S-1

As filed with the Securities and Exchange Commission on July 26, 2013

Registration No. ________________   

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

BIO-KEY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	3576	41-1741861
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer Identification No.)
incorporation or organization)	Classification Code Number)

3349 Highway 138, Building D, Suite B

Wall, NJ 07719

(732) 359-1100

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Michael W. DePasquale

Chief Executive Officer

BIO-Key International, Inc.

3349 Highway 138, Building D, Suite B

Wall, NJ 07719

(732) 359-1100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copy to:

Vincent A. Vietti

Stephen R. Brill

Fox Rothschild LLP

997 Lenox Drive, Building 3

Lawrenceville, NJ 08648

(609) 896-3600

Approximate date of commencement of proposed sale to the public: As soon as practicable following the effectiveness of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer☐	Accelerated filer☐
Non-accelerated filer (Do not check if a smaller reporting company) ☐	Smaller reporting company ☒

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount of Shares to be Registered		Proposed Maximum Offering Price Per Share			Proposed Maximum Aggregate Offering Price		Amount of Registration Fee
Common Stock		12,526,941	$	0.30	(1)	$	3,758,083	$	512.60
Shares of Common Stock Issuable Upon Exercise of Warrants(2)		3,500,006	$	0.40		$	1,400,003	$	190.96
Total(3)		16,026,947				$	5,158,086	$	703.56

⁽¹⁾ Estimated pursuant to Rule 457(c) for the purpose of calculating the registration fee based on the average of the high and low prices per share of the registrant’s common stock as reported on the OTC Bulletin Board on July 23, 2013.

⁽²⁾ Represents shares of common stock issuable upon the exercise of warrants issued in a July 2013 private placement.

⁽³⁾ Pursuant to Rule 416, there are also being registered such indeterminable additional securities as may be issued to prevent dilution as a result of stock splits, stock dividends, or similar transactions. Proposed maximum offering price per share is based on the exercise price of the warrants in accordance with Rule 457(g).

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. The selling security holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 26, 2013

PRELIMINARY PROSPECTUS

BIO-KEY INTERNATIONAL, INC.

16,026,947 shares of common stock

The 16,026,947 shares of our common stock, $.0001 par value per share, are being offered by the selling security holders identified in this prospectus. The shares of common stock offered by the selling security holders includes 12,526,941 shares of common stock and 3,500,006 shares of common stock underlying warrants with an exercise price of $0.40 per share which expire five years after the date of grant. All of the shares and warrants were issued by us in private placement transactions.

The selling security holders may sell the shares covered by this prospectus through public or private transactions at prevailing market prices or at privately negotiated prices. We will not receive any part of the proceeds from sales of these shares by the selling security holders, however, we will receive proceeds upon any exercise of the warrants by the selling security holders.

Our common stock trades on the OTC Bulletin Board under the symbol “BKYI.” The closing price of our common stock on the OTC Bulletin Board on July 23, 2013, was $0.33per share.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 2 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is ____________, 2013.

TABLE OF CONTENTS

Page

PROSPECTUS SUMMARY	1
RISK FACTORS	2
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS	12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
BUSINESS	27
MANAGEMENT	36
EXECUTIVE COMPENSATION	40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	44
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	45
DESCRIPTION OF SECURITIES	45
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	48
THE OFFERING	50
SELLING SECURITY HOLDERS	51
USE OF PROCEEDS	53
PLAN OF DISTRIBUTION	53
LEGAL MATTERS	55
EXPERTS	55
ABOUT THIS PROSPECTUS	55

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WHERE YOU CAN FIND MORE INFORMATION	56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

You should rely only on the information contained in or incorporated by reference into this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information provided in this prospectus is accurate as of any date other than the date on the front of this prospectus.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in the common stock. You should read carefully the entire prospectus, including “Risk Factors” and the financial statements and notes thereto, before making an investment decision.

Unless otherwise indicated or the context otherwise requires, all references to the “Company,” the “registrant” “we,” “us” or “our” and similar terms in this prospectus refer to BIO-Key International, Inc. and its subsidiaries.

BIO-Key International, Inc.

We were founded in 1993 as a fingerprint biometric technology company. Biometric technology is the science of analyzing specific human characteristics which are unique to each individual in order to identify a specific person from a broader population.

We develop and market advanced fingerprint biometric identification and identity verification technologies, cryptographic authentication-transaction security technologies, as well as related Identity Management and Credentialing software solutions. We were pioneers in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit card, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Advanced BIO-key® technology has been and is used to improve both the accuracy and speed of competing finger-based biometrics.

In partnerships with OEMs, integrators, and solution providers, we provide biometric software solutions to private and public sector customers. We provide the ability to positively identify and authenticate individuals before granting access to valuable corporate resources, web portals or applications in seconds. Powered by our patented Vector Segment Technology™ our VST™, WEB-key® and BSP development kits are fingerprint biometric solutions that provide true interoperability with all major reader manufacturers, enabling application developers and integrators to seamlessly integrate fingerprint biometrics into virtually any application.

We have developed what we believe is the most discriminating and effective commercially available finger-based biometric technology. Our primary focus is in marketing and selling this technology into commercial logical and physical privilege entitlement and access control markets. Our primary market focus includes mobile payments and credentialing, online payments and credentialing, and healthcare record and payment data security, among other things. Our secondary focus includes government markets, primarily law enforcement forensic investigation and the Department of Homeland Security.

We continue to research and develop advancements in our capabilities, as well as exploring and developing potential strategic relationships, including potential business combinations and acquisitions, which could help us leverage our capability to deliver our solutions. We have built a direct sales force of professionals, and also team with resellers, integrators and partner networks with substantial experience in selling technology solutions to government and corporate customers.

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Our principal executive offices are located at 3349 Highway 138, Building D, Suite B, Wall, NJ 07719, and our telephone number is (732) 359-1100. We maintain a website at www.bio-key.com. Information contained on our website does not constitute part of this prospectus.

The Offering

This prospectus covers the public sale of 16,026,947 shares of common stock to be sold by the selling security holders identified in this prospectus, which consist of 12,526,941 shares of common stock and 3,500,006 shares issuable upon the exercise of warrants. We issued (i) 9,026,935 shares of common stock in February 2013 for gross cash consideration of $902,963, and (ii) 3,500,006 shares of common stock and warrants to acquire 3,500,006 shares of common stock in July 2013 for gross cash consideration of $1,050,000. We will not receive any proceeds from the sale of the common stock by the selling security holders. We will, however, receive proceeds from any exercise of the warrants held by the selling security holders. If such warrants are exercised in full, we would receive gross cash proceeds of approximately $1,400,000. Any such proceeds are currently expected to be used for working capital and general corporate purposes. No assurances can be given that any of the warrants will be exercised.

The selling security holders may sell the shares covered by this prospectus through public or private transactions at prevailing market prices or at privately negotiated prices. We will not receive any part of the proceeds from sales of these shares by the selling security holders.

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition to other information in this prospectus before purchasing our common stock. The risks and uncertainties described below are those that we currently deem to be material and that we believe are specific to our company, our industry and our stock. In addition to these risks, our business may be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely affected, the trading price of our common stock may decline and you may lose all or part of your investment.

Business and Financial Risks

Based on our lack of significant revenue and recurring losses from operations since inception, our auditors have included an explanatory paragraph in their opinion as to the substantial doubt about our ability to continue as a going concern.

Due to, among other factors, our history of losses and limited revenue, our independent auditors have included an explanatory paragraph in their opinion for the year ended December 31, 2012 as to the substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which contemplate that we will continue to operate as a going concern. Our financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.

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Since our formation, we have historically generated minimal revenue and have sustained substantial operating losses which may continue.

As of March 31, 2013, we had a working deficit of approximately $443,000 and an accumulated deficit of approximately $52,604,000. Since our inception, we have focused almost exclusively on developing our core technologies and, until the fourth quarter of 2004, had not generated any significant revenue. In 2009, we sold our Law Enforcement division, losing the benefit of significant recurring revenue streams. In order to increase revenue, we have developed a direct sales force and anticipate the need to retain additional sales, marketing and technical support personnel and may need to incur substantial expenses. We cannot assure you that we will be able to secure these necessary resources, that a significant market for our technologies will develop or that we will be able to achieve our targeted revenue. 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.

Our biometric technology has yet to gain widespread market acceptance and we do not know whether a significant market will develop for our technology.

Biometric technology has received only limited market acceptance, particularly in the private sector. Our technology represents a novel security solution and we have not yet generated significant sales. Although recent security concerns relating to identification of individuals has increased interest in biometrics generally, it remains an undeveloped, evolving market. Biometric based solutions compete with more traditional security methods including keys, cards, personal identification numbers and security personnel. Acceptance of biometrics as an alternative to such traditional methods depends upon a number of factors including:

● national or international events which may affect the need for or interest in biometric solutions;

● the performance and reliability of biometric solutions;

● marketing efforts and publicity regarding these solutions;

● public perception regarding privacy concerns;

● costs involved in adopting and integrating biometric solutions;

● proposed or enacted legislation related to privacy of information; and

● competition from non-biometric technologies that provide more affordable, but less robust, authentication (such as tokens and smart cards).

For these reasons, we are uncertain whether our biometric technology will gain widespread acceptance in any commercial markets or that demand will be sufficient to create a market large enough to produce significant revenue or earnings. Our future success depends, in part, upon business customers adopting biometrics generally, and our solution specifically.

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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 which distribute goods, content or software applications over the Internet. The implementation of our WEB-key ® solution requires the distribution and use of a finger scanning device and integration of database and server side software. 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.

The market for our solutions is still developing and if the biometrics industry adopts standards or a platform different from our standards or platform, then our competitive position would be negatively affected.

The market for identity solutions is still developing. The evolution of this market may result in the development of different technologies and industry standards that are not compatible with our current solutions, products or technologies.

Several organizations set standards for biometrics to be used in identification and documentation. Although we believe that our biometric technologies comply with existing standards, these standards may change and any standards adopted could prove disadvantageous to or incompatible with the our business model and current or future solutions, products and services.

Our software products may contain defects which will make it more difficult for us to establish and maintain customers.

Although we have completed the development of our core biometric technology, it has only been used by a limited number of business customers. Despite extensive testing during development, our software may contain undetected design faults and software errors, or “bugs” that are discovered only after it has been installed and used by a greater number of customers. Any such defect or error in new or existing software or applications could cause delays in delivering our technology or require design modifications. These could adversely affect our competitive position and cause us to lose potential customers or opportunities. Since our technologies are intended to be utilized to secure physical and electronic access, the effect of any such bugs or delays will likely have a detrimental impact on us. In addition, given that biometric technology generally, and our biometric technology specifically, has yet to gain widespread acceptance in the market, any delays would likely have a more detrimental impact on our business than if we were a more established company.

While we have commenced a significant sales and marketing effort, we have only begun to develop a significant distribution channel and may not have the resources or ability to sustain these efforts or generate any meaningful sales.

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In order to generate revenue from our biometric products, we are dependent upon independent original equipment manufacturers, system integrators and application developers, which we do not control. As a result, it may be more difficult to generate sales.

We market our technology through licensing arrangements with:

● Original equipment manufacturers, system integrators and application developers which develop and market products and applications which can then be sold to end users; and

● Companies which distribute goods, services or software applications over the Internet.

As a technology licensing company, our success will depend upon the ability of these manufacturers and developers to effectively integrate our technology into products and services which they market and sell. We have no control over these licensees and cannot assure you that they have the financial, marketing or technical resources to successfully develop and distribute products or applications acceptable to end users or generate any meaningful revenue for us. These third parties may also offer the products of our competitors to end users.

We face intense competition and may not have the financial and human resources necessary to keep up with rapid technological changes, which may result in our technology becoming obsolete.

The Internet, facility access control and information security markets are subject to rapid technological change and intense competition. We compete with both established biometric companies and a significant number of startup enterprises as well as providers of more traditional methods of access control. Most of our competitors have substantially greater financial and marketing resources than we do and may independently develop superior technologies, which may result in our technology becoming less competitive or obsolete. We may not be able to keep pace with this change. If we are unable to develop new applications or enhance our existing technology in a timely manner in response to technological changes, we will be unable to compete in our chosen markets. 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 depend on key employees and members of our management team, including our Chairman of the Board and Chief Executive Officer, in order to achieve our goals. We cannot assure you that we will be able to retain or attract such persons.

Our consulting contract with Thomas J. Colatosti, our Chairman of the Board, expired in December 2011. Mr. Colatosti continues, however, to assist us in the areas of strategic planning and corporate finance. In addition, our employment contract with Michael W. DePasquale, our Chief Executive Officer, expires in March each year, and renews automatically for successive one year periods unless we provide notice of non-renewal. Although the contract does not prevent him from resigning, it does contain confidentiality and non-compete clauses which are intended to prevent him 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. 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.

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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. 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. Over the last few years, the U.S. Patent 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. 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. 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. 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. Such litigation could result in substantial costs and diversion of our resources, including diverting the time and effort of our senior management, and could disrupt our business, as well as have a material adverse effect on our business, prospects, financial condition and results of operations. We can provide no assurance that we will have the financial resources to oppose any actual or threatened infringement by any third party. Furthermore, any patent or copyrights that we may be granted may be held by a court to infringe on the intellectual property rights of others and subject us to the payment of damage awards.

We may be subject to claims with respect to the infringement of intellectual property rights of others, which could result in substantial costs and diversion of our financial and management resources.

Third parties may claim that we are infringing on their intellectual property rights. We may violate the rights of others without our knowledge. We may expose ourselves to additional liability if we agree to indemnify our customers against third party infringement claims. While we know of no basis for any claims of this type, the existence of and ownership of intellectual property can be difficult to verify and we have not made an exhaustive search of all patent filings. Additionally, most patent applications are kept confidential for twelve to eighteen months, or longer, and we would not be aware of potentially conflicting claims that they make. We may become subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternative technology or obtain other licenses. 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. In addition, in the event that we recruit employees from other technology companies, including certain potential competitors, and these employees are used 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. If any such claims were to arise in the future, litigation or other dispute resolution procedures might be necessary to retain our ability to offer our current and future services, which could result in substantial costs and diversion of our financial and management resources. Successful infringement or licensing claims against us may result in substantial monetary damages, which may materially disrupt the conduct of our business and have a material adverse effect on our reputation, business, financial condition and results of operations. Even if intellectual property claims brought against us are without merit, they could result in costly and time consuming litigation, and may divert our management and key personnel from operating our business.

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If we are unable to effectively protect our intellectual property rights on a worldwide basis, we may not be successful in the international expansion of our business.

Access to worldwide markets depends in part on the strength of our intellectual property portfolio. There can be no assurance that, as our business expands into new areas, we will be able to independently develop the technology, software or know-how necessary to conduct our business or that we can do so without infringing the intellectual property rights of others. To the extent that we have to rely on licensed technology from others, there can be no assurance that we will be able to obtain licenses at all or on terms we consider reasonable. The lack of a necessary license could expose us to claims for damages and/or injunction from third parties, as well as claims for indemnification by our customers in instances where we have a contractual or other legal obligation to indemnify them against damages resulting from infringement claims. With regard to our own intellectual property, we actively enforce and protect our rights. However, there can be no assurance that our efforts will be adequate to prevent the misappropriation or improper use of our protected technology in international markets.

We face inherent product liability or other liability risks that could result in large claims against us.

We have inherent risk of exposure to product liability and other liability claims resulting from the use of our products, especially to the extent customers may depend on our products in public safety situations that may involve physical harm or even death to individuals, as well as exposure to potential loss or damage to property. Despite quality control systems and inspection, there remains an ever-present risk of an accident resulting from a faulty manufacture or maintenance of products, or an act of an agent outside of our or our supplier’s control. Even if our products perform properly, we may become subject to claims and costly litigation due to the catastrophic nature of the potential injury and loss. A product liability claim, or other legal claims based on theories including personal injury or wrongful death, made against us could adversely affect operations and financial condition. Although we may have insurance to cover product liability claims, the amount of coverage may not be sufficient.

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We expect that we will need to obtain additional financing to execute our business plan, which may not be available. If we are unable to raise additional capital or generate significant revenue, we may not be able to continue operations.

Since our inception, we have not generated significant, recurring revenue and have experienced substantial losses.

In February 2013, we raised additional capital of approximately $500,000 from certain private and institutional investors and $900,000 from DRNC Holdings, Inc. (“DRNC”) through a combination of debt and equity. In July 2013, we raised additional capital of approximately $1,050,000 from certain private investors through sales of our equity securities.

If we are unable to generate sufficient revenue to cover operating expenses and fund our business plan, we will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute our plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. We may, therefore, need to obtain additional financing through the issuance of debt or equity securities.

We cannot assure you that we will ever be able to secure any such additional financing on terms acceptable to us or at all. If we cannot obtain such financing, we will not be able to execute our business plan, will be required to reduce operating expenses, and in the extreme case, discontinue operations.

We may not achieve sustainable profitability with respect to the biometric component of our business if we are unable to maintain, improve and develop the wireless data services we offer.

We believe that our future business prospects depend in part on our ability to maintain and improve our current services and to develop new ones on a timely basis. Our services will have to achieve market acceptance, maintain technological competitiveness, and meet an expanding range of customer requirements. 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. 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. 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.

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We granted a blanket security interest in all of our assets to the holder of our secured debt. If we are unable to make our required payments on such debt, or any other event of default occurs, it could have a material adverse effect on our business and operations, and the debt holders may foreclose on our assets.

As part of our secured debt financing transactions, we granted to the holder of such secured debt a blanket security interest in all of our assets, including assets of our subsidiary. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. In the event we default in payment on such debt, or any other event of default occurs under the relevant financing documents, and the default is not cured, 100% of the outstanding principal amount of the secured note, plus accrued interest and fees, will accelerate and be due and payable in full.

The cash required to pay such accelerated amounts on the secured notes following an event of default would most likely come out of our working capital. As we rely on our working capital for our day to day operations, we may have insufficient funds to satisfy such amount, and can be forced to restructure, file for bankruptcy, sell assets or cease operations, all of which would have a material adverse effect on our business, operating results or financial condition. In addition, upon an event of default, the holder of the secured debt could foreclose on our assets or exercise any other remedies available to them, including taking possession of and selling our intellectual property or other assets. If our assets were foreclosed upon, we would most likely be forced to file for bankruptcy or cease operations; stockholders may not receive any proceeds from disposition of our assets and may lose their entire investment in our stock.

Our obligations to the holder of our outstanding secured note may adversely affect our ability to enter into potential significant transactions with other parties.

We will need to obtain the consent of the holder of our secured note before we can take certain actions, including the issuance of any loan or debt secured by our assets. Accordingly, unless we obtain such consent, we may not be able to enter into certain transactions.

Our business could be negatively impacted by security threats, including cybersecurity threats, and other disruptions.

As a technology company, we face various security threats, including cybersecurity threats to gain unauthorized access to sensitive information. Although we utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing. If any of these events were to materialize, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities, essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.

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Cybersecurity attacks in particular are evolving and include but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. These events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability.

Risks Related To Our Common Stock

We have issued a substantial number of securities that are convertible into shares of our common stock which could result in substantial dilution to the ownership interests of our existing stockholders.

As of the date of this prospectus, approximately 17,312,278 shares of our common stock were reserved for issuance upon exercise or conversion of the following securities (at conversion prices applicable as at March 31, 2013):

● 14,180,597 shares upon exercise of outstanding stock options and warrants; and

● 3,131,681 shares upon exercise of options available for future grant under our existing option plans.

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.

Applicable SEC Rules governing the trading of “penny stocks” limits the trading and liquidity of our common stock, which may adversely affect the trading price of our common stock and the ability to sell our shares.

Our common stock currently trades on the OTC Bulletin Board. Since our common stock continues to trade below $5.00 per share, our common stock is considered a “penny stock” and is subject to SEC rules and regulations, which impose limitations upon the manner in which our shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.

We expect to raise additional funds in the future through issuances of securities and such additional funding may be dilutive to stockholders or impose operational restrictions.

We expect that we will need to raise additional capital in the future to help fund our operations through sales of shares of our common stock or securities convertible into shares of our common stock, as well as issuances of debt. Such additional financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants which may limit our operating flexibility. If additional capital is raised through the issuance of shares of our common stock or securities convertible into shares of our common stock, the percentage ownership of existing stockholders will be reduced. These stockholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.

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Because we do not expect to pay dividends for the foreseeable future, investors seeking cash dividends should not purchase shares of common stock.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their shares, after price appreciation, which may never occur, as the only way to realize any return on their investment. Investors seeking cash dividends should not purchase our shares.

Provisions of our certificate of incorporation, bylaws and Delaware law may make a contested takeover of our Company more difficult.

Certain provisions of our certificate of incorporation, bylaws and the General Corporation Law of the State of Delaware ("DGCL") could deter a change in our management or render more difficult an attempt to obtain control of us, even if such a proposal is favored by a majority of our stockholders. For example, we are subject to the provisions of the DGCL that prohibit a public Delaware corporation from engaging in a broad range of business combinations with a person who, together with affiliates and associates, owns 15% or more of the corporation’s outstanding voting shares (an "interested stockholder") for three years after the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Our certificate of incorporation also includes undesignated preferred stock, which may enable our board of directors to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise. Finally, our bylaws include an advance notice procedure for stockholders to nominate directors or submit proposals at a stockholders meeting. Delaware law and our charter may therefore inhibit a takeover.

The trading price of our common stock may be volatile.

The trading price of our shares has from time to time fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth in this prospectus as well as our operating results, financial condition, announcements of innovations or new products by us or our competitors, general conditions in the biometrics and access control industries, and other events or factors. Although we believe that approximately 15 registered broker dealers currently make a market in our common stock, we cannot assure you that any of these firms will continue to serve as market makers or have the financial capability to stabilize or support our common stock. A reduction in the number of market makers or the financial capability of any of these market makers could also result in a decrease in the trading volume of and price of our shares. In recent years broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. Such broad market fluctuations may adversely affect the future-trading price of our common stock.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this prospectus contains certain forward-looking statements. All statements other than statements of historical facts contained or incorporated by reference in this prospectus, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “will,” “may,” “future,” “plan,” “intend” and “expect” and similar expressions generally identify forward-looking statements. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Although we believe that our plans, intentions and expectations reflected in the forward-looking statements are reasonable, we cannot be sure that they will be achieved. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: our history of losses and limited revenue; our ability to raise additional capital; infringement on our intellectual property; changes in business conditions; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; security breaches; competition between us and other companies in the biometric technology industry; market acceptance of our products under development; delays in the development of products and statements of assumption underlying any of the foregoing, as well as other factors set forth under the caption “Risk Factors” on page 2 of this prospectus. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this prospectus are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “Risk Factors” on page 2 of this prospectus. The following should be read in conjunction with our audited financial statements included elsewhere herein.

Overview

We were founded in 1993 as a fingerprint biometric technology company. Biometric technology is the science of analyzing specific human characteristics which are unique to each individual in order to identify a specific person from a broader population.

We develop and market advanced fingerprint biometric identification and identity verification technologies, cryptographic authentication-transaction security technologies, as well as related identity management and credentialing software solutions. We were pioneers in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit card, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing.  Advanced BIO-key® technology has been and is used to improve both the accuracy and speed of competing finger-based biometrics.

In partnerships with OEMs, integrators, and solution providers, we provide biometric software solutions to private and public sector customers.  We provide the ability to positively identify and authenticate individuals before granting access to valuable corporate resources, web portals or applications in seconds.  Powered by our patented Vector Segment Technology™ our VST™, WEB-key® and BSP development kits are fingerprint biometric solutions that provide true interoperability with all major reader manufacturers, enabling application developers and integrators to seamlessly integrate fingerprint biometrics into virtually any application. 

We have developed what we believe is the most discriminating and effective commercially available finger-based biometric technology. Our primary focus is in marketing and selling this technology into commercial logical and physical privilege entitlement and access control markets.  Our primary market focus includes mobile payments and credentialing, online payments and credentialing, and healthcare record and payment data security, among other things.  Our secondary focus includes government markets, primarily law enforcement forensic investigation and the Department of Homeland Security.

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We continue to research and develop advancements in our capabilities, as well as exploring and developing potential strategic relationships, including potential business combinations and acquisitions, which could help us leverage our capability to deliver our solutions. We have built a direct sales force of professionals, and also team with resellers, integrators and partner networks with substantial experience in selling technology solutions to government and corporate customers.

