10q10k10q10k.net

What changed in BIO KEY INTERNATIONAL INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of BIO KEY INTERNATIONAL INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+131 added−155 removedSource: 10-K (2024-06-05) vs 10-K (2023-06-01)

Top changes in BIO KEY INTERNATIONAL INC's 2023 10-K

131 paragraphs added · 155 removed · 99 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

22 edited+1 added−2 removed83 unchanged
Biggest changeFor customers that require the highest level of security, PIV-Pro is a FIPS compliant fingerprint scanner, suitable for highly regulated industries and organizations that want a best-in-class solution. We have grown our business through a combination of organic growth and the strategic acquisitions of PistolStar and Swivel Secure Europe.
Biggest changeEcoID II® has emerged as our most popular scanner for enterprise deployments. For customers that require the highest level of security, PIV-Pro is a FIPS compliant fingerprint scanner, suitable for highly regulated industries and organizations that want a best-in-class solution.
Competing MFA solutions require a phone or token for every user authentication use case, but this is expensive and ineffective for workforce users who cannot use a phone in their workplace, or who rove among workstations or share kiosks for access to information systems.
Competing MFA solutions require a phone or token for every user authentication use case, but this is expensive and ineffective for workforce users who cannot use a phone in their workplace, who rove among workstations or share kiosks for access to information systems.
BIO-key’s exclusive Identity-Bound Biometrics (IBB) authentication methods address this by making biometric identification based available at any end point device, making the user their own credential, not their phone or a token. Our customers trust BIO-key® to secure access to a variety of cloud, mobile and web applications, on-premise and cloud-based hypervisor servers from all of their devices.
BIO-key’s exclusive Identity-Bound Biometrics (IBB) authentication methods address this by making biometric identification based available at any end point device, making the user, not their phone or a token, their own credential. Our customers trust BIO-key® to secure access to a variety of cloud, mobile and web applications, on-premise and cloud-based hypervisor servers from all of their devices.
With respect to competing biometrics technologies, each has its strengths and weaknesses and none has emerged as a market leader: ● Fingerprint identification is generally viewed as very accurate, inexpensive and non-intrusive and is the dominant biometric in use today and will be for the foreseeable future; ● Palm Vein scanning is expensive, technique-sensitive, and offers mobility challenges; 7 ● Iris scanning is viewed as accurate, but the hardware is significantly more expensive; and ● Facial recognition can have privacy concerns with work-from-home use, and is typically highly dependent on ambient lighting conditions, angle of view, and other factors.
With respect to competing biometrics technologies, each has its strengths and weaknesses and none has emerged as a market leader: ● Fingerprint identification is generally viewed as very accurate, inexpensive and non-intrusive and is the dominant biometric in use today and will be for the foreseeable future; ● Palm Vein scanning is expensive, technique-sensitive, and offers mobility challenges; 7 Table of Contents ● Iris scanning is viewed as accurate, but the hardware is significantly more expensive; and ● Facial recognition can have privacy concerns with work-from-home use, and is typically highly dependent on ambient lighting conditions, angle of view, and other factors.
Our global identity as a service, or IDaaS, hosting capability allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications without installation overhead, security or uptime management efforts. 1 We designed BIO-key PortalGuard IDaaS and WEB-key to provide organizations an integrated approach to managing and securing all of their identities using the technologies they already use while providing capacity for future needs through the strategic use of biometrics to limit vulnerability and contain authentication costs.
Our global identity as a service, or IDaaS, hosting capability allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications without installation overhead, security or uptime management efforts. 1 Table of Contents We designed BIO-key PortalGuard IDaaS and WEB-key to provide organizations an integrated approach to managing and securing all of their identities using the technologies they already use while providing capacity for future needs through the strategic use of biometrics to limit vulnerability and contain authentication costs.
Once deployed, PortalGuard allows administrators to enforce contextual access management decisions based on conditions such as user identity, device, geolocation, application destination identity, IP range, and time of day. 2 Our customers use BIO-key to (i) manage and secure work-related IT access of their employees, contractors and supply chain partners, which we call workforce identity; and (ii) manage and secure the identities of users of their web properties, which we call customer identity.
Once deployed, PortalGuard allows administrators to enforce contextual access management decisions based on conditions such as user identity, device, geolocation, application destination identity, IP range, and time of day. 2 Table of Contents Our customers use BIO-key to (i) manage and secure work-related IT access of their employees, contractors and supply chain partners, which we call workforce identity; and (ii) manage and secure the identities of users of their web properties, which we call customer identity.
Highly Regulated Industries Government ID projects and healthcare organizations, including hospitals, clinics, and small private practices present a strong opportunity for us. Additionally, the financial services industry, including banks and credit unions has grown substantially. Partner Model In 2022, we continued to grow our Channel Alliance Partner program (CAP) focused on partnering with select value added resellers, integrators, and distributors.
Highly Regulated Industries Government ID projects and healthcare organizations, including hospitals, clinics, and small private practices present a strong opportunity for us. Additionally, the financial services industry, including banks and credit unions has grown substantially. Partner Model In 2023, we continued to grow our Channel Alliance Partner program (CAP) focused on partnering with select value added resellers, integrators, and distributors.
Patent & Trademark Office, as well as many foreign countries, protecting the names of our companies and our key technology offerings. 6 We also own the following unregistered trademarks: “PortalGuard Nebula™”, “Password Power™” and “Scooch™”. Copyrights and trade secrets We take measures to ensure copyright and license protection for our software releases prior to distribution.
Patent & Trademark Office, as well as many foreign countries, protecting the names of our companies and our key technology offerings. 6 Table of Contents We also own the following unregistered trademarks: “PortalGuard Nebula™”, “Password Power™” and “Scooch™”. Copyrights and trade secrets We take measures to ensure copyright and license protection for our software releases prior to distribution.
As of December 31, 2022, more than 600 customers across multiple industries use BIO-key to secure and manage access for users around the world. Development of Business BIO-key was founded in 1993 to develop and market advanced fingerprint biometric technology and related security software solutions.
As of December 31, 2023, more than 600 customers across multiple industries use BIO-key to secure and manage access for users around the world. Development of Business BIO-key was founded in 1993 to develop and market advanced fingerprint biometric technology and related security software solutions.
Competition The IAM, MFA and SSO market is characterized by multiple solution providers of solutions in either standalone or IAM suite delivery models. We believe that our unique differentiator in this market is the incorporation of an unparalleled server-secured biometric authentication capability among our 17 authentication factors.
Competition The IAM, MFA and SSO market is characterized by multiple solution providers of solutions in either standalone or IAM suite delivery models. We believe that our unique differentiator in this market is the incorporation of an unparalleled server-secured biometric authentication capability among our seventeen authentication factors.
With the payment of all maintenance fees, this patent will expire on January 3, 2025. 5 On November 18, 2008, we were issued US patent No. 7,454,624 for our “Match Template Protection within a Biometric Security System” method.
With the payment of all maintenance fees, this patent will expire on January 3, 2025. 5 Table of Contents On November 18, 2008, we were issued US patent No. 7,454,624 for our “Match Template Protection within a Biometric Security System” method.
Fingerprint Readers Our series of compact fingerprint readers, we from both commercial companies use SidePass®, SideSwipe® or EcoID II® to replace their Windows passwords and enable Windows Hello for Business without replacing or upgrading laptops or tablets.
Fingerprint Readers Our series of compact fingerprint readers, we find commercial companies use SidePass®, SideSwipe® or EcoID II® to replace their Windows passwords and enable Windows Hello for Business without replacing or upgrading laptops or tablets.
Marketing and Distribution We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners. Through our Channel Alliance Program, we have partnered with more than 40 resellers, system integrators and other distribution partners. We are committed to continue to aggressively grow this program in 2023.
Marketing and Distribution We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners. Through our Channel Alliance Program, we have partnered with more than 85 resellers, system integrators and other distribution partners. We are committed to continue to aggressively grow this program in 2024.
