BIO-key® Reports Strong 2010 Second Quarter and Six Month Financial Results

BIO-key International, Inc. (OTC Bulletin Board:BKYI.ob), a leader in finger-based biometric identification solutions, today reported financial results for the second quarter and six month period ended June 30, 2010. For clarity and consistency, the data presented in this release relative to the same periods in 2009 includes only the results of the company’s fingerprint-based Biometrics Division. The company completed the sale of its Law Enforcement Division on December 8, 2009.

Total revenue for the three months ended June 30, 2010 was $1,433,051 compared to $280,685 in the same period last year, an increase of 411%. Driving this increase were higher service and licensing sales to both new and existing customers.

Gross profit and gross profit margin for the second quarter of 2010 were $1,329,210 and 92.7% respectively, as compared to $212,254 and 75.6% respectively, for the three months ended June 30, 2009. The increase in gross profit margin is directly attributable to higher licensing fees as a percentage of net sales for the comparable period.

Operating expenses for the three months ended June 30, 2010 were $1,172,577, an increase of 9.6% as compared to operating expenses of $1,070,263 for the same period 2009. This increase was due to higher selling, general and administrative expenses (“SG&A”) of approximately 6% related to higher commission expenses and referral fees as a result of higher revenues, and a 23% increase in research, development and engineering costs.

Operating income for the second quarter was $156,633 compared to an operating loss of $858,009 for the same period in 2009. Total net income including derivative and warrant fair value adjustments and income from discontinued operations for the second quarter of 2010 was $234,766 compared to net income of $139,770 for the second quarter of 2009. The 2009 second quarter included $1,030,177 of income related to discontinued operations.

“We are very pleased with our second quarter financial results and the progress we continue to make in deploying and integrating our software solutions with global, industry leaders,” said Michael DePasquale, BIO-key’s Chief Executive Officer. “With the partner alliances we have today, we believe we are poised for significant top-line growth and profitability, this year. The demand for improved authentication and identification security solutions, and fingerprint biometrics in particular, continues to intensify across many vertical segments of our business, including health care, retail and financial services. We believe our technology and partners position us well to participate in the strengthening industry fundamentals for both the near and long-term. ”

Six Month Comparisons

Total revenue for the six months ended June 30, 2010 was $2,409,226 compared to $818,879 for the same six-month period last year, an increase of 194%. Driving this increase were higher licensing sales to both new and existing customers, partially offset by lower service fees.

Gross profit and gross profit margin for the six months ended June 30, 2010 were $2,195,285 and 91.1% respectively, as compared to $613,368 and 74.9% respectively, for the six months ended June 30, 2009. The increase in gross profit margin is directly attributable to higher licensing fees as a percentage of net sales for the comparable period.

Operating expenses for the six months ended June 30, 2010 were $2,157,386, a decrease of 1.9% as compared to operating expenses of $2,198,991 for the same period in 2009. This decrease was due to a 7.4% decline in selling, general and administrative expenses, offset by an 18.2% increase in research, development and engineering expenses. The decline in SG&A was primarily related to lower legal and professional service fees, and charges for non-cash compensation, offset by higher commission and referral fee expenses.

Operating income was $37,899 compared to an operating loss of ($1,585,623) for the periods ended June 30, 2010 and June 30, 2009, respectively. Accounting for income from derivative and warrant fair value adjustments and income from discontinued operations, BIO-key’s net income for the six month period ended June 30, 2010 was $1,235,324 compared to net income of $361,819 for the same period in  2009. The 2009 first half income included approximately $2.0 million related to discontinued operations.

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