Strategic Outlook

Historically, our largest market has been access control within highly regulated industries such as healthcare.  However, we believe the mass adoption of advanced smart-phone and hand-held wireless devices have caused commercial demand for advanced user authentication to emerge as viable.  The introduction of smart-phone capabilities, like mobile payments and credentialing, could effectively require biometric user authentication on mobile devices to reduce risks of identity theft, payment fraud and other forms of fraud in the mobile or cellular based World Wide Web. As more services and payment functionalities, like mobile wallets and near field communication (NFC), migrate to smart-phones, the value and potential risk associated with such systems should grow and drive demand and adoption of advanced user authentication technologies, including fingerprint biometrics and BIO-key solutions.

We believe there is potential for significant market growth in three key areas:

● Corporate network access control, including corporate campuses, computer networks and applications;

● Consumer mobile credentialing, including mobile payments, credit and payment card programs, data and application access, and commercial loyalty programs; and.

● Government services and highly regulated industries, including Medicare, Medicaid, Social Security, drivers licenses, campus and school ID, passports/visas.

In the near-term, we expect to grow our business within the government services and  highly-regulated industries which we have historically had a strong presence, such as the healthcare industry.  We believe that continued heightened security and privacy requirements in these industries will generate increased demand for security solutions, including biometrics.

Over the longer term, we intend to expand our business into the Cloud and mobile computing industries. The emergence of Cloud computing and mobile computing are primary drivers of commercial and consumer adoption of advanced authentication applications, including biometric and BIO-key authentication capabilities.  As the value of assets, services and transactions increases on such networks, we expect that security and user authentication demand will rise proportionately.

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RESULTS OF OPERATIONS 

Comparison of the Three-Month Periods Ended March 31, 2013 and 2012

Percent Trend

	Three Months Ended March 31,
	2013			2012
Revenues
Services		34	%		28	%
License fees and other		66	%		72	%
Total Revenues		100	%		100	%
Costs and other expenses
Cost of services		5	%		9	%
Cost of license fees and other		10	%		4	%
Total Cost of Goods Sold		15	%		13	%
Gross profit		85	%		87	%
Operating expenses
Selling, general and administrative		91	%		43	%
Research, development and engineering		33	%		18	%
Total Operating Expenses		124	%		61	%
Operating (loss) income		-38	%		26	%
Other income (expenses)		-1	%		0	%
Net (loss) income		-39	%		26	%

Revenues and cost of goods sold

	Three months ended
	March 31,
	2013		2012		$ Change			% Change
Revenues
Service	$	276,960		395,854	$	(118,894	)		-30	%
License & other		527,683		1,014,573		(486,890	)		-48	%
Total Revenue	$	804,643	$	1,410,427	$	(605,784	)		-43	%
Cost of goods sold
Service	$	40,715		124,017		(83,302	)		-67	%
License & other		77,098		57,413		19,685			34	%
Total COGS	$	117,813	$	181,430	$	(63,617	)		-35	%

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Revenues

For the three months ended March 31, 2013 and 2012, service revenues were $276,960 and $395,854, respectively, a decrease of $118,894, or 30%.  The decrease is due to lower non-recurring custom services revenue of approximately $120,000.  Recurring maintenance and support revenue remained relatively constant at $174,000 as compared to $173,000 during the three months ended March 31, 2012.

For the three months ended March 31, 2013, license and other revenue (comprised of third party hardware and royalty) decreased as a result of several contributing factors.  Core software license revenue decreased by approximately $545,000, or 60%, primarily as a result of no new large implementation in a blood center in 2013. For the three months ended March 31, 2013 and 2012, we continued to ship products to McKesson Corporation for the continued deployment of our identification technology in its AccuDose® product line, and for continued expansion of biometric ID deployments with commercial partners ChoicePoint /LexisNexis, Educational Biometric Technology, and Identimetrics. Third-party hardware sales increased by approximately $57,000, or 78%, due to continued expansions from existing customers.  Our royalty income for the three months ended March 31, 2013 and 2012 was derived primarily from an OEM agreement and increased from approximately $25,000 to approximately $26,000.

Costs of goods sold

For the three months ended March 31, 2013 cost of service decreased approximately $83,000 as a result of reduced costs associated with lower non-recurring custom services revenue. For the three months ended March 31, 2013, license and other costs increased $19,685 as a result of increases in third party hardware and third party license costs.

Selling, general and administrative

	Three months ended
	March 31,
	2013		2012		$ Change		% Change
Selling, general and administrative	$	732,076	$	604,884	$	127,192		21	%

Selling, general and administrative costs for the three months ended March 31, 2013 increased 21% from the corresponding period in 2012.  The increase was related to fees associated with  the InterDigital agreements, personnel costs and factoring fees, offset by a decrease in channel marketing expense related to decreased non-recurring custom services revenue, and a decrease in commission expense related to lower revenue.

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Research, development and engineering

	Three months ended
	March 31,
	2013		2012		$ Change		% Change
Research, development and engineering	$	262,809	$	254,487	$	8,322		3	%

For the three months ended March 31, 2013, research, development and engineering costs increased 3% from the corresponding period in 2012 as a result of additional temporary outside services, offset by reduced travel and reduced share-based compensation expenses.

Other income and expense

	Three months ended
	March 31,
	2013			2012			$ Change			% Change
Interest expense	$	(7,524	)	$	(6,128	)	$	(1,396	)		23	%

Interest expense during the three months ended March 31, 2013 was comprised of accrued interest on promissory notes issued in 2010 and 2013 (see Note 5 to our March 2013 financial statements contained elsewhere in this report), and the amortized portion of the deferred financing costs for the promissory note issued in 2013. Interest expense for the three months ended March 31, 2012 consisted of accrued interest on the promissory note issued in 2010.

Cash Flows

Net cash used for operations during the three months ended March 31, 2013 was approximately $607,000 which includes a one-time fees of approximately $133,000 related to the transactions with DRNC. The cash used in operating activities was primarily attributable to the following items:

● Positive cash flows related to an decrease in accounts receivable of approximately $156,000 due to one large order received and paid for in the first quarter and approximately $96,000 in payments received from factored receivables; and

● Negative cash flows related to a decrease in accounts payable and accrued expenses of approximately $490,000, attributable to working capital management, an increase in prepaid expenses of approximately $34,000, attributable to retaining specialized consultants, and a decrease of approximately $41,000 in deferred revenue.

Net cash provided by financing activities during the three months ended March 31, 2013 was approximately $975,000 from the following activities :

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● Positive cash flow from the issuance of 9,026,935 shares of common stock for an aggregate purchase price of $902,693 and the issuance of a 2013 note payable in the principal amount of $497,307; and

● Negative cash flows of $321,000 from the repayment of a 2010 note payable and approximately $46,000 for the one-time fees associated with the stock issuance and approximately $57,000 for one-time fees associated with the 2013 note payable.

Net working capital deficit at March 31, 2013 was approximately $443,000 as compared to approximately $1,447,000 at December 31, 2012. The improvement was driven mainly by the financing activities in the first quarter of 2013.

Comparison of Years Ended December 31, 2012 and 2011

Two Year % trend

	Years ended December 31,
	2012			2011
Revenues
Services		29	%		24	%
License fees and other		71	%		76	%
		100	%		100	%
Costs and other expenses
Cost of services		6	%		5	%
Cost of license fees and other		9	%		18	%
		15	%		23	%
Gross Profit		85	%		77	%
Operating expenses
Selling, general and administrative		59	%		86	%
Research, development and engineering		25	%		32	%
		84	%		118	%
Operating income (loss)		1	%		-41	%
Other income (deductions)
Total other income (deductions)		-1	%		-13	%
Net income (loss)		0	%		-54	%

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Revenues and Costs of goods sold

					2012 - 2011
	2012		2011		$ Chg			% Chg
Revenues
Service	$	1,094,731	$	848,483	$	246,248			29	%
License & other		2,741,162		2,660,321		80,841			3	%
Total Revenue	$	3,835,893	$	3,508,804	$	327,089			9	%
Cost of goods sold
Service	$	221,027	$	159,223	$	61,804			39	%
License & other		350,706		651,236		(300,530	)		-46	%
Total COGS	$	571,733	$	810,459	$	(238,726	)		-29	%

Revenues

For the years ended December 31, 2012 and 2011, service revenues included approximately $688,000 and $680,000, respectively, of recurring maintenance and support revenue, and approximately $407,000 and $168,000, respectively, of non-recurring custom services revenue.  Non-recurring service revenue increased 142% from 2011 to 2012 as the Company completed services for a large custom contract and continued to provide custom services deployed to different sites from a legacy customer.

For the year ended December 31, 2012, license and other revenue (comprised of third party hardware and royalty income) increased as a result of several contributing factors.  The Company realized an approximate $441,000 increase (27%) from 2011 to 2012 in its core software license revenue from both new and existing customers. The percentage of license and other revenue as a proportion of total revenue decreased from 76% to 71%, due to the relative increase in service revenue from 24% to 29% of total revenue. Third-party hardware sales decreased by approximately $381,000 (41%) from 2011 to 2012 primarily as a result of smaller deployments from new customers in the healthcare industry, who required initial start-up investments in hardware, in addition to expanding deployments from existing customers and other OEM requirements.  Depending on the size and the timing requirements of the customers’ software deployment roadmap, hardware purchases may be solely within the initial software order, or, as with our OEM partners in the healthcare industry, a recurring activity. McKesson continued their deployment of our identification technology in their AccuDose® product line, and our partners Allscripts, Medflow, ChoicePoint/LexisNexis, Educational Biometric Technology and Identimetrics all continued expansion of biometric ID deployments. The Company’s royalty income for the year ended December 31, 2012 was derived from a December 2009 OEM agreement, and resulted in a 22% increase in revenue of approximately $94,000 to $116,000 from 2011 to 2012. The Company expects this revenue stream to be recurring.

Costs of goods sold

For the year ended December 31, 2012, cost of services increased from 2011 due to costs associated with the increased non-recurring custom services, as well as customer support, as needed for the expanding customer base.  The Company expects these costs will increase in future periods as additional Biometric customers are added and non-recurring custom services increase with diversification of markets.

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For the year ended December 31, 2012, cost of license and other decreased from 2011 due to the decrease in third party hardware costs commensurate with the decrease in hardware orders discussed in the “Revenues” section above. This was the main reason behind the increase in the Company’s gross margin to 85% from 77% over the two year period.

Selling, general and administrative

					2012 - 2011
	2012		2011		$ Chg			% Chg
Total	$	2,288,903	$	3,036,299	$	(747,396	)		-25	%

Selling, general and administrative costs decreased 25% for the year ended December 31, 2012 as compared to the same period 2011.   Reductions included a reversal of a bad debt expense related to a contract whose payments were behind schedule for $377,000 in 2012, which was expensed in 2011, a decrease in personnel fees of approximately $233,000 and marketing related expenses of $50,000. The decreases were offset by an increase in legal and settlement fees for litigation filed by Blue Spike, LLC of approximately $208,000.

Research, development and engineering

					2012 - 2011
	2012		2011		$ Chg			% Chg
Total	$	947,371	$	1,116,658	$	(169,287	)		-15	%

For the year ended December 31, 2012, R & D costs decreased as compared to 2011, primarily related to consultant expenses for the development of a new software application completed in 2011, and not continued into 2012. The Company expects to continue to devote similar funding to its R & D function as it further develops new features to its product suite.

Other income and expense

							2012 - 2011
	2012			2011			$ Chg			% Chg
Interest income	$	7		$	95,033		$	(95,026	)		-100	%
Interest expense		(24,626	)		(411,527	)		386,901			-94	%
Income tax		—			(26,500	)		26,500			-100	%
Net discounts of notes payable and receivable		—			(100,000	)		100,000			-100	%
	$	(24,619	)	$	(442,994	)	$	418,375			-94	%

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Interest income for the fiscal year ended 2011 was attributable to the note receivable received for the sale of the Law Division, which was fully paid in May 2011.

Series D Convertible Preferred Stock, accrued and unpaid dividends thereon and convertible debt issued in prior periods was converted to two notes payable, one note which was discounted as a result of the issuance of detachable warrants associated with the conversion. For 2011, the amortization of the discount, which was included in interest expense in the Statements of Operations, was attributable to the Note Payable.   Interest expense for the fiscal year ended 2011 was comprised of approximately $104,000 owing to the holders of the notes payable and approximately $308,000 in non-cash amortization of the discount attached to the Notes.

The interest expense for the fiscal year ended 2012 in the above table was attributable to the note payable, of which approximately $321,000 remained outstanding as of December 31, 2012.

For the year ended December 31, 2011, the net discounts of notes payable and receivable were non-cash items with respect to the value of the net early payment discount granted to the holder of the note receivable.

For the year ended December 31, 2011, income taxes were comprised of federal alternative minimum tax and minimum state taxes.  For the year ended December 31, 2012, the Company incurred a taxable loss.

Cash Flows 

Net cash provided by operations during the year ended December 31, 2012 was approximately $66,000. The cash provided by operating activities of continuing operations was primarily used to fund operations.  Other items of note were as follows:

● Positive cash flows related to a decrease in accounts receivable of approximately $360,000, due to a large payment received in the third quarter of 2012, offset by a non-cash reduction in the allowance for doubtful accounts for this customer. During 2012, the Company also established a receivable balance of approximately $190,000 due from the Factor (See below), which was received in early 2013.

● Positive cash flows from an increase of approximately $161,000 in accounts payable and accrued liabilities, comprising of obligations for third party hardware shipped, delayed vendor payments due to cash management strategies and unpaid accrued commissions.

● The Company recorded approximately $50,000 of charges in 2012 for the expense of issuing options to employees for services.

There were no cash flows under investing activities during the year.

Net cash used for financing activities of $25,000 was due to a principal payment against the secured note.

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Net working deficit at December 31, 2012 was approximately $1,447,000 as compared to a deficit of approximately $1,540,000 at December 31, 2011. The change was due to the steady improvement in the operations of the business.

LIQUIDITY AND CAPITAL RESOURCES

Since January 7, 1993 (date of 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. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution.

The following sets forth our primary sources of capital during the previous two years:

Effective December 31, 2010, Thomas Colatosti (“Colatosti”), our Chairman of the Board agreed to exchange all of his outstanding shares of Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 in the original principal amount of $64,878, for a new non-convertible 7% Secured Promissory Note in the original principal amount of $350,804 (the “Colatosti Note”). In February 2013, the principal balance and accrued interest owing under the Colatosti Note was repaid in full from the proceeds of the financing with InterDigital described below.

On February 26, 2013, we issued a promissory note in the principal amount of $497,307 to DRNC (the “InterDigital Note”). The InterDigital Note accrues interest at a rate of 7% per annum, with a default rate of 9% per annum while a nonpayment default is continuing, matures on December 31, 2015, is secured by all of our tangible and intangible assets, and is subject to acceleration upon an event of default. Commencing July 1, 2013, we are required to comply with certain financial covenants, including a leverage ratio covenant and an annual limit on capital expenditures other than in the ordinary course of business. A portion of the proceeds from the sale of the InterDigital Note was used to repay the Colatosti Note in full, with the remaining proceeds to be used for general corporate purposes. At March 31, 2013, $497,307 remained payable under the InterDigital Note.

On February 26, 2013, we issued 4,026,935 shares of common stock to DRNC for an aggregate purchase price of $402,963. DRNC has anti-dilution rights that require us to issue additional shares to DRNC on a full-ratchet basis if, within the nine months following February 26, 2013, we sell or issue any common stock or common stock equivalents (other than sales or issuances to directors, officers, employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect of our common stock) at a purchase, exercise or conversion price per share less than $0.10.

On February 26, 2013, we also issued 5,000,000 shares of common stock to a limited number of investors for an aggregate purchase price of $500,000.

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On July 23, 2013, we issued 3,500,006 shares of common stock and warrants to purchase an additional 3,500,006 shares of common stock for aggregate gross proceeds of $1,050,000. The warrants have an exercise price of $0.40 per share and expire five years after the date of grant.

As of December 2011, we entered into a 24-month accounts receivable factoring arrangement with a financial institution (the “Factor”). Pursuant to the terms of this arrangement, from time to time, we sell to the Factor certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor remits 75% of the accounts receivable balance to us (the “Advance Amount”), with the remaining balance, less fees payable by us, once the Factor collects the full accounts receivable balance from the customer. Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice. In April 2012, the terms were updated from monthly to quarterly, and the 24-month arrangement was extended to August 1, 2014. We expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements.

Liquidity outlook

At March 31, 2013, our total cash and cash equivalents were approximately $452,000, as compared to approximately $84,000 at December 31, 2012.

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 recently through factoring receivables. We currently require approximately $390,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation. During the first quarter of 2013, we generated approximately $805,000 of revenue, which is below our average monthly requirements.

If we are unable to generate sufficient revenue to meet our goals, we will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute our plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. Therefore, we may need to obtain additional financing through the issuance of debt or equity securities, or to restructure our financial position through transactions similar to those consummated during the 2009 to 2013 period.

Due to several factors, including our history of losses and limited revenue, our independent auditors have included an explanatory paragraph in their opinion related to our annual financial statements as to the substantial doubt about our ability to continue as a going concern. Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing. 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. 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 continue as a going concern.

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OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2013, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

CRITICAL ACCOUNTING POLICIES

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this prospectus.

We believe that of our significant accounting policies, which are described in Note A of the notes to our consolidated financial statements included in this prospectus, the following accounting policies involve a greater degree of judgment and complexity. 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.

1. Revenue Recognition

Revenues from software licensing are recognized in accordance with ASC 985-605, “Software Revenue Recognition.” Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

We intend to enter into arrangements with end users for items which may include software license fees, and services or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain.

Multiple-Element Arrangements: For multiple-element arrangements, we apply the residual method in accordance with ASC 985-605. The residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its VSOE of fair value and subsequently recognized as the service is delivered. The difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements, which is generally the software license. VSOE of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately. VSOE of fair value for support services is additionally determined by the renewal rate in customer contracts. We have established VSOE of fair value for support as well as consulting services.

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License Revenues: Amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met.

Revenue from licensing software, which requires significant customization and modification, is recognized using the percentage of completion method, based on the hours of effort incurred by us in relation to the total estimated hours to complete. In instances where third party hardware, software or services form a significant portion of a customer’s contract, we recognize revenue for the element of software customization by the percentage of completion method described above. Otherwise, third party hardware, software, and services are recognized upon shipment or acceptance as appropriate. If we make different judgments or utilize different estimates of the total amount of work expected to be required to customize or modify the software, the timing and revenue recognition, from period to period, and the margins on the project in the reporting period, may differ materially from amounts reported. Anticipated contract losses are recognized as soon as they become known and are estimable.

Service Revenues: Revenues from services are comprised of maintenance and consulting and implementation services. Maintenance revenues include providing for unspecified when-and-if available product updates and customer telephone support services, and are recognized ratably over the term of the service period. Consulting services are generally sold on a time-and-materials basis and include a range of services including installation of software and assisting in the design of interfaces to allow the software to operate in customized environments. Services are generally separable from other elements under the arrangement since performance of the services are not essential to the functionality of any other element of the transaction and are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services. Revenues from services are generally recognized as the services are performed.

We provide customers, free of charge or at a minimal cost, testing kits which potential licensing customers may use to test compatibility/acceptance of our technology with the customer’s intended applications.

Costs and other expenses: Includes professional compensation and other direct contract expenses, as well as costs attributable to the support of client service professional staff, depreciation and amortization costs related to assets used in revenue-generating activities, and other costs attributable to serving our client base. Professional compensation consists of payroll costs and related benefits including stock-based compensation and bonuses. Other direct contract expenses include costs directly attributable to client engagements, such as out-of-pocket costs including travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors. The allocation of lease and facilities charges for occupied offices is included in costs of service.

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We account for our warranties under the FASB ASC 450 “Contingencies.” We generally warrant that our products are free from defects in material and workmanship for a period of one year from the date of initial delivery to our customers. The warranty does not cover any losses or damage that occurs as a result of improper installation, misuse or neglect or repair or modification by anyone other than us or its authorized repair agent. Our policy is to accrue anticipated warranty costs based upon historical percentages of items returned for repair within one year of the initial sale. Our repair rate of products under warranty has been minimal, and a historical percentage has not been established. Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe upon a third party’s intellectual property rights. We have not provided for any reserves for warranty liabilities as it was determined to be immaterial.

2. Impairment or Disposal of Long Lived Assets, including Intangible Assets

We review our long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, we must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, we may be required to record impairment charges. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. We did not record any impairment charges in any of the years presented.

3. Research and Development Expenditures

Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.

4. Income Taxes

The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Due to our historical performance and estimated future taxable income, a full valuation allowance has been established.

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5. Accounting for Stock-Based Compensation

We account for share based compensation in accordance with the provisions of ASC 718-10, “Compensation — Stock Compensation,” which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The majority of our share-based compensation arrangements vest over either a three or four year vesting schedule. We expense our share-based compensation under the ratable method, which treats each vesting tranche as if it were an individual grant. The fair value of stock options is determined using the Black-Scholes valuation model, and requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected option term”), the estimated volatility of our common stock price over the option’s expected term, the risk-free interest rate over the option’s expected term, and our expected annual dividend yield. Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized as an expense in the consolidated statements of operations. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the service period, net of estimated forfeitures (the number of individuals that will ultimately not complete their vesting requirements). The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates.

BUSINESS

Overview

We were founded in 1993 to develop and market advanced fingerprint biometric technology and related security software solutions. First incorporated as BBG Engineering, we were renamed SAC Technologies in 1994 and, again, renamed BIO-key International, Inc. in 2002.

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We develop and market advanced fingerprint biometric identification and identity verification technologies, cryptographic authentication-transaction security technologies, as well as related identity management and credentialing software solutions. We were pioneers in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit card, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been and is used to improve both the accuracy and speed of competing finger-based biometrics.

We have developed what we believe is the most discriminating and effective commercially available finger-based biometric technology. Our primary focus is in marketing and selling this technology into commercial logical and physical privilege entitlement and access control markets. Example primary markets include mobile payments & credentialing, online payments and credentialing, and healthcare record and payment data security, among other things. Our secondary focus includes government markets, primarily law enforcement forensic investigation and the Department of Homeland Security. We continue to research and develop advancements in our capabilities, as well as exploring and developing potential strategic relationships, including potential business combinations and acquisitions, which could help us leverage our capability to deliver our solutions. We have built a direct sales force of professionals, and also team with resellers, integrators and partner networks with substantial experience in selling technology solutions to government and corporate customers.

Products

Finger-based Biometric Identification and Personal Identity Verification

We are a leader in finger-based biometric identification and personal identity verification, as well as authentication-transaction security. Stand-alone, or in partnerships with OEMs, integrators, and solution providers, we provide biometric software solutions and authentication-transaction security solutions to private and public sector customers. We help customers reduce risk by providing the ability to control access to things and services, in either the logical or physical domain. Our capabilities positively identify individuals and verify, or confirm, their identity before granting access to valuable corporate resources, privileged or subscribed data and services, web portals, applications, physical locations or assets, among other things. Our capabilities are software based and both hardware and operating-system agnostic.

We do not develop, manufacture or produce hardware components that are used in conjunction with our software. However, we do sell third-party hardware components with our software in various configurations required by our customers, as do our partners. Our products are interoperable with all major fingerprint reader and hardware manufacturers, enabling application developers, Value Added Resellers (“VARs”) and channel partners to seamlessly integrate our fingerprint biometrics into virtually any application, while dramatically reducing maintenance, upgrade and life-cycle costs. Our core technology supports interoperability on over 60 different commercially available fingerprint readers. The technology is also interoperable across Windows and Linux, as well as Apple iOS and Android mobile operating systems. This interoperability is unique in the industry and a key differentiator for our products in the biometric market and, in our opinion, makes our technology more viable than competing technologies and expands the size of the overall market for our products.

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Our biometric identification technology improves both the accuracy and speed of screening individuals, for identification purposes or for personal identity verification, by extracting unique data from a fingerprint and comparing it to existing similar fingerprint data. These comparisons are conducted to identify an individual, either in a forensic investigation or to screen the individual upon the application for a privilege, or to verify the individual’s identity upon the individuals request to access the previously entitled privilege. The technology has been built to be completely scalable and can handle databases containing millions of fingerprints. We achieve the highest levels of discrimination without requiring any other identifying data (multi-factor) such as a userID, smart ID cards, or tokens, although our technology can be used in conjunction with such additional factors.

We support industry standards, like BioAPI, and have received National Institute of Standards and Technology independent laboratory certification of our ability to support Homeland Security Presidential Directive #12 (HSPD-12) and ANSI/INCITS-378 templates, as well as validation of our fingerprint match speed and accuracy in large database environments.

Our finger identification algorithm—Vector Segment Technology (VST™) is the core intellectual property behind our full suite of biometric products that include:

● Vector Segment Technology SDK (VST)—Our biometric software development kit (“SDK”) that provides developers the ability to incorporate our biometric capabilities into their respective product offerings or infrastructure. VST is available as a low level SDK for incorporation into any application architecture to increase security while not sacrificing convenience. VST runs on Windows and Linux as well as within WEB-key on iOS and Android systems.