We partner with leading application, managed service and infrastructure vendors, such as Intelisyss, Insight, NGEN, Amazon Web Services, Pathify (formerly UCROO Campus), Software House International (SHI), Virtual Graffiti, Atlassian, and ProCirrus. We offer our software under a SaaS term license and generate annual recurring revenue (ARR) primarily by selling multi-year subscriptions to our software.
We partner with leading application, managed service and infrastructure vendors, such as Intelisys, Insight, NGEN, Amazon Web Services, Pathify (formerly UCROO Campus), Software House International (SHI), BlueAlly, Atlassian, and ProCirrus. We offer our software under a SaaS term license and generate annual recurring revenue (ARR) primarily by selling multi-year subscriptions to our software.
With the payment of all maintenance fees, this patent will expire on April 24, 2024. On March 12, 2013, PistolStar was issued US Patent No. 8,397,077 for “Client Side Authentication Redirection”, where user specific attributes may be accessed and used to produce a generated password, using an algorithm and the user attributes.
With the payment of all maintenance fees, this patent will expire on November 1, 2030. On March 12, 2013, PistolStar was issued US Patent No. 8,397,077 for “Client Side Authentication Redirection”, where user specific attributes may be accessed and used to produce a generated password, using an algorithm and the user attributes.
In order to maintain our position in the market, we will need to continue to upgrade and refine our existing technologies as new standards become relevant to our customers and markets. During the years ended December 31, 2022 and 2021, we incurred expenses of $3,252,236 and $2,355,056, respectively, for research and development.
In order to maintain our position in the market, we will need to continue to upgrade and refine our existing technologies as new standards become relevant to our customers and markets. During the years ended December 31, 2023 and 2022, we incurred expenses of $2,394,926 and $3,252,236, respectively, for research and development.
As governments, colleges and universities continue to operate in remote environments, we have seen additional demand for our solutions. 3 We believe there is potential for significant market growth in the following key areas: ● Enterprise MFA for access to computer networks, and applications. ● Large scale identification projects, especially in Africa and the surrounding regions. ● Government funded initiatives, including the state board of elections. ● International law enforcement use case applications as prospects see us as a global leader in the biometric technology space as witnessed by our agreement with the Israeli Defense Force, and the Singapore and Dubai Police departments. ● Consumer mobile credentialing, including mobile payments, credit and payment card programs, data and application access, and commercial loyalty programs. ● Demand for BIO-key hardware products from Windows Hello for Business users and Fortune 2000 companies. ● Government services and highly regulated industries including, Medicare, Medicaid, Social Security, drivers' licenses, campus and school ID, passports/visas. ● Remote authentication challenges, including those created by the remote work shift resulting from the pandemic.
As governments, colleges and universities continue to operate in remote environments, we have seen additional demand for our solutions. 3 Table of Contents We believe there is potential for significant market growth in the following key areas: ● Enterprise MFA for access to computer networks, and applications. ● Large scale identification projects, especially in Africa and the surrounding regions. ● Government funded initiatives, including the state board of elections. ● International law enforcement applications where we are viewed as a global leader in the biometric technology and serve customers such as the Israeli Defense Force and the Singapore Police departments. ● Consumer mobile credentialing, including mobile payments, credit and payment card programs, data and application access, and commercial loyalty programs. ● Demand for BIO-key hardware products from Windows Hello for Business users and Fortune 2000 companies. ● Government services and highly regulated industries including, Medicare, Medicaid, Social Security, drivers' licenses, campus and school ID, passports/visas. ● Remote authentication challenges, including those created by the remote work shift resulting from the pandemic.
We expect to continue 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.
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.
Microsoft Partnership We are a Microsoft Partner and our line of compact fingerprint scanners has been tested and qualified by Microsoft to support Windows Hello and Windows Hello for Business. 4 Hardware Hardware products generated 9% of our revenue in 2022. EcoID II® has emerged as our most popular scanner for enterprise deployments.
Microsoft Partnership We are a Microsoft Partner and our line of compact fingerprint scanners has been tested and qualified by Microsoft to support Windows Hello and Windows Hello for Business. 4 Table of Contents Hardware Hardware products generated 15% and 9% of our revenue in 2023 and 2022, respectively.
Human Capital Resources As of the date of this report, we employed fifty-two individuals consisting of fifty-one individuals on a full-time basis as follows: (i) twenty in engineering, customer support, and research and development; (ii) nine in finance and administration; and (iii) twenty-two in sales and marketing.
Human Capital Resources As of the date of this report, we have forty-two employees consisting of forty-three individuals on a full-time basis and one part-time employee as follows: (i) nineteen in engineering, customer support, and research and development; (ii) ten in finance and administration; and (iii) thirteen in sales and marketing. We also have two factory contractors in China.
First incorporated as BBG Engineering, the company was renamed SAC Technologies in 1994 and renamed BIO-key International, Inc. in 2002. Our principal executive office is located at 3349 Highway 138, Building A, Suite E, Wall, New Jersey 07719.
First incorporated as BBG Engineering, the company was renamed SAC Technologies in 1994 and renamed BIO-key International, Inc. in 2002. Our principal executive office is located at 101 Crawfords Corner Road, Suite 4116, Holmdel, NJ, 07733.
We also have two part time employees, one who provides engineering services, and one who provides administrative services, and two factory contractors in China. None of our employees are represented by a labor union and we believe that our relationship with our employees is good. 8
None of our employees are represented by a labor union and we believe that our relationship with our employees is good. 8 Table of Contents
Removed
We partner with leading application, managed service and infrastructure vendors, such as Intelisys, Insight, NGEN, Amazon Web Services, Pathify (formerly UCROO Campus), Software House International (SHI), Virtual Graffiti, Atlassian, and ProCirrus.
Added
We have grown our business through a combination of organic growth and the strategic acquisitions of PistolStar and Swivel Secure Europe. We expect to continue to pursue strategic acquisitions of select businesses and assets in the IAM space.
Removed
With the payment of all maintenance fees, this patent will expire on November 1, 2030. On July 3, 2012, we were issued US Patent No. 8,214,652 for our “Biometric Identification Network Security”, an expanded method of network and related network authentication security systems utilizing hardware-based support for encryption and key management for authentication purposes.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

37 edited+23 added−26 removed110 unchanged
Biggest changeWe cannot assure you that we will be able to retain or attract such persons. Our employment contracts with Michael W. DePasquale, our Chairman of the Board and Chief Executive Officer, Cecilia C. Welch, our Chief Financial Officer, and James D.
Biggest changeWe depend on key employees and members of our management team, including our Chairman of the Board and Chief Executive Officer, Chief Financial Officer, and our Chief Legal Officer, in order to achieve our goals. We cannot assure you that we will be able to retain or attract such persons. Our employment contracts with Michael W.
As a result, if we fail to properly evaluate and execute any acquisitions or investments, our business and prospects may be seriously harmed. To the extent we make any material acquisitions, our earnings may adversely affected by non-cash charges relating to the amortization of intangible assets.
As a result, if we fail to properly evaluate and execute any acquisitions or investments, our business and prospects may be seriously harmed. To the extent we make any material acquisitions, our earnings may be adversely affected by non-cash charges relating to the amortization of intangible assets.
Biometric technology is a new approach to Internet security, which must be accepted in order for our WEB-key solution to generate significant revenue. Our WEB-key authentication initiative represents a new approach to Internet security, which has been adopted on a limited basis by companies that distribute goods, content or software applications over the Internet.
Biometric technology is a relatively new approach to Internet security, which must be accepted in order for our WEB-key solution to generate significant revenue. Our WEB-key authentication initiative represents a relatively new approach to Internet security, which has been adopted on a limited basis by companies that distribute goods, content or software applications over the Internet.
