Biometric ID Provider BIO-key Reports Q2 2016 Results

WALL, NJ--(Marketwired - Aug 15, 2016) - BIO-key International, Inc. (OTCQB: BKYI), an innovative provider of biometric software and hardware solutions for stronger user authentication, today reported results for its second quarter ended June 30, 2016 (Q2'16). BIO-key will host a conference call tomorrow at 10:00 a.m. ET to review its results (details below).

Michael DePasquale, Chairman & CEO of BIO-key, commented, "While we made good incremental progress positioning BIO-key for significant hardware and software revenue opportunities later this year and into next year, our second quarter sales performance was disappointing. Revenue declined to $415,000 in the second quarter as several larger scale opportunities did not close during the period for a variety of reasons that were unrelated to BIO-key. We believe these opportunities still have strong prospects for closing, and we remain in active discussions with the customers to that end. At the same time, we are building out our sales, marketing and distribution channels to drive sales of our line of fingerprint readers for enterprise and retail users.

"We have also continued to build upon our strategic partnership with Microsoft to support the use of expanded biometric security capabilities now resident in the Windows 10 Anniversary Edition released on August 2^nd. Windows 10 has already been downloaded on over 350 million devices, providing a substantial and growing market opportunity for our biometric solutions. We believe BIO-key offers the the strongest, most convenient, and cost effective authentication solutions for Windows 10 enterprise and retail users.

"To tackle this opportunity, we are establishing enterprise and retail distribution channels, packaging and collateral, and sales and marketing support and expect to see broad availability of our products in September. In summary, despite the slow start to the year, BIO-key is working a robust pipeline of enterprise hardware and software opportunities. Over the next several months we believe we can convert these opportunities into meaningful revenue growth for the full year 2016, which we now expect to range between $6.0M and $8.5M."

Recent Highlights:

• Partnered with Access Sales Group to expand distribution and marketing for fingerprint biometric readers and software into high-volume national enterprise and retail channels.
• BIO-key worked closely with Microsoft's device team to achieve Windows Hello™ certification of its compact USB fingerprint readers, including web application security extensions to use Windows Hello to sign into Microsoft Edge compatible web sites and apps such as iHeartRadio.
• Completed development of its enterprise authentication software for Microsoft Active Directory environments. BIO-key's solution ID Director for Windows allows large and small enterprises to leverage BIO-key fingerprint readers for web authentication envirnoments.
• Expanded sales and production of BIO-key's new SideTouch fingerprint reader. SideTouch combines the new IDEX (IDEX.NO) advanced off-chip sensor technology with BIO-key's universal Windows Biometric Framework (WBF) fingerprint engine. SideTouch is a Microsoft tested and qualified Windows Hello device. 
• Launched availability of SideSwipe and EcoID USB fingerprint readers on Amazon.
• Expanded sales reach into the Middle East and North Africa via distribution relationship with Moroccan technology provider, Arthur & Co.
• UK-based former Vodafone & Microsoft executive Pieter Knook was appointed to BIO-key Board.
  
  

Guidance:
Managment remains confident in the company's pipeline of hardware and software revenue opportunities for the balance of 2016. However, based on delays in the conversion of several significant opportunities into revenue so far in 2016, BIO-key believes it prudent to reduce its full year revenue guidance to a range of $6.0M - $8.5M in 2016, versus revenue of approximately $5M in 2015. BIO-key's estimated breakeven revenue run rate is approximately $7.5M.

Q2 2016 Results:
Q2'16 total revenue declined to $415,814 compared to $2,272,804 in Q2'15, principally due to a $2.0 million software license from an existing customer in Q2'15. Service revenues, principally comprised of recurring maintenance and support, decreased 13% to $220,926 compared to $255,269 in Q2'15, reflecting an increase in maintenance revenue offset by no special software requirements for current or new customers. License and other revenue decreased to $194,888 from $2,017,535, principally reflecting the $2.0 million software license booked in Q2'15. Hardware sales increased 5% reflecting an increase in volume.

Q2'16 gross margin declined to 67% from 94% in Q2'15, due to lower revenue and a change in revenue mix. Q2'16 operating expenses rose 17% to $1,605,352 compared to $1,373,860 in Q2'15, principally due to increased R&D expense for new personnel, temporary outside services, and recruiting expenses.

BIO-key's Q2'16 net loss to common shareholders was ($1,576,114), or ($0.02) per share, compared to net income of $753,146, or $0.01 per share, in Q2'15.

Liquidity and Capital Resources
At June 30, 2016, BIO-key had cash, cash equivalents and net receivables of $4.3M compared to $7.7M at December 31, 2015.

Conference Call and Webcast Replay 

Date/Time: Tuesday, August 16, 2016 at 10 am ET

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

Webcast Replay: http://services.choruscall.com/links/biokey160815 - Available for 30 days.