● Intelligent Image Indexing®—Our biometric identification solution that offers both large-scale one-to-many user identification. This solution enables customers to perform false alias and fast entry checks, including preventing fraudulent access to systems and privileges. Intelligent Image Indexing scales identification capabilities from thousands to millions of users. The solution runs on commercially available hardware making it truly scalable for any size system.

● Biometric Service Provider—We provide support for the BioAPI (a standards-based solution meeting worldwide needs) for a compliant interface to applications using biometrics for verification and identification. We enhance the traditional use of BioAPI by adding support 64-bit support and other advanced features, supporting identification calls and also providing a single user interface for multiple fingerprint readers.

● ID Director™—Our Single Sign On (SSO) is a suite of solutions for integration with CA Technologies SiteMinder, Oracle’s Fusion Middleware SSO, IBM Tivoli Access Manager and other solutions, utilizing the power and security of WEB-key. This solution provides a simple to implement, custom authentication scheme for companies looking to enhance authentication. ID Director can easily add a level of security and convenience to the transaction level of any application.

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Authentication Transaction Security

Our authentication-transaction security technology, WEB-key®, provides the ability to conduct identification and identity verification transactions in potentially insecure environments, including the World Wide Web or in off-site cloud environments.

WEB-key makes cloud-based biometric user-authentication viable and eliminates technology constraints on online service providers, who are otherwise held dependent on handset provider hardware and software platform decisions. It extends all features and functionalities of the VST algorithm to customers looking to add an enhanced level of security to their thin client and client/server applications. WEB-key currently is supported by both Windows and Linux operating systems. Clients are available on Windows, iOS and Android operating systems.

Intellectual Property Rights

We develop and own significant intellectual property and believe that our intellectual property is fundamental to our biometric operation:

Patents

We own patented technologies and trade secrets developed or acquired by us.

In May 2005, the U.S. Patent & Trademark Office issued patent 6,895,104 for our Vector Segment fingerprint technology (VST), BIO-key’s core biometric analysis and identification technology.

On October 3, 2006, we announced that our patent for a biometric authentication security framework had been granted by the U.S. Patent & Trademark Office. The patent No. 7,117,356 was issued to us for a biometric authentication security framework that enhances commercial and civil biometric use. Our authentication security framework protects privacy and security of cloud or network based authentications while also facilitates ease of use of biometric systems. The technology that this patent is based on is the foundation for the authentication security incorporated in our WEB-key® product line. WEB-key is a mature enterprise authentication solution that functions in a wide variety of application environments. The solution supports a variety of implementation alternatives including card technologies for “two-factor” authentication and also supports “single-factor” authentication. Partners and customers implementing our WEB-key software to provide convenient and secure user identity include a number of institutions including the Allscripts Healthcare Solutions, Computer Associates Site Minder, Oracle Access Manager and many other enterprise and solutions based systems.

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On December 26, 2006, we were issued US patent No. 7,155,040 covering our unique image processing technology, which is critical for enhancing information used in the extraction of biometric minutiae. The issued patent protects a critical part of an innovative four-phase image enhancement process developed by us.

On April 15, 2008, we were issued US patent No. 7,359,553 covering our image enhancement and data extraction core algorithm components. The solution protected under this patent provides the capability to quickly and accurately transform a fingerprint image into a computer image that can be analyzed to determine the critical data elements.

On August 19, 2008, we were issued US patent No. 7,415,605 for our “Biometric Identification Network Security” method. The solution protected under this patent provides a defense against hackers and system attacks, while leveraging the industry standard Trusted Platform Module (TPM) specification for encryption key management.

On November 18, 2008, we were issued US patent No. 7,454,624 for our “Match Template Protection within a Biometric Security System” method. The solution protected under this patent limits the scope of enrollment templates usage and also eliminates the need for revocation or encryption processes, which can be expensive and time consuming.

On March 10, 2009, we were issued US patent No. 7,502,938 for our “Trusted Biometric Device” which covers a simple, yet secure method of protecting a user’s biometric information. It covers the transmission of information from the point the information is collected at the biometric reader until the data reaches the computer or device that is authenticating the user’s identity.

On May 26, 2009, we were issued US patent No. 7,539,331 for our “Image Identification System” method for improving the performance and reliability of image analysis within an image identification system.

On November 8, 2011, we were issued US Patent No 8,055,027 for our “Generation of Directional Information in the Context of Image Processing” method for image enhancement and processing.

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.

We have also been granted parallel patents to the US Patent portfolio to certain of our patents in many foreign countries offering protection of our intellectual property rights around the world.

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Trademarks

We have registered our trademarks “BIO-key”, “True User Identification”, “Intelligent Image Indexing” and “WEB-key” with the U.S. Patent & Trademark Office, as well as many foreign countries, protecting our companies name and key technology offering names world-wide.

Copyrights and trade secrets

We take measures to ensure copyright and license protection for our software releases prior to distribution. When possible, the software is licensed in an attempt to ensure that only licensed and activated software functions to its full potential. We also take measures to protect the confidentiality of our trade secrets.

Markets

Identity Management, User Authentication, Privilege Entitlement and Access Control

Our products reduce risk of theft, fraud, loss and attack by limiting access to valuable assets, privileges, data, services, networks and places, to only authorized individuals. Conversely, our products enhance the monetary value and/or viability of privileged assets, places and services by ensuring only subscribers and otherwise entitled holders can enjoy full access to their privileges. In effect, our products replace traditional credentialing systems, which utilize a physical or electronic credential document to represent the holder’s privilege entitlement, and access control systems that guard access to such privileges. Examples of such privileges include, but are not limited to: international travel and immigration privileges; employment ID, campus ID and corporate ID privileges; healthcare service privileges; citizen Entitlement privileges such as Medicare, Medicaid and Social Security; and bank, credit account and financial transaction privileges such as checking accounts, debit and credit cards, payments, online services and subscription privileges. Examples of access points include doorways, gates, computers, point-of-sale terminals, smart-phones or web-portals and automobiles. In our opinion, the market for advanced user authentication, including fingerprint biometrics, is conceptually enormous, represented by virtually any doorway, gate and computer network or internet end-point like smart-phones, desktop and laptop PC and tablets, compounded by the number of individuals privileged to access something guarded by those access points. We believe the market opportunity for our products is a massive upgrade cycle of global privilege entitlement and access control systems.

Historically, our largest market has been access control within highly regulated industries like healthcare. However, we believe the mass adoption of advanced smart-phone and hand-held wireless devices have caused commercial demand for advanced user authentication to emerge as viable. The introduction of smart-phone capabilities, like mobile payments and credentialing, could effectively require biometric user authentication on mobile devices to reduce risks of identity theft, payment fraud other forms of fraud in the mobile or cellular based World Wide Web. As more services and payment functionalities, like mobile wallets and NFC, migrate to smart-phones, the value and potential risk associated with such systems should grow substantially and drive demand and mass adoption of advanced user authentication technologies like fingerprint biometrics and our solutions.

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We believe there is potential for significant market growth in three key areas:

● Corporate network access control- Corporate campuses, computer networks and applications.

● Consumer mobile credentialing, including mobile payments- Credit and payment card programs, data and application access and commercial loyalty programs.

● Government services and highly regulated industry- Medicare, Medicaid, Social Security, Drivers Licenses, Campus and School ID, Passports/Visas.

Business Model

We believe the most viable markets for our products involve various forms of computer network and Internet applications. The emergences of cloud computing and mobile computing are primary drivers of commercial and consumer adoption of advanced authentication applications, including our authentication capabilities. As the value of assets, services and transactions increases on such networks, we expect that security and user authentication demand will rise proportionately. We believe the nature of cloud and mobile computing requires technology interoperability across borders, jurisdictions and networks. Further, government and highly regulated service offerings must also interoperate across borders, jurisdictions and networks. In many cases, government and highly regulated service-related technologies are required to be interoperable and standards compliant. We have developed our technology and offerings to be software-based, standards compliant, universally interoperable, hardware and operating system agnostic and scalable. Our technologies, products and platforms are designed to function on the Internet, in the cloud or in a traditional network environment or stand-alone. We believe our model provides the strongest opportunity to penetrate the global biometric authentication market, leverage partners potentially large and resource rich sales channels, as well as produce the highest margin revenue.

We have built a two-tier sales channel to deliver our solutions. Channels include direct sales, integrator partners and VARs. We sell stand-alone software licenses for our products, as well as in packaged configurations with “commercial-off-the-shelf” viable third-party hardware devices, like fingerprint readers and network technologies. We do not develop or produce proprietary hardware products. Our technologies also work with a variety of proprietary, sole-source technology offerings from third-party vendors. We believe our technologies can work within the constraints of any customer or partner system design. We are exploring a subscription or Software as a Service (SaaS) model for our software.

Direct Sales, Licensing, Integrator and VAR Partnerships

Our products are software based and we typically license our software to end users directly, or through integrator and VAR partners. Our primary sales and marketing focus is to integrate our software into the platform offerings of large technology infrastructure producers. We employ dedicated staff to develop relationships with end-users and integrator partners. We further employ technical support staff who help customers integrate our technology into their applications, as well as support new strategic development efforts.

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We have formed strategic relationships with large Internet and network infrastructure providers, including IBM, Oracle, Microsoft, CA Technologies and Indigo, to provide enterprise-ready systems to large enterprise customers and stakeholders. We have also established partnerships with leading technology integrators, like MorphoTrak, McKesson, LexisNexis, Allscripts, Epic, Caradigm, Identimetrics and HealthCast.

On February 26, 2013, we entered into a strategic partnership with Interdigital Corporation to jointly develop and market biometric authentication solutions for the mobile credentialing & payments markets.

Competition

In addition to companies that provide existing commonplace methods of restricting access to facilities and logical access points such as pass cards, PIN numbers, passwords, locks and keys, there are numerous companies involved in the development, manufacturing and marketing of fingerprint biometrics products to commercial, government, law enforcement and prison markets. These companies include, but are not limited to, 3M (Cogent), NEC, and MorphoTrak.

The majority of sales for automated fingerprint identification products in the market to date have been deployed for government agencies, healthcare facilities and law enforcement applications. The consumer and commercial markets represent areas of significant growth potential for biometrics, led by the use of mobile devices.

The epidemic of security and data breaches reported over the past few years is one of the driving factors for identifying new methods of protecting valuable data. After attempting to create a more sophisticated password or more efficient token or PIN, it’s become apparent that each of these methods is easily compromised and the downside risks are significant.

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;

● Palmvein scanning is expensive, technique-sensitive and offers mobility challenges;

● Iris scanning is viewed as accurate, but the hardware is significantly more expensive; and

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● Facial recognition can have accuracy limitations and is typically highly dependent on ambient lighting conditions, angle of view and other factors.

Research and Development

We concentrate our research and development efforts on enhancing the functionality, reliability and integration of our current products as well as developing new and innovative products for biometrics. Although we believe that our identification technology is one of the most advanced and discriminating fingerprint technologies available today, the markets in which we compete are characterized by rapid technological change and evolving standards. In order to maintain our position in the market, we will continue to upgrade and refine our existing technologies.

On February 26, 2013, we announced that we entered into a Research and Development Collaboration Agreement (the “R&D Collaboration”) with InterDigital Communications, Inc., a subsidiary of InterDigital, Inc. (“InterDigital”), a wireless research and development company, InterDigital is also the parent company of DRNC, which provided debt and equity financing to us in February 2013. The R&D Collaboration will target advanced cloud security and identity and access management solutions for the mobile market. The R&D Collaboration will bring together our innovative research and product development capabilities in fingerprint biometrics with InterDigital’s research efforts in developing identity and access management solutions for the mobile market.

During the fiscal years ended December 31, 2012 and 2011, we spent approximately $947,000 and $1,117,000 respectively, on our biometric segment’s research, development and engineering. Our limited customer base during that time did not directly bear these costs, which were principally funded through outside sources of equity and debt financing.

Government Regulations

We are not currently subject to direct regulation by any government agency, other than regulations generally applicable to businesses or related to specific project requirements. In the event of any international sales, we would be subject to various domestic and foreign laws regulating such exports and export activities.

Environmental Regulations

As of the date of this prospectus, we have not incurred any material expenses relating to our compliance with federal, state, or local environmental laws and do not expect to incur any material expenses in the foreseeable future.

Employees and Consultants

As of July 23, 2013, we employed fifteen (15) individuals on a full-time basis as follows - five in engineering, customer support, research and development; three in finance and administration; and seven in sales and marketing. We also use the services of one full-time consultant, who provides engineering and technical services, one part-time contracts administrator, and one part-time sales support person.

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Properties

We do not own any real estate. We conduct operations from leased premises in Eagan, Minnesota (5,544 square feet), Wall, New Jersey (4,179 square feet) and North Billerica, Massachusetts (shared services center). We believe our current facilities are adequate for the foreseeable future.

Legal Proceedings

In the normal course of business, we periodically become involved in litigation. Currently, we are not a party to any pending litigation that would have a material adverse effect on our financial position, results of operations or cash flows.

MANAGEMENT

The following chart sets forth certain information about each of our directors and executive officers.

Name	Age	Positions Held
Thomas J. Colatosti	65	Chairman of the Board of Directors
Michael W. DePasquale	58	Chief Executive Officer and Director
Jeffrey J. May	53	Director
Charles P. Romeo	71	Director
John Schoenherr	60	Director
Cecilia Welch	53	Chief Financial Officer
Mira K. LaCous	51	Vice President of Technology & Development
Renat Zhdanov	50	Vice President, Chief Scientist
Scott Mahnken	53	Vice President of Marketing

Directors

We believe that our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe that experience, qualifications, or skills in the following areas are most important: legal/regulatory and government affairs; accounting and finance; design, innovation and engineering; strategic planning; and human resources and development practices; and board practices of other corporations. These areas are in addition to the personal qualifications described in this section. We believe that our current board member possesses the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for this board member below. The principal occupation and business experience, for at least the past five years, of our current director is as follows:

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Thomas J. Colatosti has served as a Director since September 2002, as Chairman of the Board since January 3, 2003, and as Chief Financial Officer from November 17, 2008 to December 21, 2009. Mr. Colatosti also served as Co-Chief Executive Officer of the Company from July 2005 to August 2006. Mr. Colatosti also currently serves as the Chief Executive Officer of American Security Ventures, a Lexington, Massachusetts-based consulting firm he founded which specializes in providing strategic management consulting services to emerging and developing companies in the homeland security industry. Since November 2010, Mr. Colatosti has been serving as a President and CEO of Oasis Systems LLC, a privately held IT services company. From August 2009 to December 2012, Mr. Colatosti has served as Chairman of Commodore Advanced Sciences Corporation an environmental services and remediation company. From August 18, 2005 until August 18, 2008 Mr. Colatosti served as Director and President of Good Harbor Partners Acquisition Corp., a publicly-traded special purpose acquisition company formed to acquire businesses in the security sectors. From 1997 through June 2002, Mr. Colatosti served as the Chief Executive Officer of Viisage Technology, Inc., a publicly traded biometric technology company. Between 1995 and 1997, Mr. Colatosti served as President and Chief Executive Officer of CIS Corporation. Prior to CIS, Mr. Colatosti had a 21 year career with Digital Equipment Corporation (now HP Corporation). Among his executive positions, he was Vice President and General Manager of the company’s $1.2 billion Government Systems Division. Mr. Colatosti is a seasoned technology executive with global experience in operating both private as public corporations in the technology sector.

Michael W. DePasquale has served as our Chief Executive Officer and a Director since January 3, 2003. He served as Co-Chief Executive Officer of the Company from July 2005 to August 2006. Mr. DePasquale brings more than 27 years of executive management, sales and marketing experience to the Company. Prior to joining us, Mr. DePasquale served as the President and Chief Executive Officer of Prism eSolutions, Inc., a Pennsylvania-based provider of professional consulting services and online solutions for ISO-9001/14000 certification for customers in manufacturing, healthcare and government markets, since February 2001. From December 1999 through December 2000, Mr. DePasquale served as Group Vice President for WRC Media, a New York-based distributor of supplemental education products and software. From January 1996 until December 1999, Mr. DePasquale served as Senior Vice President of Jostens Learning Corp., a California-based provider of multimedia curriculum. Prior to Jostens, Mr. DePasquale held sales and marketing management positions with McGraw-Hill and Digital Equipment Corporation. Mr. DePasquale earned a Bachelor of Science degree from the New Jersey Institute of Technology. He serves on the Board of Directors and as Treasurer of the International Biometrics and Identification Industry Association. Mr. DePasquale has extensive general management experience in the technology sector and has served as a Director for number of non-profit organizations and private companies.

Jeffrey J. May has served as a Director since October 29, 2001. Since 1997, Mr. May has served as the President of Gideons Point Capital, a Minnesota-based investment and consulting firm focusing on assisting start-up technology companies. Mr. May served as the CEO and Director of MagnaLynx, a semiconductor company specializing in high speed chip level communications from December 2006 until the company was sold in March 2010. In 1983, Mr. May co-found Advantek, Inc., a manufacturer of equipment and materials for the semiconductor industry, which was sold in 1993. Mr. May continued to serve as a director and Vice-President of Operations of Advantek until 1997, when it had over 600 employees and sales in excess of $100 million. Mr. May earned a Bachelor of Science degree in Electrical Engineering from the University of Minnesota in 1983. Mr. May is an entrepreneur who brings extensive international technical and general business management experience to our Board of Directors.

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Charles P. Romeo has served as a Director since February 28, 2005 and from January 29, 2003 to April 19, 2004. From April 2004 until February 2005, he served as our Vice President of Sales, Public Safety Division. From November 2005 to November 2007, Mr. Romeo served as the Vice President of Sales and Marketing for UNICOM, a Rhode Island systems integrator. From September 2002 until April 2004 Mr. Romeo was the President and Chief Executive Officer of FreedomBridge Technologies, Inc., a Rhode Island-based consulting firm to technology companies in the homeland security industry specializing in implementing direct and channel selling programs, strategic alliances and partnerships in the law enforcement market. Prior to founding FreedomBridge, Mr. Romeo had a 33 year sales and marketing management career with Digital Equipment Corporation, Compaq Computer Corporation and Hewlett Packard. During his career, Mr. Romeo served as Vice President of Service Sales for a $500 million business unit, and Director of Public Sector Sales for a $275 million division of Hewlett Packard. Mr. Romeo authored The Sales Manager’s Troubleshooter, Prentice Hall 1998, which was named as one of the “top 10 must reads” by Sales and Marketing Magazine. Mr. Romeo earned a Bachelor of Science degree in Mathematics and Economics from the University of Massachusetts and an Executive MBA from Babson College. Mr. Romeo has significant sales and marketing Management experience in the infrastructure and computer hardware and software industries.

John Schoenherr has served as a Director since December 30, 2004. Mr. Schoenherr served as Vice President of Corporate Performance Management for Oracle Corporation from 1995 through 2006. Prior to Oracle he served as Senior Vice President of Business Intelligence and Analytics at Information Resources, Inc. Mr. Schoenherr has over 25 years of experience in the area of business intelligence and strategic planning. His career includes a number of product development and management positions. Mr. Schoenherr has extensive product management and information services experience in both the large and small enterprise sectors.

Executive Officers

Cecilia Welch has served as our Chief Financial Officer of the Company since December 21, 2009. Ms. Welch joined us in 2007 as our Corporate Controller. Prior to joining us, from January 2006 to December 2006, she was the Controller for Savaje Technologies (acquired by Sun Microsystems), a developer of advanced mobile telephone software. From October 2004 to January 2006, she was Controller for Crystal Systems, a manufacturer of sapphire crystals used for industrial, semiconductor, defense and medical applications. From December 1988 to July 2004, she was the Controller for ATN Microwave (acquired by Agilent Technologies), a manufacturer of automated test equipment. Ms. Welch has a Bachelor’s degree in Accounting from Franklin Pierce University.

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Mira K. Lacous has served as our Vice President of Technology & Development since May 15, 2000. In 2012, Ms. LaCous was promoted to Senior Vice President of Technology and Development. Ms. LaCous has over 28 years of product/project management, solution architecture, software development, team leadership and customer relations experience with a background that includes successfully bringing numerous technologies to market, including automated voice response systems, automated building control systems, software piracy protection, intranet training materials and testing, page layout and design software, image scanning software and systems, biometric security, biometric algorithms and more. Ms. LaCous is also the author of six US patented technologies, multiple international patents, and other patent pending solutions. She has been an officer or director of two other companies; National Computer Systems (NCS), and TEL-Line Systems. Ms. LaCous has a Bachelor’s in Computer Science from North Dakota State University. Ms. LaCous also served on the Board of Directors of the Minnesota Sinfonia, a not-for-profit arts and education organization, as well as its chairperson for two years.

Renat Z. Zhdanov has served as our Chief Scientist since November 2001. He has over fifteen years of academic experience in various fields of mathematics and physics; fifteen years of image processing, pattern recognition, and big data analysis algorithm development experience and more than ten years of software development experience ranging from database programming to statistical and analytical programming. Dr. Zhdanov is a recognized expert in mathematical physics and is the author of two books and more than 130 papers published in leading mathematics and physics journals. Before joining us, he worked as Chief Mathematician and Visiting Scientist in universities in Ukraine, Germany, Great Britain, Sweden and Spain. Dr. Zhdanov has two PhD degrees in Mathematical Physics and Differential Equations from the Institute of Mathematics in Kiev, Ukraine. He serves as the member of the Editorial Board of the “Journal of Applied Mathematics”.

Scott Mahnken has served as our Vice President of Marketing since February 2011. He brings over 20 years of marketing experience and success through strategic marketing and building dynamic relationships with channel partners. Prior to joining us, from August 2009 until February 2011, he was President of Edge Marketing, a leading marketing consulting firm in the dental and medical devices industries. From February 2008 until August 2009, Mr. Mahnken served as Director of Marketing at Milestone Scientific Inc., a manufacturer of computer controlled anesthetic delivery medical devices. From August 2002 until January 2008, he served as Director of Partnership Relations at ArcMesa Educators, an organization dedicated to providing accredited continuing education to medical and dental providers. Prior to ArcMesa, Mr. Mahnken held a number of marketing roles with the Lanmark Group a leading healthcare advertising agency. Mr. Mahnken is a graduate of the University of New Orleans, where he earned a Bachelor’s of Art degree in Marketing.

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EXECUTIVE COMPENSATION

The following table provides certain summary information concerning compensation earned by the executive officers named below during the fiscal year ended December 31, 2012.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)		Option Awards ($) (1)		All Other Compensation ($)		Total ($)
Michael W. DePasquale	2012		259,324		-0-		739		260,063
Chief Executive Officer	2011		226,504		-0-		449		226,953
Mira K. LaCous	2012		142,092		-0-		545		142,637
Vice President Technology & Development	2011		134,018		8,340		266		142,624
Scott Mahnken	2012		124,680		-0-		499		125,179
Vice President -- Marketing	2011		102,527		11,120		154		113,801

⁽¹⁾ Represents the grant date fair value of the award, calculated in accordance with FASB Accounting Standard Codification 718, "Compensation-Stock Compensation," or ASC 718. A summary of the assumptions made in the valuation of these awards is provided in our notes to consolidated financial statements beginning on page F-8 of this prospectus.

Narrative Disclosure to Summary Compensation Table

Compensation for our executives is comprised of three main components: base salary, annual performance-based cash bonus and long-term equity awards. We do not target a specific weighting of these three components or use a prescribed formula to establish pay levels. Rather, the Board of Directors and Compensation Committee considers changes in the business, external market factors and our financial position each year when determining pay levels and allocating between long-term and current compensation for the named executive officers.

Cash compensation is comprised of base salary and an annual performance-based cash bonus opportunity. The committee generally seeks to set a named executive officer’s targeted total cash compensation opportunity within a range that is the average of the applicable peer company and/or general industry compensation survey data, adjusted as appropriate for individual performance and internal pay equity and labor market conditions.

In setting cash compensation levels, we favor a balance in which base salaries are generally targeted at slightly below the peer average and a bonus opportunity that is targeted at slightly above the average. The committee believes that this higher emphasis on performance-based cash bonuses places an appropriate linkage between a named executive officer’s pay, his or her individual performance and the achievement of specific business goals by placing a higher proportion of annual cash compensation at risk, thereby aligning executive opportunity with the interests of stockholders.

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We include an equity component as part of our compensation package because we believe that equity-based compensation aligns the long-term interests of our named executive officers with those of stockholders.

These cash and equity compensation components of pay are supplemented by various benefit plans that provide health, life, accident, disability and severance benefits, most of which are the same as the benefits provided to all of our US based employees.