New climate disclosure rules, if adopted by the SEC, may increase our costs and litigation risks, which could materially and adversely affect our future results of operations and financial condition.
New climate disclosure rules adopted by the SEC, may increase our costs and litigation risks, which could materially and adversely affect our future results of operations and financial condition.
In addition, if one or more other biometric technologies such as voice, face, iris, hand geometry or blood vessel recognition are widely adopted, it would significantly reduce the potential market for our fingerprint identification technology. We recognized revenues from Africa and the European Union in 2021 and 2022 and expect continued revenues from these regions in future periods.
In addition, if one or more other biometric technologies such as voice, face, iris, hand geometry or blood vessel recognition are widely adopted, it would significantly reduce the potential market for our fingerprint identification technology. We recognized revenues from Africa and the European Union in 2022 and 2023 and expect continued revenues from these regions in future periods.
In addition, we may incur substantial expenses in defending against these third party infringement claims and be diverted from devoting time to our business and operational issues, regardless of the merits of any such claim. 11 In addition, in the event that we recruit employees from other technology companies, including certain potential competitors, and these employees are engaged in the development of portions of products which are similar to the development in which they were involved at their former employers, we may become subject to claims that such employees have improperly used or disclosed trade secrets or other proprietary information.
In addition, we may incur substantial expenses in defending against these third party infringement claims and be diverted from devoting time to our business and operational issues, regardless of the merits of any such claim. 12 Table of Contents In addition, in the event that we recruit employees from other technology companies, including certain potential competitors, and these employees are engaged in the development of portions of products which are similar to the development in which they were involved at their former employers, we may become subject to claims that such employees have improperly used or disclosed trade secrets or other proprietary information.
Although we believe our solutions provide a higher level of security for information transmitted over the Internet than existing traditional methods, unless business and consumer markets embrace the use of a scanning device and believe the benefits of increased accuracy outweigh implementation costs, our solution will not gain market acceptance. 9 The market for our solutions is still developing and if the biometrics industry adopts standards or a platform different from our standards or platform, our competitive position would be negatively affected.
Although we believe our solutions provide a higher level of security for information transmitted over the Internet than existing traditional methods, unless business and consumer markets embrace the use of a scanning device and believe the benefits of increased accuracy outweigh implementation costs, our solution will not gain market acceptance. 10 Table of Contents The market for our solutions is still developing and if the biometrics industry adopts standards or a platform different from our standards or platform, our competitive position would be negatively affected.
We may not be able to identify operating companies that complement our strategy, and even if we identify a company that complements our strategy, we may be unable to complete an acquisition of such a company for many reasons, including: ● failure to agree on the terms necessary for a transaction, such as the purchase price; ● incompatibility between our operational strategies or management philosophies with those of the potential acquiree; ● competition from other acquirers of operating companies; ● lack of sufficient capital to acquire a profitable distribution company; and ● unwillingness of a potential acquiree to work with our management. 14 Risks related to acquisition financing.
We may not be able to identify operating companies that complement our strategy, and even if we identify a company that complements our strategy, we may be unable to complete an acquisition of such a company for many reasons, including: ● failure to agree on the terms necessary for a transaction, such as the purchase price; ● incompatibility between our operational strategies or management philosophies with those of the potential acquiree; ● competition from other acquirers of operating companies; ● lack of sufficient capital to acquire a profitable company; and ● unwillingness of a potential acquiree to work with our management. 15 Table of Contents Risks related to acquisition financing.
If we are unable to achieve revenue or raise capital sufficient to cover our ongoing operating expenses, we will be required to scale back operations, including marketing and research initiatives, or in the extreme case, discontinue operations. We may need to obtain additional financing to execute our business plan over the long-term, which may not be available.
If we are unable to achieve revenue or raise capital sufficient to cover our ongoing operating expenses, we will be required to scale back operations, including marketing and research initiatives, or in the extreme case, discontinue operations. 9 Table of Contents We may need to obtain additional financing to execute our business plan over the long-term, which may not be available.
Currently, we do not have any exchange rate hedging arrangements in place. 10 Although we have made significant sales of our products throughout Asia and Africa in prior years, we have not been able to consistently enforce our contract rights and collect all receivables which has resulted in material write-offs.
Currently, we do not have any exchange rate hedging arrangements in place. 11 Table of Contents Although we have made significant sales of our products throughout Asia and Africa in prior years, we have not been able to consistently enforce our contract rights and collect all receivables which has resulted in material write-offs.
Any of these factors could significantly harm our business, operating results, financial condition or prospects. 12 Our business could be negatively impacted by security threats, including cybersecurity threats, ransomware, and other disruptions. Our customers use our solutions to access their business systems and store data related to their employees, contractors, partners and customers.
Any of these factors could significantly harm our business, operating results, financial condition or prospects. 13 Table of Contents Our business could be negatively impacted by security threats, including cybersecurity threats, ransomware, and other disruptions. Our customers use our solutions to access their business systems and store data related to their employees, contractors, partners and customers.
If we fail to comply with the continued minimum closing bid requirements, the requirement to timely file all required periodic financial reports with the Securities and Exchange Commission, or other Nasdaq requirements for continued listing, our Common Stock may be delisted and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.
If we fail to comply with the requirement to timely file all required periodic financial reports with the Securities and Exchange Commission, or other continued listing requirements of The Nasdaq Stock Market, our Common Stock may be delisted and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.
Additionally, in 2022, the SEC proposed new rules related to cybersecurity risk management, which may further increase our regulatory burden and the cost of compliance in such events. 13 Our failure to maintain appropriate environmental, social, and governance ("ESG") practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.
Additionally, in 2023, the SEC adopted new rules related to cybersecurity risk management, which may further increase our regulatory burden and the cost of compliance in such events. 14 Table of Contents Our failure to maintain appropriate environmental, social, and governance ("ESG") practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.
We currently require approximately $798,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. During 2022, we generated approximately $7.0 million of revenue, which is below our average monthly requirements.
We currently require approximately $732,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. During 2023, we generated approximately $9.0 million of revenue, which is below our average monthly requirements.
Due to, among other factors, our history of losses and insufficient revenue, our independent registered public accounting firm has included an explanatory paragraph in their opinion for the year ended December 31, 2022 as to the substantial doubt about our ability to continue as a going concern.
Due to, among other factors, our history of significant losses, limited cash resources, and negative cash flow, our independent registered public accounting firm has included an explanatory paragraph in their opinion for the year ended December 31, 2023 as to the substantial doubt about our ability to continue as a going concern.
Although we are making efforts to better enforce our contract rights, there can be no assurance that we will be able to fully collect all receivables originating in Asia and Africa or that will not have to write-off future receivables which may be material in amount.
Although we are making efforts to better enforce our contract rights, there can be no assurance that we will be able to fully collect all receivables originating in Asia and Africa or that will not have to write-off future receivables which may be material in amount. Any such write-offs have negatively impacted our financial position and results of operation.
Such broad market fluctuations may adversely affect the future-trading price of our common stock. 16
Such broad market fluctuations may adversely affect the future-trading price of our common stock. 17 Table of Contents
We may obtain such financing through a combination of traditional debt financing or the placement of debt and equity securities. We may finance some portion of our future acquisitions by either issuing equity or by using shares of our common stock for all or a portion of the purchase price for such businesses.
We may finance some portion of our future acquisitions by either issuing equity or by using shares of our common stock for all or a portion of the purchase price for such businesses.
We have a limited amount of financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is limited. In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing.
We have limited financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is also limited. In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing. We may obtain such financing through a combination of debt financing or the placement of debt and equity securities.
In addition, on April 18, 2023, we received notice from Nasdaq advising that we were not in compliance with Nasdaq’s continuing listing rule which requires us to timely file all required periodic financial reports with the Securities and Exchange Commission due to our failure to timely file this Annual Report on Form 10-K.
