BIO KEY INTERNATIONAL INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (form 10-Q)
This Management's Discussion and Analysis of Financial Condition and Results of
Operations is provided as a supplement to and should be read in conjunction with
our unaudited condensed consolidated financial statements and related
information contained herein and our audited financial statements as of December
31, 2021.
Overview
BIO-key International, Inc. (the "Company," "BIO-key," "we," or "us") is a
leading identity and access management (IAM) platform provider enabling secure
work-from-anywhere for enterprise, education, and government customers. Our
vision is to enable any organization to secure streamlined and passwordless
workforce, customer, citizen and student access to any online service,
workstation, or mobile application, without a requirement to use tokens or
phones. Our products include PortalGuard® and PortalGuard Identity-as-a-Service
(IDaaS) enterprise IAM, PINsafe, WEB-key® biometric civil and large-scale ID
infrastructure, and high-quality, low-cost accessory hardware to provide a full
and complete solution for identity-innovating customers.
Built to leverage BIO-key's world-class biometric core platform among 16 other
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. PortalGuard goes beyond
traditional 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.
With our recent acquisition of Swivel Secure, we have added AuthControl Sentry,
AuthControl Enterprise and AuthControl MSP product lines to our solutions set.
The software includes a patented one-time-code extraction technology, helping
enterprises manage the increasing data security risks posed by cloud services
and bring you own device policies.
Millions of people use BIO-key every day to securely access a variety of cloud,
mobile and web applications, on-premise and cloud-based servers from all of
their devices. Employees, contractors, students and faculty sign in through
PortalGuard to seamlessly and securely access the applications they need to do
their work, without relying on personal phone use or per-user tokens.
Organizations use our platform to securely collaborate with their supply chain
and partners, and to provide their customers with flexible, resilient user
experiences online or in-person.
Large-scale customer and civil ID customers use our scalable biometric
management platform and FBI-certified scanner hardware to manage enrollment,
de-duplication and authentication for millions of users. One large bank has
enrolled and identifies over 19 million of their customers in branches on a
daily basis.
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We sell our branded biometric and FIDO authentication hardware as accessories to
our IAM platforms, so that customers can have a single vendor providing all
components of their IAM solution. We do not mandate the use of BIO-key hardware
with our software and services. Our NIST-certified fingerprint biometric
platform is unique in that it supports interoperable mixing and matching
combinations of different manufactures' fingerprint scanners in a deployment, so
that the right scanner can be selected for the right use case, without mandating
the user of a particular scanner.
Security-conscious software developers leverage our platform APIs and federation
interfaces to securely and efficiently embed biometric and MFA identity
capabilities into their software. Our approach to IDaaS allows our customers to
efficiently scale their security and identity infrastructures to protect both
internal cloud workforce- and external customer-facing applications.
We operate a SaaS business model with customers subscribing to term use of our
software for annual recurring revenue. We sell our products directly through our
field and inside sales teams, as well as indirectly through our network of
channel partners including resellers, system integrators, master agents and
other distribution partners. Our subscription fees include a term license of
hosted or on-premise product and technical support and maintenance of our
platform. We base subscription fees primarily on the products used and the
number of users enrolled in our platform. We generate subscription fees pursuant
to noncancelable contracts with a weighted average duration of approximately one
year.
PortalGuard is used by our customers to manage and secure IT access by their
employees, contractors and partners, which we call workforce identity.
PortalGuard is also used to manage and secure the identities of an
organization's customers through integration of APIs we have developed and
industry-standard federation standards, which we call customer identity. We
invoice customers in advance in annual and multi-year prepaid installments for
subscriptions to our platforms.
Strategic Outlook
Historically, our largest market has been access control within highly regulated
industries such as government, financial services, and healthcare. In 2019 we
became the go-to biometric authentication provider for board of election offices
which continue to deploy our hardware and software to secure internal access to
the voter registration database. Upon acquiring PortalGuard in 2020, we now
serve the higher education vertical. We have and expect to continue to extend
this footprint in 2022 and beyond.