Employment Agreements

On March 26, 2010, we entered into an employment agreement, effective as of March 25, 2010, with Michael W. DePasquale to serve as our Chief Executive Officer until March 24, 2011. The agreement automatically renews for subsequent one-year terms, unless the employment relationship is terminated by either party, or modified in accordance with the terms and conditions of the agreement. Under the agreement, Mr. DePasquale will be paid an annual base salary of $250,000, subject to adjustment by the Board or Compensation Committee. In addition to the base salary, a performance bonus may be awarded to Mr. DePasquale if we achieve certain corporate and strategic performance goals, as determined by the Board in its sole discretion. The employment agreement contains standard and customary confidentiality, non-solicitation and “work made for hire” provisions as well as a covenant not to compete which prohibits Mr. DePasquale from doing business with any of our current or prospective customers or engaging in a business competitive with us during the term of his employment and for the one year period thereafter. This agreement also contains a number of termination and change in control provisions as described in “Termination Arrangements” and “Change in Control Provisions” below.

On November 20, 2012, we renewed our one-year employment agreement with Mira K. LaCous to serve as our Vice President of Technology & Development at an annual base salary of $147,420, subject to adjustment by the Board or Compensation Committee. The employment agreement contains standard and customary confidentiality, technical invention provisions, as well as a covenant not to compete which prohibits Ms. LaCous from doing business with any of our current or prospective customers or engaging in a business competitive with us during the term of her employment and for the one year period thereafter. This agreement also contains a number of termination provisions as described in “Termination Arrangements” below.

Stock Option Grants

In the event of any change in the outstanding shares of our common stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board deems to be similar circumstances, the number and kind of shares subject to outstanding options, and the exercise price of such options shall be appropriately adjusted in a manner to be determined in the sole discretion of the board. Furthermore, these option agreements contain a change of control provision as described in “Change in Control Provisions” in below.

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Outstanding Equity Awards at Fiscal Year End

The following table sets forth for each named executive officer information regarding outstanding equity awards as at December 31, 2012:

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price ($)		Option Expiration Date
Michael W. DePasquale		500,000		-0-			0.087	2/27/16
Mira LaCous		75,000		-0-			0.18	8/13/15
		340,000		-0-			0.46	1/7/17
		25,000		50,000	(1)		0.14	5/11/18
Scott Mahnken		33,333		66,667	(1)		0.14	5/11/18

⁽¹⁾These options vest in three equal annual installments commencing on May 11, 2012.

Narrative Disclosure to Outstanding Equity Awards at Fiscal Year End Table

The following are the material terms of each agreement, contract, plan or arrangement that provide for payments to one or more of our named executive officers at, following or pursuant to their resignation, retirement or termination, or in connection with a change in control of the Company.

Termination Arrangements

Our employment agreement with Mr. DePasquale automatically renews for subsequent one-year terms, unless the employment relationship is terminated by either party, or modified in accordance with the terms and conditions of the Agreement. We may terminate the Agreement at any time with or without cause. In the event of termination by us without cause, we will continue to pay Mr. DePasquale his then current base salary for the greater of nine months from the date of such termination or the number of months remaining until the end of the term of the Agreement.

We may terminate our employment agreement with Ms. LaCous at any time with or without cause. In the event of termination by us without cause, we will continue to pay Ms. LaCous her then current base salary for six months from the date of such termination.

Change in Control Provisions

Our 1999 Stock Option Plan and 2004 Stock Incentive Plan (the “1999 Plan” and together with the 2004 Plan, the “Plans”) provide for the acceleration of the vesting of unvested options upon a “Change in Control.” A Change in Control is defined in the Plans to include (i) a sale or transfer of substantially all of our assets; (ii) our dissolution or liquidation; (iii) a merger or consolidation to which we are a party and after which our prior stockholders hold less than 50% of the combined voting power of the surviving corporation’s outstanding securities; (iv) the incumbent directors cease to constitute at least a majority of the Board of Directors; or (v) a change in control which would otherwise be reportable under Section 13 or 15(d) of the Exchange Act.

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In the event of a Change in Control, each Plan provides for the immediate vesting of all options issued thereunder. The 1999 Plan provides for us to deliver written notice to each optionee fifteen (15) days prior to the occurrence of a Change in Control during which all options issued under the 1999 Plan may be exercised. Thereafter, all options issued under the 1999 Plan which are neither assumed or substituted in connection with such transaction, automatically expire unless otherwise determined by the Board. The 2004 Plan enables the Board to provide that all outstanding options be assumed, or equivalent options be substituted by the acquiring or succeeding corporation upon the occurrence of a “Reorganization Event” as defined in such Plan. If such Reorganization Event also constitutes a Change in Control, then such assumed or substituted options shall be immediately exercisable in full. If the acquiring or succeeding corporation does not agree to assume, or substitute for such options, then the Board, upon written notice to the Participants, may provide that all unexercised options become exercisable in full as of a specified time prior to the Reorganization Event and terminate prior to the consummation of the Reorganization Event. Alternatively, if under the terms and conditions of the Reorganization Event, holders of common stock will receive a cash payment for their shares, then the Board may provide that all Participants receive a cash payment equal to the difference between the Acquisition Price and the Option Price multiplied by the number of options held by such Participants.

Options issued to executive officers outside of the Plans contain change in control provisions substantially similar to those contained in the 1999 Plan.

Our employment agreement with Mr. DePasquale contains a change in control provision that is triggered if Mr. Depasquale is not offered continued employment with us or any successor, or within five years following such Change of Control, we or any successor terminates Mr. Depasquale’s employment without cause. If this occurs, then we will pay Mr. Depasquale his base salary and benefits earned but unpaid through the date of termination, and any prorated bonus earned during the then current bonus year, plus two times his then current base salary.

Director Compensation

We did not provide any compensation to our directors in 2012. We reimburse each of our non-employee directors for their reasonable expenses incurred in connection with attending meetings of the board of directors and related committees.

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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of July 24, 2013, information with respect to the securities holdings of all persons that we have reason to believe, pursuant to filings with the SEC, may be deemed the beneficial owner of more than 5% of our outstanding common stock. The following table also sets forth, as of such date, the beneficial ownership of our common stock by all executive officers and directors, individually and as a group.

The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of July 24, 2013 upon the exercise or conversion of any options, warrants or other convertible securities. Unless otherwise indicated, each person or entity named below has sole voting and investment power with respect to all common stock beneficially owned by that person or entity, subject to the matters set forth in the footnotes to the table below, and has an address of c/o BIO-Key International, Inc., 3349 Highway 138, Building D, Suite B, Wall, NJ 07719.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership (1)			Percentage of Class (1)
Thomas J. Colatosti		500,241	(2)		*
Michael W. DePasquale		550,000	(3)		*
Mira LaCous		465,000	(4)		*
Jeffrey May		305,481	(5)		*
John Schoenherr		198,930	(5)		*
Renat Zhdanov		153,333	(6)		*
Charles P. Romeo		132,620	(5)		*
Cecilia Welch		120,000	(7)		*
Scott Mahnken		66,666	(8)		*
All officers and directors as a group (9 persons)		2,492,271	(9)		2.69	%

* Less than 1%.

⁽¹⁾This table has been prepared based on 90,699,595 shares of our common stock outstanding on July 24, 2013.

⁽²⁾ Includes 165,241 shares issuable on exercise of options. Does not include 50,000 shares issuable upon exercise of options subject to vesting.

⁽³⁾Includes 500,000 shares issuable upon exercise of options. Does not include 1,000,000 shares issuable upon exercise of options subject to vesting.

⁽⁴⁾ Consists of shares issuable upon exercise of options. Does not include 150,000 shares issuable upon exercise of options subject to vesting.

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⁽⁵⁾ Consists of shares issuable upon exercise of options. Does not include 50,000 shares issuable upon exercise of options subject to vesting.

⁽⁶⁾ Consists of shares issuable upon exercise of options. Does not include 116,667 shares issuable upon exercise of options subject to vesting.

⁽⁷⁾ Consists of shares issuable upon exercise of options. Does not include 200,000 shares issuable upon exercise of options subject to vesting.

⁽⁸⁾ Consists of shares issuable upon exercise of options. Does not include 108,334 shares issuable upon exercise of options subject to vesting.

⁽⁹⁾ Includes 2,107,271 shares issuable upon exercise of options. Does not include 1,775,001 shares issuable upon exercise of options subject to vesting.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Employment Arrangements

We have entered into employment agreements with Michael W. DePasquale, and Mira LaCous. See “Employment Agreements” above.

Director Independence

The Board applies the definition of independent director as set forth in NASDAQ Stock Market Rule 5605 (a)(2), as well as Rule 10A-3 under the Securities Exchange Act of 1934, as amended.

In accordance with this rule, the Board has determined that Messrs. May, Schoenherr and Romeo are independent. Messrs. May and Schoenherr are the members of our Audit Committee, while Messrs. Schoenherr and Romeo are the members of our Compensation Committee.

DESCRIPTION OF SECURITIES

The following summary of our capital stock, our certificate of incorporation, our bylaws and the DGCL is intended as a summary only and is subject to and qualified in its entirety by reference to our certificate of incorporation and bylaws, and the applicable provisions of the DGCL.

Common Stock

We are authorized to issue 170,000,000 shares of common stock, $.0001 par value per share, of which 90,699,595 shares were outstanding on the date of this prospectus. Holders of shares of our common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders and are not entitled to cumulative voting rights. Our shares of our common stock do not carry any preemptive, conversion or subscription rights, and there are no sinking fund or redemption provisions applicable to the shares of our common stock. Holders of our common stock are entitled to receive dividends and other distributions in cash, stock or property as may be declared by our Board of Directors from time to time out of our assets or funds legally available for dividends or other distributions, subject to dividend or distribution preferences that may be applicable to any then outstanding shares of preferred stock. In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of shares of our common stock are entitled to share ratably in the assets legally available for distribution to stockholders after payment of all debts and other liabilities and satisfaction of the liquidation preference, if any, granted to the holders of any preferred stock then outstanding. All outstanding shares of our common stock are fully paid and nonassessable.

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Preferred Stock

We are authorized to issue 5,000,000 shares of preferred stock, $.0001 par value per share, of which no shares are outstanding on the date of this prospectus. Our certificate of incorporation authorizes our Board of Directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law, the authorized shares of preferred stock will be available for issuance without further action by you. Our Board of Directors is able to determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, including, without limitation:

● the designation of the series;

● the number of shares of the series, which our Board of Directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding);

● whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;

● the dates at which dividends, if any, will be payable;

● the redemption rights and price or prices, if any, for shares of the series;

● the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;

● the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of our affairs;

● whether the shares of the series will be convertible into shares of any other class or series, or any other security, of the Company or any other corporation, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;

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● restrictions on the issuance of shares of the same series or of any other class or series; and

● the voting rights, if any, of the holders of the series.

We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium for your common stock over the market price of the common stock. Additionally, the issuance of preferred stock may adversely affect the holders of our common stock by restricting dividends on the common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.

Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation, Our Bylaws and the DGCL

The following provisions of our certificate of incorporation, our bylaws and the DGCL may discourage takeover attempts of us that may be considered by some stockholders to be in their best interest. The effect of such provisions could delay or frustrate a merger, tender offer or proxy contest, the removal of incumbent directors, or the assumption of control by stockholders, even if such proposed actions would be beneficial to our stockholders. Such effect could cause the market price of our common stock to decrease or could cause temporary fluctuations in the market price of our common stock that otherwise would not have resulted from actual or rumored takeover attempts.

Authorized but Unissued Capital Stock

Delaware law does not require stockholder approval for any issuance of authorized shares. Additional shares that may be used in the future may be used for a variety of corporate purposes, including future public offerings, to raise additional capital, to facilitate acquisitions and employee benefit plans.

Our Board of Directors may generally issue preferred shares on terms calculated to discourage, delay or prevent a change of control or the removal of our management. Moreover, our authorized but unissued shares of preferred stock will be available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes.

One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our Board of Directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

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Special Meetings of Stockholders

Our bylaws provide that special meetings of our stockholders may be called only by our Board of Directors. This provision may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of the Company.

Director Vacancies

Our certificate of incorporation provides that any vacancies in our Board of Directors, however occurring, will be filled by a majority of the remaining members of the Board of Directors, even if less than a quorum. This provision may discourage a third party from making a tender offer or otherwise attempting to obtain control of us because the provision effectively limits stockholder election of Directors to annual and special meetings of the stockholders.

Requirements for Advance Notification of Director Nominations and Stockholder Proposals

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors or a committee of the Board of Directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 60 days nor more than 90 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our bylaws also specify requirements as to the form and content of a stockholder’s notice. These provisions may defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of the Company.

No Cumulative Voting

Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our certificate of incorporation does not authorize cumulative voting. Therefore, stockholders holding a majority in voting power of the shares of our stock entitled to vote generally in the election of directors will be able to elect all our directors. 

MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock currently trades on the OTCQB under the symbol “BKYI”. The following table sets forth the range of high and low bid prices for shares of our common stock on the OTCQB for the periods indicated, as reported by the OTC Bulletin Board. Quotations represent inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

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Fiscal Year Ended December 31, 2011	High		Low
Quarter ended March 31, 2011	$	0.19	$	0.14
Quarter ended June 30, 2011	$	0.16	$	0.13
Quarter ended September 30, 2011	$	0.14	$	0.10
Quarter ended December 31, 2011	$	0.14	$	0.06

Fiscal Year Ended December 31, 2012	High		Low
Quarter ended March 31, 2012	$	0.09	$	0.06
Quarter ended June 30, 2012	$	0.11	$	0.06
Quarter ended September 30, 2012	$	0.10	$	0.06
Quarter ended December 31, 2012	$	0.09	$	0.06

Fiscal Year Ending December 31, 2013	High		Low
Quarter ended March 31, 2013	$	0.185	$	0.06
Quarter ending June 30, 2013	$	0.41	$	0.16
Quarter ending September 30, 2013 (through July 23, 2013)	$	0.40	$	0.21

The last reported trading price of our common stock as reported on the OTC Bulletin Board on July 23, 2013 was $0.33 per share. 

Holders

As of July 23, 2013, the number of stockholders of record of our common stock was 128.

Dividends

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 declaration and payment of dividends on our common stock is also subject to the discretion of our Board of Directors and certain limitations imposed under the Delaware General Corporation Law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

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Transfer Agent

The transfer agent for our common stock is Broadridge Corporate Issuer Solutions, Inc., 1717 Arch Street, Suite 1300, Philadelphia, Pennsylvania 19103.

THE OFFERING

This prospectus covers the public sale of 16,026,947 shares of common stock to be sold by the selling security holders identified in this prospectus. This prospectus also covers any additional shares of our common stock that we may issue or that may be issuable by reason of any stock split, stock dividend or similar transaction involving our common stock.

The selling security holders may sell the shares covered by this prospectus through public or private transactions at prevailing market prices or at privately negotiated prices. We will not receive any proceeds from this offering.

Set forth below is a description of the shares of our common stock being registered for resale hereby.

February 2013 Private Offering of Common Stock to DRNC

On February 26, 2013, we issued to DRNC 4,026,935 shares of our common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693.50. This prospectus covers the public resale of the 4,026,935 shares of common stock issued to DRNC.

DRNC has anti-dilution rights which require us to issue additional shares of common stock to such investors if within the nine (9) month period after February 26, 2013 we issue additional shares of common stock (other than to employees, officers, directors or consultants or pursuant to stock dividends) at a purchase price less than $0.10 per share. The number of additional shares issuable is determined on a full ratchet and has the effect of lowering the purchase price in this offering to such lower price.

February 2013 Private Offering of Common Stock to Private Investors

On February 26, 2013, we to certain private investors 5,000,000 shares of our common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000. This prospectus covers the public resale of the 5,000,000 shares of common stock issued to these private investors.

Investors in the February 2013 private offering have anti-dilution rights which require us to issue additional shares of common stock to such investors if within the six (6) month period after February 26, 2013 we issue additional shares of common stock (other than to employees, officers, directors or consultants or pursuant to stock dividends) at a purchase price less than $0.10 per share. The number of additional shares issuable is determined pursuant to a formula based on the number of shares issued at such lower price and the total number of shares outstanding at the time of such issuance calculated on a fully- diluted basis.

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July 2013 Private Offering of Common Stock and Warrants to Private Investors

On July 23, 2013, we issued to certain private investors 3,500,006 units consisting of 3,500,006 shares of our common stock and warrants to purchase an additional 3,500,006 shares of our common stock for an aggregate purchase price of $1,050,000. Each unit had a purchase price of $0.30 and consisted of one share of common stock and one warrant. This prospectus covers the public resale of the 3,500,006 shares of common stock and 3,500,006 shares of common stock underlying the warrants issued to these private investors.

The warrants are immediately exercisable at an exercise price of $0.40 per share at any time prior to July 22, 2018. The exercise price and the number of shares issuable upon exercise of the warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations, and reclassifications of our capital stock, and the warrants immediately terminate upon the sale of all or substantially all of our assets or the acquisition of more than 50% of our voting securities by any person in one or a series of related transactions. The warrants do not confer upon the holders thereof any voting, dividend or other rights as stockholders of our company. As of the date of this prospectus, no warrants have been exercised.

Investors in the July 2013 private offering have anti-dilution rights which require us to issue additional shares of common stock to such investors if within the six (6) month period after July 23, 2013 we issue additional shares of common stock (other than to employees, officers, directors or consultants or pursuant to stock dividends) at a purchase price less than $0.30 per share. The number of additional shares issuable is determined pursuant to a formula based on the number of shares issued at such lower price and the total number of shares outstanding at the time of such issuance calculated on a fully- diluted basis.

SELLING SECURITY HOLDERS

The selling security holders identified in the following table are offering for resale 16,026,947 shares of our common stock. All of the securities were previously issued to the selling security holders in private placement transactions. A description of these transactions is set forth above under “The Offering”.

The following table sets forth as of July 24, 2013:

● The name of each selling security holder and any material relationship between us and such selling security holder based upon information currently available to us;

● The number of shares owned beneficially by each selling security holder before the offering;

● The percentage ownership of each selling security holder prior to the offering;

● The number of shares offered hereunder by each selling security holder;

● The number of shares owned beneficially by each selling security holder after the offering; and

● The percentage ownership of each selling security holder after the offering.

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The information presented in this table has been calculated based on the assumption that all options and warrants will be exercised prior to completion of the offering, that all shares offered hereby will be sold, and that no other shares of our common stock will be acquired or disposed of by the selling security holder prior to the termination of this offering. The beneficial ownership set forth below has been determined in accordance with Rule 13d-3 under the Exchange Act based on 90,699,595 shares of our common stock outstanding on July 24, 2013. Except as indicated by footnote, and subject to applicable community property laws, we believe that the beneficial owners of the common stock listed below have sole voting power and investments power with respect to their shares. None of the selling security holders are affiliated with a broker-dealer registered under the Exchange Act of 1934, as amended.

	Beneficial Ownership of Selling Security Holders Prior to the Offering							Beneficial Ownership of Selling Security Holders After the Offering
Name of Selling Security Holder	Number		Percent			Number of Shares Offered Hereby		Number		Percent
DRNC Holdings, Inc. (1)		4,026,935		4.44	%		4,026,935		-0-		*
REF Securities & Co., L.P. (2)		2,087,200		2.30	%		1,700,000		387,200		*
RIT 22 Trust (3)		1,666,668		1.84	%		1,666,668		-0-		*
Michael Horowitz (4)		866,668		*			866,668		-0-		*
John D. Stout (5)		833,334		*			833,334		-0-		*
Doug Lipton (5)		833,334		*			833,334		-0-		*
Alan Frost (6)		1,400,000		1.54	%		1,200,000		200,000		*
Vladimir Kitaygorodsky (7)		1,166,668		1.29	%		1,166,668		-0-		*
Douglas Friedman		300,000		*			300,000		-0-		*
Pattie Friedman IRA		266,668		*			266,668		-0-		*
Jason Albanese (5)		333,334		*			333,334		-0-		*
Brian Manning (5)		333,334		*			333,334		-0-		*
9 Acre Holdings, LLC (8)		1,333,334		1.47	%		1,333,334		-0-		*
Michael Ellis (4)		166,668		*			166,668		-0-		*
Abraham Kaner (5)		333,334		*			333,334		-0-		*
David Diamond (5)		333,334		*			333,334		-0-		*
Silver Salar Capital, LLC (9)		333,334		*			333,334		-0-		*
TOTAL							16,026,947

* Represents less than one percent (1%) of our outstanding shares.

⁽¹⁾ We currently owe to DRNC $497,307 pursuant to a 7% secured promissory note, which is described in more detail in “Liquidity and Capital Resources” contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The registered shares consist of 4,026,935 shares of our common stock acquired by DRNC on February 26, 2013. DRNC is a subsidiary of Interdigital, Inc., a publicly traded corporation listed on NASDAQ. We currently have a strategic partnership with Interdigital Corporation, a different subsidiary of Interdigital, Inc., to jointly develop and market biometric authentication solutions for the mobile credentialing and payments market.

52

⁽²⁾ Includes 350,000 shares issuable upon the exercise of warrants. Rodd Friedman is the managing partner of REF Securities & Co., L.P. and has sole voting and dispositive power with respect to the shares.

⁽³⁾ Includes 333,334 shares issuable upon the exercise of warrants. Rodd Friedman is the sole trustee of RIT 22 Trust and has sole voting and dispositive power with respect to the shares.

⁽⁴⁾ Includes 83,334 shares issuable upon the exercise of warrants.

⁽⁵⁾ Includes 166,667 shares issuable upon the exercise of warrants.

⁽⁶⁾ Includes 350,000 shares issuable upon the exercise of warrants.

⁽⁷⁾ Includes 333,334 shares issuable upon the exercise of warrants.

⁽⁸⁾  Includes 666,667 shares issuable upon the exercise of warrants. John C. Howe is the managing member of 9 Acre Holdings, LLC and has sole voting and dispositive power with respect to the shares.

⁽⁹⁾ Includes 166,667 shares issuable upon the exercise of warrants. Geoffrey Gold and Vicki Gold are the managing members of Silver Salar Capital, LLC and have shared voting and dispositive power with respect to the shares.

USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock by the selling security holders. We will, however, receive proceeds upon the exercise of any warrants held by the selling security holders. If such warrants are exercised in full, we would receive gross cash proceeds of approximately $1,400,000. Any such proceeds are currently expected to be used for working capital and general corporate purposes. No assurances can be given that any of the warrants will be exercised.

PLAN OF DISTRIBUTION

We are registering all of the shares of common stock offered by this prospectus on behalf of the selling security holders. The selling security holders may sell any or all of the shares, subject to federal and state securities law, but are under no obligation to do so. The selling security holders will act independently of us in making decisions with respect to the timing, manner and size of each sale of the common stock covered hereby.

The selling security holders, or their pledges, donees, transferees or any of their other successors-in-interest, may sell all or a portion of the common stock offered hereby from time to time in one or more transactions directly or through one or more underwriters, brokers, dealers or agents at fixed prices, at market prices prevailing at the time of the sale, at varying prices determined at the time of sale, or at privately negotiated prices. These sales may be effected in any one or more of the following methods:

● cross trades or block trades in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

● purchases by a broker, dealer or underwriter as principal and resale by such broker, dealer or underwriter for its own account pursuant to this prospectus;

53

● an exchange distribution in accordance with the rules of any stock exchange on which the securities may be listed;

● ordinary brokerage transactions and transactions in which the broker solicits purchases;

● privately negotiated transactions;

● short sales;

● through the writing of options, swaps or other derivatives on the securities, regardless of whether the options, swaps or derivatives are listed on an exchange;

● through the distribution of the securities by any selling security holder to its partners, members or stockholders;

● any combinations of any of these methods of sale; and

● any other manner permitted by law.

The selling security holders may also sell shares under Rule 144 of the Securities Act, if available, rather than under this prospectus.

The selling security holders may sell their shares to or through underwriters, brokers, dealers or agents, in which event the underwriters, brokers, dealers or agents may receive discounts, concessions, commissions or other fees from the selling security holders, or discounts, concessions, commissions or other fees from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal. These discounts, concessions, commissions or fees as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved.

The selling security holders may additionally pledge, hypothecate or grant a security interest in some or all of the shares of our common stock owned by them and, if such holders default in the performance of their secured obligations, the pledges or secured parties may offer and sell the shares of our common stock from time to time under this prospectus or any amendment to this prospectus, if necessary, to include the pledge, transferee or other successors in interest as selling security holders under this prospectus. The selling security holders may also transfer or donate their shares of our common stock in other circumstances, in which case the transferees, donees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus, subject to any requirement of the SEC that we amend or supplement this prospectus to include the name of such transferees, donees, pledges or other successors-in-interest in this prospectus.

