offset by increased professional fees associated with late SEC filings and the filing of a registration statement.

20

Research, development and engineering

	Three Months Ended
	June 30,
	2023		2022		$ Change			% Change
Research, development, and engineering	$	558,181	$	784,083	$	(225,902	)		-29	%

For the three months ended June 30, 2023, research, development, and engineering costs decreased 29% to $558,181 as compared to $784,083 in the corresponding period in 2022. The decrease primarily related to reductions in personnel costs and reductions in outside services related to the development of our MobileAuth application which we completed in 2022.

Other income (expense)

	Three Months Ended
	June 30,
	2023			2022			$ Change			% Change
Interest income	$	23		$	77		$	(54	)		-70	%
Investment-debt security reserve		-			(150,000	)		150,000			-100	%
Change in fair value of convertible note		(44,568	)		-			(44,568	)		-100	%
Interest expense		(56,806	)		(1,540	)		(55,266	)		3589	%
Other income (expense)	$	(101,351	)	$	(151,463	)	$	50,112			-33	%

Other income (expense) for the three months ended June 30, 2023 consisted of interest income of $23, interest expense of $56,806 on the secured note payable and the government loan through the BBVA bank net of interest, and change in fair value of $44,568 on the convertible note payable. Other income (expense) for the three months ended June 30, 2022 consisted of interest income of $77, a reserve on the investment-debt security as adjustment for collections in the amount of $150,000, and interest expense of $1,540 on the government loan through the BBVA bank.

	Three Months Ended
	June 30,
	2023			2022		$ Change			% Change
Provision for income tax	$	(143,000	)	$	-	$	(143,000	)		100	%

The provision for income taxes for the three months ended June 30, 2023 consisted of current income taxes of $156,000 for our Swivel Secure subsidiary, and deferred tax benefit of $13,000 relating to intangible assets from the acquisition of Swivel Secure.

six months ended June 30, 2023 AS COMPARED TO June 30, 2022

Consolidated Results of Operations -Percent Trend

	Six Months Ended June 30,
	2023			2022
Revenues
Services		23	%		21	%
License fees		74	%		67	%
Hardware		3	%		12	%
Total Revenues		100	%		100	%
Costs and other expenses
Cost of services		10	%		10	%
Cost of license fees		16	%		11	%
Cost of hardware		2	%		6	%
Total Cost of Goods Sold		28	%		27	%
Gross profit		72	%		73	%
Operating expenses
Selling, general and administrative		77	%		98	%
Research, development and engineering		25	%		41	%
Total Operating Expenses		102	%		139	%
Operating loss		-30	%		-66	%
Other expense		-1	%		-4	%
Loss before provision for income tax		-30	%		-70	%
Provision for income tax		-3	%		0	%
Net loss		-33	%		-70	%

21

Revenues and cost of goods sold

	Six Months Ended
	June 30,
	2023		2022		$ Change			% Change
Revenues
Service	$	1,152,987	$	830,910	$	322,077			39	%
License		3,714,327		2,622,331		1,091,996			42	%
Hardware		145,382		435,045		(289,663	)		-67	%
Total Revenue	$	5,012,696	$	3,888,286	$	1,124,410			29	%
Cost of Goods Sold
Service		514,957		391,590		123,367			32	%
License		819,028		431,366		387,662			90	%
Hardware		92,400		238,438		(146,038	)		-61	%
Total COGS	$	1,426,385	$	1,061,394	$	364,991			34	%

Revenues

For the six months ended June 30, 2023, and 2022, service revenues included approximately $602,000 and $640,000, respectively, of recurring maintenance and support revenue, and approximately $551,000 and $191,000, respectively, of non-recurring custom services revenue.  Recurring service revenue decreased 6% in the first six months of 2023 due to the timing of certain quarter end renewals. Non-recurring custom services increased 188% in the first six months of 2023 due largely to the additional service revenue from Swivel Secure customers. As our customer base continues to grow, we expect the service revenue to increase in future periods.

For the six months ended June 30, 2023, license revenue increased 42% to $3,714,327 from $2,622,331 in the corresponding period in 2022. We increased both the variation and number of customers, including additional revenue from the Swivel Secure customers, and customers in the higher education market.

Hardware sales decreased $289,663 during the six months ended June 30, 2023, to $145,382 from $435,045 in the six months ended June 30, 2022. The decrease was attributable largely to the absence of any large deployments in 2023, as compared to two add-on orders from an existing customer in Asia, and a large order for our Pocket 10 product from a new customer in 2022.

Costs of goods sold

For the six months ended June 30, 2023, cost of service increased $123,367 or 32% to $514,957 from $391,590 in the six months ended June 30, 2022, due to the increased costs to support the PortalGuard and Swivel Secure deployments. For the six months ended June 30, 2023, license fees increased to $819,028 from $431,366 in the six months ended June 30, 2022, due largely to an increase in revenue and third-party software for the Swivel Secure licenses. For the six months ended June 30, 2023, hardware costs decreased to $92,400 from $238,438 during the six months ended June 30, 2022, corresponding to decreased hardware revenue.

Selling, general and administrative

	Six Months Ended
	June 30,
	2023		2022		$ Change		% Change
Selling, general and administrative	$	3,874,896	$	3,804,571	$	70,325		2	%

Selling, general and administrative expenses for the six months ended June 30, 2023, increased 2% from the corresponding period in 2022. The increases included reductions in marketing personnel costs, offset by increased professional services fees associated with late SEC filings and the filing of a registration statement.

Research, development and engineering

	Six Months Ended
	June 30,
	2023		2022		$ Change			% Change
Research, development and engineering	$	1,248,341	$	1,589,349	$	(341,008	)		-21	%

For the six months ended June 30, 2023, research, development and engineering costs decreased 21% from $1,589,349 to $1,248,341. The decrease primarily related to reductions in personnel costs and in outside services related to the development of our MobileAuth application which was completed in 2022.

22

Other income (expense)

	Six Months Ended
	June 30,
	2023			2022			$ Change			% Change
Interest income	$	27		$	208		$	(181	)		-87	%
Loss on foreign currency transactions		(15,000	)		-			(15,000	)		100	%
Investment-debt security reserve		-			(150,000	)		150,000			-100	%
Change in fair value of convertible note		97,423			-			97,423			100	%
Interest expense		(113,724	)		(1,540	)		(112,184	)		7285	%
Other income (expense)	$	(31,274	)	$	(151,332	)	$	120,058			-79	%

Other income (expense) for the six  month period ended June 30, 2023 consisted of interest income of $27, a loss on foreign currency of $15,000, a change in fair value of $97,423 on the convertible note payable, and interest expense of $113,724 on the secured note payable and the government loan through the BBVA bank. Other income (expense) for the six months ended June 30, 2022 consisted of interest income of $208, a reserve on the investment-debt security as adjustment for collections of such security of $150,000, and interest expense of $1,540 on the government loan through the BBVA bank.

Provision for income tax

	Six Months Ended
	June 30,
	2023			2022		$ Change			% Change
Provision for income tax	$	(143,000	)	$	-	$	(143,000	)		100	%

The provision for income taxes for the six months ended June 30, 2023 consisted of current income taxes of $156,000 for our Swivel Secure subsidiary, and deferred tax benefit of $13,000 relating to intangible assets from the acquisition of Swivel Secure.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Operating activities overview

Net cash used by operations during the six months ended June 30, 2023 was $2,095,192. Items of note included:

● Net positive cash flows related to adjustments for non-cash expenses of approximately $434,000. 

● Net positive cash flows related to inventory, prepayments, accounts payable, income tax payable and deferred revenue of approximately $1,122,000. 

● Negative cash flows related to changes in accounts receivable, due from factor and accrued liabilities of approximately $1,927,000, due to working capital management.

Financing activities overview

Net cash used for financing during the six months ended June 30, 2023 was $56,241 for repayment of the government loan through the BBVA bank. Net cash received from financing during the six months ended June 30, 2023  was $13,934 of the proceeds from sales of common stock under the employee stock purchase plan.

