Biometric ID Provider BIO-key Reports Q3 Results, Hosts Call Tomorrow, Tuesday, November 15 at 10:00 am EST

WALL, NJ / ACCESSWIRE / November 14, 2016 / BIO-key International, Inc. (OTCQB: BKYI), an innovative provider of biometric software and hardware solutions for stronger user authentication, today reported results for its third quarter ended September 30, 2016 (Q3’16). BIO-key will host a conference call tomorrow at 10:00 a.m. ET to review its results (call details below).

Highlights

BIO-key fingerprint readers launched in Microsoft retail stores and online on September 27th, building upon the Company’s marketing partnership with Microsoft to provide products that enable use of Windows 10 biometric functionality.
Expanded additional hardware distribution partnerships – BIO-key fingerprint readers are now available via D&H Distributing, Dell.com, Ingram Micro, B&H Photo and Amazon.com.
On the software side, BIO-key is seeing growing interest in its software solutions offered under a subscription-based or software-as-a-service (“SaaS”) model versus the perpetual license and maintenance model used in the past. While this trend negatively impacts revenue in the short term, it does offer the potential for more predictable, recurring revenue streams going forward.
BIO-key continues to work several large Enterprise/software opportunities including one with a major U.S. retailer (currently in pilot), a top telecom provider, and a large Asian conglomerate, as well as several opportunities in the healthcare vertical. Management anticipates more specific announcements in Q4.
Former Experian executive Barbara Rivera was named Chief Operating Officer. Ms. Rivera is working to more tightly integrate the Company’s operations, including sales, marketing and product R&D – focusing on both “B2B” opportunities as well as BIO-key’s more recent entry into “B2C” fingerprint reader markets.

Equity Private Placement

BIO-key also announced that it has executed an agreement to raise $1.8M in new capital via a private placement of common stock, priced at $0.30 per share, with Kelvin Wong, a BIO-key director and lead investor in the Company. The placement is expected to close in the next week.

Mr. Wong commented on the investment, “I am strongly convinced of the value and substantial growth potential offered by BIO-key and am pleased to support the Company through this additional investment. While it’s difficult to predict near term timing, what seems clear to me is the enormous potential to expand BIO-key’s revenue base by offering strong, user-friendly and efficient solutions that cost-effectively solve security and authentication challenges that continue to plague both the enterprise and the consumer.”

CEO Commentary

Michael DePasquale, Chairman & CEO of BIO-key, commented, “We are confident in the value proposition and growth potential of our biometric solutions, however the pace of customer evaluation and sales engagement was slower than expected during Q3’16 and remains difficult to predict on a quarter-to-quarter basis. We saw several larger software deals and a few hardware opportunities that we thought would close in Q3, move into Q4 or next year. In 2016 we expected a fundamental change in the market dynamics and resulting product requirements. We are also seeing the initial impact of a growing customer preference for a software as a service model, which spreads revenue over a longer time period, providing greater long-term visibility, versus the “episodic” perpetual license model in the past. Additionally, the demand for affordable, high quality fingerprint readers led us to build out our distribution channels, partnerships, inventories, marketing and sales support for our growing line of fingerprint readers.

“Building on our marketing partnership with Microsoft to provide aftermarket hardware that enables the innate biometric capabilities of Windows 10, our products are now widely available within Microsoft’s retail and online stores. Windows 10 is currently installed on over 350 million devices worldwide, and is slated to grow to over a billion devices in the coming year.”

“We have also substantially expanded our distribution partnerships with leading technology providers to support growth in both enterprise and consumer markets. Our fingerprint readers are now available globally via a growing array of online and bricks and mortar IT distribution companies, and we are working to further expand our retail footprint. Reflecting BIO-key’s growing sales channels, we expect material increases in device sales in Q4 and into 2017.

“Given the delays we have experienced in converting several significant software opportunities into revenue so far in 2016, combined with expanding customer preference to license our software on an annual, software-as-a-service basis, versus perpetual licenses with maintenance, it is appropriate that we further reduce our 2016 full-year revenue guidance to a range of $3.0M-$6.0M. This range reflects our confidence in closing some significant hardware and software agreements by year-end 2016. Finally, to strengthen our balance sheet, fund the initiation of our hardware sales ramp, and support our enterprise software sales efforts, we were pleased to execute an agreement to raise $1.8M in new equity capital on terms favorable to the company.”