The selling security holders and any underwriters, brokers, dealers or agents that participate in the distribution of the shares offered hereby may be deemed "underwriters" within the meaning of the Securities Act. In that event, any discounts, concessions, commissions or fees received by them and any profit on the resale of the shares sold by them may be deemed to be underwriting discounts or commissions under the Securities Act. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent.

54

The selling security holders and any other person participating in the distribution of the shares of our common stock being offered hereby will be subject to applicable provisions of the Exchange Act, and the rules and regulations promulgated thereunder, including, without limitation, Regulation M. These regulations may limit the timing of purchases and sales of any of the shares of our common stock by the selling security holders and may restrict the ability of any person engaged in the distribution of the shares to engage in market-making activities with respect to our common stock.

We have agreed to indemnify certain of the selling security holders against liabilities, including certain liabilities under the Securities Act, pursuant to the terms of the agreements by which the selling securities holders purchased their shares of our common stock being registered hereby. We may be indemnified by certain of the selling security holders against liabilities, including liabilities under the Securities Act, pursuant to the terms of the agreements by which the selling securities holders purchased their shares of our common stock being registered hereby.

We will not receive any proceeds from the sale of the shares of our common stock registered hereby, however, we will receive proceeds from the exercise of any warrants held by the selling security holders. We will pay all expenses incurred in connection with this registration of the shares of our common stock under the Securities Act, including registration and filing fees, fees and expenses of compliance with securities or blue sky laws, listing fees, printing and engraving expenses, messenger and delivery expenses, and fees and disbursements of our counsel, accountants and other persons retained by us, but excluding commissions and discounts incurred by the selling security holders in connection with the resale of such shares.

We cannot assure you that the selling security holders will sell all or any portion of the securities offered hereby.

LEGAL MATTERS

The validity of the shares of common stock offered hereby has been passed upon for us by Fox Rothschild LLP, 997 Lenox Drive, Building 3, Lawrenceville, NJ 08648.

EXPERTS

The audited consolidated balance sheets at December 31, 2012 and 2011 and the audited consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2012 and 2011 have been audited by Rotenberg Meril Solomon Bertiger & Guttilla, P.C., our independent registered public accounting firm. We have included these financial statements in this registration statement in reliance upon the reports of such firm given their authority as experts in accounting and auditing.

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the SEC. You should rely only on the information provided in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling security holders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. Applicable SEC rules may require us to update this prospectus in the future.

55

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any report, statement or other information that we file with the SEC at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain further information on the operation of the Public Reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public at the SEC’s website at www.sec.gov, as well as our website at www.bio-key.com. Information contained on our website does not constitute a part of this prospectus.

This prospectus is part of a registration statement that we filed with the SEC. This prospectus and any accompanying prospectus supplement do not contain all of the information included in the registration statement, and certain statements contained in this prospectus and any accompanying prospectus supplement about the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete. For each of these contracts, agreements or documents filed as an exhibit to the registration statement, we refer you to the actual exhibit for a more complete description of the matters involved. In addition, we have omitted certain parts of the registration statement in accordance with the rules and regulations of the SEC. To obtain all of the information that we filed with the SEC in connection herewith, we refer you to the registration statement, including its exhibits and schedules. You should assume that the information contained in this prospectus and any accompanying prospectus supplement is accurate only as of the date appearing on the front of the prospectus or prospectus supplement, as applicable.

56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as at December 31, 2012 and 2011	F-3
Statements of Operations—Years ended December 31, 2012 and 2011	F-4
Statements of Stockholders’ (Deficit) Equity —Years ended December 31, 2012 and 2011	F-5
Statements of Cash Flows—Years ended December 31, 2012 and 2011	F-6
Notes to the Financial Statements—December 31, 2012 and 2011	F-8
Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012	F-29
Statements of Income for the three months ended March 31, 2013 and 2012 (unaudited)	F-30
Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)	F-31
Notes to Condensed Consolidated Financial Statements (unaudited)	F-33

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

BIO-key International, Inc.

North Billerica, MA

We have audited the accompanying consolidated balance sheets of BIO-key International, Inc. and Subsidiary (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ (deficit) equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BIO-key International, Inc. and Subsidiary as of December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in the consolidated financial statements, the Company has suffered substantial net losses in recent years, and has an accumulated deficit at December 31, 2012, which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are disclosed in Note A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.

Saddle Brook, New Jersey

April 1, 2013

F-2

BIO-key International, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

	December 31,
	2012			2011
ASSETS
Cash and cash equivalents	$	83,989		$	43,437
Accounts receivable, net of allowance for doubtful accounts of $20,526 at December 31, 2012 and $397,526 at December 31, 2011		604,784			587,346
Due from factor		189,904			-
Inventory		4,186			8,238
Prepaid expenses and other		25,088			58,920
Total current assets		907,951			697,941
Equipment and leasehold improvements, net		24,267			52,870
Deposits and other assets		8,712			8,712
Intangible assets—less accumulated amortization		195,911			207,180
Total non-current assets		228,890			268,762
TOTAL ASSETS	$	1,136,841		$	966,703
LIABILITIES
Accounts payable	$	931,276		$	687,441
Accrued liabilities		593,599			675,833
Deferred revenue		508,520			527,092
Note payable – related party		321,428			346,428
Total current liabilities		2,354,823			2,236,794
Deferred revenue, net of current portion		-			1,000
Total non-current liabilities		-			1,000
TOTAL LIABILITIES		2,354,823			2,237,794
Commitments and contingencies
STOCKHOLDERS’ DEFICIT:
Common stock — authorized, 170,000,000 shares; issued and outstanding; 78,155,413 of $.0001 par value at December 31, 2012 and December 31, 2011		7,815			7,815
Additional paid-in capital		51,062,624			51,012,782
Accumulated deficit		(52,288,421	)		(52,291,688	)
TOTAL STOCKHOLDERS’ DEFICIT		(1,217,982	)		(1,271,091	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,136,841		$	966,703

The accompanying notes are an integral part of these statements.

F-3

BIO-key International, Inc. and Subsidiary

STATEMENTS OF OPERATIONS

	Years ended December 31,
	2012			2011
Revenues
Services	$	1,094,731		$	848,483
License fees and other		2,741,162			2,660,321
		3,835,893			3,508,804
Costs and other expenses
Cost of services		221,027			159,223
Cost of license fees and other		350,706			651,236
		571,733			810,459
Gross Profit		3,264,160			2,698,345
Operating expenses
Selling, general and administrative		2,288,903			3,036,299
Research, development and engineering		947,371			1,116,658
		3,236,274			4,152,957
Operating income (loss)		27,886			(1,454,612	)
Other income (deductions)
Interest income		7			95,033
Interest expense		(24,626	)		(411,527	)
Income taxes		-			(26,500	)
Net discounts of notes payable and note receivable		-			(100,000	)
		(24,619	)		(442,994	)
Net income (loss)	$	3,267		$	(1,897,606	)
Basic and Diluted Income (Loss) per Common Share:	$	0.00		$	(0.02	)
Weighted Average Shares Outstanding:
Basic and Diluted		78,155,413			78,155,413

The accompanying notes are an integral part of these statements.

F-4

BIO-key International, Inc. and Subsidiary

STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

	Common Stock				Additional Contributed		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance as of December 31, 2010		78,155,413	$	7,815	$	50,955,602	$	(50,394,082	)	$	569,335
Share-based compensation		—		—		57,180		—			57,180
Net loss		—		—				(1,897,606	)		(1,897,606	)
Balance as of December 31, 2011		78,155,413	$	7,815	$	51,012,782	$	(52,291,688	)	$	(1,271,091	)
Share-based compensation		—		—		49,842		—			49,842
Net income		—		—		—		3,267			3,267
Balance as of December 31, 2012		78,155,413	$	7,815	$	51,062,624	$	(52,288,421	)	$	(1,217,982	)

The accompanying notes are an integral part of these statements.

F-5

BIO-key International, Inc. and Subsidiary

STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2012			2011
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,267		$	(1,897,606	)
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities:
Allowance for doubtful accounts		(377,000	)		386,000
Depreciation		28,603			31,462
Amortization
Intangible assets		11,269			11,270
Discount on secured debt		-			307,932
Net discounts of notes payable and note receivable		-			100,000
Share-based compensation		49,842			57,180
Change in assets and liabilities:
Accounts receivable trade		359,562			(622,253	)
Due from factor		(189,904	)
Inventory		4,051			1,538
Prepaid expenses and other		33,833			129,995
Accounts payable		243,835			507,028
Accrued liabilities		(82,234	)		221,925
Deferred revenue		(19,572	)		242,418
Net cash provided by (used for) operating activities		65,552			(523,111	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from payment of note receivable		-			3,350,000
Capital expenditures		-			(56,204	)
Net cash provided by investing activities		-			3,293,796
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of notes payable		(25,000	)		(3,612,135	)
Preferred stock dividend paid		-			(125,209	)
Net cash used for financing activities		(25,000	)		(3,737,344	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		40,552			(966,659	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		43,437			1,010,096
CASH AND CASH EQUIVALENTS, END OF YEAR	$	83,989		$	43,437

F-6

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

	Years ended December 31,
	2012		2011
Cash paid for:
Interest	$	—	$	80,286
Income taxes		41,169		12,393

The accompanying notes are an integral part of these statements.

F-7

BIO-key International, Inc. and Subsidiary

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE A —THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company, founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions. We also deliver advanced identification solutions and information services to law enforcement departments, public safety agencies and other government and private sector customers. Our mobile wireless technology provides first responders with critical, reliable, real-time data and images from local, state and national databases.

Basis of Presentation

We have incurred significant losses to date, and at December 31, 2012, we had an accumulated deficit of approximately $52 million. In addition, broad commercial acceptance of our technology is critical to the Company’s success and ability to generate future revenues. At December 31, 2012, our total cash and cash equivalents were approximately $84,000, as compared to approximately $43,000 at December 31, 2011.

As discussed below, the Company has financed itself in the past through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock,  common stock, and recently through factoring receivables. We currently require approximately $385,000 per month to conduct our operations, a monthly amount that we have been unable to achieve through revenue generation.

If the Company is unable to generate sufficient revenue to meet our goals, we will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute our plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. No assurance can be given that any form of additional financing will be available on terms acceptable to the Company, that adequate financing will be obtained by the Company in order to meet its needs, or that such financing would not be dilutive to existing shareholders.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The matters described in the preceding paragraphs raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

F-8

Summary of Significant Accounting Policies

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

1.  Basis of Consolidation

The accompanying consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiary (collectively, the “Company”). Intercompany accounts and transactions have been eliminated in consolidation.

2. Use of Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission (SEC). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

3. Revenue Recognition

Revenues from software licensing are recognized in accordance with ASC 985-605, “Software Revenue Recognition. Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

The Company intends to enter into arrangements with end users for items which may include software license fees, and services or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain.

F-9

Multiple-Element Arrangements: For multiple-element arrangements, the Company applies the residual method in accordance with ASC 985-605. The residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its VSOE of fair value and subsequently recognized as the service is delivered. The difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements, which is generally the software license. VSOE of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately. VSOE of fair value for support services is additionally determined by the renewal rate in customer contracts. The Company has established VSOE of fair value for support as well as consulting services.

License Revenues: Amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met.

Revenue from licensing software, which requires significant customization and modification, is recognized using the percentage of completion method, based on the hours of effort incurred by the Company in relation to the total estimated hours to complete. In instances where third party hardware, software or services form a significant portion of a customer’s contract, the Company recognizes revenue for the element of software customization by the percentage of completion method described above. Otherwise, third party hardware, software, and services are recognized upon shipment or acceptance as appropriate. If the Company makes different judgments or utilizes different estimates of the total amount of work expected to be required to customize or modify the software, the timing and revenue recognition, from period to period, and the margins on the project in the reporting period, may differ materially from amounts reported. Anticipated contract losses are recognized as soon as they become known and are estimable.

Service Revenues: Revenues from services are comprised of maintenance and consulting and implementation services. Maintenance revenues include providing for unspecified when-and-if available product updates and customer telephone support services, and are recognized ratably over the term of the service period. Consulting services are generally sold on a time-and-materials basis and include a range of services including installation of software and assisting in the design of interfaces to allow the software to operate in customized environments. Services are generally separable from other elements under the arrangement since performance of the services are not essential to the functionality of any other element of the transaction and are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services. Revenues from services are generally recognized as the services are performed.

The Company provides customers, free of charge or at a minimal cost, testing kits which potential licensing customers may use to test compatibility/acceptance of the Company’s technology with the customer’s intended applications.

Costs and other expenses: Includes professional compensation and other direct contract expenses, as well as costs attributable to the support of client service professional staff, depreciation and amortization costs related to assets used in revenue-generating activities, and other costs attributable to serving the Company’s client base. Professional compensation consists of payroll costs and related benefits including stock-based compensation and bonuses. Other direct contract expenses include costs directly attributable to client engagements, such as out-of-pocket costs including travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors. The allocation of lease and facilities charges for occupied offices is included in costs of service.

F-10

The Company accounts for its warranties under the FASB ASC 450 “Contingencies.” The Company generally warrants that its products are free from defects in material and workmanship for a period of one year from the date of initial receipt by our customers. The warranty does not cover any losses or damage that occurs as a result of improper installation, misuse or neglect or repair or modification by anyone other than the Company or its authorized repair agent. The Company’s policy is to accrue anticipated warranty costs based upon historical percentages of items returned for repair within one year of the initial sale. The Company’s repair rate of products under warranty has been minimal, and a historical percentage has not been established. The Company’s software license agreements generally include certain provisions for indemnifying customers against liabilities if the Company’s software products infringe upon a third party’s intellectual property rights. The Company has not provided for any reserves for warranty liabilities as it was determined to be immaterial.

4.  Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less.  At December 31, 2012 and 2011, cash equivalents consisted of a money market account.

5. Accounts Receivable

Accounts receivable billed and unbilled are carried at original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful receivables by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Accounts receivable at December 31, 2012 and 2011 consisted of the following:

	December 31,
	2012			2011
Accounts receivable	$	625,310		$	984,872
Allowance for doubtful accounts		(20,526	)		(397,526	)
Accounts receivable, net allowances for doubtful accounts		604,784			587,346

F-11

The allowance for doubtful accounts for the years ended December 31, 2012 and 2011 is as follows:

	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions From Reserves		Balance at End of Year
Year Ended December 31, 2012
Allowance for Doubtful Accounts	$	397,526	$	-	$	377,000	$	20,526
Year Ended December 31, 2011
Allowance for Doubtful Accounts	$	11,526	$	386,000	$	-	$	397,526

The allowance was set up primarily for one customer whose payments under a contract were behind schedule. $400,000 was collected from the customer in 2012, and subsequently, $150,000 was collected in 2013. The final payment for the balance due under the contract has been approved to be paid, although the funds have not been received as of the filing date.  As of the date of the filing, the customer owes approximately $313,000.

6. Property and Equipment, Intangible Assets and Depreciation and Amortization

Property and equipment are stated at cost.  Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

The estimated useful lives used to compute depreciation and amortization for financial reporting purposes are as follows:

Equipment and leasehold improvements
Equipment (years)	3	-	5
Furniture and fixtures (years)	3	-	5
Software (years)		3
Leasehold improvements	life or lease term

Intangible assets consist of patents.  Patent costs are capitalized until patents are awarded. Upon award, such costs are amortized using the straight-line method over their respective economic lives. If a patent is denied, all costs are charged to operations in that year.

7. Impairment or Disposal of Long Lived Assets, including Intangible Assets

We review our long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, we must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, we may be required to record impairment charges. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. We did not record any impairment charges in any of the years presented.

F-12

8. Advertising Expense

The Company expenses the costs of advertising as incurred. Advertising expenses for the years ended December 31, 2012 and 2011 were approximately $114,000 and $170,000, respectively.

9. Deferred Revenue

Deferred revenue includes customer advances and amounts that have been billed per the contractual terms but have not been recognized as revenue. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12 months from the date the customer accepts the products.

10. Research and Development Expenditures

Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.

11. Earnings Per Share of Common Stock (“EPS”)

The Company’s EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes, when the effect of their inclusion is dilutive. See Note R -  Earnings Per Share “EPS”, for additional information.

12. Accounting for Stock-Based Compensation

The Company accounts for share based compensation in accordance with the provisions of ASC 718-10, “Compensation — Stock Compensation,” which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The majority of our share-based compensation arrangements vest over either a three or four year vesting schedule. The Company expenses its share-based compensation under the ratable method, which treats each vesting tranche as if it were an individual grant. The fair value of stock options is determined using the Black-Scholes valuation model, and requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected option term”), the estimated volatility of our common stock price over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized as an expense in the consolidated statements of operations. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the service period, net of estimated forfeitures (the number of individuals that will ultimately not complete their vesting requirements). The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates.

F-13

The compensation expense recognized under ASC 718 amounted to $49,842 and $57,180 for the years ended December 31, 2012 and 2011 respectively.

The following table presents share-based compensation expenses for continuing operations included in the Company’s consolidated statements of operations:

	Year ended December 31,
	2012		2011
Selling, general and administrative	$	22,502	$	12,054
Research, development and engineering		27,340		45,126
	$	49,842	$	57,180

Valuation Assumptions for Stock Options

For the years ended December 31, 2012 and 2011, 600,000 and 845,000 stock options were granted, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Year ended December 31,
	2012			2011
Risk free interest rate		0.80	%		1.64	%
Expected life of options (in years)		4.48			4.52
Expected dividends		0	%		0	%
Volatility of stock price		114	%		114	%

The stock volatility for each grant is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term. The expected term was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

F-14

13. Income Taxes

The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Because of the Company’s historical performance and estimated future taxable income, a full valuation allowance has been established.

The Company accounts for uncertain tax provisions in accordance with ASC 740-10-05 “Accounting for Uncertainty in Income Taxes.” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

14. Recent Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

NOTE B—FACTORING

Due from factor consisted of the following as of December 31:

	Original Invoice Value		Factored Amount		Factored Balance due
Year Ended December 31, 2012
Factored accounts receivable	$	744,315	$	554,411	$	189,904
Year Ended December 31, 2011
Factored accounts receivable	$	-	$	-	$	-

F-15

As of December 2011, the Company entered into a 24 month accounts receivable factoring arrangement with a financial institution (the “Factor”). Pursuant to the terms of the arrangement, the Company, from time to time shall sell to the Factor certain of its accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor shall then remit 75% of the accounts receivable balance to the Company (the “Advance Amount”), with the remaining balance, less fees to be forwarded to the Company once the Factor collects the full accounts receivable balance from the customer. Factoring fees range from 2.75% to 15% of the face value of the invoice factored, and are determined by the number of days required for collection of the invoice.

NOTE C—FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities, and notes payable, are carried at, or approximate, fair value because of their short-term nature.

NOTE D—CONCENTRATION OF RISK

Financial instruments which potentially subject the Company to risk primarily consist of cash and accounts receivables.

The Company maintains its cash balances in a financial institution in Nevada. All non-interest bearing accounts are fully insured by the Federal Deposit Insurance Corporation (FDIC) through December 31, 2012 and interest-bearing accounts are insured by the FDIC up to $250,000.  The Company has not incurred any losses on these accounts.

The Company extends credit to customers on an unsecured basis in the normal course of business. The Company’s policy is to perform an analysis of the recoverability of its receivables at the end of each reporting period and to establish allowances where appropriate. The Company analyzes historical bad debts and contract losses, customer concentrations, and customer credit-worthiness when evaluating the adequacy of the allowances.

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, as follows:

	Years Ended December 31,
	2012			2011
Customer A		31	%		15	%
Customer B		18	%		—
Customer C		*	%		43	%

*      Less than 10% of total revenue

F-16

The Company had certain customers whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

	As of December 31,
	2012			2011
Customer C		74	%		78	%
Customer D		14	%		—

*      Less than 10% of total accounts receivable

NOTE E—NOTE RECEIVABLE

As consideration for the Asset Sale of its Law Enforcement division (the “Business”) to InterAct911 Mobile Systems, Inc. in 2009, the Buyer paid the Company an aggregate purchase price of approximately $11.3 million. The consideration consisted of cash payments totaling $7.3 million and the issuance of a promissory note (the “Note”) in the original principal amount of $4 million in favor of the Company. The Note earned interest, payable on a quarterly basis, at a rate per annum equal to six percent (6%) compounded annually on the principal sum from time to time outstanding.

Effective as of December 30, 2010, the Company entered into an Amendment and Waiver agreement (the “Amendment and Waiver”) with respect to the Note. Under the original terms of the Note, the initial scheduled repayment of principal, equal to $1,334,000, was due to be paid to the Company on December 8, 2010. Pursuant to the Amendment and Waiver, the Company agreed to defer $834,000 of this initial payment into three equal payments due over the course of the first three quarters of 2011, of which the first payment of $278,000 was received in April 2011.

In exchange for this deferral, the Buyer made a principal payment of $500,000 (received in December 2010), agreed to increase the interest rate on the deferred amount from six percent to twelve percent, and agreed to have the owner of the Parent, Silkroad Equity LLC, forfeit all of the 8,000,000 warrants previously granted to it by the Company.

Effective as of May 19, 2011, the Buyer exercised its option to prepay the balance due of $3,222,000 under the Note. In consideration for the early payment from the Buyer, the Company accepted a $150,000 discount on the principal amount due, of which $50,000 was absorbed by the Secured Promissory Note holders). The total amount received by the Company was $3,113,654 which included principal amount of $3,222,000, interest income of $30,888 and a reimbursement of legal fees incurred of $10,766 net of the discount of $150,000.

F-17

NOTE F—EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following as of December 31:

	2012			2011
Equipment	$	302,052		$	302,052
Furniture and fixtures		99,199			99,199
Software		28,624			28,624
Leasehold improvements		39,975			39,975
		469,850			469,850
Less accumulated depreciation and amortization		(445,583	)		(416,980	)
Total	$	24,267		$	52,870

Depreciation and amortization were $28,603 and $31,462 for the periods ending December 31, 2012 and 2011, respectively.

NOTE G—INTANGIBLE ASSETS

Intangible assets consisted of the following as of December 31:

	2012							2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents and patents pending	$	287,248	$	(91,337	)	$	195,911	$	287,248	$	(80,068	)	$	207,180
Total	$	287,248	$	(91,337	)	$	195,911	$	287,248	$	(80,068	)	$	207,180

Aggregate amortization expense for the years ended December 31, 2012 and 2011, was $11,269 and $11,270 respectively. The estimated aggregate amortization expense of intangible assets for the years following December 31, 2012 is approximately $11,270 per year for 2013 through 2017, and $139,561 thereafter.

NOTE H—ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of December 31:

	2012		2011
Compensation	$	243,049	$	227,579
Compensated absences		133,535		159,949
Dividends payable (see Note K)		3,435		3,435
Interest payable – related party (Note K)		47,935		23,309
Accrued legal and accounting fees		84,954		111,300
Income taxes (see Note P)		-		26,500
Other		80,691		123,761
Total	$	593,599	$	675,833

F-18

NOTE I—RELATED PARTY

Consulting Arrangement with Thomas J. Colatosti (“Colatosti”)

In connection with his appointment to the Board of Directors in September 2002, and as acting Chief Financial Officer from November 2008 to December 2009, the Company has entered into a number of consulting arrangements with Colatosti. Under the most recent arrangement, which was entered into on January 12, 2010, Mr. Colatosti provided services to the Company and its subsidiary for the two-year term ended December 31, 2011 at a rate of $5,000 per month.

Mr. Colatosti has substantial experience in the biometric industry and in addition to his role as the Chairman of the Board of Directors of the Company, provides extensive service to the Company in the areas of strategic planning and corporate finance. For the year ended December 31, 2011, Mr. Colatosti earned  $60,000, of which $50,000 remained outstanding and payable at both December 31, 2012 and 2011.  The balance owed to Colatosti is included in accounts payable.

NOTE J—DEFERRED REVENUE

The components of deferred revenue are as follows as of December 31:

	2012		2011
Current Portion
Maintenance contracts	$	496,055	$	335,246
Customer deposit		12,465		122,500
Fully deferred systems, installation and acceptance revenue		-		69,346
		508,520		527,092
Long-Term Portion
Maintenance contracts		-		1,000
Total	$	508,520	$	528,092

Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services, and are recognized ratably over the term of the service period. Fully deferred systems, installation and acceptance revenue relates to projects that have been billed per the contractual terms, however because of undelivered elements or acceptance criteria, revenue has not yet been recognized. These amounts are expected to be completed within the next 12 months and are classified as current liabilities.

Long-term maintenance contracts are comprised of multiple year support contracts, and are recognized ratably over the applicable term.