Investing activities overview

There were no investing activities during the six months ended June 30, 2023.

Liquidity and Capital Resources

Since our inception, our capital needs have been principally met through proceeds from the sale of equity and debt securities. We expect capital expenditures to be less than $100,000 during the next twelve months.  

The following sets forth our primary sources of capital during the previous two years:

In December 2022, we entered into and closed a securities purchase agreement (the “Purchase Agreement”) with AJB Capital Investments, LLC under which we issued a $2,200,000 principal amount senior secured promissory note (the “Note”). The principal amount of the Note was due six months following the date of issuance, subject to one six-month extension. We elected to extend the maturity date of the note to December 22, 2023. Interest under the Note accrued at a rate of 10% per annum, payable monthly through month six and currently accrues at the rate of 12% per annum in months seven through twelve, payable monthly. The Note is secured by a lien on substantially all of our assets and properties can be prepaid in whole or in part without penalty at any time.

23

In March 2022, in connection with the acquisition of Swivel Secure, we assumed a €500,000 government loan that was issued through BBVA Bank during the COVID-19 pandemic.  The loan bears interest at the rate of 1.75% per annum and is payable in monthly installments of approximately $11,900 inclusive of interest from May 2022 through maturity in April 2026. Upon closing of the acquisition, Swivel Secure had cash equal to the outstanding balance.

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2023 and may be discontinued at that time. Pursuant to the terms of the arrangement, from time to time, we sell to the Factor a minimum of $150,000 per quarter of certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor remits 35% of the foreign and 75% of the domestic accounts receivable balance to us (the “Advance Amount”), with the remaining balance, less fees, forwarded to us once the Factor collects the full accounts receivable balance from the customer. In addition, from time to time, we receive over advances from the Factor. Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice. We expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements.

Liquidity outlook

At June 30, 2023, our total cash and cash equivalents were approximately $565,513, as compared to $2,635,522 at December 31, 2022.  At June 30, 2023, we had working capital of approximately $2,411,000. 

As discussed above, we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. We currently require approximately $763,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation.  During for the first six months of 2023, we generated $5,012,696 of revenue, which did not generate enough cash to fully fund our average monthly requirements. We expect that Swivel Secure will generate positive cash flow in 2023. We also have approximately $3.8 million of inventory purchased for projects in Nigeria. We are looking into other markets and opportunities to sell or return the product to generate additional cash.

If we are unable to generate sufficient revenue to fund current operations and execute our business plan, we may need to obtain additional third-party financing. Our $2.2 million principal amount secured note is due on December 22, 2023.  Unless we generate sufficient positive cash flow from operations or liquidation of existing inventory, we expect that we will need to obtain additional financing during the next twelve months to repay our outstanding secured note and support operations.

Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing. To the extent that we require such additional financing, no assurance can be given that any form of additional financing will be available on terms acceptable to us, that adequate financing will be obtained to meet our needs, or that such financing would not be dilutive to existing stockholders. If available financing is insufficient or unavailable or we fail to continue to generate sufficient revenue, we may be required to further reduce operating expenses, delay the expansion of operations, be unable to pursue merger or acquisition candidates, or in the extreme case, not continue as a going concern.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As reported in our 10-K for the year ended December 31, 2022, in connection with the audit of our financial statements as of and for the year ended December 31, 2022, our management identified a material weakness relating to the effectiveness of management’s review and controls over the income tax provision in our financial footnotes, such that management’s review procedures were not operating at a level of precision to prevent or detect a potential material misstatement in our consolidated financial statements. We have also identified a lack of control over our foreign subsidiaries with respect to the filing of required tax returns on a timely basis. We are continuing to assess the actions that need to be taken to remedy each of these material weaknesses. Each of the material weaknesses noted will only be deemed to have been remediated after the new controls and procedures have been in place for a sufficient period and management has concluded through appropriate testing that the controls are operating effectively. During 2023, the Company intends to implement new controls designed to remediate the aforementioned material weaknesses. As such, we have engaged a consultant to review income tax transactions for appropriate accounting treatment and assist with the preparation of financial statements.

Changes in Internal Control Over Financial Reporting

Other than the forgoing described above, there have been no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

24

ITEM 6. EXHIBITS

Exhibit No.	Description
10.1	Waiver and Amendment No. 1 to Securities Purchase Agreement dated June 22, 2023 by and between the Company and AJB Capital Investments, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on June 27, 2023)
31.1	Certificate of CEO of Registrant required under Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended
31.2	Certificate of CFO of Registrant required under Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended
32.1	Certificate of CEO of Registrant required under 18 U.S.C. Section 1350
32.2	Certificate of CFO of Registrant required under 18 U.S.C. Section 1350
101.INS	Inline XBRL Instance
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation
101.DEF	Inline XBRL Taxonomy Extension Definition
101.LAB	Inline XBRL Taxonomy Extension Labels
101.PRE	Inline XBRL Taxonomy Extension Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BIO-Key International, Inc.
Dated: August 18, 2023	/s/ Michael W. DePasquale
	Michael W. DePasquale
	Chief Executive Officer
	(Principal Executive Officer)
Dated: August 18, 2023	/s/ Cecilia C. Welch
	Cecilia C. Welch
	Chief Financial Officer
	(Principal Financial Officer)

26

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael W. DePasquale, certify that: 

1. I have reviewed this quarterly report on Form 10-Q of BIO-key International, Inc. (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): 

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated: August 18, 2023
	/s/ Michael W. DePasquale
	Michael W. DePasquale
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Cecilia C. Welch, certify that: 

1. I have reviewed this quarterly report on Form 10-Q of BIO-key International, Inc. (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting;

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): 

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated: August 18, 2023
	/s/ Cecilia C. Welch
	Cecilia C. Welch
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of BIO-key International, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael W. DePasquale, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Michael W. DePasquale
	Michael W. DePasquale
	Chief Executive Officer
Dated: August 18, 2023

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of BIO-key International, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cecilia Welch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Cecilia C. Welch
	Cecilia C. Welch
	Chief Financial Officer
Dated: August 18, 2023

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2023	Aug. 17, 2023
Document Information [Line Items]
Entity Central Index Key	0001019034
Entity Registrant Name	BIO KEY INTERNATIONAL INC
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2023
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transition Report	false
Entity File Number	1-13463
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	41-1741861
Entity Address, Address Line One	3349 HIGHWAY 138, BUILDING A, SUITE E
Entity Address, City or Town	WALL
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07719
City Area Code	732
Local Phone Number	359-1100
Title of 12(b) Security	Common Stock, par value $0.0001 per share
Trading Symbol	BKYI
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		9,255,256

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
ASSETS
Cash and cash equivalents	$ 565,513	$ 2,635,522
Accounts receivable, net	3,178,785	1,522,784
Due from factor	74,250	49,500
Inventory	4,384,098	4,434,369
Prepaid expenses and other	328,684	342,706
Total current assets	8,531,330	8,984,881
Equipment and leasehold improvements, net	81,053	107,413
Capitalized contract costs, net	277,448	283,069
Deposits and other assets	8,712	8,712
Operating lease right-of-use assets	84,610	197,355
Intangible assets, net	1,600,092	1,762,825
Total non-current assets	2,051,915	2,359,374
TOTAL ASSETS	10,583,245	11,344,255
LIABILITIES
Accounts payable	1,855,988	1,108,279
Accrued liabilities	900,924	1,009,123
Income taxes payable	156,000	0
Convertible note payable	2,498,780	2,596,203
Government loan – BBVA Bank, current portion	135,308	120,000
Deferred revenue, current	651,709	462,418
Operating lease liabilities, current portion	77,379	159,665
Total current liabilities	6,276,088	5,455,688
Deferred revenue, long term	37,280	52,134
Deferred tax liability	159,997	170,281
Government loan – BBVA Bank – net of current portion	255,219	326,767
Operating lease liabilities, net of current portion	9,570	37,829
Total non-current liabilities	462,066	587,011
TOTAL LIABILITIES	6,738,154	6,042,699
Commitments and Contingencies
STOCKHOLDERS’ EQUITY
Common stock — authorized, 170,000,000 shares; issued and outstanding; 9,262,853 and 9,190,504 of $.0001 par value at June 30, 2023 and December 31, 2022, respectively	926	919
Additional paid-in capital	122,191,310	122,028,612
Accumulated other comprehensive loss	(150,572)	(242,602)
Accumulated deficit	(118,196,573)	(116,485,373)
TOTAL STOCKHOLDERS’ EQUITY	3,845,091	5,301,556
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 10,583,245	$ 11,344,255