In 2020, we announced that we had secured two contracts with our partner
Technology Transfer Institute. The contracts are for large-scale identification
projects in Africa and Nigeria. Under the first contract, we will provide
biometric authentication to support the infrastructure of a new e-commerce
project developed with the expectation to generate more than one million jobs in
Nigeria. The second contract provides for BIO-key hardware and software to be
used by a leading African telecommunications company to secure internal access
to customer data. Currently Africa and the surrounding regions are receiving
government funding to expand the use of biometric authentication solutions to
help establish trustworthy government programs and reduce fraud. We received our
first purchase order related to these contracts in the fourth quarter of 2020
which we shipped in the first quarter of 2021. The COVID-19 pandemic has and may
continue to delay the rollout of these programs.
We plan to have a more significant role in the IAM market which continues to
expand. We plan to offer customers a suite of authentication options that
complement our biometric solutions. The more well-rounded offerings of
authentication options will allow customers to customize their approach to
authentication all under one umbrella.
We expect to grow our business within government services and highly-regulated
industries in which we have historically had a strong presence including
financial services, higher education, and healthcare. We believe that continued
heightened security and privacy requirements in these industries, and as
colleges and universities continue operating in remote environments, we will
generate increased demand for security solutions, including biometrics. In
addition, we expect that the compatible, yet superior portable biometric user
experience offered by our technology for Windows 10 users will accelerate the
demand for our computer network log-on solutions and fingerprint readers.
Through value add-offerings via direct sales, resellers, and strategic
partnerships with leading higher education platform providers, we will continue
to grow our installed base.
Our primary sales strategies are focused on (i) increased marketing efforts into
the IAM market, (ii) dedicated pursuit of large-scale identification projects
across the globe and (iii) growing our channel alliance program which we have
grown to more than one hundred and fifty participants and continues to generate
incremental revenues.
A second component of our growth strategy is to pursue strategic acquisitions of
select businesses and assets in the IAM space. In furtherance of this strategy,
we are active in the industry and regularly evaluate businesses that we believe
will either provide an entry into new market verticals or be synergistic with
our existing operations and in either case, be accretive to earnings. We cannot
provide any assurance as to whether we will be able to complete any acquisition
and if completed, successfully integrate any business we acquire into our
operations.
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Recent Developments.
On March 8, 2022, we expanded our sales and support operation into Europe,
Africa and the Middle East ("EMEA") by acquiring Swivel Secure Europe, SA.
("Swivel Secure") for up to $2.25 million. Swivel Secure is a Madrid, Spain
based provider of IAM solutions serving over 300 customers through a network of
channel partners throughout EMEA. Swivel Secure is the exclusive distributer of
AuthControl Sentry, AuthControl Enterprise and AuthControl MSP product line in
EMEA, excluding the United Kingdom and Ireland. Swivel Secure maintains a direct
sales force with offices in Madrid, Spain and Lisbon, Portugal. There can be no
assurance that we will be able to manage Swivel Secure's business or
successfully integrate the business with our historic operations without
substantial costs, delays or other operational or financial challenges.
Given the uncertainty of the duration and severity of the current COVID-19
pandemic 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.
The complications caused by COVID-19 has forced organizations to quickly adapt
to a work from home remote business model. This 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.
Critical Accounting Policies and Estimates
For detailed information regarding our critical accounting policies and
estimates, see our financial statements and notes thereto included in this
Report and in our Annual Report on Form 10-K for the year ended December 31,
2021. There have been no material changes to our critical accounting policies
and estimates from those disclosed in our most recent Annual Report on Form
10-K.
Recent Accounting Pronouncements
For detailed information regarding recent account pronouncements, see Notes to
Condensed Consolidated Financial Statements included in Part I, Item 1 of this
report.
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