On April 17, 2024, we received notice from Nasdaq indicating that were not in compliance with Nasdaq continued listing rule which requires us to timely file all required periodic financial reports with the Securities and Exchange Commission due to our failure to timely file this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
BUSINESS AND FINANCIAL RISKS Based on our lack of sufficient revenue and recurring losses from operations, our independent registered public accounting firm has included an explanatory paragraph in their opinion as to the substantial doubt about our ability to continue as a going concern.
Based on our limited cash resources, history of significant losses, and negative cash flow, our independent registered public accounting firm has included an explanatory paragraph in their opinion as to the substantial doubt about our ability to continue as a going concern.
We have obtained a waiver and, therefore, as of the date of this report we are not in default. 15 An active trading market for our common stock may not be sustained. Although our common stock is listed on the Nasdaq Capital Market, an active trading market for our shares may not be developed and if developed, sustained.
Although our common stock is listed on the Nasdaq Capital Market, an active trading market for our shares may not be developed and if developed, sustained.
If we cannot effectively develop and improve services, we may not be able to recover our fixed costs or otherwise become profitable. If we fail to adequately manage our resources, it could have a severe negative impact on our financial results or stock price. We could be subject to fluctuations in technology spending by existing and potential customers.
If we fail to adequately manage our resources, it could have a severe negative impact on our financial results or stock price. We could be subject to fluctuations in technology spending by existing and potential customers. Accordingly, we will have to actively manage expenses in a rapidly changing economic environment.
RISKS RELATED TO OUR COMMON STOCK We have issued a substantial number of options and warrants exercisable into shares of our common stock which could result in substantial dilution to the ownership interests of our existing stockholders.
Our financial statements will show that our intangible assets are diminishing in value, even if the acquired businesses are increasing (or not diminishing) in value. RISKS RELATED TO OUR COMMON STOCK We have issued a substantial number of warrants exercisable into shares of our common stock which could result in substantial dilution to the ownership interests of our existing stockholders.
Accordingly, we will have to actively manage expenses in a rapidly changing economic environment. This could require reducing costs during economic downturns and selectively growing in periods of economic expansion. If we do not properly manage our resources in response to these conditions, our results of operations could be negatively impacted.
This could require reducing costs during economic downturns and selectively growing in periods of economic expansion. If we do not properly manage our resources in response to these conditions, our results of operations could be negatively impacted. We are subject to risks and uncertainties associated with the continued growth of our international operations, which may harm our business.
We are currently assessing the impact of the new rules, if adopted as proposed, but at this time, we cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules if adopted.
The new climate disclosure rules have been the subject of multiple legal challenges, so the extent to which the new rules will go into effect remains uncertain. We are currently assessing the impact of the new rules, but at this time, we cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules.
As of the date of this report, approximately 5,075,000 shares of our common stock were reserved for issuance upon exercise or conversion of outstanding stock options and warrants. The exercise or conversion of these securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing stockholders.
The exercise or conversion of these securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing stockholders. 16 Table of Contents An active trading market for our common stock may not be sustained.
In addition, it is difficult to monitor compliance with, and enforce, our intellectual property rights on a worldwide basis in a cost-effective manner. In jurisdictions where foreign laws provide less intellectual property protection than afforded in the U.S. and abroad, our technology or other intellectual property may be compromised, and our business would be materially adversely affected.
In jurisdictions where foreign laws provide less intellectual property protection than afforded in the U.S. and abroad, our technology or other intellectual property may be compromised, and our business would be materially adversely affected. If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs.
We have 60 calendar days to submit a plan to regain compliance. If the plan is accepted, we may be eligible for an additional 180 calendar days from the filing’s due date, or until October 16, 2023, to regain compliance.
If the plan is accepted, we may be eligible for up to 180 calendar days from the original due date to file this Annual Report on Form 10-K, or until October 14, 2024, to regain compliance.
However, we cannot assure you that we will be able to adequately protect our technology or other intellectual property from misappropriation in the U.S. and abroad. Any patent issued to us could be challenged, invalidated or circumvented or rights granted thereunder may not provide a competitive advantage to us.
Patent and Trademark Office has issued us a series of patents for our Vector Segment fingerprint technology (VST), and our other core biometric analysis and identification technologies. However, we cannot assure you that we will be able to adequately protect our technology or other intellectual property from misappropriation in the U.S. and abroad.
Sullivan, our Chief Legal Officer, expire annually, and renew automatically for successive one-year periods unless notice of non-renewal is provided by the Company. Although the contracts do not prevent them from resigning, they do contain confidentiality and non-compete clauses, which are intended to prevent them from working for a competitor within one year after leaving our Company.
Although the contracts do not prevent them from resigning, they do contain confidentiality and non-compete clauses, which are intended to prevent them from working for a competitor within one year after leaving our Company. Our success depends on our ability to attract, train and retain employees with expertise in developing, marketing and selling software solutions.
As a result of the complexities inherent in our service offerings, major new wireless data services and service enhancements require long development and testing periods. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance.
We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance. If we cannot effectively develop and improve services, we may not be able to recover our fixed costs or otherwise become profitable.
The market for such persons remains highly competitive and our limited financial resources will make it more difficult for us to recruit and retain qualified persons. We cannot assure you that the intellectual property protection for our core technology provides a sustainable competitive advantage or barrier to entry against our competitors.
In order to successfully market our technology, we will need to retain additional engineering, technical support and marketing personnel. The market for such persons remains highly competitive and our limited financial resources will make it more difficult for us to recruit and retain qualified persons.
Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights.
Any patent issued to us could be challenged, invalidated or circumvented or rights granted thereunder may not provide a competitive advantage to us. Furthermore, patent applications that we file may not result in issuance of a patent or, if a patent is issued, the patent may not be issued in a form that is advantageous to us.
We have filed a patent application relating to both the optic technology and biometrics solution components of our technology wherein several claims have been allowed. The U.S. Patent and Trademark Office has issued us a series of patents for our Vector Segment fingerprint technology (VST), and our other core biometric analysis and identification technologies.
We rely primarily on a combination of patent, copyright and trademark laws, trade secrets and technical measures to protect our propriety rights. We have filed a patent application relating to both the optic technology and biometrics solution components of our technology wherein several claims have been allowed. The U.S.
Our common stock is listed for trading on Nasdaq. We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share and minimum stockholders’ agreement.
Our common stock is listed for trading on Nasdaq. We must satisfy Nasdaq’s continued listing requirements, including, among other things, to timely file all required periodic financial reports with the Securities and Exchange Commission.
We are subject to risks and uncertainties associated with the continued growth of our international operations, which may harm our business. We have international operations and recently expanded our international operations when we acquired Swivel Secure Europe SA, and plan to continue expanding abroad.
We have international operations and continue to expand our international operations when we acquired Swivel Secure Europe SA.
Removed
Our $2.2 million principal amount secured note matures on December 22, 2023 and we may not have sufficient cash flow from our business or the ability to raise sufficient funds to repay this note when due which may expose us to the risk of default which would materially and adversely affect our financial condition.
Added
BUSINESS AND FINANCIAL RISKS The restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows.
Removed
On December 22, 2022, we issued a $2.2 million secured promissory note (the “Note”) to an investor which is due six months following the date of issuance, subject to one six-month extension by us.
Added
As discussed in the Explanatory Note to this Annual Report and in Note U, Quarterly Financial Data (Unaudited and Restated), to the consolidated financial statements included in this Annual Report, we are restating our previously issued financial statements for our unaudited consolidated financial statements covering the quarterly reporting periods during fiscal year 2023, consisting of the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023 (the "Restatement Periods").
Removed
Interest under the Note accrues at a rate of 10% per annum, payable monthly through month six increasing to 12% per annum if we extend the term of the Note for an additional six months. The Note is secured by a lien on substantially all of our assets and properties.
Added
These restatements, and the remediation efforts we have undertaken and are continuing to undertake, have been time-consuming and expensive and could expose us to a number of additional risks that could materially adversely affect our financial position, results of operations and cash flows.