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2023	Dec. 31, 2022
Common stock, shares authorized (in shares)	170,000,000	170,000,000
Common stock, shares issued (in shares)	9,262,853	9,190,504
Common stock, shares outstanding (in shares)	9,262,853	9,190,504
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001

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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Revenues
Revenues	$ 1,928,929	$ 1,947,115	$ 5,012,696	$ 3,888,286
Costs and other expenses
Costs and other expenses	606,111	723,953	1,426,385	1,061,394
Gross profit	1,322,818	1,223,162	3,586,311	2,826,892
Operating Expenses
Selling, general and administrative	1,943,164	2,006,573	3,874,896	3,804,571
Research, development and engineering	558,181	784,083	1,248,341	1,589,349
Total Operating Expenses	2,501,345	2,790,656	5,123,237	5,393,920
Operating loss	(1,178,527)	(1,567,494)	(1,536,926)	(2,567,028)
Other income (expense)
Interest income	23	77	27	208
Loss on foreign currency transactions	0	0	(15,000)	0
Investment-debt security reserve	0	(150,000)	0	(150,000)
Change in fair value of convertible note	(44,568)	0	97,423	0
Interest expense	(56,806)	(1,540)	(113,724)	(1,540)
Total other income (expense), net	(101,351)	(151,463)	(31,274)	(151,332)
Loss before provision for income tax	(1,279,878)	(1,718,957)	(1,568,200)	(2,718,360)
Provision for income tax	(143,000)	0	(143,000)	0
Net loss	(1,422,878)	(1,718,957)	(1,711,200)	(2,718,360)
Comprehensive loss:
Net loss	(1,422,878)	(1,718,957)	(1,711,200)	(2,718,360)
Other comprehensive loss – Foreign currency translation adjustment	19,884	(165,883)	92,030	(110,081)
Comprehensive loss	$ (1,402,994)	$ (1,884,840)	$ (1,619,170)	$ (2,828,441)
Basic and Diluted Loss per Common Share (in dollars per share)	$ (0.16)	$ (0.21)	$ (0.19)	$ (0.34)
Weighted Average Common Shares Outstanding:
Basic and diluted (in shares)	9,021,426	8,098,020	9,008,631	7,992,102
Service [Member]
Revenues
Revenues	$ 620,465	$ 435,106	$ 1,152,987	$ 830,910
Costs and other expenses
Costs and other expenses	360,156	180,677	514,957	391,590
License [Member]
Revenues
Revenues	1,235,771	1,162,148	3,714,327	2,622,331
Costs and other expenses
Costs and other expenses	198,147	358,136	819,028	431,366
Hardware [Member]
Revenues
Revenues	72,693	349,861	145,382	435,045
Costs and other expenses
Costs and other expenses	$ 47,808	$ 185,140	$ 92,400	$ 238,438

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2021	7,853,759
Balance at Dec. 31, 2021	$ 786	$ 120,190,139	$ 0	$ (104,575,470)	$ 15,615,455
Issuance of common stock for directors’ fees (in shares)	9,382
Issuance of common stock for directors’ fees	$ 1	22,019	0	0	22,020
Issuance of common stock to employees (in shares)	274,250
Issuance of common stock to employees	$ 27	(27)	0	0	0
Other comprehensive loss – Foreign currency translation adjustment	0	0	55,802	0	55,802
Share-based compensation	0	87,677	0	0	87,677
Net loss	$ 0	0	0	(999,403)	(999,403)
Issuance of common stock pursuant to Swivel purchase agreement (in shares)	269,060
Issuance of common stock pursuant to Swivel purchase agreement	$ 27	599,977	0	0	600,004
Balance (in shares) at Mar. 31, 2022	8,406,451
Balance at Mar. 31, 2022	$ 841	120,899,785	55,802	(105,574,873)	15,381,555
Balance (in shares) at Dec. 31, 2021	7,853,759
Balance at Dec. 31, 2021	$ 786	120,190,139	0	(104,575,470)	15,615,455
Other comprehensive loss – Foreign currency translation adjustment					(110,081)
Net loss					(2,718,360)
Balance (in shares) at Jun. 30, 2022	8,441,574
Balance at Jun. 30, 2022	$ 844	121,022,606	(110,081)	(107,293,830)	13,619,539
Balance (in shares) at Mar. 31, 2022	8,406,451
Balance at Mar. 31, 2022	$ 841	120,899,785	55,802	(105,574,873)	15,381,555
Issuance of common stock for directors’ fees (in shares)	9,117
Issuance of common stock for directors’ fees	$ 1	18,005	0	0	18,006
Issuance of common stock to employees (in shares)	1,250
Issuance of common stock to employees	$ 0	0	0	0	0
Restricted stock forfeited (in shares)	(1,250)
Restricted stock forfeited	$ 0	0	0	0	0
Other comprehensive loss – Foreign currency translation adjustment	0	0	(165,883)	0	(165,883)
Share-based compensation	0	57,379	0	0	57,379
Net loss	$ 0	0	0	(1,718,957)	(1,718,957)
Issuance of common stock for Employee stock purchase plan (in shares)	26,006
Issuance of common stock for Employee stock purchase plan	$ 2	39,123	0	0	39,125
Share based compensation for employee stock plan	$ 0	8,314	0	0	8,314
Balance (in shares) at Jun. 30, 2022	8,441,574
Balance at Jun. 30, 2022	$ 844	121,022,606	(110,081)	(107,293,830)	13,619,539
Balance (in shares) at Dec. 31, 2022	9,190,504
Balance at Dec. 31, 2022	$ 919	122,028,612	(242,602)	(116,485,373)	5,301,556
Issuance of common stock for directors’ fees (in shares)	15,388
Issuance of common stock for directors’ fees	$ 1	12,001	0	0	12,002
Issuance of common stock to employees (in shares)	40,000
Issuance of common stock to employees	$ 4	0	0	0	4
Restricted stock forfeited (in shares)	(19,834)
Restricted stock forfeited	$ (2)	(3,103)	0	0	(3,105)
Other comprehensive loss – Foreign currency translation adjustment			72,146	0	72,146
Share-based compensation	0	62,474	0	0	62,474
Net loss	$ 0	0	0	(288,322)	(288,322)
Balance (in shares) at Mar. 31, 2023	9,226,058
Balance at Mar. 31, 2023	$ 922	122,099,984	(170,456)	(116,773,695)	5,156,755
Balance (in shares) at Dec. 31, 2022	9,190,504
Balance at Dec. 31, 2022	$ 919	122,028,612	(242,602)	(116,485,373)	5,301,556
Other comprehensive loss – Foreign currency translation adjustment					92,030
Net loss					(1,711,200)
Balance (in shares) at Jun. 30, 2023	9,262,853
Balance at Jun. 30, 2023	$ 926	122,191,310	(150,572)	(118,196,573)	3,845,091
Balance (in shares) at Mar. 31, 2023	9,226,058
Balance at Mar. 31, 2023	$ 922	122,099,984	(170,456)	(116,773,695)	5,156,755
Issuance of common stock for directors’ fees (in shares)	23,150
Issuance of common stock for directors’ fees	$ 2	16,000	0	0	16,002
Issuance of common stock to employees (in shares)
Issuance of common stock to employees	$ 0	0	0	0	0
Restricted stock forfeited (in shares)	(14,375)
Other comprehensive loss – Foreign currency translation adjustment	$ 0	0	19,884	0	19,884
Share-based compensation	0	57,831	0	0	57,831
Net loss	0	0	0	(1,422,878)	(1,422,878)
Restricted stock forfeited	$ (1)	1	0	0	0
Issuance of common stock for Employee stock purchase plan (in shares)	28,020
Issuance of common stock for Employee stock purchase plan	$ 3	13,931	0	0	13,934
Share based compensation for employee stock plan	$ 0	3,563	0	0	3,563
Balance (in shares) at Jun. 30, 2023	9,262,853
Balance at Jun. 30, 2023	$ 926	$ 122,191,310	$ (150,572)	$ (118,196,573)	$ 3,845,091