F-19

NOTE K—NOTES PAYABLE

The 2010 Exchange Agreement

Effective as of December 31, 2010, the Company entered into a Securities Exchange Agreement (the “2010 Exchange Agreement”) with the Shaar Fund, Ltd. (“Shaar”) and Colatosti.  Pursuant to the 2010 Exchange Agreement, Shaar exchanged all of its outstanding shares of the Company’s Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by the Company to Shaar in the original principal amount of $673,079 for an installment payment of $500,000 and a new non-convertible 7% Secured Promissory Note in the original principal amount of $3,157,759 (the “Shaar Note”).  The installment payment was made in January 2011. Shaar also exchanged all of its existing warrants to purchase the Company’s common stock, exercisable for an aggregate of 5,108,333 shares, for a new five-year warrant to purchase up to an aggregate of 8,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share.  In addition, pursuant to the 2010 Exchange Agreement, Mr. Colatosti agreed to exchange all of his outstanding shares of Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by the Company to Mr. Colatosti in the original principal amount of $64,878 for a new non-convertible 7% Secured Promissory Note in the original principal amount of $350,804 (the “Colatosti Note”).

Pursuant to the Exchange Agreement, the Company made a cash payment to Shaar in the amount of $500,000 at the closing of the exchange and also paid approximately $125,209 to Shaar on January 31, 2011 in full satisfaction of the Company’s obligations to Shaar for all accrued and unpaid dividends with respect to the Company’s Series B Convertible Preferred Stock and Series C Convertible Preferred Stock formerly held by Shaar. Effective as of May 20, 2011, the Company exercised its option to prepay the balance due of $3,157,759 owed to Shaar on its Secured Promissory Note. 

Effective as of May 20, 2011, the Company exercised its option to prepay the balance due of $3,157,759 owed to Shaar on its Secured Promissory Note. In consideration of the $150,000 discount granted by the Company for the early payment of the Note Receivable (see “Note E — Note Receivable”), the Company’s Secured Promissory Note holders agreed to effectively absorb $50,000 of the discount, with the remainder borne by the Company. The discount was prorated to both Note holders which reduced the Shaar payment by $45,624 and the principle amount owed on the Colatosti Note by $4,376. The total amount paid by the Company to Shaar was $3,192,421 and included principal of $3,157,759, interest of $80,286 less Shaar’s share of the discount described above.

The principal and interest under the Colatosti Note was scheduled to be repaid by the Company in cash on December 31, 2012.  Pursuant to a Note Amendment and Extension Agreement effective as of December 31, 2012, the maturity date of the Colatosti Note was extended to March 31, 2013. The Company’s obligations under the Colatosti Note were secured by substantially all of the Company’s assets.  At December 31, 2012 and 2011, note payable was $321,428 and $346,428, respectively. Interest incurred on the Colatosti note amounted to $24,626 and $23,309 for the years ended December 31, 2012 and 2011, respectively. Accrued interest owed amounted to $47,935 and $23,309 at December 31, 2012 and 2011, respectively, and is included in accrued liabilities (see Note H).

F-20

In February 2013, the principal balance and accrued interest owing under the Colatosti Note was repaid from the proceeds of the new financing (see Note S).

NOTE L—SEGMENT INFORMATION

The Company has determined that its continuing operations are one discrete segment consisting of Biometric products. Geographically, North American sales accounted for approximately 93% and 54% of the Company’s total sales for fiscal years 2012 and 2011, respectively. Of the 46% of the 2011 non-North American sales, 43% was sales to Africa.

NOTE M—COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company does not own any real estate but conducts operations from three leased premises. These non-cancelable operating leases expire at various dates through 2014. In addition to base rent, the Company pays for property taxes, maintenance, insurance and other occupancy expenses according to the terms of the individual leases.

Future minimum rental commitments of non-cancelable operating leases are approximately as follows:

Years ending December 31,
2013	$	137,870
2014		92,097
	$	229,967

Rental expense was approximately $169,000 and $166,000 during 2012 and 2011, respectively.

Lawsuit

During August 2012, Blue Spike, LLC filed suit against the Company in the United States District Court for the Eastern District of Texas alleging that the Company infringed one or more claims of U.S. Patents Nos. 7,346,472, 7,660,700, 7,949,494, and 8,214,175.  In December 2012, the Company reached an agreement to resolve litigation, which resulted in a dismissal of all claims asserted in this litigation (both against and by the Company) with prejudice.   Legal and settlement fees amounted to approximately $208,000.

F-21

NOTE N— EQUITY

1. Redeemable Preferred Stock

Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of preferred stock, $.0001 par value per share, in one or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.

2. Common Stock

The Company is authorized to issue 170,000,000 shares of common stock, $.0001 par value per share, of which 78,155,413 were outstanding as of December 31, 2012 and 2011.

Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights.

Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.

On February 26, 2013, the Company entered into an agreement to issue 4,026,935 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693.  Concurrently, the Company closed an equity financing with a number of private and institutional investors and issued 5,000,000 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000.  See Note S below.

F-22

3. Warrants

The Company has issued warrants to certain creditors, investors, investment bankers and consultants. A summary of warrant activity is as follows:

	Total Warrants			Weighted average exercise price		Weighted average remaining life (in years)		Aggregate intrinsic value
Outstanding, as of December 31, 2010		10,261,615		$	0.32
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(2,011,615	)		0.39
Outstanding, as of December 31, 2011		8,250,000		$	0.30		3.97
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		—			—
Outstanding, as of December 31, 2012		8,250,000		$	0.30		2.97		—
Vested or expected to vest at December 31, 2012		8,250,000		$	0.30		2.97		—
Exercisable at December 31, 2012		8,250,000		$	0.30		2.97		—

NOTE O—STOCK OPTIONS

1999 Stock Option Plan

During 1999, the Board of Directors of the Company adopted the 1999 Stock Option Plan (the 1999 Plan). The 1999 Plan was not presented to stockholders for approval and thus incentive stock options are not available under the plan. Under the 1999 Plan, 2,000,000 shares of common stock are reserved for issuance to employees, officers, directors, and consultants of the Company at exercise prices which may not be below 85% of fair market value. The term of nonstatutory stock options granted may not exceed ten years. Options issued under the Plan vest pursuant to the terms of stock option agreements with the recipients. In the event of a change in control, as defined, all options outstanding vest immediately. The 1999 Plan expired in August 2009.

2004 Stock Option Plan

On October 12, 2004, the Board of Directors of the Company approved the 2004 Stock Option Plan (the 2004 Plan). The 2004 Plan has not yet been presented to stockholders for approval and thus incentive stock options are not available under this plan. Under the terms of this plan, 4,000,000 shares of common stock are reserved for issuance to employees, officers, directors, and consultants of the Company at exercise prices which may not be below 85% of fair market value. The term of stock options granted may not exceed ten years. Options issued under the Plan vest pursuant to the terms of stock option agreements with the recipients. In the event of a change in control, as defined, all options outstanding vest immediately. The Plan expires in October 2014.

F-23

Non-Plan Stock Options

Periodically, the Company has granted options outside of the 1999 and 2004 Plans to various employees and consultants. In the event of change in control, as defined, certain of the non-plan options outstanding vest immediately.

Stock Option Activity

Information summarizing option activity is as follows:

	Number of Options											Weighted average exercise		Weighted average remaining life		Aggregate intrinsic
	1999 Plan		2004 Plan			Non Plan			Total			price		(in years)		value
Outstanding, as of December 31, 2010		500,000		2,580,689			1,329,841			4,410,530		$	0.25
Granted		—		845,000			—			845,000			0.14
Exercised		—		—			—			—			—
Forfeited		—		(210,000	)		—			(210,000	)		0.14
Expired		—		(383,853	)		(257,265	)		(641,118	)		0.36
Outstanding, as of December 31, 2011		500,000		2,831,836			1,072,576			4,404,412		$	0.22
Granted		—		600,000			—			600,000			0.09
Exercised		—		—			—			—			—
Forfeited		—		(164,623	)		(365,378	)		(530,001	)		0.09
Expired		—		(504,941	)		(707,198	)		(1,212,139	)		0.30
Outstanding, as of December 31, 2012		500,000		2,762,272			—			3,262,272			0.16		4.21	$	2,325
Vested or expected to vest at December 31, 2012										2,972,404			0.16		4.04	$	2,325
Exercisable at December 31, 2012										2,230,594			0.18		3.43	$	2,325

F-24

The options outstanding and exercisable at December 31, 2012 were in the following exercise price ranges:

				Options Outstanding				Options Exercisable
Range of exercise prices				Number of shares	Weighted average exercise price		Weighted average remaining  life (in years)	Number exercisable	Weighted average exercise price
	$ 0.08	-	0.21	2,852,272	$	0.11	4.23	1,820,594	$	0.12
	0.22	-	0.40	70,000	0.40		4.02	70,000	0.40
	0.41	-	0.68	340,000	0.46		4.02	340,000	0.46
	$ 0.07	-	0.68	3,262,272				2,230,594

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $0.09 as of December 31, 2012, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 31, 2012 was 775,000.

The weighted average fair value of options granted during the years ended December 31, 2012 and 2011 was $0.05 and $0.11 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was $0. The total fair value of shares vested during the years ended December 31, 2012 and 2011 was $70,026 and $52,879 respectively.

As of December 31, 2012 future compensation cost related to nonvested stock options is $47,220 and will be recognized over an estimated weighted average period of 1.55 years.

NOTE P—INCOME TAXES

There was no provision for federal or state taxes as at December 31, 2012. The provision for income taxes as at December 31, 2011 was comprised of federal alternative minimum tax of $16,500 and minimum state taxes of $10,000. 

F-25

The Company has deferred taxes due to income tax credits, net operating loss carryforwards, and the effect of temporary differences between the carrying values of certain assets and liabilities for financial reporting and income tax purposes. Significant components of deferred taxes are as follows at December 31:

	2012			2011
Current asset:
Accrued compensation	$	128,000		$	119,000
Accounts receivable allowance		8,000			156,000
Non-current asset (liability):
Stock-based compensation		336,000			—
Basis differences in fixed assets		(10,000	)		(21,000	)
Basis differences in intangible assets		(77,000	)		31,000
Net operating loss carryforwards		16,143,000			15,912,000
Valuation allowances		(16,528,000	)		(16,197,000	)
	$	—		$	—

The Company has a valuation allowance against the full amount of its net deferred taxes due to the uncertainty of realization of the deferred tax assets due to operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income. Similarly, income tax benefits related to stock options exercised have not been recognized in the financial statements.

As of December 31, 2012, the Company has federal net operating loss carryforwards of approximately $44,800,000 subject to expiration between 2018 and 2032.  These net operating loss carryforwards are subject to the limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company.

A reconciliation of the effective income tax rate on operations reflected in the Statements of Operations to the US Federal statutory income tax rate is presented below.

	2012			2011
US Federal statutory income tax rate		34	%		34	%
Permanent differences		831			(4	)
Alternative minimum tax		—			1
Effect of net operating loss		(865	)		(30	)
Effective tax rate		—	%		1	%

The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The periods from 2009 through 2012 remain open to examination by the IRS and state jurisdictions. The Company believes it is not subject to any tax audit risk beyond those periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any significant interest expense recognized during the years ended December 31, 2012 and 2011.

F-26

NOTE Q—PROFIT SHARING PLAN

The Company has established a savings plan under section 401(k) of the Internal Revenue Code. All employees of the Company, after completing one day of service are eligible to enroll in the 401(k) plan. Participating employees may elect to defer a portion of their salary on a pre-tax basis up to the limits as provided by the IRS Code. The Company is not required to match employee contributions but may do so at its discretion. The Company made no contributions during the years ended December 31, 2012 and 2011.

NOTE R—EARNINGS PER SHARE (EPS)

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes and preferred stock.

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price was less than the average market price of the common shares.

	Years ended December 31,
	2012		2011
Stock Options		—		379,865
Potentially dilutive securities		—		379,865

Items excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

	Years ended December 31,
	2012		2011
Stock options		3,262,272		3,087,140
Warrants		8,250,000		8,250,000
Total		11,512,272		11,337,140

F-27

NOTE S—SUBSEQUENT EVENTS

On February 26, 2013, the Company entered into a number of agreements with affiliates of InterDigital, Inc. (NASDAQ: IDCC) (“InterDigital”) relating to a research and development collaboration arrangement (the “R&D Collaboration”).  In connection with this arrangement, affiliates of InterDigital have invested an aggregate of $900,000 in return for newly issued shares of the Company’s common stock (the “InterDigital Equity Investment”) and the Company’s issuance of a senior secured promissory note that will mature December 31, 2015 (the “InterDigital Note”).

The InterDigital Equity Investment was made pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and DRNC Holdings, Inc. (“DRNC”) (the “InterDigital SPA”).  Pursuant to the InterDigital SPA, the Company issued 4,026,935 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693.  DRNC has anti-dilution rights under the InterDigital SPA that would require the Company to issue additional shares to DRNC on a full-ratchet basis if the Company, within the nine months following February 26, 2013, sells or issues any common stock or common stock equivalents (other than sales or issuances to directors, officers, employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect of the Company’s common stock) having a purchase, exercise or conversion price per share less than $0.10.

The InterDigital Note was issued pursuant to a Note Purchase Agreement dated February 26, 2013 by and between the Company and DRNC (the “InterDigital NPA”).  Pursuant to the InterDigital NPA, the InterDigital Note was issued in a principal amount of $497,307 and bears interest at a rate of 7% per annum, with a default rate of 9% per annum while a nonpayment default is continuing.  The InterDigital Note is secured by a security interest in all of the tangible and intangible assets of the Company, and is subject to acceleration upon an event of default.  Under the InterDigital NPA, the Company agreed to comply with certain financial covenants, including a leverage ratio covenant and an annual limit on capital expenditures other than in the ordinary course of business.  A portion of the proceeds from the sale of the InterDigital Note were used to repay the Colatosti Note (see Note I) in full, with the remaining proceeds to be used for other general corporate purposes.

Concurrently with the closing of the InterDigital transactions described above, the Company closed an equity financing with a number of private investors (the “Private Investor Investment”) pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and such private and institutional investors (the “Private Investor SPA”).  Pursuant to the Private Investor SPA, the Company issued 5,000,000 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000.

The total combination of debt, equity and R&D funding of $1,425,000 at closing was used to repay existing debt (the Colatosti Note as defined in Note L, in full), fund growth initiatives and provide general working capital for the business. The transactions are expected to close on or around the end of the first quarter of 2013, and are not expected to have a material effect on the number of common shares or potential common shares of the Company.

F-28

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS
Cash and cash equivalents	$	451,748		$	83,989
Accounts receivable, net of allowance for doubtful accounts of $20,526 at March 31, 2013 and December 31, 2012		449,110			604,784
Due from factor		94,380			189,904
Inventory		4,351			4,186
Prepaid expenses and other		59,303			25,088
Total current assets		1,058,892			907,951
Equipment and leasehold improvements, net		18,531			24,267
Deferred finance costs		55,521			-
Deposits and other assets		8,712			8,712
Intangible assets—less accumulated amortization		193,093			195,911
Total non-current assets		275,857			228,890
TOTAL ASSETS	$	1,334,749		$	1,136,841
LIABILITIES
Accounts payable	$	649,308		$	931,276
Accrued liabilities		385,623			593,599
Deferred revenue		467,108			508,520
Note payable – related party		-			321,428
Total current liabilities		1,502,039			2,354,823
Note Payable		497,307			-
Total non-current liabilities		497,307			-
TOTAL LIABILITIES	$	1,999,346		$	2,354,823
STOCKHOLDERS’ DEFICIENCY:
Common stock — authorized, 170,000,000 shares; issued and outstanding; 87,182,348 of $.0001 par value at March 31, 2013 and 78,155,413 December 31, 2012		8,718			7,815
Additional paid-in capital		51,930,685			51,062,624
Accumulated deficit		(52,604,000	)		(52,288,421	)
TOTAL STOCKHOLDERS’ DEFICIENCY		(664,597	)		(1,217,982	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	1,334,749		$	1,136,841

 The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

F-29

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended March 31,
	2013			2012
Revenues
Services	$	276,960		$	395,854
License fees and other		527,683			1,014,573
		804,643			1,410,427
Costs and other expenses
Cost of services		40,715			124,017
Cost of license fees and other		77,098			57,413
		117,813			181,430
Gross Profit		686,830			1,228,997
Operating Expenses
Selling, general and administrative		732,076			604,884
Research, development and engineering		262,809			254,487
Total Operating Expenses		994,885			859,371
Operating (loss) income		(308,055	)		369,626
Other expenses
Interest expense		(7,524	)		(6,128	)
Total Other expenses		(7,524	)		(6,128	)
Net (loss) income	$	(315,579	)	$	363,498
Basic (Loss) Income per Common Share	$	0.00	*	$	0.00	*
Diluted (Loss) Income per Common Share	$	0.00	*	$	0.00	*
* Represents less than $0.01
Weighted Average Shares Outstanding:
Basic		81,465,289			78,155,413
Diluted		81,465,289			78,156,172

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

F-30

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2013			2012
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income	$	(315,579	)	$	363,498
Adjustments to reconcile net (loss) income to cash (used for) provided by operating activities:
Depreciation		5,736			7,970
Amortization
Intangible assets		2,818			2,817
Deferred costs		1,682			-
Share-based compensation		12,447			20,741
Change in assets and liabilities:
Accounts receivable trade		155,674			100,290
Due from factor		95,524			-
Inventory		(165	)		1,129
Prepaid expenses and other		(34,215	)		(8,176	)
Accounts payable		(281,968	)		(272,814	)
Accrued liabilities		(207,976	)		18,016
Deferred revenue		(41,412	)		(65,905	)
Net cash (used for) provided by operating activities		(607,434	)		167,566
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock		902,693			-
Repayment of note payable – related party		(321,428	)		-
Proceeds from issuance of note payable		497,307			-
Costs to issue common stock		(46,176	)		-
Financing costs for note payable		(57,203	)		-
Net cash provided by financing activities		975,193			-
NET INCREASE IN CASH AND CASH EQUIVALENTS		367,759			167,566
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		83,989			43,437
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	451,748		$	211,003

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

F-31

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

	Three Months Ended March 31,
	2013		2012
Cash paid for:
Interest	$	51,494	$	—

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

F-32

BIO-KEY INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013 (Unaudited)

1.                      BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiary (collectively, the “Company”) and are stated in conformity with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The balance sheet at December 31, 2012 was derived from the audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Form 10-K”), filed on April 1, 2013.

Recently Issued Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

2.                      GOING CONCERN

The Company has incurred significant losses to date and at March 31, 2013,  had an accumulated deficit of approximately $53 million. In addition, broad commercial acceptance of the Company’s technology is critical to the Company’s success and ability to generate future revenues. At March 31, 2013, the Company’s total cash and cash equivalents were approximately $452,000, as compared to approximately $84,000 at December 31, 2012.

F-33

The Company has financed itself in the past through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. The Company currently requires approximately $390,000 per month to conduct  operations, a monthly amount that we have been unable to achieve through revenue generation.

During the three months ended March 31, 2013, the Company raised proceeds of $1,297,000 net of fees through the issuance of a senior secured promissory note and shares of common stock . See Notes 5 and 6.

If the Company is unable to generate sufficient revenue to meet our goals, it will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute its plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. No assurance can be given that any form of additional financing will be available on terms acceptable to the Company, that adequate financing will be obtained by the Company, in order to meet its needs, or that such financing would not be dilutive to existing shareholders.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The matters described in the preceding paragraphs raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

3.                      SHARE BASED COMPENSATION

The following table presents share-based compensation expenses for continuing operations included in the Company’s unaudited condensed consolidated statements of operations:

	Three Months Ended March 31,
	2013		2012
Selling, general and administrative	$	11,121	$	2,223
Research, development and engineering		1,326		18,518
	$	12,447	$	20,741

F-34

4.                      EARNINGS PER SHARE (“EPS”)

The Company’s basic EPS is calculated using net income available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes and preferred stock.

The reconciliation of the numerator of the basic and diluted EPS calculations was as follows for the three month periods ended March 31, 2013 and 2012:

	Three Months ended March 31,
	2013			2012
Basic Numerator:
Net (loss) income	$	(315,579	)	$	363,498
Basic Denominator:		81,465,289			78,155,413
Per Share Amount	$	0.00		$	0.00

The following table summarizes the potential weighted average shares of common stock that were included in the diluted per share calculation for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
Stock Options		-		759

	Three Months ended March 31,
	2013			2012
Dilutive Numerator:
Net (loss) income	$	(315,579	)	$	363,498
Dilutive Denominator:		81,465,289			78,156,172
Per Share Amount	$	0.00*		$	0.00*

* Represents less than $0.01 per share

F-35

The following table sets forth the options and warrants which were excluded from the diluted per share calculation even though the exercise prices were  less than the average market price of the common shares because the effect of including these potential shares was antidilutive due to the net losses for the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013		2012
Stock options		647,660		-
Warrants		-		-
Total		647,660		-

The following table sets forth options and warrants which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

	Three Months Ended March 31,
	2013		2012
Stock options		3,025,000		4,588,560
Warrants		8,250,000		8,250,000
Total		11,275,000		12,838,560

5.                      NOTES PAYABLE

The 2010 Exchange Agreement

Effective as of December 31, 2010, the Company entered into a Securities Exchange Agreement (the “2010 Exchange Agreement”) with Thomas Colatosti (“Colatosti”), the Company’s Chairman of the Board. Pursuant to the 2010 Exchange Agreement, Mr. Colatosti agreed to exchange all of his outstanding shares of Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by the Company to Mr. Colatosti in the original principal amount of $64,878 for a new non-convertible 7% Secured Promissory Note in the original principal amount of $350,804 (the “Colatosti Note”).

The principal and interest under the Colatosti Note was scheduled to be repaid by the Company in cash on December 31, 2012. Pursuant to a Note Amendment and Extension Agreement effective as of December 31, 2012, the maturity date of the Colatosti Note was extended to March 31, 2013. In February 2013, the principal balance and accrued interest owing under the Colatosti Note was repaid from the proceeds of the new financing (see Note 2).  At March 31, 2013 and December 31, 2012, the amount payable under the Colatosti Note  was $0 and $321,428, respectively.

F-36

2013 Note Purchase Agreement

Pursuant to a Note Purchase Agreement dated February 26, 2013 by and between the Company and DRNC (the “InterDigital NPA”). Pursuant to the InterDigital NPA, the InterDigital Note was issued in a principal amount of $497,307 and bears interest at a rate of 7% per annum, with a default rate of 9% per annum while a nonpayment default is continuing. The InterDigital Note matures on December 31, 2015, is secured by a security interest in all of the tangible and intangible assets of the Company and is subject to acceleration upon an event of default. Under the InterDigital NPA, commencing July 1, 2013, the Company is required to comply with certain financial covenants, including a leverage ratio covenant and an annual limit on capital expenditures other than in the ordinary course of business.. A portion of the proceeds from the sale of the InterDigital Note were used to repay the Colatosti Note in full, with the remaining proceeds to be used for other general corporate purposes.  At March 31, 2013, the amount payable under the InterDigital Note was $497,307.

In connection with the InterDigital NPA and InterDigital Note, the Company incurred costs totaling $57,203.  Such costs were capitalized and are being amortized over the term of the InterDigital Note on the effective interest method.

6.                      STOCKHOLDERS’ DEFICIENCY

Issuances of Common Stock

Pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and DRNC (the “InterDigital SPA”), the Company issued 4,026,935 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693. DRNC has anti-dilution rights under the InterDigital SPA that would require the Company to issue additional shares to DRNC on a full-ratchet basis if the Company, within the nine months following February 26, 2013, sells or issues any common stock or common stock equivalents (other than sales or issuances to directors, officers, employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect of the Company’s common stock) having a purchase, exercise or conversion price per share of less than $0.10.

Concurrently with the closing of the transactions described above, the Company closed an equity financing with a number of private investors pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and such private and institutional investors (the “Private Investor SPA”). Pursuant to the Private Investor SPA, the Company issued 5,000,000 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000.

F-37

In connection with the share issuances described above, the Company incurred costs of $46,176 which were offset against additional paid-in capital.

Issuances of Stock Options

For the three months ended March 31, 2013 and 2012, 2,300,000 and 1,125,000 stock options were granted, respectively. Terms of the options issued in 2013 include the following: term - 7 years, exercise price - $0.17, vesting - 3 years.

Derivative Liabilities

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC 815, “Derivatives and Hedging.”

As discussed above, the Company issued shares to DRNC that contain anti-dilution rights.  The Company determined that the anti-dilution rights are embedded derivatives that must be bifurcated and recorded as derivative liabilities. In addition, the Company would be required to revalue the derivative liabilities at the end of each reporting period with the change in value reported on the statement of operations. The Company did not account for these derivative liabilities in its financial statements as it was determined to not be material.