Removed
In addition to current interest payment obligations, the Note contains various covenants.
Added
To the extent these steps are not successful, we could be forced to incur additional time and expense. Our management’s attention has also been diverted from the operation of our business in connection with the restatements and ongoing remediation of material weaknesses in our internal controls.
Removed
Upon the occurrence of any event of default (as defined in the Note), whether for payment or covenant breach, and expiration of any applicable cure periods, all amounts due under the Note will immediately 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 at a conversion price equal to the 10 day volume weighted average sales price of our stock.
Added
We identified a material weakness in our internal control over financial reporting related to the recording and processing of revenue transactions. Such material weaknesses could materially and adversely affect our operations, financial condition, reputation and stock price.
Removed
Although the aggregate number of shares of common stock issuable upon conversion of the Note is capped at 985,576 shares, any such conversion could cause substantial dilution to existing stockholders and cause the price of our stock to drop.
Added
As discussed in Note U of our consolidated financial statements, Management has concluded that the Company’s previously issued consolidated financial statements should be restated due to inadvertently including certain revenue from our European subsidiary, Swivel Secure Europe, Ltd., in the first quarter of 2023. In addition, certain allowances for accounts receivable and certain reserves for inventory were understated.
Removed
In April of 2023, we were in default under the Note due to our failure to timely file this annual report and timely file a registration statement covering the public resale of the shares issued to the holder of the Note in connection with the financing.
Added
Therefore, the Company misstated gross revenues, accounts receivable, and inventory during the Restatement Periods. The restatement related to the Company’s material weakness in internal control over financial reporting over the recording of revenue, accounts receivable, and inventory transactions.
Removed
We have obtained a waiver and, therefore, as of the date of this report we are not in default. We plan to satisfy our obligations under the Note through a combination of cash from operations, liquidation of existing inventory, and proceeds from the issuance of additional debt or equity securities.
Added
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Removed
Such payments will reduce the funds available to us for working capital, capital expenditures and other corporate purposes which may in turn limit our ability to implement our business strategy, heighten our vulnerability to downturns in our business, the industry, or in the general economy, and prevent us from taking advantage of business opportunities as they arise.
Added
We completed the restatement and are now evaluating and working towards the appropriate corrective actions to remediate the material weakness to strengthen our internal controls over the recording of revenue transactions. It is possible that we may discover significant deficiencies or material weaknesses in our internal control over financial reporting in the future.
Removed
While we believe that our plans to repay and or refinance this indebtedness are reasonable, as of the date of this report, we can provide no assurances that we will have cash resources from operations or be able to obtain the necessary financing on attractive terms or at all to repay the Note in full.
Added
For example, internal control over financial reporting may not achieve their intended objectives. Control processes that involve human diligence and compliance, such as our disclosure controls and procedures and internal control over financial reporting, are subject to lapses in judgment and breakdowns resulting from human failures. Controls can also be circumvented by collusion or improper management-override of such controls.
Removed
Any plans to refinance are subject to the conditions in the capital and credit markets, which have been volatile due to, among other things, increases in interest rates.
Added
Because of such limitations, there are risks that material misstatements due to error or fraud may not be prevented or detected, and that information may not be reported on a timely basis.
Removed
As a result, we may be forced to obtain capital on terms that are unattractive or that are dilutive to our stockholders and may need to pursue other alternatives to satisfy our obligation under the Note if we are unable to access the capital markets.
Added
The delayed filing of this annual report has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital.
Removed
Any such write-offs have in the past and will negatively impact our financial position and results of operation. We depend on key employees and members of our management team, including our Chairman of the Board and Chief Executive Officer, Chief Financial Officer, and our Chief Legal Officer, in order to achieve our goals.
Added
As a result of the delayed filing of this annual report with the SEC, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until one year from the date we regain and maintain status as a current filer.
Removed
Our success depends on our ability to attract, train and retain employees with expertise in developing, marketing and selling software solutions. In order to successfully market our technology, we will need to retain additional engineering, technical support and marketing personnel.
Added
Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.
Removed
Our success and ability to compete is dependent in part upon proprietary rights to our technology. We rely primarily on a combination of patent, copyright and trademark laws, trade secrets and technical measures to protect our propriety rights.
Added
DePasquale, our Chairman of the Board and Chief Executive Officer, Cecilia C. Welch, our Chief Financial Officer, and James D. Sullivan, our Chief Legal Officer, expire annually, and renew automatically for successive one-year periods unless notice of non-renewal is provided by the Company.
Removed
If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs.
Added
We cannot assure you that the intellectual property protection for our core technology provides a sustainable competitive advantage or barrier to entry against our competitors. Our success and ability to compete is dependent in part upon proprietary rights to our technology.
Removed
During 2022, the SEC proposed new climate disclosure rules, which, if adopted, would require new climate-related disclosure in SEC filings, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and extensive attestation requirements.
Added
Despite our efforts to protect our intellectual property rights, others may independently develop similar products, duplicate our products or design around our patents and other rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property rights on a worldwide basis in a cost-effective manner.
Removed
In addition to requiring public companies to quantify and disclose direct emissions data, the new rules also would require disclosure of climate impact arising from the operations and uses by the company’s business partners and contractors and end-users of the company’s products and/or services.
Added
In March 2024, the SEC adopted new climate disclosure rules, which require new disclosure in certain SEC filings about material climate-related risks, activities to mitigate or adapt to such risks, board oversight of climate-related risks and management’s role in managing material climate-related risks, and climate-related targets and goals.
Removed
Our financial statements will show that our intangible assets are diminishing in value, even if the acquired businesses are increasing (or not diminishing) in value.
Added
As of the date of this report, approximately 1,814,000 shares of our common stock (as adjusted to reflect our 1-for-18 reverse stock split, which was effective December 21, 2023) were reserved for issuance upon exercise or conversion of outstanding stock options and warrants.
Removed
Upon an event of default under our $2.2 million principal amount secured note, all amounts then due under the note plus all resulting default sums will be convertible into up to 985,576 shares of our common at conversion price equal to the 10-day volume weighted average closing price of our stock.
Added
On May 22, 2024, we received a second notice from Nasdaq indicating that we were not in compliance with Nasdaq’s continued listing rules due to our failure to timely file our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024.
Removed
Any such conversion could cause substantial dilution to our existing stockholders and cause the price of our stock to decline.
Added
We have 60 calendar days from the initial notification letter, or until June 17, 2024 to submit a plan to regain compliance with Nasdaq’s continued listing requirements.
Removed
Upon the occurrence of any event of default (as defined) under our $2.2 million principal amount secured note, whether for payment or covenant breach, and expiration of any applicable cure periods, all amounts then due under the note, will immediately 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% to approximately $2.86 million, and the holder of the note will have the right to convert all amounts then due under the Note into shares of common stock conversion price equal to the 10-day volume weighted average sales price of our common stock on the date of conversion.

… 6 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeInternationally, we conduct operations from leased premises in Tsuen Wan, Hong Kong (1,098 square feet), in Jiangmen, China (3,267 square feet) and in Madrid, Spain (1,504 square feet). Our Eagan, Minnesota and Bedford, New Hampshire offices provide research and development, and customer support, for BIO-key software and PistolStar software, respectively. Our Wall, New Jersey location serves as our corporate headquarters.
Biggest changeInternationally, we conduct operations from leased premises in Tsuen Wan, Hong Kong (1,098 square feet), Jiangmen, China (3,267 square feet), and Madrid, Spain (1,504 square feet). Our Eagan, Minnesota and Bedford, New Hampshire offices provide research and development, and customer support, for BIO-key software and PistolStar software, respectively. Our Holmdel, New Jersey location serves as our corporate headquarters.
ITEM 2. PROPERTY We do not own any real estate. We conduct operations from leased premises in Eagan, Minnesota (5,544 square feet), Bedford, New Hampshire (3,364 square feet), and Wall, New Jersey (4,517 square feet).