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$ (1,711,200)	$ (2,718,360)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation	26,637	21,781
Amortization of intangible assets	162,166	106,403
Amortization of capitalized contract costs	80,717	57,945
Operating leases right-of-use assets	112,745	47,308
Reserve for Investment – debt security		150,000
Share and warrant-based compensation for employees and consultants	120,767	153,370
Stock based directors’ fees	28,004	40,026
Change in fair value of convertible note	(97,423)	(0)
Deferred income tax benefit	(13,000)	0
Bad debts	50,000	25,111
Change in assets and liabilities:
Accounts receivable	(1,657,170)	(390,660)
Due from factor	(24,750)	(27,440)
Capitalized contract costs	(75,096)	(110,158)
Inventory	50,271	52,059
Resalable software license rights	0	4,984
Prepaid expenses and other	14,799	(94,947)
Accounts payable	726,657	450,667
Accrued liabilities	(109,208)	(33,776)
Income taxes payable	156,000	0
Deferred revenue	174,437	27,818
Operating lease liabilities	(110,545)	(49,577)
Net cash used for operating activities	(2,095,192)	(2,287,446)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Swivel Secure, net of cash acquired of $729,905	0	(543,578)
Receipt of cash from note receivable	0	7,000
Capital expenditures	0	(22,888)
Net cash used for investing activities	0	(559,466)
CASH FLOW FROM FINANCING ACTIVITIES:
Receipt of cash from Employee stock purchase plan	13,934	39,125
Repayment of government loan	(56,241)	0
Net cash used for financing activities	(42,307)	39,125
Effect of exchange rate changes	67,490	(53,217)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(2,070,009)	(2,861,004)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	2,635,522	7,754,046
CASH AND CASH EQUIVALENTS, END OF PERIOD	565,513	4,893,042
Cash paid for:
Interest	113,724	1,540
Noncash investing and financing activities
Accounts receivable acquired from Swivel Secure	0	702,886
Equipment acquired from Swivel Secure	0	65,640
Other assets acquired from Swivel Secure	0	20,708
Intangible assets acquired from Swivel Secure	0	762,860
Goodwill resulting from the acquisition from Swivel Secure	0	1,067,372
Accounts payable and accrued expenses acquired from Swivel Secure	0	431,884
Common stock issued for acquisition of Swivel Secure	0	600,004
Swivel Secure Europe [Member]
Noncash investing and financing activities
Government loan acquired from Swivel Secure	$ 0	$ 544,000

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Condensed Consolidated Statements of Cash Flows (Unaudited) (Parentheticals)	6 Months Ended
	Jun. 30, 2023 USD ($)
Cash acquired from purchase	$ 729,905

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Note 1 - Nature of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Business Description and Accounting Policies [Text Block]

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

The Company, founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions enterprise-ready identity access management solutions to commercial, government and education customers throughout the United States and internationally. The Company was a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit cards, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been, and is, used to improve both the accuracy and speed of competing finger-based biometrics.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “BIO-key”) and are stated in conformity with accounting principles generally accepted in the United States of America (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The balance sheet at  December 31, 2022 was derived from the audited financial statements, but does not include all of the disclosures required by GAAP. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on June 1, 2023.

Foreign Currencies

The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830”). The functional currency of the Company is the U.S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other comprehensive income (loss).

Recently Issued Accounting Pronouncements

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016-13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. The adoption of ASU 2016-13 did not have a material effect on the consolidated financial statements of the Company. 

In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for the Company on January 1, 2024 and should be applied on a full or modified retrospective basis. The Company is currently assessing the impact ASU 2020-06 will have on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

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Note 2 - Going Concern

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Substantial Doubt about Going Concern [Text Block]

2. GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has suffered substantial net losses and negative cash flows from operations in recent years and is dependent on debt and equity financing to fund its operations all of which raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to increase its revenue and meet its financing requirements on a continuing basis and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

As of the date of this report, the Company does not have enough cash for twelve months of operations. The history of significant losses, the negative cash flow from operations, the limited cash resources on hand and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company's ability to continue as a going concern. The Company has lowered its expenses through decreasing spending in marketing and research and development. In addition, the Company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and is, therefore, looking into other markets and opportunities to sell or return the product to generate additional cash.

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Note 3 - Revenue From Contracts With Customers

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three month periods ended June 30, 2023 and June 30, 2022:

	North								June 30,
	America		Africa		EMESA*		Asia		2023
Services	$	281,607	$	26,009	$	305,424	$	7,425	$	620,465
License fees		780,383		-		455,388		-		1,235,771
Hardware		61,551		-		142		11,000		72,693
Total Revenues	$	1,123,541	$	26,009	$	760,954	$	18,425	$	1,928,929

	North								June 30,
	America		Africa		EMESA*		Asia		2022
Services	$	301,087	$	22,677	$	111,342	$	-	$	435,106
License fees		495,543		-		666,605		-		1,162,148
Hardware		203,212		-		5,679		140,970		349,861
Total Revenues	$	999,842	$	22,677	$	783,626	$	140,970	$	1,947,115

The following table summarizes revenue from contracts with customers for the six month periods ended June 30, 2023 and June 30, 2022:

	North								June 30,
	America		Africa		EMESA*		Asia		2023
Services	$	545,464	$	49,797	$	545,351	$	12,375	$	1,152,987
License fees		1,188,913		552,630		1,902,134		70,650		3,714,327
Hardware		86,332		-		47,150		11,900		145,382
Total Revenues	$	1,820,709	$	602,427	$	2,494,635	$	94,925	$	5,012,696

	North								June 30,
	America		Africa		EMESA*		Asia		2022
Services	$	656,719	$	37,952	$	136,186	$	53	$	830,910
License fees		968,613		517,161		1,056,882		79,675		2,622,331
Hardware		275,112		12,033		6,930		140,970		435,045
Total Revenues	$	1,900,444	$	567,146	$	1,199,998	$	220,698	$	3,888,286

*EMESA – Europe, Middle East, South America

Deferred Revenue 

Deferred revenue includes customer advances and amounts that have been paid by customer for which the contractual maintenance terms have not yet occurred. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12-60 months. Contracts greater than 12 months are segregated as long term deferred revenue. Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services. At June 30, 2023 and December 31, 2022, amounts in deferred revenue were approximately $689,000 and $515,000, respectively. Revenue recognized during the three and six-months ended June 30, 2023 from amounts included in deferred revenue at the beginning of the period was approximately $102,000 and $335,000, respectively. Revenue recognized during the three and six-months ended June 30, 2022 from amounts included in deferred revenue at the beginning of the period was approximately $153,000 and $387,000, respectively. The Company did not recognize any revenue from performance obligations satisfied in prior periods.

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Note 4 - Accounts Receivable

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

4. ACCOUNTS RECEIVABLE

Accounts receivable are carried at original amount less an estimate made for credit losses based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for credit losses by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, current economic conditions and other relevant factors, including specific reserves for certain accounts. Accounts receivable are written off when deemed uncollectible.