7.                      SEGMENT INFORMATION

The Company has determined that its continuing operations are one discrete segment consisting of Biometric products. Geographically, North American sales accounted for approximately 98% and 97% of the Company’s total sales for the three months ended March 31, 2013 and 2012, respectively.

8.                      FAIR VALUES OF FINANCIAL INSTRUMENTS                                       

Cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities, and notes payable, are carried at, or approximate, fair value because of their short-term nature.

9.                      MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLES

For the three months ended March 31, 2013 and 2012, three customers accounted for 61% and 76% of revenue, respectively.  At March 31, 2013, one customer accounted for 56% of accounts receivable.  At December 31, 2012, two customers accounted for 88% of accounts receivable.

F-38

16,026,947 Shares

BIO-KEY INTERNATIONAL, INC.

Common Stock

P R O S P E C T U S

_______________, 2013

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.     OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses incurred by us in connection with the sale of the common stock being registered by this registration statement. All amounts shown are estimates, except for the Securities and Exchange Commission (“SEC”) registration fee.

SEC registration fee	$	703.56
Printing and engraving expenses		1,000
Accounting fees and expenses		5,000
Legal fees and expenses		20,000
Miscellaneous expenses		1,000
Total	$	27,703.56

ITEM 14.     INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (“DGCL”) authorizes a corporation to indemnify its directors and officers against liabilities arising out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact of their prior or current service to the corporation as a director or officer, in accordance with the provisions of Section 145, which are sufficiently broad to permit indemnification under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”). The indemnity may cover expenses (including attorneys’ fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with any such action, suit or proceeding. Section 145 permits corporations to pay expenses (including attorneys’ fees) incurred by directors and officers in advance of the final disposition of such action, suit or proceeding. In addition, Section 145 provides that a corporation has the power to purchase and maintain insurance on behalf of its directors and officers against any liability asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such, whether or not the corporation would have the power to indemnify the director or officer against such liability under Section 145.

Our certificate of incorporation, as amended, provides that, unless otherwise required under applicable law, (1) a director shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, and (2) we shall indemnify any director or officer made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact of such person’s current or prior service as a director or officer of the Company, any predecessor of the Company or any other enterprise per the Company’s or any predecessor to the Company’s request.

Our bylaws provide that (a) we shall indemnify and hold harmless our directors and officers to the maximum extent and in the manner permitted by the DGCL against expenses (including attorneys’ fees) reasonably incurred in connection with any proceeding, whether civil, criminal, administrative or investigative, arising by reason of the fact that such person is or was an agent of the corporation, (b) we shall advance expenses incurred by any director or officer prior to the final disposition of any proceeding to which the director or officer was or is or is threatened to be made a party promptly following a request therefore, subject to certain limited requirements, and (c) the rights conferred in our Bylaws are not exclusive.

II-1

We have also obtained insurance policies covering our directors and officers with respect to certain liabilities, including liabilities arising under the Securities Act.

ITEM 15.     RECENT SALES OF UNREGISTERED SECURITIES

Over the past several years, we have issued and sold the following securities without registration under the Securities Act:

On December 31, 2010, we entered into a Securities Exchange Agreement with The Shaar Fund Ltd. (“Shaar”) and Thomas J. Colatosti, a member of our board of directors, pursuant to which these investors agreed to exchange all of their outstanding shares of our Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by us to each of these investors, for new non-convertible 7% Secured Promissory Notes in the aggregate original principal amount of $3,508,563. We also exchanged all existing 5,108,333 warrants previously issued by us to Shaar for a new five-year warrant to allow Shaar to purchase up to an aggregate of 8,000,000 shares of our common stock at an initial exercise price of $0.30 per share. The securities were issued to accredited investors in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

On February 26, 2013, we issued 4,026,935 shares of common stock to DRNC Holdings, Inc. for an aggregate purchase price of $402,963. On February 26, 2013, we also issued 5,000,000 shares of common stock to a limited number of investors for an aggregate purchase price of $500,000. The securities were issued to accredited investors in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

On July 23, 2013, we issued 3,500,006 units consisting of 3,500,006 shares of common stock and warrants to purchase an additional 3,500,006 shares of common stock for an aggregate purchase price of $1,050,000. Each unit consists of one share of common stock and a warrant to purchase one share of common stock. Each warrant is immediately exercisable at an exercise price of $0.40 per share and expires five years after the date of grant. The securities were issued to accredited investors in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

II-2

We have issued options to our directors and executive officers. A description of these securities is set forth under the section entitled “Executive Compensation”. These securities were issued to a limited number of accredited investors in private placement transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

ITEM 16.     EXHIBITS

The following exhibits are filed as part of this registration statement:

Exhibit No.	Exhibit
3.1	Certificate of Incorporation of BIO-key International, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the SEC on January 5, 2005)
3.2	Bylaws (incorporated by reference to Exhibit 3.3 to the current report on Form 8-K, filed with the SEC on January 5, 2005)
3.3	Certificate of Designation of Series A 7% Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the current report on Form 8-K, filed with the SEC on January 5, 2005)
3.4	Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Appendix A to the definitive proxy statement, filed with the SEC on January 18, 2006)
3.5	Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 99.6 to the current report on Form 8-K, filed with the SEC on January 25, 2006)
3.6	Certificate of Designation of Series C Convertible Preferred Stock (incorporated by reference to Exhibit 99.4 to the current report on Form 8-K, filed with the SEC on August 16, 2006)
3.7	Certificate of Designation of Series D 7% Convertible Preferred Stock (incorporated by reference to Exhibit 3.7 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)
4.1	Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form SB-2, File No. 333-16451)
5.1*	Opinion of Fox Rothschild LLP
10.1	SAC Technologies, Inc. 1999 Stock Option Plan (incorporated by reference to Exhibit 10.24 to the annual report on Form 10-KSB, filed with the SEC on April 14, 2000)
10.2	Employment Agreement by and between BIO-key International, Inc. and Mira LaCous dated November 20, 2001 (incorporated by reference to Exhibit 10.39 to the current report on Form 8-K, filed with the SEC on January 22, 2002)

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10.3	BIO-key International, Inc. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.48 to amendment no. 1 the registrant’s registration statement on Form SB-2, File No. 33-120104, filed with the SEC on December 14, 2004)
10.4	Option to Purchase 50,000 and 65,241 Shares of Common Stock issued to Thomas J. Colatosti (incorporated by reference to Exhibit 10.76 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.5	Options to Purchase 100,000 and 130,481 Shares of Common Stock issued to Jeff May (incorporated by reference to Exhibit 10.77 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.6	Options to Purchase 50,000 and 32,620 Shares of Common Stock issued to Charles Romeo (incorporated by reference to Exhibit 10.78 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.7	Options to Purchase 50,000 and 48,930 Shares of Common Stock issued to John Schoenherr incorporated by reference to Exhibit 10.79 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.8	Option to Purchase 500,000 Shares of Common Stock issued to Michael W. DePasquale (incorporated by reference to Exhibit 10.84 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.9	Option to Purchase 50,000 Shares of Common Stock issued to Thomas J. Colatosti (incorporated by reference to Exhibit 10.85 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.10	Options to Purchase 50,000 and 25,000 Shares of Common Stock issued to Jeff May (incorporated by reference to Exhibit 10.86 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.11	Option to Purchase 50,000 Shares of Common Stock issued to Charles Romeo (incorporated by reference to Exhibit 10.87 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.12	Option to Purchase 100,000 Shares of Common Stock issued to John Schoenherr (incorporated by reference to Exhibit 10.88 to the annual report on Form 10-K, filed with the SEC on March 11, 2009)
10.13	Warrant to Purchase 250,000 shares of Common Stock issued to Thomas J. Colatosti on December 28, 2009 (incorporated by reference to Exhibit 10.89 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)
10.14	Convertible Note, dated as of December 28, 2009, by and between the Company and The Shaar Fund Ltd. (incorporated by reference to Exhibit 10.90 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)
10.15	Convertible Note dated as of December 28, 2009, by and between the Company and Thomas J. Colatosti (incorporated by reference to Exhibit 10.91 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)

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10.16	Compensation Agreement, dated January 12, 2010, by and between the Company and Mr. Colatosti (incorporated by reference to Exhibit 10.92 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)
10.17	Employment Agreement, effective March 25, 2010, by and between the Company and Michael W. DePasquale (incorporated by reference to Exhibit 10.93 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)
10.18	Omnibus Amendment and Waiver Agreement, dated as of December 30, 2010, by and between the Company and InterAct911 Mobile Systems, Inc., and SilkRoad Equity, LLC (incorporated by reference to Exhibit 10.40 to the annual report on Form 10-K, filed with the SEC on March 23, 2011)
10.19	Securities Exchange Agreement, dated as of December 31, 2010, by and between the Company and The Shaar Fund Ltd., and Thomas J. Colatosti (incorporated by reference to Exhibit 10.40 to the annual report on Form 10-K, filed with the SEC on March 23, 2011)
10.20	Security and Subordination Agreement, dated as of December 31, 2010, by and between the Company and The Shaar Fund Ltd., and Thomas J. Colatosti (incorporated by reference to Exhibit 10.42 to the annual report on Form 10-K, filed with the SEC on March 23, 2011)
10.21	Warrant to purchase 8,000,000 shares of Common Stock issued to The Shaar Fund Ltd. on December 31, 2010 (incorporated by reference to Exhibit 10.43 to the annual report on Form 10-K, filed with the SEC on March 23, 2011)
10.22	Secured Note, dated as of December 31, 2010, by and between the Company and The Shaar Fund Ltd. (incorporated by reference to Exhibit 10.44 to the annual report on Form 10-K, filed with the SEC on March 23, 2011)
10.23	Secured Note, dated as of December 31, 2010, by and between the Company and Thomas J. Colatosti (incorporated by reference to Exhibit 10.55 to the annual report on Form 10-K, filed with the SEC on March 23, 2011)
10.24	Note Amendment and Extension Agreement, effective as of December 31, 2012, by and between the Company and Thomas J. Colatosti (incorporated by reference to Exhibit 10.24 to the annual report on Form 10-K, filed with the SEC on April 1, 2013)
10.25	Note Purchase Agreement, dated February 26, 2013, by and between the Company and DRNC Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q, filed with the SEC on May 15, 2013)
10.26	Senior Secured Term Promissory Note, dated February 26, 2013 (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q, filed with the SEC on May 15, 2013)
10.27	Securities Purchase Agreement, dated February 26, 2013, by and between the Company and DRNC Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q, filed with the SEC on May 15, 2013)

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10.28	Form of Securities Purchase Agreement, dated February 26, 2013, by and between the Company and certain investors (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q, filed with the SEC on May 15, 2013)
10.29*	Form of Securities Purchase Agreement, dated July 23, 2013, by and between the Company and certain investors
10.30*	Form of Warrant
21.1*	List of subsidiaries of Bio-key International, Inc.
23.1*	Consent of Rotenberg Meril Solomon Bertiger & Guttilla P.C.
23.2*	Consent of Fox Rothschild LLP (included in Exhibit 5.1)
24.1*	Power of Attorney (included on signature page)

101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

 

* filed herewith

ITEM 17.     UNDERTAKINGS

(a)           The undersigned registrant hereby undertakes:

(1)           to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i)           to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii)          to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii)         to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2)           that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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(3)           to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4)           that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(b)           Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wall, State of New Jersey, on July 26, 2013.

 

BIO-KEY INTERNATIONAL, INC.
By:	/s/ Michael W. DePasquale
	Michael W. DePasquale
	Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Michael W. DePasquale, with full authority to act without the others, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
/s/ Michael W. DePasquale	Chief Executive Officer and Director	July 26, 2013
Michael W. DePasquale	(Principal Executive Officer)
/s/ Cecilia Welch	Chief Financial Officer	July 26, 2013
Cecilia Welch	(Principal Financial and Accounting Officer)
/s/ Thomas J. Colatosti	Chairman of the Board of Directors	July 26, 2013
Thomas J. Colatosti
/s/ Jeffrey J. May	Director	July 26, 2013
Jeffrey J. May
s/ Charles P. Romeo	Director	July 26, 2013
Charles P. Romeo
/s/ John Schoenherr	Director	July 26, 2013
John Schoenherr

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EX-5

Exhibit 5.1

[Letterhead of Fox Rothschild LLP]

July 26, 2013

BIO-Key International, Inc.

3349 Highway 138

Building D, Suite B

Wall, New Jersey 07719

Dear Gentlemen:

We have acted as counsel to BIO-Key International, a Delaware corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “1933 Act”), of a Registration Statement on Form S-1 (the "Registration Statement"), relating to the offer and sale of up to 16,026,947 shares (the “Shares”) of common stock, $.0001 par value per share (the “Common Stock”), of the Company which may be offered and sold from time to time by the selling stockholders identified in the Registration Statement. The Shares consist of 12,526,941 outstanding shares of Common Stock (the “Outstanding Shares”) and 3,500,006 shares of Common Stock (the “Warrant Shares”) issuable upon the exercise of warrants (the “Warrants”).

As counsel to the Company, we have examined and relied upon originals or copies, authenticated or certified to our satisfaction, of all such corporate records of the Company, including the resolutions of the Company's board of directors and other records relating to the authorization, sale, and issuance of the Shares, communications or certifications of public officials, certificates of officers, directors and representatives of the Company and such other documents as we have deemed relevant and necessary as the basis of the opinions expressed herein. In making such examination, we have assumed the genuineness of all signatures, the authenticity of all documents tendered to us as originals, and the conformity to original documents of all documents submitted to us as certified or photostatic copies.

Based upon the foregoing, we are of the opinion that: (i) the Outstanding Shares described in the Registration Statement have been duly authorized, are validly issued, fully paid and non assessable; and (ii) the Warrant Shares to be issued by the Company as described in the Registration Statement have been duly authorized, and, when issued in accordance with the terms and conditions of the Warrants, will be validly issued, fully paid and non-assessable.     

Our opinion expressed herein is limited to the laws of the State of Delaware.

This opinion letter has been prepared for your use in connection with the offer and sale of the Shares, speaks as of the date the Registration Statement is declared effective by the Securities and Exchange Commission, and we assume no obligation to advise you of any changes in the foregoing subsequent to that date.

We consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Prospectus contained therein. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

/s/ Fox Rothschild LLP

EX-10

Exhibit 10.29

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of this 23^rd day of July, 2013 by and among BIO-key International, Inc., a Delaware corporation (the “Company”), and the investors listed on Schedule I attached hereto (each an “Investor” and collectively the “Investors”).

Recitals:

The Company desires to issue and sell to each Investor and each Investor desires to purchase from the Company, such number of shares (the “Shares”) of common stock, par value $0.0001 per share (the “Common Stock”), of the Company and such number of warrants (the “Warrants”) to purchase additional shares of Common Stock as set forth opposite such Investor’s name on Schedule I hereto under the columns titled “Purchased Shares” and “Purchased Warrants.” The Warrants shall be issued in the form attached hereto as Exhibit A The Shares and Warrants will be sold in units (the “Units”) with each Unit comprised of one (1) Share and one (1) Warrant at a purchase price of $0.30 per Unit. The Shares, the Warrants, and the shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”) are hereinafter referred to collectively as the “Securities”.

NOW, THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investors hereby agree as follows:

1.            Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth in this Section 1:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the 1933 Act.

“Action” has the meaning set forth in Section 4.7.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New Jersey are open for the general transaction of business.

“Closing” means the closing of the transactions contemplated by this Agreement.

“Closing Date” means the date of the Closing.

“Commission” means the United States Securities and Exchange Commission or any successor thereto.

“Common Stock” has the meaning set forth in the Recitals.

“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“GAAP” has the meaning set forth in Section 4.10.

“Indemnified Party” has the meaning set forth in Section 6.1.

“Indemnifying Party” has the meaning set forth in Section 6.1.

“Losses” has the meaning set forth in Section 6.1.

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, properties, results of operations, condition (financial or otherwise), prospects or business of the Company, individually or taken as a whole, or (ii) the ability of the Company to issue and sell the Securities contemplated hereby.

“Per Share Price” has the meaning set forth in Section 6.4.

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

“Purchase Price” has the meaning set forth in the Recitals.

“Registration Statement” has the meaning set forth in Section 6.2.

“SEC Filings” has the meaning set forth in Section 4.10.

“Shares” has the meaning set forth in the Recitals.

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or OTC Bulletin Board (or any successors to any of the foregoing).

“Transfer” means to sell, assign, transfer or dispose of.

“1933 Act” means the Securities Act of 1933, as amended.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

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2.            Purchase and Sale of the Securities. Subject to the terms and conditions of this Agreement, at the Closing, each Investor shall purchase, and the Company shall sell and issue to each Investor such number of Securities as is set forth opposite such Investor’s name in Schedule I under the columns titled “Purchased Shares” and “Purchased Warrants” in exchange for the aggregate purchase price set forth opposite such Investor’s name in Schedule I under the column titled “Purchase Price”. Each Investor shall pay the applicable aggregate purchase price as set forth on Schedule I in United States dollars by wire transfer of immediately available funds to the Company’s account set forth on Schedule II attached hereto.

3.            Closing. The Closing shall take place on the date hereof following the satisfaction (or waiver) of the conditions to Closing set forth in Section 7 through an exchange of consideration and documents using wire transfers, overnight courier service, electronic mail and/or facsimile transmission, or at such other time and place and by such other means as the Company and the Investors mutually agree upon. At the Closing, the Company shall deliver to each Investor a stock certificate and a warrant, each registered in the name of such Investor, representing the Shares and Warrants, respectively, that such Investor is purchasing hereunder.

4.            Representations and Warranties of the Company. The Company hereby represents and warrants to the Investors on and as of date hereof, that, except as disclosed in the SEC Filings:

4.1     Organization, Good Standing and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties. The Company is not in violation or default of any of the provisions of its certificate of incorporation and bylaws. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or its leasing of property makes such qualification or licensing necessary, unless the failure to so qualify would not reasonably be expected to have a Material Adverse Effect.

4.2     Authorization. The Company has full power and authority and has taken all requisite action on the part of the Company for (i) the authorization, execution and delivery of this Agreement, (ii) the authorization of the performance of all obligations of the Company hereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities. This Agreement constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

4.3     Valid Issuance. The Securities have been duly and validly authorized and, when issued and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and shall be free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in this Agreement or imposed by applicable securities laws.

4.4     Consents. The execution, delivery and performance by the Company of this Agreement and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, no notice to, or filing with, any Person, governmental body, agency, or official other than those filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods.

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4.5     No Conflict, Breach, Violation or Default. The execution, delivery and performance of this Agreement by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Certificate of Incorporation or Bylaws, both as in effect on the date hereof, or (ii)(a) any statute, rule, regulation or order of any governmental agency or body, any exchange, or any court, domestic or foreign, having jurisdiction over the Company or any of its respective assets or properties, or (b) any agreement or instrument to which the Company is a party or by which the Company is bound or to which any of their respective assets or properties is subject, except for such conflicts, breaches, violations or defaults which would not reasonably be expected to have a Material Adverse Effect.

4.6     Certificates, Authorities and Permits. The Company possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies (including the Federal Communications Commission) necessary to conduct the business now operated by it, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.

4.7     Litigation. There are no pending actions, suits or proceedings before a court of competent jurisdiction or a tribunal (collectively, an “Action”) against the Company which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or the issuance of the Securities or (ii) could, if there were an unfavorable decision, reasonably be expected to have or result in, a Material Adverse Effect. The Company is not and has not been within the last five (5) years the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. To the knowledge of the Company, there has not been and there is not pending or contemplated any investigation by the Commission targeting the Company or any current or former director or officer of the Company in respect of any actions by such director or officer with respect to the Company.

4.8     Brokers and Finders. No Person will have, as a result of the issuance of the Securities, any valid right, interest or claim against or upon the Company or any Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.

4.9     Private Placement. Subject to the accuracy of the representations and warranties of each Investor contained in Section 5 hereof, the offer and sale of the Securities to the Investors as contemplated hereby is exempt from the registration requirements of the 1933 Act.

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4.10     SEC Filings. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the 1933 Act and the 1934 Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve (12) months immediately preceding the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein being collectively referred to herein as the “SEC Filings”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Filings prior to the expiration of any such extension. As of their respective dates, the SEC Filings complied in all material respects with the requirements of the 1933 Act and the 1934 Act, as applicable, and none of the SEC Filings, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Filings comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

4.11     Capitalization. The capitalization of the Company is as set forth in the Company’s Annual Report on Form 10-K filed on April 1, 2013. The Company has not issued any capital stock since April 1, 2013, other than pursuant to the exercise of employee and director stock options under the Company’s equity compensation plans, the issuance of employee and director equity compensation under the Company’s equity compensation plans and the issuance of shares of Common Stock to employees and directors pursuant to the Company’s equity compensation plans. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investor) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except for agreements filed as exhibits to the SEC Filings, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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4.12     Material Changes; Undisclosed Events or Liabilities. Since the date of the latest audited financial statements included within the SEC Filings, except as disclosed in a subsequent SEC Filing filed prior to the date hereof, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.

4.13     Compliance. The Company is not: (i) in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material written agreement or written instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) in violation of any judgment, decree or order of any court, arbitrator or governmental body in which the Company is named as a party, or (iii) in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not reasonably be expected to have or result in a Material Adverse Effect.

4.14     Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the 1934 Act, and the Company has taken no action designed to terminate the registration of the Common Stock under the 1934 Act nor has the Company received any written notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received written notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is in compliance with all such listing and maintenance requirements in all material respects.

5.            Representations, Warranties and Agreements of the Investors. Each Investor, severally and not jointly with the other Investors, hereby represents and warrants to the Company on and as of the date hereof that:

5.1     Authorization. The execution, delivery and performance by such Investor of this Agreement has been duly authorized and will constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

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5.2     Purchase Entirely for Own Account. The Securities will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the 1933 Act; provided, however, by making the representations herein, such Investor does not agree, or make any representation or warranty, to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act but subject at all times to the transfer restrictions set forth in Section 8. Such Investor is acquiring the Securities hereunder in the ordinary course of its business. Such Investor is not a registered broker dealer or an entity engaged in the business of being a broker dealer.

5.3     Investment Experience. Such Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

5.4     Disclosure of Information. Such Investor has had an opportunity to receive all additional information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities.

5.5     Restricted Securities. Such Investor understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances.

5.6     Legends.

(a)     It is understood that, except as provided below, certificates evidencing the Securities may bear the following or any similar legend:

“The securities represented hereby may not be transferred unless (A)(i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, or (ii) the Company has received an opinion of counsel satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws and (B) such transfer is in compliance with the terms of the Purchase Agreement between the Company and the Investor, including the transfer restrictions set forth in Section 8 thereof.”

(b)     If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority.

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(c)     Such Investor acknowledges and agrees that the Securities are subject to the transfer restrictions set forth in Section 8 of this Agreement.

5.7     Accredited Investor. Such Investor is an “accredited investor” as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

5.8     No General Solicitation. Such Investor did not learn of the investment in the Securities as a result of any “general advertising” or “general solicitation” as those terms are contemplated in Regulation D, as amended, under the 1933 Act.

5.9     Brokers and Finders. No Person will have, as a result of the issuance of the Securities, any valid right, interest or claim against or upon the Company or such Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor.

5.10     Restriction on Hedging. Such Investor will not engage in, and has not engaged in prior to the Closing Date, any hedging or other transaction which is designed to or reasonably expected to lead to or result in a sale or disposition of shares of Common Stock even if such securities would be disposed of by someone other than such Investor. Such prohibited hedging or other transactions would include without limitation any short position or sale or any purchase, sale or grant of any right (including without limitation any put option or put equivalent position or call option or call equivalent position) with respect to any of the shares of Common Stock or with respect to any security that includes, relates to, or derives any significant part of its value from such shares.

6.             Other Agreements of the Parties.

6.1     Indemnification.

(a)     Subject to the provisions of this Section 6.1, each Investor severally with respect to the Company on the one hand, and the Company with respect to each Investor on the other hand (each an “Indemnifying Party”), will indemnify and hold the Company or such Investor, respectively, and such other party’s directors, officers, shareholders, members, partners, employees and agents, each Person who controls the such other party (within the meaning of Section 15 of the 1933 Act and Section 20 of the 1934 Act), and the directors, officers, shareholders, agents, members, partners or employees of such controlling persons (each, an “Indemnified Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation (“Losses”) that any such Indemnified Party may suffer or incur as a result of or relating to any breach of any of the representations, warranties, covenants or agreements made by the respective Indemnifying Party in this Agreement. If any action shall be brought against any Indemnified Party in respect of which indemnity may be sought pursuant to this Agreement, such Indemnified Party shall promptly notify the applicable Indemnifying Party in writing, and such Indemnifying Party shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Indemnified Party. Any Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party. An Indemnifying Party will not be liable to any Indemnified Party under this Agreement (x) for any Losses constituting consequential damages, punitive or exemplary damages, special damages, lost profits, incidental damages, indirect damages or other similar items, except to the extent awarded to a third party; (y) for any settlement by an Indemnified Party effected without such Indemnifying Party’s prior written consent; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to the breach by an Indemnified Party or its Affiliate of any of the representations, warranties, covenants or agreements made by such Indemnified Party or its Affiliate in this Agreement, any violations by the Indemnified Party or its Affiliate of state or federal securities laws or any conduct by the Indemnified Party or its Affiliate which constitutes fraud, gross negligence, willful misconduct or malfeasance.