ITEM 2. PROPERTY We do not own any real estate. We conduct operations from leased premises in Eagan, Minnesota (5,544 square feet), Bedford, New Hampshire (3,364 square feet), and Holmdel, New Jersey (150 square feet).

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed2 unchanged
Biggest changeDividends We have not paid any cash dividends on our common stock to-date and have no intention of paying any cash dividends on our common stock in the foreseeable future. The terms of our secured promissory note issued in December 2022 prohibits us from paying or declaring any dividends or without the consent of the lender.
Biggest changeDividends We have not paid any cash dividends on our common stock to-date and have no intention of paying any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans For information on securities authorized for issuance under the Company’s equity compensation plans, see “Item 12 - Security Ownership of Certain Beneficial Owners and Related Stockholder Matters.” Unregistered Sales of Equity Securities There were no unregistered sales of the Company’s equity securities during 2022 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Securities Authorized for Issuance under Equity Compensation Plans For information on securities authorized for issuance under the Company’s equity compensation plans, see “Item 12 - Security Ownership of Certain Beneficial Owners and Related Stockholder Matters.” Unregistered Sales of Equity Securities There were no unregistered sales of the Company’s equity securities during 2023 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock currently trades on the Nasdaq Capital Market under the symbol “BKYI”. Holders As of May 18, 2023, the number of stockholders of record of our common stock was 131.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock currently trades on the Nasdaq Capital Market under the symbol “BKYI”. Holders As of June 4, 2024 the number of stockholders of record of our common stock was 159.
Issuer Purchases of Equity Securities None. ITEM 6. RESERVED Not Applicable. 18
Issuer Purchases of Equity Securities None. ITEM 6. RESERVED Not Applicable. 19 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

34 edited+8 added−28 removed23 unchanged
Biggest changeRESULTS OF OPERATIONS Consolidated Results of Operations Two Year % trend Years ended December 31, 2022 2021 Revenues Services 26 % 25 % License fees 65 % 50 % Hardware 9 % 25 % 100 % 100 % Costs and other expenses Cost of services 10 % 13 % Cost of license fees 13 % 4 % Cost of hardware 12 % 16 % 35 % 33 % Gross Profit 65 % 67 % Operating expenses Selling, general and administrative 133 % 118 % Research, development and engineering 46 % 46 % Reversal of earnout payable-Swivel acquisition -7 % Impairment of goodwill 34 % - Total operating expenses 206 % 164 % Operating loss -141 % -97 % Other income (expense) Total other income (expense) -29 % -2 % Loss before provision for income tax benefit -170 % -99 % Provision for income tax benefit - - Net loss -170 % -99 % 20 Revenues and Costs and other expenses 2022-2021 2022 2021 $ Chg % Chg Revenues Services $ 1,789,720 $ 1,273,354 $ 516,366 41 % License fees 4,584,052 2,555,809 2,028,243 79 % Hardware 646,486 1,285,326 (638,840 ) -50 % Total Revenue $ 7,020,258 $ 5,114,489 $ 1,905,769 37 % Costs and other expenses Services $ 722,152 $ 686,175 $ 35,977 5 % License fees 906,417 183,199 723,218 395 % Hardware 811,001 803,555 7,446 1 % Total Costs and other expenses $ 2,439,570 $ 1,672,929 $ 766,641 46 % Revenues Revenue increased $1,905,769 or 37% to $7,020,258 in 2022 as compared to $5,114,489 in 2021 due to the factors stated below.
Biggest changeRESULTS OF OPERATIONS Consolidated Results of Operations Two Year % trend Years ended December 31, 2023 2022 Revenues Services 29 % 26 % License fees 56 % 65 % Hardware 15 % 9 % 100 % 100 % Costs and other expenses Cost of services 11 % 10 % Cost of license fees 15 % 13 % Cost of hardware 9 % 6 % Cost of hardware reserve 47 % 6 % 82 % 35 % Gross Profit 18 % 65 % Operating expenses Selling, general and administrative 101 % 133 % Research, development and engineering 31 % 46 % Reversal of earnout payable-Swivel acquisition 0 % -7 % Impairment of goodwill 0 % 34 % Total operating expenses 132 % 206 % Operating loss -114 % -141 % Other income (expense) Total other income (expense) 2 % -29 % Loss before provision for income tax benefit -112 % -170 % Provision for income tax benefit 2 % 0 % Net loss -110 % -170 % 21 Table of Contents Revenues and Costs and other expenses 2023-2022 2023 2022 $ Chg % Chg Revenues Services $ 2,218,885 $ 1,789,720 $ 429,165 24 % License fees 4,342,010 4,584,052 (242,042 ) -5 % Hardware 1,194,010 646,486 547,524 85 % Total Revenue $ 7,754,905 $ 7,020,258 $ 734,647 10 % Costs and other expenses Services $ 861,936 $ 722,152 $ 139,784 19 % License fees 1,174,919 906,417 268,502 30 % Hardware 700,231 411,001 289,230 70 % Hardware reserves 3,586,500 400,000 3,186,500 797 % Total Costs and other expenses $ 6,323,586 $ 2,439,570 $ 3,884,016 159 % Revenues Revenue increased $734,647 or 10% to $8,654,905 in 2023 as compared to $7,020,258 in 2022 due to the factors stated below.
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 plan to continue 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.
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 $798,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation.
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 $732,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand our Company. This discussion is provided as a supplement to and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2022 and 2021 and the accompanying notes included elsewhere in this Report.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand our Company. This discussion is provided as a supplement to and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2023 and 2022 and the accompanying notes included elsewhere in this Report.
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.
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, 2024 and may be discontinued at that time.
Built to leverage BIO-key’s world-class biometric core platform among 17 strong authentication factors, 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.
Built to leverage BIO-key’s world-class biometric core platform among seventeen strong authentication factors, 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.
Impairment of goodwill 2022 - 2021 2022 2021 $ Chg % Chg $ 2,387,193 $ - $ 2, 387,193 100 % For the year ended December 31, 2022, we recognized an impairment of our goodwill balances due to the decrease in market value of our common stock compared to the carrying value of our net assets.
Impairment of goodwill 2023-2022 2023 2022 $ Chg % Chg $ - $ 2,387,193 $ (2,387,193 ) -100 % For the year ended December 31, 2022, we recognized an impairment of our goodwill balances due to the decrease in market value of our common stock compared to the carrying value of our net assets.
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. 23 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our financial statements are prepared in accordance with accounting principles generally accepted in the United States.
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. 24 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our financial statements are prepared in accordance with accounting principles generally accepted in the United States.
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.
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, if at all, that adequate financing will be obtained to meet our needs, or that such financing would not be dilutive to existing stockholders.
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. 19 Strategic Outlook We plan to have a more significant role in the IAM market which continues to expand.
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. 20 Table of Contents Strategic Outlook We plan to have a more significant role in the IAM market which continues to expand.
Reversal of earnout payable – Swivel acquisition 2022 - 2021 2022 2021 $ Chg % Chg $ (500,000 ) $ - $ (500,000 ) 100 % For the year ended December 31, 2022, we recognized income on the elimination of the earnout payable on the acquisition of Swivel Secure as the certain requirements for the payout were not achieved.
Reversal of earnout payable – Swivel Secure acquisition 2023-2022 2023 2022 $ Chg % Chg $ - $ (500,000 ) $ 500,000 -100 % For the year ended December 31, 2022, we recognized income on the elimination of the earnout payable on the acquisition of Swivel Secure as the requirements for the payout were not achieved.
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.
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 eighty-five participants and continues to generate incremental revenues.
Non-recurring custom services increased 216% due to increased new customer installations, Swivel service fees, and conversion to the cloud platform. Although inflation has negatively impacted many industries, we have continued to see our pipeline increase for the cybersecurity protection software and services that we offer.