Accounts receivable at June 30, 2023 and December 31, 2022 consisted of the following: 

	June 30,			December 31,
	2023			2022
Accounts receivable	$	3,802,570		$	2,096,569
Allowance for credit losses		(623,785	)		(573,785	)
Accounts receivable, net of allowances for credit losses	$	3,178,785		$	1,522,784

Bad debt expenses (if any) are recorded in selling, general, and administrative expense.

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Note 5 - Share Based Compensation

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

5. SHARE BASED COMPENSATION

The following table presents share-based compensation expenses included in the Company’s unaudited condensed interim consolidated statements of operations:

	Three Months Ended June 30,
	2023		2022
Selling, general and administrative	$	59,966	$	66,152
Research, development and engineering		17,430		17,547
	$	77,396	$	83,699

	Six Months Ended June 30,
	2023		2022
Selling, general and administrative	$	115,419	$	158,578
Research, development and engineering		33,352		34,818
	$	148,771	$	193,396

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Note 6 - Inventory

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Inventory Disclosure [Text Block]

6. INVENTORY

Inventory is stated at the lower of cost, determined on a first in, first out basis, or realizable value. The Company periodically evaluates inventory items and establishes reserves for obsolescence accordingly. The Company also reserves for excess quantities, slow moving goods, and for other impairment of value based upon assumptions of future demand and market conditions. The $400,000 reserve on inventory is due to slow moving inventory purchased for projects in Nigeria. The Company is looking into other markets and opportunities to sell or return the product. Inventory is comprised of the following as of:

	June 30,			December 31,
	2023			2022
Finished goods	$	4,714,372		$	4,764,643
Fabricated assemblies		69,726			69,726
Reserve on finished goods		(400,000	)		(400,000	)
Total inventory	$	4,384,098		$	4,434,369

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Note 7 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Commitments Disclosure [Text Block]

7. COMMITMENTS AND CONTINGENCIES

Distribution Agreement

Swivel Secure has a distribution agreement with Swivel Secure Limited (“SSL”). Terms of the agreement include the following:

1. The initial term of the agreement ends on January 31, 2027 and will be automatically extended for additional one-year terms thereafter unless either party provides written notice to the other party not later than 30 days before the end of the term that it does not wish to extend the term.

2. SSL appoints Swivel Secure as the exclusive distributor of SSL’s products, to market, sell and distribute in the EMEA (Europe, Middle East and Africa), excluding the United Kingdom and Republic of Ireland, for a defined discount on the sale price.

3. Swivel Secure is expected to generate a certain minimum level of orders of SSL products each year during the term of the agreement. If Swivel Secure fails to meet such minimum level of orders in any year, the exclusive distribution rights will terminate and Swivel Secure will serve as a non-exclusive distributer of SSL Products.

The Company expects the revenue targets to continue to be met based on historical performance and increasing distribution by Swivel Secure.

Litigation

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of June 30, 2023, the Company was not a party to any pending lawsuits.

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Note 8 - Leases

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

8. LEASES

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2023 and 2024. On August 11, 2023, the Company signed a new one-year lease starting September 1, 2023 for office space in New Jersey. The property leased in China is paid monthly as used, without a formal agreement. The following tables present the components of lease expense and supplemental balance sheet information related to the operating leases were:

	3 Months ended		3 Months ended
	June 30,		June 30,
	2023		2022
Lease cost
Total lease cost	$	48,543	$	55,942

	6 Months ended		6 Months ended
	June 30,		June 30,
	2023		2022
Lease cost
Total lease cost	$	111,682	$	111,161

	June 30,			December 31,
Balance sheet information	2023			2022
Operating right-of-use assets	$	84,610		$	197,355
Operating lease liabilities, current portion	$	77,379		$	159,665
Operating lease liabilities, non-current portion		9,570			37,829
Total operating lease liabilities	$	86,949		$	197,494
Weighted average remaining lease term (in years) – operating leases		0.93			0.96
Weighted average discount rate – operating leases		5.50	%		5.50	%
Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2023 and 2022:	$	138,634		$	144,985

Maturities of operating lease liabilities were as follows as of June 30, 2023:

2023 (6 months remaining)	$	50,950
2024		38,808
Total future lease payments	$	89,758
Less: imputed interest		(2,809	)
Total	$	86,949

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Note 9 - Convertible Note Payable

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Debt Disclosure [Text Block]

9. CONVERTIBLE NOTE PAYABLE

Securities Purchase Agreement dated December 22, 2022

On December 22, 2022, the Company entered into and closed a securities purchase agreement (the “Purchase Agreement”) and issued a $2,200,000 principal amount senior secured promissory note (the “Note”). At closing, a total of $2,002,000 was funded, with the proceeds to be used for general working capital.

The principal amount of the Note was due six months following the date of issuance, subject to one six-month extension by the Company. The Company elected to extend the due date to December 22, 2023. Interest under the Note accrued at a rate of 10% per annum through month six and accrues at a rate of 12% per annum in months seven through twelve, payable monthly. The Note is secured by a lien on substantially all of the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.

In connection with the issuance of the Note, the Company issued to the investor 700,000 shares of Common Stock (the “Commitment Shares”) valued at $1.00 per share and a warrant (the “Warrant”) to purchase 200,000 shares of common stock (the “Warrant Shares”) at an exercise price of $3.00 per share, exercisable commencing on the date of issuance with a term of five years. 

Upon issuance, the Note was not convertible into common stock or any other securities of the Company. Only after a date that is six (6) months following the issuance date of the Note and upon the occurrence of any events of default (as defined) and expiration of any applicable cure periods, all amounts due under the Note will immediately and automatically become due and payable in full, interest will accrue at the higher of 18% per annum or the maximum amount permitted by applicable law, the outstanding principal amount due under the Note will be increased by 30%, and the Investor will have the right to convert all amounts due under the Note into shares of common stock (the “Conversion Shares”) at a conversion price equal to the 10 day volume weighted average sales price of the Company’s common stock on the date of conversion, subject to the Share Cap described in the paragraph below.

The aggregate number of shares of common stock issuable in the forgoing transaction consisting of the Commitment Shares, the Warrant Shares, and the Conversion Shares are capped at 1,684,576 which is 19.9% of the Company’s issued and outstanding shares of common stock on December 22, 2022, the date the definitive transaction documents were executed (the “Share Cap”).

The Company elected the fair value measurement option for the Note as the Note had embedded derivatives that required bifurcation and recorded the entire hybrid financing instrument at fair value under the guidance of ASC 825, Financial Instruments. As a result, the Note was recorded at fair value upon issuance and is subsequently remeasured at each reporting date until settled or converted. The Company reports interest expense, including accrued interest, related to the Note under the fair value option, separately from within the change in fair value of the Note in the accompanying consolidated statement of operations. See Note 13.

As of June 30, 2023 and December 31, 2022, the Note with principal balance of $2,200,000, at fair value, was recorded at $2,498,780 and $2,596,203, respectively. 

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Note 10 - Earnings (Loss) Per Share - Common Stock ("EPS")

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Earnings Per Share [Text Block]

10. EARNINGS (LOSS) PER SHARE - COMMON STOCK (“EPS”)

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of preferred stock.

The following table sets forth options and warrants which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

	Three Months ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock options		172,734		212,461		172,734		212,461
Warrants		4,872,025		4,689,387		4,872,025		4,689,387
Total		5,044,759		4,901,848		5,044,759		4,901,848

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Note 11 - Stockholders' Equity

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Equity [Text Block]

11. STOCKHOLDERS’ EQUITY

Issuances of Common Stock

During the six-month periods ended June 30, 2023, there have not been any shares of common stock issued to anyone outside the Company, except as noted below under Issuances to Directors, Executive Officers & Consultants

On June 18, 2021, the stockholders approved the Employee Stock Purchase Plan. Under the terms of this plan, 789,000 shares of common stock are reserved for issuance to employees and officers of the Company at a purchase price equal to 85% of the lower of the closing price of the common stock on the first day or the last day of the offering period as reported on the Nasdaq Capital Market. Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions. The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031. On June 30, 2023, 28,020 shares were issued to employees which resulted in a $3,563 non-cash compensation expense for the Company. On June 30, 2022, 26,006 shares were issued to employees which resulted in a $8,314 non-cash compensation expense for the Company.