Call Replay: 1-877-344-7529 U.S. or 412-317-0088 use code 10091361#

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

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

Twitter: BIO-keyIR

Investor & Media Contacts:
David Collins, William Jones
Catalyst Global
212-984-9800
[e-mail]

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
		June 30, 2016				December 31, 2015
		(Unaudited)
ASSETS
Cash and cash equivalents		$	2,006,665			$	4,321,078
Accounts receivable, net of allowance for doubtful accounts of $13,785 at June 30, 2016 and December 31, 2015			2,298,744				3,391,405
Due from factor			2,323				37,421
Inventory			480,039				348,645
Software license rights			5,000,000				5,000,000
Prepaid expenses and other			92,855				97,203
	Total current assets		9,880,626				13,195,752
Software license rights, less current portion			7,000,000				7,000,000
Equipment and leasehold improvements, net			91,083				63,877
Deposits and other assets			8,712				8,712
Intangible assets--less accumulated amortization			140,935				147,738
	Total non-current assets		7,240,730				7,220,327
TOTAL ASSETS		$	17,121,356			$	20,416,079
LIABILITIES
Accounts payable		$	696,419			$	1,158,555
Accrued liabilities			350,833				493,067
Dividends payable			200,625				133,851
Deferred revenue			318,046				376,405
Warrant liabilities			153,790				104,284
	Total current liabilities		1,719,713				2,266,162
TOTAL LIABILITIES			1,719,713				2,266,162
Commitments and contingencies
STOCKHOLDERS' EQUITY
Series A-1 convertible preferred stock: authorized, 100,000 (liquidation preference of $100 per share); issued and outstanding 90,000 of $.0001 par value			9				9
Series B-1 convertible preferred stock; authorized, 105,000 (liquidation preference of
$100 per share): issued and outstanding 105,000 of $.0001 par value			11				11
Common stock - authorized, 170,000,000 shares; issued and outstanding; 66,339,655 and 66,098,482 of $.0001 par value at June 30, 2016 and December 31, 2015, respectively			6,634				6,610
Additional paid-in capital			76,545,142				76,754,737
Accumulated deficit			(61,150,153	)			(58,611,450	)
TOTAL STOCKHOLDERS' EQUITY			15,401,643				18,149,917
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	17,121,356			$	20,416,079

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
			Three months ended June 30,								Six months ended June 30,
			2016				2015				2016				2015
Revenues
	Services		$	220,926			$	255,269			$	505,652			$	505,622
	License fees and other			194,888				2,017,535				340,754				2,416,008
				415,814				2,272,804				846,406				2,921,630
Costs and other expenses
	Cost of services			66,597				56,905				122,379				123,968
	Cost of license fees and other			69,893				88,489				125,959				160,782
				136,490				145,394				248,338				284,750
Gross Profit				279,324				2,127,410				598,068				2,636,880
Operating Expenses
	Selling, general and administrative			1,038,904				979,861				2,030,517				2,020,542
	Research, development and engineering			566,448				393,999				1,055,849				800,640
				1,605,352				1,373,860				3,086,366				2,821,182
		Operating profit (loss)		(1,326,028	)			753,550				(2,488,298	)			(184,302	)
Other income (expenses)
	Interest income			7				2				13				4
	Gain (loss) on derivative liabilities			(49,468	)			(406	)			(49,506	)			14,253
	Income taxes			-				-				(912	)			(912	)
	Total other income (expenses)			(49,461	)			(404	)			(50,405	)			13,345
Net income (loss)				(1,375,489	)			753,146				(2,538,703	)			(170,957	)
Convertible preferred stock dividends				(200,625	)			-				(401,250	)			-
Net income (loss) available to common stockholders			$	(1,576,114	)		$	753,146			$	(2,939,953	)		$	(170,957	)
Basic and Diluted Earnings (Loss) per Common Share			$	(0.02	)		$	0.01			$	(0.04	)		$	(0.00	)
Weighted Average Shares Outstanding:
	Basic and diluted			66,276,050				66,001,260				66,199,903				66,001,260

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					Six Months Ended June 30,
					2016				2015
CASH FLOW FROM OPERATING ACTIVITIES:
	Net loss				$	(2,538,703	)		$	(170,957	)
	Adjustments to reconcile net loss to cash used in operating activities:
		Depreciation				24,577				21,270
		Amortization of intangible assets				6,803				6,803
		Share-based and warrant compensation for employees and consultants				184,299				222,247
		Loss (gain) on derivative liabilities				49,506				(14,253	)
		Stock based directors fees				39,999				-
	Change in assets and liabilities:
		Accounts receivable trade				1,092,661				491,356
		Due from factor				35,098				(1,465,527	)
		Inventory				(131,394	)			(400,744	)
		Prepaid expenses and other				4,348				162,209
		Accounts payable				(462,136	)			521,803
		Accrued liabilities				(142,234	)			(52,324	)
		Deferred revenue				(58,359	)			172,518
			Net cash used for operating activities			(1,895,535	)			(505,599	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures					(51,783	)			(2,078	)
			Net cash used for investing activities			(51,783	)			(2,078	)
CASH FLOW FROM FINANCING ACTIVITIES:
		Preferred dividends paid				(334,476	)			-
		Costs to issue preferred and common stock				(32,619	)			(53,579	)
			Net cash used for financing activities			(367,095	)			(53,579	)
NET DECREASE IN CASH AND CASH EQUIVALENTS						(2,314,413	)			(561,256	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD						4,321,078				843,632
CASH AND CASH EQUIVALENTS, END OF PERIOD					$	2,006,665			$	282,376

Investor & Media Contacts:
David Collins, William Jones
Catalyst Global
212-984-9800
[e-mail]