Non-recurring custom services increased 88% in 2023 due to increased new customer installations, Swivel Secure service fees, and conversion to the cloud platform. Although inflation has negatively impacted many industries, we have continued to see our pipeline increase for the cybersecurity protection software and services that we offer.
During 2022, we generated approximately $7,020,000 of revenue, which did not generate enough cash to fully fund our average monthly cash requirements. We expect that Swivel Secure Europe will continue to generate positive cash flow in 2023. We also have approximately $3.8 million of inventory purchased for projects in Nigeria.
During 2023, we generated approximately $7,755,000 of revenue, which did not generate enough cash to fully fund our average monthly cash requirements. We expect that Swivel Secure Europe will continue to generate positive cash flow in 2024. We also have approximately $3.6 million of inventory (currently reserved) purchased for projects in Nigeria.
Risk Factors” given the uncertainty of the duration and severity of a possible economic recession and the conflict between Ukraine and Russia and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature, the related financial impact cannot be reasonably estimated at this time.
Risk Factors”, given the uncertainty the current economic and political environment and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature, the related financial impact cannot be reasonably estimated at this time.
Items of note included: ● Net positive cash flows related to non-cash expenses of approximately $5,980,000. ● Net negative cash flows related to changes in accounts receivable, prepayments, accruals, lease liabilities, and deferred revenue in the aggregate amount of approximately $299,000 and our net loss for the period.
Items of note included: ● Net positive cash flows related to non-cash expenses of approximately $4,933,000. ● Net negative cash flows related to changes in accounts receivable, prepayments, lease liabilities, and deferred revenue in the aggregate amount of approximately $244,000 and our net loss for the period.
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.
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.
The current trend of continued remote work environments increases the risk of unauthorized users, phishing attacks, and hackers who are eager to take advantage of the challenges of securing remote workers. We believe that biometrics should continue to play a key role in remote user authentication.
The current trend of continued remote work environments increases the risk of unauthorized users, phishing attacks, and hackers who are eager to take advantage of the challenges of securing remote workers.
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.
We continue to explore other markets and opportunities to sell or return the product to generate additional cash. If we are unable to generate sufficient revenue and positive cash flow from operations or liquidation of existing inventory to fund current operations and execute our business plan, we will need to obtain additional third-party financing 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”).
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 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.
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.
For the years ended December 31, 2022, and 2021, service revenues included approximately $1,243,000 and $1,100,000, respectively, of recurring maintenance and support revenue, and approximately $546,000 and $173,000, respectively, of non-recurring custom services revenue. Recurring service revenue increased 13% from 2021 to 2022 due largely to the increased maintenance related to increased license revenue.
For the years ended December 31, 2023, and 2022, service revenues included approximately $1,193,000 and $1,243,000, respectively, of recurring maintenance and support revenue, and approximately $1,026,000 and $546,000, respectively, of non-recurring custom services revenue. Recurring service revenue decreased 4% in 2023 due to delayed renewals in the fourth quarter.
Liquidity Outlook At December 31, 2022, our total cash and cash equivalents were approximately $2,600,000, as compared to $7,800,000 at December 31, 2021. At December 31, 2022, we had working capital of approximately $3,529,000.
Liquidity Outlook At December 31, 2023, our total cash and cash equivalents were approximately $511,000, as compared to $2,600,000 at December 31, 2022. At December 31, 2023, we had working capital of approximately $(777,000) as a result of the allowance for doubtful accounts and reserve on inventory.
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.
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 IBB deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases.
License fees for the year ended December 31, 2022 increased $732,218, or approximately 395%, to $906,417 related to increased license revenue and license fees payable for third-party software distributed by Swivel Secure. Hardware costs for the year ended December 31, 2022 increased $7,446, or approximately 1%, to $811,001.
License fees for the year ended December 31, 2023 increased $268,502, or approximately 30%, to $1,174,919 due primarily to increased license revenue and related license fees payable for third-party software distributed by Swivel Secure. Hardware costs for the year ended December 31, 2023 increased $289,230, or approximately 70%, to $700,231 from $411,001 in 2022.
Other income (expense) 2022-2021 2022 2021 $ Chg % Chg Interest income $ 233 $ 4,075 $ (3,842 ) -94 % Foreign currency loss - (50,000 ) 50,000 100 % Investment-debt security reserve (452,821 ) (60,000 ) (392,821 ) -655 % Loan transaction costs (1,147,456 ) - (1,147,456 ) -100 % Change in fair value of convertible note (396,203 ) - (396,203 ) -100 % Interest expense (10,462 ) (18,000 ) 7,538 42 % $ (2,006,709 ) $ (123,925 ) $ (1,882,784 ) -1519 % The amounts for other income (expense) for the year ended December 31, 2022 consisted of interest income of $233, a write-off of the investment-debt security as the Company received the proceeds and the bond issuer defaulted on repayment, loan transactions costs expensed for the convertible note payable as the Company elected to value the convertible note payable under the fair value option, the change in the fair value of the convertible note payable, and interest expense of $10,462 on the convertible note payable and the government loan through the BBVA bank.
Other income (expense) 2023-2022 2023 2022 $ Chg % Chg Interest income $ 11,533 $ 233 $ 11,300 4850 % Gain from sale of asset 20,000 - 20,000 100 % Foreign currency loss (39,000 ) - (39,000 ) 100 % Investment-debt security reserve - (452,821 ) 452,821 -100 % Loan transaction costs - (1,147,456 ) 1,147,456 -100 % Change in fair value of convertible note 396,203 (396,203 ) 792,406 -200 % Interest expense (218,270 ) (10,462 ) (207,808 ) 1986 % $ 170,466 $ (2,006,709 ) $ 2,177,175 -108 % The amounts for other income (expense) for the year ended December 31, 2023 consisted of interest income of $11,533, a gain from the sale of a PistolStar domain asset, change in loan transactions costs for payment of the convertible note payable as we elected to value the convertible note under the fair value option, and interest expense of $218,270 on the convertible note payable and the government loan through the BBVA bank.
The increase was associated with the decreased hardware sales and hardware mix described above, offset by the $400,000 reserve on inventory due to slow moving inventory purchased for projects in Nigeria.
The increase was associated with the increased hardware sales and hardware mix described above. Hardware reserve costs for the year ended December 31, 2023 increased $3,186,500 due to a complete reserve of slow moving inventory purchased for projects in Nigeria, and for other older inventory.
Overview We are a leading identity access management (IAM) platform provider for the enterprise and large-scale customer and civil ID solutions.
All share totals reported herein have been adjusted to reflect our 1-for-18 reverse stock split, which was effective December 21, 2023. Overview We are a leading identity access management (IAM) platform provider for the enterprise and large-scale customer and civil ID solutions.
In the event the maturity date of the Note is extended, interest will accrue 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 the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.
Interest under the Note accrued at a rate of 10% per annum, payable monthly through month six and at 12% per annum in months seven through twelve, payable monthly. The Note was secured by a lien on substantially all of our assets and properties. The Note was repaid in December 2022.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations, as listed below: 1. Business Combinations We allocate the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations, as listed below: 1. Revenue Recognition 2. Impairment or Disposal of Long Lived Assets, including Intangible Assets 3. Allowances for Accounts Receivable
Costs of goods sold For the year ended December 31, 2022, cost of services increased approximately 5% to $722,152, due to the increased costs to support for the PortalGuard deployments.
The increase was attributable largely to fourth quarter 2023 sales to an international defense agency. Costs of goods sold For the year ended December 31, 2023, cost of services increased approximately 19% to $861,936, due to the increased costs to support Swivel Secure deployments.
Research, development and engineering 2022 - 2021 2022 2021 $ Chg % Chg $ 3,252,236 $ 2,355,056 $ 897,180 38 % For the year ended December 31, 2022, research, development and engineering costs were $3,252,236 representing a 38% increase over 2021.