On March 8, 2022, the Company issued 269,060 shares of common stock of which 89,687 shares were held back by the Company to secure certain indemnification obligations under the Swivel Secure stock purchase agreement. The shares of Company common stock were issued at a total cost of $600,004, priced at $2.23, based on the contractual 20 day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market

Issuances of Restricted Stock

Restricted stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Nonvested stock is expensed ratably over the term of the restriction period.

During the six-month periods ended June 30, 2023 and 2022, the Company issued 40,000 and 275,000 shares of restricted common stock, respectively, to certain employees and directors. These shares vest in equal annual installments over a three-year period from the date of grant and had a fair value on the date of issuance of $31,200 and $592,075, respectively.

During the six-month periods ended June 30, 2023 and 2022, 34,209 and 1,250 shares of restricted common stock were forfeited, respectively.

Restricted stock compensation for the three-month periods ended June 30, 2023 and 2022, was $54,781 and $51,204, respectively.

Restricted stock compensation for the six-month periods ended June 30, 2023 and 2022, was $113,837 and $91,044, respectively.

Issuances to Directors, Executive Officers & Consultants

During the three and six-month periods ended June 30, 2023, the Company issued 23,150 and 38,538 shares of common stock to its directors in lieu of payment of board and committee fees valued at $16,002 and $28,004, respectively. 

During the three and six-month periods ended June 30, 2022, the Company issued 9,117 and 18,499 shares of common stock to its directors in lieu of payment of board and committee fees valued at $18,006 and $40,026, respectively. 

Employees’ exercise options

During the three and six-month periods ended June 30, 2023 and 2022, no employee stock options were exercised.

3. Warrants

There were no warrants issued during the three and six-month periods ended June 30, 2023 and 2022.

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Note 12 - Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

12. FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts receivable, due from factor, accounts payable and accrued liabilities are carried at, or approximate, fair value because of their short-term nature. The carrying value of the Company’s government loan payable approximates fair value as the interest rate related to the financial instruments approximated market.

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Note 13 - Fair Value Measurement of Convertible Note Payable

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

13. FAIR VALUE MEASUREMENT OF CONVERTIBLE NOTE PAYABLE

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The following tables summarize the Note measured at fair value at June 30, 2023 and December 31, 2022:

June 30, 2023	Total		Level 1		Level 2		Level 3
Convertible note at fair value	$	2,498,780	$	-	$	-	$	2,498,780

December 31, 2022	Total		Level 1		Level 2		Level 3
Convertible note at fair value	$	2,596,203	$	-	$	-	$	2,596,203

The Company estimated the fair value of the convertible note using a probability-weighted discounted cash flow model with the following assumptions and significant terms of the convertible note at both June 30, 2023 and December 31, 2022:

1. Face amount - $2,200,000

2. Nominal interest rate – 12% at June 30, 2023, 10% - 12% at March 31, 2023 and December 31, 2022

3. Default interest rate – 18%

4. Increase in principal upon a default – 30%

5. Present value discount rate – 13.80% at June 30, 2023, 15.04% at March 31, 2023 and 15.18% at December 31, 2022

6. Likelihood of default – estimated to be 50% at the extended maturity date

The following table shows the changes in fair value measurements for the convertible note using significant unobservable inputs (Level 3) during the three months ended June 30, 2023:

Beginning balance	$	2,596,203
Purchases and issuances		-
Change in fair value for the three months ended March 31, 2023		(141,991	)
Balance at March 31, 2023	$	2,454,212
Change in fair value for the three months ended June 30, 2023		44,568
Ending balance at June 30, 2023	$	2,498,780

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Note 14 - Major Customers and Accounts Receivables

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

14. MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE

During each of the three month periods ended June 30, 2023, and 2022, one customer accounted for 12% of revenue. For the six month periods ended June 30, 2023, and 2022, two customers accounted for 30% and one customer accounted for 14% of revenue, respectively.

Three customers accounted for 63% of current accounts receivable at June 30, 2023. At December 31, 2022, one customer accounted for 35% of current accounts receivable.

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Note 15 - Income Taxes

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. INCOME TAXES

United States, Hong Kong and Nigeria

The Company recorded no income tax expense for the three and six months ended June 30, 2023 and 2022 because the estimated annual effective tax rate was zero. In determining the estimated annual effective income tax rate, the Company analyses various factors, including projections of the Company’s annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

As of June 30, 2023 and December 31, 2022, the Company provided a full valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Spain

The provision for income taxes amounted to $143,000.  Current income taxes totaled $156,000 and deferred tax benefit totaled $13,000.  The deferred tax liability presented on the condensed consolidated balance sheet relates to intangible assets from the acquisition of Swivel Secure.

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Note 16 - Subsequent Events

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Subsequent Events [Text Block]

16 SUBSEQUENT EVENTS

On July 19, 2023 and July 20, 2023, 20,000 and 13,333 shares of restricted common stock, respectively were cancelled as a result of employees leaving the Company before the vesting periods were completed.

On August 10, 2023, the Company issued 13,236 shares of common stock to its directors in payment of meeting fees. Additionally, the Company issued an aggregate of 12,500 shares of restricted stock with three-year vesting period to two new employees. All shares were issued at $0.68 the closing price on August 10, 2023, as reported on the Nasdaq Capital Market.

The Company has reviewed subsequent events through the date of this filing. 

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “BIO-key”) and are stated in conformity with accounting principles generally accepted in the United States of America (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The balance sheet at  December 31, 2022 was derived from the audited financial statements, but does not include all of the disclosures required by GAAP. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on June 1, 2023.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currencies

The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830”). The functional currency of the Company is the U.S. dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, all assets and liabilities are translated into U. S. dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other comprehensive income (loss).

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016-13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. The adoption of ASU 2016-13 did not have a material effect on the consolidated financial statements of the Company. 

In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for the Company on January 1, 2024 and should be applied on a full or modified retrospective basis. The Company is currently assessing the impact ASU 2020-06 will have on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standard, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

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Note 3 - Revenue From Contracts With Customers (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Disaggregation of Revenue [Table Text Block]

	North								June 30,
	America		Africa		EMESA*		Asia		2023
Services	$	281,607	$	26,009	$	305,424	$	7,425	$	620,465
License fees		780,383		-		455,388		-		1,235,771
Hardware		61,551		-		142		11,000		72,693
Total Revenues	$	1,123,541	$	26,009	$	760,954	$	18,425	$	1,928,929

	North								June 30,
	America		Africa		EMESA*		Asia		2022
Services	$	301,087	$	22,677	$	111,342	$	-	$	435,106
License fees		495,543		-		666,605		-		1,162,148
Hardware		203,212		-		5,679		140,970		349,861
Total Revenues	$	999,842	$	22,677	$	783,626	$	140,970	$	1,947,115

	North								June 30,
	America		Africa		EMESA*		Asia		2023
Services	$	545,464	$	49,797	$	545,351	$	12,375	$	1,152,987
License fees		1,188,913		552,630		1,902,134		70,650		3,714,327
Hardware		86,332		-		47,150		11,900		145,382
Total Revenues	$	1,820,709	$	602,427	$	2,494,635	$	94,925	$	5,012,696

	North								June 30,
	America		Africa		EMESA*		Asia		2022
Services	$	656,719	$	37,952	$	136,186	$	53	$	830,910
License fees		968,613		517,161		1,056,882		79,675		2,622,331
Hardware		275,112		12,033		6,930		140,970		435,045
Total Revenues	$	1,900,444	$	567,146	$	1,199,998	$	220,698	$	3,888,286

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Note 4 - Accounts Receivable (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	June 30,			December 31,
	2023			2022
Accounts receivable	$	3,802,570		$	2,096,569
Allowance for credit losses		(623,785	)		(573,785	)
Accounts receivable, net of allowances for credit losses	$	3,178,785		$	1,522,784