Q3 2016 Results

Q3’16 total revenue declined to $431,463 compared to $669,846 in Q3’15, principally due to the absence of a one-time $266,000 sale of hardware sensors to a reader manufacturer recorded in Q3’15, as well as a decline in service revenues. Service revenues, principally comprised of recurring maintenance and support, decreased 25% to $187,025 compared to $250,191 in Q3’15, due to a decrease in maintenance revenue as there were no special software requirements for current or new customers.

Q3’16 gross margin increased to 60% from 44% in Q3’15, due to a favorable change in revenue mix. Q3’16 operating expenses rose 5% to $1,454,493 compared to $1,382,566 in Q3’15, principally due to increased R&D expense for new personnel, temporary outside services, and non-cash compensation.

BIO-key’s Q3’16 net loss to common shareholders was ($1,335,047), or ($0.02) per share, compared to a net loss of ($1,079,584) or ($0.02) per share, in Q3’15.

Revenue for the nine months ended September 2016 was $1,277,869 versus $3,591,475 for the 2015 period, as software license revenue decreased approximately $2,016,000, principally due to a single large software order in 2015. Hardware sales decreased by approximately $177,000 or 29%, however, with the removal of the one-time sensor sale in 2015, hardware revenue would have increased approximately $90,000 or 25%.

Gross margin decreased to 67% for the nine months ended September 2016 from 82% in the nine months ended September 2015, due to a higher proportion of hardware sales in 2016. Operating expenses rose 8% in the nine-month period due to new personnel costs, temporary outside services, non-cash compensation and recruiting expenses.

BIO-key’s net loss to common shareholders was ($4,275,000), or ($0.06) per share in the nine-month period ended September 2016, compared to a net loss of ($1,250,539) or ($0.02) per share in the nine-month period ended September 2015. The higher loss is primarily attributed to the lower sales level – notably the large software order and one-time sensor sale that occurred in 2015 without comparable orders in 2016.

Conference Call and Webcast Replay

Date/Time: Tuesday, November 15th, 2016 at 10 am ET

Dial-In number: 1-877-418-5460 U.S. or 412-717-9594 (Intl.)

Webcast Replay: BKYI Q3 Webcast & Replay – Available for 30 days

Call Replay: 1-877-344-7529 U.S. or 412-317-0088 Int’l; code 10096411#

About BIO-key International, Inc. (www.bio-key.com)

BIO-key is revolutionizing authentication as our easy to use biometric solutions enable convenient and secure access to information and financial transactions. We eliminate passwords, PINs tokens and cards and make it easy for enterprises and consumers to secure their devices as well as information in the cloud. Our premium finger scanning devices SideSwipe, SideTouch and EcoID offer market leading quality, performance and price.

BIO-key Safe Harbor Statement

Certain statements contained in this press release may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “Act”). The words “estimate,” “project,” “intends,” “expects,” “anticipates,” “believes” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are made based on management’s beliefs, as well as assumptions made by, and information currently available to, management pursuant to the “safe-harbor” provisions of the Act. These statements are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected on the basis of these statements. These risks and uncertainties include, without limitation, our history of losses and limited revenue, our ability to develop new products and evolve existing ones, market acceptance of biometric solutions generally and our specific offerings, our ability to expand into the Asian market, the impact on our business of the recent financial crisis in the global capital markets and negative global economic trends, and our ability to attract and retain key personnel. For a more complete description of these and other risk factors that may affect the future performance of BIO-key International, Inc., see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and its other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to disclose any revision to these forward-looking statements to reflect events or circumstances after the date made.

Investor & Media Contacts

David Collins, William Jones
Catalyst Global
212-924-9800
bkyi@catalyst-ir.com
Twitter: BIO-keyIR

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2016

December 31,

2015

(Unaudited)

ASSETS

Cash and cash equivalents

177,388

4,321,078

Accounts receivable, current, net of allowance for doubtful accounts of $13,785 at September 30, 2016 and $20,526 December 31, 2015

364,381

3,391,405

Due from factor

4,041

37,421

Inventory

568,236

348,645

Software license rights

2,000,000

5,000,000

Prepaid expenses and other

136,408

97,203

Total current assets

3,250,454

13,195,752

Software license rights, less current portion

9,999,550

7,000,000

Accounts receivable, net of current portion

2,070,000

–

Equipment and leasehold improvements, net

79,088

63,877

Deposits and other assets

8,712

Intangible assets—less accumulated amortization

137,534

147,738

Total non-current assets

12,294,884

7,220,327

TOTAL ASSETS

15,545,338

20,416,079

LIABILITIES

Accounts payable

550,807

1,158,555

Accrued liabilities

337,067

493,067

Dividends payable

200,625

133,851

Deferred revenue

240,154

376,405

Warrant liabilities

1,206

104,284

Total current liabilities

1,329,859

2,266,162

TOTAL LIABILITIES

1,329,859

2,266,162

Commitments and contingencies

STOCKHOLDERS’ EQUITY:

Series A-1 convertible preferred stock; authorized, 100,000 (liquidation preference of $100 per share): issued and outstanding 90,000 of $.0001 par value

Series B-1 convertible preferred stock; authorized, 105,000 (liquidation preference of $100 per share): issued and outstanding 105,000 of $.0001 par value

Common stock — authorized, 170,000,000 shares; $.0001 par value issued and outstanding; 66,377,157 at September 30, 2016, and 66,098,482 as of December 31, 2015

6,638

6,610

Additional paid-in capital

76,493,397

76,754,737

Accumulated deficit

(62,284,576

)

(58,611,450

)

TOTAL STOCKHOLDERS’ EQUITY

14,215,479

18,149,917

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

15,545,338

20,416,079

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three months ended

September 30,

Nine months ended

September 30,

2016

2015

2016

2015

Revenues

Services

187,025

250,191

692,677

755,813

License fees and other

244,438

419,655

585,192

2,835,662

Total revenues

431,463

669,846

1,277,869

3,591,475

Costs and other expenses

Cost of services

46,257

30,283

168,636

154,251

Cost of license fees and other

125,526

344,557

251,485

505,339

Total costs and other expenses

171,783

374,840

420,121

659,590

Gross Profit

259,680

295,006

857,748

2,931,885

Operating Expenses

Selling, general and administrative

925,939

1,013,778

2,956,456

3,034,318

Research, development and engineering

528,554

368,788

1,584,403

1,169,427

1,454,493

1,382,566

4,540,859

4,203,745

Operating loss

(1,194,813

)

(1,087,560

)

(3,683,111

)

(1,271,860

)

Other income (expense)

Interest income

Interest expense

–

(20,000

)

–

(20,000

)

Gain on derivative liabilities

60,385

27,975

10,879

42,228

Income taxes

–

(912

)

(912

)

Total other income (expense)

60,391

7,976

9,986

21,321

Net loss

(1,134,422

)

(1,079,584

)

(3,673,125

)

(1,250,539

)

Convertible preferred stock dividends

(200,625

)

–

(601,875

)

–

Net loss available to common stockholders

(1,335,047

)

(1,079,584

)

(4,275,000

)

(1,250,539

)

Basic and Diluted Loss per Common Share

(0.02

)

(0.02

)

(0.06

)

(0.02

)

Weighted Average Shares Outstanding:

Basic and Diluted

66,360,445

66,038,941

66,253,808

66,013,958

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

Nine Months Ended

September 30,

2016

2015

CASH FLOW FROM OPERATING ACTIVITIES:

Net loss

(3,673,125

)

(1,250,539

)

Adjustments to reconcile net loss to cash used for operating activities:

Depreciation

37,764

32,049

Amortization of intangible assets

10,205

10,204

Gain on derivative liabilities

(10,879

)

(42,228

)

Share-based compensation

231,983

258,297

Stock based directors fees

48,999

–

Amortization on note payable discount

–

20,000

Change in assets and liabilities:

Accounts receivable

957,024

(1,540,075

)

Due from factor

33,380

76,657

Inventory

(219,591

)

(138,895

)

Prepaid expenses and other

(39,205

)

198,841

Accounts payable

(607,748

)

960,673

Accrued liabilities

(156,000

)

(55,824

)

Due to factor

–

533,422

Deferred revenue

(136,251

)

(36,418

)

Net cash used for operating activities

(3,522,994

)

(973,836

)

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(52,976

)

(2,078

)

Net cash used for investing activities

(52,976

)

(2,078

)

CASH FLOW FROM FINANCING ACTIVITIES:

Preferred dividends paid

(535,100

)

–

Stock issued to directors

–

13,000

Proceeds from issuance of Note Payable

–

250,000

Costs to issue preferred and common stock

(32,620

)

(58,486

)

Net cash provided by (used for) financing activities

(567,720

)

204,514

NET DECREASE IN CASH AND CASH EQUIVALENTS

(4,143,690

)

(771,400

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

4,321,078

843,632

CASH AND CASH EQUIVALENTS, END OF PERIOD

177,388

72,232

SOURCE: BIO-key International, Inc.

ReleaseID: 448966

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