Research, development and engineering 2023-2022 2023 2022 $ Chg % Chg $ 2,394,926 $ 3,252,236 $ (857,310 ) -26 % For the year ended December 31, 2023, research, development and engineering costs were $2,394,926 representing a 26% decrease from 2022. Included in the decrease were lower personnel costs associated with wages and benefits for engineering employees.
The Company is looking into other markets and opportunities to sell or return the product. 21 Selling, general and administrative 2022 - 2021 2022 2021 $ Chg % Chg $ 9,364,887 $ 6,028,360 $ 3,336,527 55 % Selling, general and administrative costs for year ended December 31, 2022 were $9,364,887 representing a 55% increase from 2021.
We are continuing to explore other markets and opportunities to sell this inventory. 22 Table of Contents Selling, general and administrative 2023-2022 2023 2022 $ Chg % Chg $ 7,862,710 $ 9,364,887 $ (1,502,177 ) -16 % Selling, general and administrative costs for year ended December 31, 2023 were $7,862,710 representing a 16% decrease from 2022.
Sources of Liquidity 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.
These amounts were offset by repayment of convertible note payable, costs associated with the issuance of our securities, and proceeds of $17,478 from sales of common stock under the employee stock purchase plan. Sources of Liquidity Since our inception, our capital needs have been principally met through proceeds from the sale of equity and debt securities.
Removed
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.
Added
A growing trend of security incidents that highlight potential cybersecurity vulnerabilities, additional regulatory requirements, and increasingly stringent Cyber Insurance underwriting standards that mandate enhanced security solutions has resulted in many businesses requiring MFA for their employees, partners and customers to access their business systems and data.
Removed
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.
Added
We believe that biometrics should continue to play a key role in remote user authentication.
Removed
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.
Added
For the year ended December 31, 2023 and 2022 license revenue decreased $242,042 or 5% to $4,342,010, due primarily to lower new customer orders. We expect do not expect this trend to continue into 2024. Hardware sales increased by $547,524, or 85%, to $1,194,010 in 2023 from $646,486 in 2022.
Removed
As our customer base continues to grow, we expect the service revenue to increase in future periods. For the years ended December 31, 2022 and 2021, license revenue increased $2,028,243 or 79% to $4,584,052, due primarily to new customer orders, revenues from Swivel Secure for approximately $1.9 million, and existing recurring revenue contracts.
Added
The decrease included lower sales and marketing expenses related to show participation and personnel costs, offset by an increase in allowance for doubtful accounts ofr $750,000 compared to $360,000 in 2022.
Removed
We expect the recurring revenue to continue to grow in 2023. Hardware sales decreased by $638,840, or 50%, to $646,486 in 2022 from $1,285,326 in 2021. The decrease was attributable largely to Q1 2021 sales in Nigeria to an international government agency, which did not recur in 2022 due to delayed roll out of the government project.
Added
The amounts for the year ended December 31, 2022, consisted of interest income of $233, a write-off of the investment-debt security as we received the proceeds and the bond issuer defaulted on repayment, loan transactions costs expensed for the convertible note payable as we elected to value the convertible note payable under the fair value option, the change in the fair value of the convertible note, and interest expense of $10,462 on the convertible note and the government loan through the BBVA bank. 23 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Operating activities overview Net cash used for operations during the year ended December 31, 2023 was $3,793,456.
Removed
The increase included higher sales and marketing expenses incurred by Swivel Secure which we acquired in 2022, increased legal, professional, and other fees and expenses incurred in connection with the acquisition of Swivel Secure and the AJB Capital loan, bad debt expense related to a reserve on a note receivable, and an increase in the allowance for doubtful accounts of $360,000.
Added
Investing activities overview Net cash used in investing activities during the year December 21, 2023 was $1,000 for capital expenditures. Fi nancing activities overview Approximately $4,297,000 was provided by financing activities during the year ended December 31, 2023 consisting of the issuance of common stock and warrants in public and private securities offerings, and exercise of warrants.
Removed
Included in the increase were personnel costs associated with retaining outside services related to the development of our MobileAuth application, and wages and benefits for new engineering employees.
Added
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: On November 20, 2023, we completed a private placement of shares of common stock and warrants resulting in net proceeds of approximately $435,000, after deducting placement agent fees and estimated offering expenses.
Removed
The amounts for the year ended December 31, 2021, related to a loss on a reserve on the investment in the debt security due to a delay in receiving the funds, interest expense from the amortization of debt discounts, and a foreign currency adjustment to an accounts receivable invoice, offset by interest income.
Added
On October 30, 2023, we completed a public offering of shares of common stock and warrants resulting in net proceeds of approximately $3.3 million, after deducting placement agent fees and estimated offering expenses. We used approximately $2.2 million of the net proceeds to repay the outstanding amount due under outstanding convertible note payable.
Removed
LIQUIDITY AND CAPITAL RESOURCES Operating activities overview Net cash used for operations during the year ended December 31, 2022 was $6,229,034.
Removed
Investing activities overview Net cash used in investing activities during the year December 21, 2022 was $696,618.
Removed
This consisted of approximately $82,000 of capital expenditures, $9,000 of receipts from a note receivable and $624,000 (net of cash acquired and currency adjustment) to fund the cash portion of the purchase price for Swivel Secure. 22 Financing activities overview Net cash from financing activities was $1,903,240 during the year ended December 31, 2022 consisting of proceeds of $2,002,000 from the issuance of a convertible note, costs paid to acquire the convertible note of $155,140 and proceeds of $56,380 from sales of common stock under the employee stock purchase plan.
Removed
The principal amount of the Note is due six months following the date of issuance, subject to one six-month extension. Interest under the Note accrues at a rate of 10% per annum, payable monthly through month six.
Removed
Our secured note is due on June 22, 2023 which we expect to extend for an additional six months. 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 be used in part to repay our outstanding secured note.
Removed
There have been no material changes to these estimates for the periods presented in this Annual Report on Form 10-K.
Removed
Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired customer relationships, proprietary software, and trade names are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets.
Removed
Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.
Removed
We include the results of operations of the business that we have acquired in our consolidated results prospectively from the date of acquisition. 2. Impairment of Goodwill Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Removed
The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, the Company estimates the fair value of the reporting unit based on the Company’s market capitalization and compares this amount to the carrying value of the reporting unit.
Removed
If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. The effect of any impairment would be reflected in operating income in the consolidated statement of operations. The annual goodwill impairment test is performed as of December 31st of each year. 3.
Removed
Income Taxes We account for income taxes under the asset and liability method, based on the income tax laws and rates in the jurisdictions in which operations are conducted and income is earned.
Removed
This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using expected rates in effect for the tax year in which the differences are expected to reverse.
Removed
Developing the provision for income taxes requires significant judgment including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. The Company has recorded a valuation allowance in the current and prior years to reduce net deferred tax assets to zero.
Removed
If we were to subsequently determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase net income for the period in which such determination was made. We will continue to assess the adequacy of the valuation allowance on a quarterly basis.
Removed
Our judgments and tax strategies are subject to audit by various taxing authorities. 4. Fair Value of Convertible Note Payable We elected the fair value option to account for the convertible note payable.
Removed
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We elected the fair value option to better depict the ultimate liability associated with the note, including all features and embedded derivatives.
Removed
The note accounted for under the fair value option election represents the debt host financial instrument containing certain embedded features that would otherwise be required to be bifurcated from the debt host and recognized as separate derivative liabilities subject to initial and subsequent periodic fair value measurement in accordance with U.S. GAAP.
Removed
When the fair value option election is applied to financial liabilities, bifurcation of embedded derivatives is not required, and the financial liability in totality is recorded at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each balance sheet date thereafter.
Removed
We estimated the fair value of the note using a probability-weighted discounted cash flow model with significant assumptions including the present value discount rate and the likelihood of default.

Other BKYI 10-K year-over-year comparisons