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Note 5 - Share Based Compensation (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	Three Months Ended June 30,
	2023		2022
Selling, general and administrative	$	59,966	$	66,152
Research, development and engineering		17,430		17,547
	$	77,396	$	83,699

	Six Months Ended June 30,
	2023		2022
Selling, general and administrative	$	115,419	$	158,578
Research, development and engineering		33,352		34,818
	$	148,771	$	193,396

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Note 6 - Inventory (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30,			December 31,
	2023			2022
Finished goods	$	4,714,372		$	4,764,643
Fabricated assemblies		69,726			69,726
Reserve on finished goods		(400,000	)		(400,000	)
Total inventory	$	4,384,098		$	4,434,369

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Note 8 - Leases (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Lessee, Operating Lease, Costs, Assets and Liabilities [Table Text Block]

	3 Months ended		3 Months ended
	June 30,		June 30,
	2023		2022
Lease cost
Total lease cost	$	48,543	$	55,942

	6 Months ended		6 Months ended
	June 30,		June 30,
	2023		2022
Lease cost
Total lease cost	$	111,682	$	111,161

	June 30,			December 31,
Balance sheet information	2023			2022
Operating right-of-use assets	$	84,610		$	197,355
Operating lease liabilities, current portion	$	77,379		$	159,665
Operating lease liabilities, non-current portion		9,570			37,829
Total operating lease liabilities	$	86,949		$	197,494
Weighted average remaining lease term (in years) – operating leases		0.93			0.96
Weighted average discount rate – operating leases		5.50	%		5.50	%
Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2023 and 2022:	$	138,634		$	144,985

2023 (6 months remaining)	$	50,950
2024		38,808
Total future lease payments	$	89,758
Less: imputed interest		(2,809	)
Total	$	86,949

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Note 10 - Earnings (Loss) Per Share - Common Stock ("EPS") (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock options		172,734		212,461		172,734		212,461
Warrants		4,872,025		4,689,387		4,872,025		4,689,387
Total		5,044,759		4,901,848		5,044,759		4,901,848

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Note 13 - Fair Value Measurement of Convertible Note Payable (Tables)

6 Months Ended

Jun. 30, 2023

Notes Tables

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

June 30, 2023	Total		Level 1		Level 2		Level 3
Convertible note at fair value	$	2,498,780	$	-	$	-	$	2,498,780

December 31, 2022	Total		Level 1		Level 2		Level 3
Convertible note at fair value	$	2,596,203	$	-	$	-	$	2,596,203

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

Beginning balance	$	2,596,203
Purchases and issuances		-
Change in fair value for the three months ended March 31, 2023		(141,991	)
Balance at March 31, 2023	$	2,454,212
Change in fair value for the three months ended June 30, 2023		44,568
Ending balance at June 30, 2023	$	2,498,780

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Note 3 - Revenue From Contracts With Customers (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Contract with Customer, Liability	$ 689,000		$ 689,000		$ 515,000
Contract with Customer, Liability, Revenue Recognized	$ 102,000	$ 153,000	$ 335,000	$ 387,000
Minimum [Member]
Capitalized Contract Cost, Amortization Period (Month)	12 months		12 months
Maximum [Member]
Capitalized Contract Cost, Amortization Period (Month)	60 months		60 months

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Note 3 - Revenue From Contracts With Customers - Disaggregation of Revenue (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Revenues		$ 1,928,929	$ 1,947,115	$ 5,012,696	$ 3,888,286
Service [Member]
Revenues		620,465	435,106	1,152,987	830,910
License [Member]
Revenues		1,235,771	1,162,148	3,714,327	2,622,331
Hardware [Member]
Revenues		72,693	349,861	145,382	435,045
North America [Member]
Revenues		1,123,541	999,842	1,820,709	1,900,444
North America [Member] | Service [Member]
Revenues		281,607	301,087	545,464	656,719
North America [Member] | License [Member]
Revenues		780,383	495,543	1,188,913	968,613
North America [Member] | Hardware [Member]
Revenues		61,551	203,212	86,332	275,112
South America [Member]
Revenues		26,009	22,677	602,427	567,146
South America [Member] | Service [Member]
Revenues		26,009	22,677	49,797	37,952
South America [Member] | License [Member]
Revenues		0	0	552,630	517,161
South America [Member] | Hardware [Member]
Revenues		0	0	0	12,033
EMESA [Member]
Revenues	[1]	760,954	783,626	2,494,635	1,199,998
EMESA [Member] | Service [Member]
Revenues		305,424	111,342	545,351	136,186
EMESA [Member] | License [Member]
Revenues	[1]	455,388	666,605	1,902,134	1,056,882
EMESA [Member] | Hardware [Member]
Revenues	[1]	142	5,679	47,150	6,930
Asia [Member]
Revenues		18,425	140,970	94,925	220,698
Asia [Member] | Service [Member]
Revenues		7,425	0	12,375	53
Asia [Member] | License [Member]
Revenues		0	0	70,650	79,675
Asia [Member] | Hardware [Member]
Revenues		$ 11,000	$ 140,970	$ 11,900	$ 140,970

[1] EMESA – Europe, Middle East, South America

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Note 4 - Accounts Receivable - Summary of Accounts Receivable (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Accounts receivable	$ 3,802,570	$ 2,096,569
Allowance for credit losses	(623,785)	(573,785)
Accounts receivable, net of allowances for credit losses	$ 3,178,785	$ 1,522,784

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Note 5 - Share Based Compensation - Expenses for Continuing Operations (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Share-based compensation expense	$ 77,396	$ 83,699	$ 148,771	$ 193,396
Selling, General and Administrative Expenses [Member]
Share-based compensation expense	59,966	66,152	115,419	158,578
Research and Development Expense [Member]
Share-based compensation expense	$ 17,430	$ 17,547	$ 33,352	$ 34,818

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Note 6 - Inventory (Details Textual)	Jun. 30, 2023 USD ($)
NIGERIA
Inventory Valuation Reserves	$ 400,000

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Note 6 - Inventory - Components of Inventory (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Finished goods	$ 4,714,372	$ 4,764,643
Fabricated assemblies	69,726	69,726
Reserve on finished goods	(400,000)	(400,000)
Total inventory	$ 4,384,098	$ 4,434,369

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Note 8 - Leases - Operating Lease Balance Sheet Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Total lease cost	$ 48,543	$ 55,942	$ 111,682	$ 111,161
Operating lease right-of-use assets	84,610		84,610		$ 197,355
Operating lease liabilities, current portion	77,379		77,379		159,665
Operating lease liabilities, non-current portion	9,570		9,570		$ 37,829
Total operating lease liabilities	$ 86,949		$ 86,949
Weighted average remaining lease term (in years) – operating leases (Year)	11 months 4 days		11 months 4 days		11 months 15 days
Weighted average discount rate – operating leases	5.50%		5.50%		5.50%
Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2023 and 2022:			$ 138,634	$ 144,985
2023 (6 months remaining)	$ 50,950		50,950
2024	38,808		38,808
Total future lease payments	89,758		89,758
Less: imputed interest	(2,809)		(2,809)
Total	86,949		86,949
Approximation [Member]
Operating lease right-of-use assets	84,610		84,610		$ 197,355
Total operating lease liabilities	86,949		86,949		197,494
Total	$ 86,949		$ 86,949		$ 197,494

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Note 9 - Convertible Note Payable (Details Textual) - USD ($)		3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 22, 2022	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022	Mar. 31, 2023
Class of Warrant or Right, Issued During Period (in shares)		0	0	0	0
Warrants Issued in Connection With Note [Member]
Class of Warrant or Right, Issued During Period (in shares)	200,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share)	$ 3.00
The Note [Member]
Debt Instrument, Face Amount		$ 2,200,000		$ 2,200,000		$ 2,200,000
Debt Instrument, Fair Value Disclosure		2,498,780		2,498,780		2,596,203
The Note [Member] | Senior Secured Promissory Note [Member]
Debt Instrument, Face Amount	$ 2,200,000	$ 2,200,000		$ 2,200,000		$ 2,200,000
Proceeds from Debt, Net of Issuance Costs	$ 2,002,000
Debt Instrument, Interest Rate, Stated Percentage	10.00%	12.00%		12.00%			10.00%
Stock Issued During Period, Shares, Commitment Fee (in shares)	700,000
Shares Issued, Price Per Share (in dollars per share)	$ 1.00
Debt Instrument, Interest Rate, Default	18.00%	18.00%		18.00%		18.00%
Debt Instrument, Default, Percentage Increase In Principal	30.00%			30.00%		30.00%
Debt Instrument, Convertible, Number of Equity Instruments	1,684,576
Debt Instrument, Convertible, Percentage of Outstanding Stock	19.90%

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Note 10 - Earnings (Loss) Per Share - Common Stock ("EPS") - Securities Excluded From the Diluted Per Share Calculation (Details) - Exercise Price Greater Than Average Market Price Of Common Shares [Member] - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Antidilutive securities (in shares)	5,044,759	4,901,848	5,044,759	4,901,848
Share-Based Payment Arrangement, Option [Member]
Antidilutive securities (in shares)	172,734	212,461	172,734	212,461
Warrant [Member]
Antidilutive securities (in shares)	4,872,025	4,689,387	4,872,025	4,689,387

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Note 11 - Stockholders' Equity (Details Textual) - USD ($)					3 Months Ended				6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Mar. 08, 2022	Jun. 18, 2021	Jun. 30, 2023	Mar. 31, 2023	Jun. 30, 2022	Mar. 31, 2022	Jun. 30, 2023	Jun. 30, 2022
Share-Based Payment Arrangement, Expense					$ 77,396		$ 83,699		$ 148,771	$ 193,396
Stock Issued During Period, Value, Acquisitions								$ 600,004
Shares Issued, Value, Share-Based Payment Arrangement, after Forfeiture					$ 16,002	$ 12,002	$ 18,006	22,020
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period (in shares)					0		0		0	0
Class of Warrant or Right, Issued During Period (in shares)					0		0		0	0
Common Stock [Member]
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)					28,020		26,006
Stock Issued During Period, Value, Acquisitions								$ 27
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures (in shares)						40,000	1,250	274,250
Stock Issued During Period, Shares, Restricted Stock Award, Forfeited (in shares)					14,375	19,834	1,250
Shares Issued, Shares, Share-Based Payment Arrangement, after Forfeiture (in shares)					23,150	15,388	9,117	9,382
Shares Issued, Value, Share-Based Payment Arrangement, after Forfeiture					$ 2	$ 1	$ 1	$ 1
Common Stock [Member] | Director [Member]
Shares Issued, Shares, Share-Based Payment Arrangement, after Forfeiture (in shares)					23,150		9,117		38,538	18,499
Shares Issued, Value, Share-Based Payment Arrangement, after Forfeiture					$ 16,002		$ 18,006		$ 28,004	$ 40,026
Restricted Stock [Member]
Share-Based Payment Arrangement, Expense					$ 54,781		$ 51,204		$ 113,837	$ 91,044
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures (in shares)									40,000	275,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)									3 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Fair Value									$ 31,200	$ 592,075
Stock Issued During Period, Shares, Restricted Stock Award, Forfeited (in shares)					34,209					1,250
Swivel Secure Europe [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares)			269,060
Business Combination, Indemnification Assets, Amount as of Acquisition Date			$ 89,687
Stock Issued During Period, Value, Acquisitions			$ 600,004
Business Acquisition, Share Price (in dollars per share)			$ 2.23
Employee Stock Purchase Plan [Member]
Common Stock, Capital Shares Reserved for Future Issuance (in shares)				789,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Purchase Price of Common Stock, Percent				85.00%
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)	28,020	26,006
Share-Based Payment Arrangement, Expense	$ 3,563	$ 8,314

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Note 13 - Fair Value Measurement of Convertible Note Payable (Details Textual) - The Note [Member] - USD ($)		6 Months Ended	12 Months Ended
	Dec. 22, 2022	Jun. 30, 2023	Dec. 31, 2022	Mar. 31, 2023
Debt Instrument, Face Amount		$ 2,200,000	$ 2,200,000
Senior Secured Promissory Note [Member]
Debt Instrument, Face Amount	$ 2,200,000	$ 2,200,000	$ 2,200,000
Debt Instrument, Interest Rate, Stated Percentage	10.00%	12.00%		10.00%
Debt Instrument, Interest Rate, Default	18.00%	18.00%	18.00%
Debt Instrument, Default, Percentage Increase In Principal	30.00%	30.00%	30.00%
Debt Instrument, Likelihood of Default		50.00%	50.00%
Senior Secured Promissory Note [Member] | Measurement Input, Discount Rate [Member]
Debt Instrument, Measurement Input		13.80	0.1518	0.1504
Senior Secured Promissory Note [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage		12.00%	10.00%
Senior Secured Promissory Note [Member] | Maximum [Member]
Debt Instrument, Interest Rate, Stated Percentage			12.00%	12.00%

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Note 13 - Fair Value Measurement of Convertable Note Payable - Fair Value Measured On Recurring and Nonrecurring Basis (Details) - The Note [Member] - Senior Secured Promissory Note [Member] - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Convertible note at fair value	$ 2,498,780	$ 2,596,203
Fair Value, Inputs, Level 1 [Member]
Convertible note at fair value	0	0
Fair Value, Inputs, Level 2 [Member]
Convertible note at fair value	0	0
Fair Value, Inputs, Level 3 [Member]
Convertible note at fair value	$ 2,498,780	$ 2,596,203

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Note 13 - Fair Value Measurement of Convertable Note Payable - Unobsesrvable Input Reconciliation (Details) - Senior Secured Promissory Note [Member] - The Note [Member] - USD ($)	3 Months Ended
	Jun. 30, 2023	Mar. 31, 2023
Balance	$ 2,454,212	$ 2,596,203
Purchases and issuances		0
Change in fair value for the three months ended March 31, 2023	44,568	(141,991)
Balance	$ 2,498,780	$ 2,454,212

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Note 14 - Major Customers and Accounts Receivables (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Revenue Benchmark [Member]
Concentration Risk, Number of Major Customers	1		1
Revenue Benchmark [Member] | One Customer [Member]
Concentration Risk, Percentage	12.00%		14.00%
Revenue Benchmark [Member] | Two Customers [Member]
Concentration Risk, Number of Major Customers		2
Concentration Risk, Percentage		30.00%
Accounts Receivable [Member] | One Customer [Member]
Concentration Risk, Number of Major Customers		3		1
Concentration Risk, Percentage		63.00%		35.00%

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Note 15 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Tax Expense (Benefit), Total	$ 143,000	$ (0)	$ 143,000	$ (0)
Deferred Income Tax Expense (Benefit)			(13,000)	0
United States, Hong Kong, and Nigeria [Member]
Income Tax Expense (Benefit), Total	$ 0	$ 0	0	$ 0
SPAIN
Income Tax Expense (Benefit), Total			143,000
Current Income Tax Expense (Benefit)			156,000
Deferred Income Tax Expense (Benefit)			$ 13,000

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Note 16 - Subsequent Events (Details Textual) - $ / shares				6 Months Ended
	Aug. 10, 2023	Jul. 20, 2023	Jul. 19, 2023	Jun. 30, 2023
Subsequent Event [Member]
Share Price (in dollars per share)	$ 0.68
Restricted Stock [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)				3 years
Restricted Stock [Member] | Subsequent Event [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Forfeited in Period (in shares)		13,333	20,000
Restricted Stock [Member] | Subsequent Event [Member] | Share-Based Payment Arrangement, Nonemployee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)	13,236
Restricted Stock [Member] | Subsequent Event [Member] | Share-Based Payment Arrangement, Employee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)	12,500
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)	3 years