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(b)     If the Closing occurs, the Company shall not be liable to any Investor for any Losses for breach of the representations and warranties of the Company contained herein (y) unless and until the aggregate claims therefor exceed $50,000, or (z) for an aggregate amount in excess of such Investor’s aggregate purchase price as set forth on Schedule I under the column titled “Purchase Price”.

6.2     Registration. Upon written request of the Investors holding at least a majority of the shares of Common Stock issued pursuant to this Agreement, the Company agrees to file with the Commission a registration statement (the “Registration Statement”) to register the Common Stock within thirty (30) days from the date of such request. The Company will use its best efforts to cause the Registration Statement to be declared effective within sixty (60) days (or 90 days in the event of review by the Commission) following the date of such request.

6.3     Listing of Common Stock. The Company hereby agrees to use its commercially reasonable efforts to maintain the listing or quotation of the Common Stock on the OTC Bulletin Board, and the Company shall promptly apply to list or quote all of the Shares. The Company agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Shares, and will take such other action as is necessary to cause all of the Shares to be listed or quoted on such Trading Market as promptly as possible.

6.4     Anti-Dilution. If at any time within six (6) months from the Closing Date the Company sells or issues any Common Stock or Common Stock Equivalents (other than sales or issuances to directors, officers, employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect of the Common Stock) having a purchase, exercise or conversion price per share of Common Stock less than the purchase price per Unit paid by the Investors under this Agreement (appropriately adjusted to account for any stock split, stock dividend or similar change affecting the Common Stock) (such price per share, as amended by reason of any adjustment or adjustments under this Section 6.4, the “Per Share Price”), then in such event the Per Share Price shall automatically be reduced to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula, and the Company shall issue to each Investor concurrently with such Additional Issuance a number of additional validly issued, fully paid and nonassessable shares of Common Stock such that the aggregate number of shares of Common Stock issued to each Investor pursuant to this Agreement shall equal the result obtained by dividing each Investor’s aggregate purchase price as set forth on Schedule I hereto under the column titled “Purchase Price” by the Per Share Price:

CP2 = CP1* (A + B) ÷ (A + C).

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For purposes of the foregoing formula, the following definitions shall apply:

(a)     “CP2” shall mean the Per Share Price in effect immediately after such Additional Issuance;

(b)     “CP1” shall mean the Per Share Price in effect immediately prior to such Additional Issuance;

(c)     “A” shall mean the number of shares of Common Stock outstanding immediately prior to such Additional Issuance (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of any rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock outstanding immediately prior to such Additional Issuance);

(d)     “B” shall mean the number of shares of Common Stock that would have been issued if the Additional Issuance had been made at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by CP1); and

(e)     “C” shall mean the number of such shares of Common Stock issued in the Additional Issuance.

6.5     Confidentiality. Each Investor covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company, such Investor will maintain the confidentiality of the existence and terms of this Agreement.

7.             Conditions to Closing.

7.1     Conditions to an Investor’s Obligations. The obligations of each Investor to purchase its portion of the Securities at the Closing is subject to the fulfillment, on or prior to the Closing Date, of the following conditions, any of which may be waived by an Investor and such waiver shall not be effective against any other Investor unless it consents thereto:

(a)     The representations and warranties made by the Company in Section 4 hereof shall be true and correct in all material respects at all times prior to and on the Closing Date.

(b)     The Company shall have obtained in a timely fashion any and all consents, approvals and waivers necessary or appropriate for consummation of the purchase and sale of the Securities, and all of which shall be and remain so long as necessary in full force and effect.

(c)     No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, or self-regulatory organization enjoining or preventing the consummation of the transactions contemplated hereby.

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7.2     Conditions to Obligations of the Company. The Company’s obligation to sell and issue the Securities to the Investors at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which (other than subsection (b) below) may be waived by the Company:

(a)     The representations and warranties made by such Investor in Section 5 hereof shall be true and correct at all times prior to and on the Closing Date.

(b)     Such Investor shall have delivered its respective aggregate purchase price as set forth on Schedule I under the column titled “Purchase Price” to the Company.

(c)     No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, or self-regulatory organization enjoining or preventing the consummation of the transactions contemplated hereby.

8.             Transfer Restrictions. Except pursuant to an effective Registration Statement covering the public resale of the Shares and Warrant Shares, neither the Shares nor Warrant Shares may be Transferred by such Investor prior to the six-month anniversary of the Closing Date. Following the six-month anniversary of the Closing Date, such Investor may, subject to compliance with applicable securities laws, Transfer the Shares or Warrant Shares. Such Investor acknowledges and agrees that the Company shall issue to its transfer agent such instructions, directions and stop transfer orders as are necessary to implement the provision of this Section 8.

9.             Miscellaneous.

9.1     Survival. All representations and warranties contained in this Agreement shall be deemed to be representations and warranties as of the date hereof, and such representations and warranties, together with the right to assert a claim in respect thereof, shall expire on the twelve month anniversary of the Closing Date. The covenants and agreements contained in this Agreement shall survive the Closing Date until the expiration of the applicable statute of limitations.

9.2     Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Neither the Company nor any Investor may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party; provided, however, that any Investor may assign some or all of its rights hereunder to any Affiliate of such Investor without the consent of the Company. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

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9.3      Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.

9.4      Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

9.5      Notices. Any notices, demands and communications to a party hereunder shall be in writing and shall be deemed to have been duly given and received (a) if delivered personally, as of the date received, (b) if delivered by certified mail, return receipt requested, three business days after being mailed, (c) if delivered by a nationally recognized overnight delivery service, two business days after being entrusted to such delivery service, or (d) if sent via facsimile, electronic mail or similar electronic transmission, as of the date received, to such party at its address set forth below (or such other address as it may from time to time designate in writing to the other parties hereto):

If to the Company:

BIO-key International, Inc.
3349 Highway 138
Building D, Suite A
Wall, NJ 07719
Attention: Mike DePasquale, President and CEO
Fax: (732) 359-1101

With a copy to:

Fox Rothschild, LLP

997 Lenox Drive Bldg. 3

Lawrenceville, NJ 08648

Telephone : (609) 896-4571

Fax : (609) 896-1469

Attn: Vincent A. Vietti, Esquire

If to an Investor, to such Investors at the address set forth for such Investor on the signature page or Schedule I hereto, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 9.5.

9.6      Expenses. The Company and each Investor shall each bear their own expenses in connection with the negotiation, preparation, execution and delivery of this Agreement.

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9.7      Amendments and Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Investors who purchase at least a majority of the total Securities issued hereunder, or in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any amendment or waiver effected in accordance with this Section 9.7 shall be binding upon each holder of the Securities at the time outstanding, each future holder of the Securities, and the Company.

9.8      Publicity. No public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investors without the prior consent of the Company (in the case of a release or announcement by any Investor) or the Investors (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market on which the Shares are then listed and trading.

9.9      Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

9.10     Entire Agreement. This Agreement, including Schedule I and Schedule II and any other exhibits or schedules hereto, constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof. Prior drafts or versions of this Agreement shall not be used to interpret this Agreement.

9.11     Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

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9.12     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York, New York and the United States District Court for the Southern District of New York located in New York, New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

[Signature page follows.]

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IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Purchase Agreement as of the date first above written.

BIO-KEY INTERNATIONAL, INC.

By:_______________________________
Name: Michael DePasquale
Title: Chief Executive Officer

INVESTORS:

_______________________________

_______________________________

_______________________________

_______________________________

_______________________________

_______________________________

_______________________________

_______________________________

APPENDIX A

NOTICE OF EXERCISE

To:         BIO-key International, Inc.

               3349 Highway 38

               Building D, Suite A

               Wall, NJ 07719

   Attention: Chief Executive Officer

(1)     The undersigned hereby elects to purchase ____________ shares of Common Stock of Bio-key International, Inc., a Delaware corporation, pursuant to the terms of the attached Warrant, and tenders herewith payment of the Exercise Price for such shares in full in accordance with the terms of the Warrant.

(2)     In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion hereof are being acquired solely for the account of the undersigned, not as a nominee for any other party, and for investment purposes only (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws.

(3)     Terms not otherwise defined in this Notice of Exercise shall have the meanings ascribed to such terms in the attached Warrant

(4)     Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned.

	HOLDER
__________________________	__________________________________
(Date)	(Signature)

EX-10

Exhibit 10.30

WARRANT TO PURCHASE COMMON STOCK

OF BIO-KEY INTERNATIONAL, INC.

WARRANT NO.: 2013- [_____]

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE SECURITIES LAWS.

This WARRANT (“Warrant”) is to verify that, FOR VALUE RECEIVED, [_____________________________] (“Holder”) is entitled to purchase, subject to the terms and conditions hereof, from Bio-key International, Inc. a Delaware corporation (the “Company”), [_____________] shares of common stock, $.0001 par value per share, of the Company (the “Common Stock”), at any time during the period commencing at 9:00 a.m., Eastern Standard Time on the date hereof (the “Commencement Date”) and subject to Section 6 hereof , ending at 5:00 p.m. Eastern Standard Time on July [__], 2018 (the “Termination Date”), at an exercise price (the “Exercise Price”) of $0.40 per share of Common Stock. The number of shares of Common Stock purchasable upon exercise of this Warrant and the Exercise Price per share shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below.

The shares of Common Stock or any other shares or other units of stock or other securities or property, or any combination thereof, then receivable upon exercise of this Warrant, as adjusted from time to time, are sometimes referred to hereinafter as “Exercise Shares.” The exercise price per share as from time to time in effect is referred to hereinafter as the “Exercise Price.”

1. Exercise of Warrant; Issuance of Exercise Shares.

(a) Exercise of Warrant. Subject to the terms hereof, the purchase rights represented by this Warrant are exercisable by the Holder in whole or in part, at any time, or from time to time, by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) accompanied by payment of the Exercise Price in full in cash or by bank or certified check for the Exercise Shares with respect to which this Warrant is exercised and a completed and duly executed Notice of Exercise form attached hereto as Appendix A.

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In the event that this Warrant shall be duly exercised in part prior to the Termination Date, the Company shall issue a new Warrant or Warrants of like tenor evidencing the rights of the Holder thereof to purchase the balance of the Exercise Shares purchasable under the Warrant so surrendered that shall not have been purchased.

(b) Issuance of Exercise Shares: Delivery of Warrant Certificate. The Company shall, within five (5) business days or as soon thereafter as is practicable of the exercise of this Warrant, issue in the name of and cause to be delivered to the Holder one or more certificates representing the Exercise Shares to which the Holder shall be entitled upon such exercise under the terms hereof. Such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become the record holder of the Exercise Shares as of the date of the due exercise of this Warrant.

(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and covenants that all Exercise Shares issuable upon the due exercise of the Warrant represented by this Warrant certificate (“Warrant Certificate”) will, upon issuance and payment therefor in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all taxes (other than taxes which, pursuant to Section 2 hereof, the Company shall not be obligated to pay) or liens, charges, and security interests created by the Company with respect to the issuance thereof.

(d) Reservation of Exercise Shares. The Company covenants that during the term that this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Exercise Shares upon the exercise of this Warrant.

(e) Fractional Shares. The Company shall not be required to issue fractional shares of capital stock upon the exercise of this Warrant or to deliver Warrant Certificates that evidence fractional shares of capital stock. In the event that any fraction of an Exercise Share would, except for the provisions of this subsection (e), be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the Current Market Value of the Exercise Share on the last business day prior to the date on which this Warrant is exercised. For purposes of this Warrant, the “Current Market Value” for any day shall be determined as follows:

(i) if the Exercise Shares are traded in the over-the-counter market and not on any national securities exchange, the average of the mean between the last bid and asked prices per share, as reported by Bloomberg, L.P., or an equivalent generally accepted reporting service, or if not so reported, the average of the closing bid and asked prices for an Exercise Share as furnished to the Company by any member of the Financial Industry Regulatory Authority, selected by the Company for that purpose; or

(ii) if the Exercise Shares are listed or traded on a national securities exchange, the closing price on the principal national securities exchange on which they are so listed or traded, on the last business day prior to the date of the exercise of this Warrant. The closing price referred to in this clause (ii) shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange on which the Exercise Shares are then listed; or

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(iii) if the Exercise Shares are not traded in the over-the-counter market or on any national securities exchange or no such closing price or closing bid and asked prices are available, as determined in any reasonable manner as may be prescribed by the Board of Directors of the Company.

2. Payment of Taxes.

(a) Taxes. The Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Exercise Shares in a name other than that of the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Except as specifically provided in this Section 2, Holder shall be responsible for the payment of all other taxes incurred in connection with the receipt, transfer or sale of the Warrant or the Exercise Shares.

(b) Withholding. The Holder shall pay to the Company, or make arrangements satisfactory to the Company regarding payment of, any federal, state, local and/or payroll taxes of any kind required by law to be withheld with respect to the grant of this Warrant or the issuance of the Exercise Shares. The Company may, to the extent permitted by law, deduct any such taxes from any payment of any kind otherwise due to the Holder whether or not pursuant to this Warrant. The Holder may elect, with the consent of the Company, to have such tax withholding obligation satisfied, in whole or in part, by: (i) authorizing the Company to withhold from the Exercise Shares a number of shares of Common Stock having an aggregate Current Market Value that would satisfy the minimum withholding amount due, or (ii) delivering to the Company a number of shares of Common Stock of which the Holder is the record and beneficial owner and that have been held by the Holder for at least six (6) months with an aggregate Current Market Value that would satisfy the minimum withholding amount due. The Company may require that any fractional share amount be settled in cash. For the purposes of this Section 2, Current Market Value shall be determined as of the date on which the amount of tax to be withheld is determined.

3. Mutilated or Missing Warrant Certificates. In case any Warrant shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant or Warrants of like tenor and in the same aggregate denomination, but only (i) in the case of loss, theft or destruction, upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant and indemnity or bond, if requested, also satisfactory to them and (ii) in the case of mutilation, upon surrender of the mutilated Warrant. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or its counsel may prescribe.

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4. Rights of Holder. The Holder shall not, by virtue of anything contained in this Warrant or otherwise, be entitled to any right whatsoever, either in law or equity, of a stockholder of the Company, including without limitation, the right to receive dividends or to vote or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or the election of directors of the Company or any other matter.

5. Registration of Transfers and Exchanges. Except as set forth in Section 7, this Warrant shall not be transferable. This Warrant may be exchanged, at the option of the Holder thereof and without change, when surrendered to the Company at its principal office, or at the office of its transfer agent, if any, for another Warrant or other Warrants of like tenor and representing in the aggregate the right to purchase from the Company a like number and kind of Exercise Shares as the Warrant surrendered for exchange, and the Warrant so surrendered shall be canceled by the Company or transfer agent, as the case may be.

6. Adjustment of Exercise Shares and Exercise Price; Acceleration. The Exercise Price and the number and kind of Exercise Shares purchasable upon the exercise of this Warrant and the Termination Date shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided. The Exercise Price in effect at any time, the number and kind of securities purchasable upon exercise of each Warrant and the Termination Date shall be subject to adjustment as follows:

(a) In case of any merger or consolidation of the Company with another corporation (other than a merger or consolidation with another corporation in which the Company is the surviving corporation and which does not result in any reclassification or change -- other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination -- of outstanding Common Stock issuable upon such exercise, and which is not subject to Section (b) below), this Warrant shall, without payment of additional consideration therefor, be deemed modified so as to provide that the Holder of this Warrant, upon the exercise thereof, shall procure, in lieu of each share of Common Stock theretofore issuable upon such exercise, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation or merger by the holder of each share of Common Stock, had exercise of this Warrant occurred immediately prior to such reclassification, change, consolidation or merger. This Warrant (as adjusted) shall be deemed to provide for further adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this clause (i) shall similarly apply to successive reclassifications, changes, consolidations and mergers.

(b) In the event of (i) the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets in one or a series of related (ii) the consummation of the merger or consolidation of the Company with or into another entity (except a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity) or (iii) the closing of the transfer (whether by merger, consolidation or otherwise) in one or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of the Company’s securities), of the Company’s securities if, after such transaction, such person or group of affiliated persons would hold 50% or more of the outstanding voting stock of the Company, Holder shall be given at least fifteen (15) days prior written notice of such transaction and shall be permitted to exercise this Warrant during this fifteen (15) day period. Upon expiration of such fifteen (15) day period, this Warrant and all of Holder's rights hereunder shall terminate.

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(c) If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 6.

(d) In case the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, shall be proportionally adjusted so that the Holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares that, if this Warrant had been exercised by such Holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2 for 1 stock dividend or stock split and the Exercise Price immediately prior to such event was $0.40 per share, the adjusted Exercise Price immediately after such event would be $0.20 per share. Such adjustment shall be made successively whenever any event listed above shall occur. Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to this subsection (d), the number of Exercise Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Exercise Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted.

(e) In the event that at any time, as a result of an adjustment made pursuant to subsection (a), (b) (c) or (d) above, the Holder of this Warrant thereafter shall become entitled to receive any Exercise Shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a), (b), (c) or (d) above.

(f) Irrespective of any adjustments in the Exercise Price or the number or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant.

(g) Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the holder and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder.

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(h) All calculations under this Section 6 shall be made to the nearest cent or to the nearest one one-hundredth (1/100th) of a share, as the case may be.

7. Investment Intent, Exercise Restrictions and Transfer Restrictions.

(a) Neither the Exercise Shares nor this Warrant may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the “1933 Act”), unless (i) such security has been registered for sale under the 1933 Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities, or (ii) exemptions from the registration requirements of the 1933 Act and the registration or qualification requirements of all such state securities laws are available and the Company shall have received an opinion of counsel satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the 1933 Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company.

The Holder agrees to indemnify and hold harmless the Company against any loss, damage, claim or liability arising from the disposition of this Warrant or any Exercise Share held by such holder or any interest therein in violation of the provisions of Section 5 or 7 hereof, respectively.

(b) The certificates evidencing any Exercise Shares issued upon the exercise of this Warrant shall have endorsed thereon (except to the extent that the restrictions described in any such legend are no longer applicable) the following legend, appropriate notations thereof will be made in the Company's stock transfer books, and stop transfer instructions reflecting these restrictions on transfer will be placed with the transfer agent of the Exercise Shares.

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER OR OTHER APPLICABLE SECURITIES LAWS.

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8. Indemnification. Holder agrees to indemnify, defend and hold harmless the Company and its respective affiliates and agents from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements incurred by the Company that arise out of or result from a breach of any representations, warranties, covenants or agreements made by Holder herein, and Holder agrees that in the event of any breach of any representations, warranties, covenants or agreements made by Holder herein, the Company may, at its option, forthwith rescind the issuance of this Warrant to Holder.

9. Notices. All notices or other communications under this Warrant shall be in writing and shall be deemed to have been given on the day of delivery if delivered by hand, on the fifth day after deposit in the mail if mailed by certified mail, postage prepaid, return receipt requested, or on the next business day after mailing if sent by a nationally recognized overnight courier such as federal express, addressed as follows:

If to the Company:

BIO-key International, Inc.
3349 Highway 138
Building D, Suite A
Wall, NJ 07719
Attention: Mike DePasquale, President and CEO
Fax: (732) 359-1101

with a copy to:

Fox Rothschild LLP

997 Lenox Drive, Building 3

Lawrenceville, NJ 08646

Attention: Vincent A. Vietti

Fax: (609) 896-1469

and to the Holder at the address of the Holder appearing on the books of the Company or the Company's transfer agent, if any.

Either of the Company or the Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Section 9.

10. Supplements and Amendments. The Company may from time to time supplement or amend this Warrant without the approval of the Holder of this Warrant in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the Holder. Except as set forth in the immediately preceding sentence, this Warrant may not be amended, modified or supplemented except by an instrument or instruments in writing signed by the party against whom enforcement of any such amendment, modification or supplement is sought.

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11. Successors. This Warrant shall inure to the benefit of and be binding on the respective successors and legal representatives of the Holder and the Company.

12. Severability. If for any reason any provision, paragraph or terms of this Warrant is held to be invalid or unenforceable, all other valid provisions herein shall remain in full force and effect and all terms, provisions and paragraphs of this Warrant shall be deemed to be severable.

13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York, without regard to the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent that the General Corporation Law of the State of Delaware shall apply to the internal corporate governance of the Company. The Company and the Holder irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York, New York and the United States District Court for the Southern District of New York located in New York, New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each such person anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the Company and the Holder irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each of the Company and the Holder irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND THE HOLDER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

14. Headings. Section and subsection headings used herein are included herein for convenience of reference only and shall not affect the construction of this Warrant nor constitute a part of this Warrant for any other purpose.

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IN WITNESS WHEREOF, the Company has caused these presents to be duly executed as of the ___ day of July, 2013.

BIO-KEY INTERNATIONAL, INC.
By:	/s/
	Name: Michael DePasquale
	Title: Chief Executive Officer

9

APPENDIX A

NOTICE OF EXERCISE

To:	BIO-key International, Inc.
	3349 Highway 38
	Building D, Suite A
	Wall, NJ 07719
	Attention: Chief Executive Officer

(1) The undersigned hereby elects to purchase ____________ shares of Common Stock of Bio-key International, Inc., a Delaware corporation, pursuant to the terms of the attached Warrant, and tenders herewith payment of the Exercise Price for such shares in full in accordance with the terms of the Warrant.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion hereof are being acquired solely for the account of the undersigned, not as a nominee for any other party, and for investment purposes only (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws.

(3) Terms not otherwise defined in this Notice of Exercise shall have the meanings ascribed to such terms in the attached Warrant

(4) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned.

	HOLDER
__________________________	__________________________________
(Date)	(Signature)

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EX-21

Exhibit 21.1

Subsidiaries

Name	State of Incorporation
Public Safety Group, Inc.	Delaware

EX-23

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 1, 2013, with respect to the financial statements of BIO-Key International, Inc. (the “Company”), included in the Registration Statement (Form S-1) and related Prospectus of the Company for the registration of 16,026,947 shares of its common stock.

/s/ Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.

Saddle Brook, New Jersey

July 26, 2013

XML

Note 2 - Going Concern (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Going Concern [Text Block]
Retained Earnings (Accumulated Deficit)	$ (52,604,000)	$ (52,288,421)		$ (52,291,688)
Cash and Cash Equivalents, at Carrying Value	451,748	83,989	211,003	43,437	1,010,096
Amount of Funds Required to Conduct Operations on Monthly Basis		390,000
Net Proceeds FromIssuance Of A Senior Secured Promissory Note And Common Stock	$ 1,297,000

XML

Note 4 - Earnings Per Share ("EPS") (Details) - Reconciliation of Numerator of Basic and Diluted EPS Calculations (USD $)	3 Months Ended				12 Months Ended
	Mar. 31, 2013		Mar. 31, 2012		Dec. 31, 2012		Dec. 31, 2011
Basic Numerator:
Net (loss) income (in Dollars)	$ (315,579)		$ 363,498		$ 3,267		$ (1,897,606)
Dilutive Denominator:	81,465,289		78,156,172
Per Share Amount (in Dollars per share)	$ 0.00	[1]	$ 0.00	[1]
Basic Denominator:	81,465,289		78,155,413
Per Share Amount (in Dollars per share)	$ 0.00	[1]	$ 0.00	[1]		[1]		[1]
Stock Options			759

[1] Represents less than $0.01

XML

Note K - Notes Payable

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

5.                      NOTES PAYABLE

The 2010 Exchange Agreement

Effective as of December 31, 2010, the Company entered into a Securities Exchange Agreement (the “2010 Exchange Agreement”) with Thomas Colatosti (“Colatosti”), the Company’s Chairman of the Board. Pursuant to the 2010 Exchange Agreement, Mr. Colatosti agreed to exchange all of his outstanding shares of Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by the Company to Mr. Colatosti in the original principal amount of $64,878 for a new non-convertible 7% Secured Promissory Note in the original principal amount of $350,804 (the “Colatosti Note”).

The principal and interest under the Colatosti Note was scheduled to be repaid by the Company in cash on December 31, 2012. Pursuant to a Note Amendment and Extension Agreement effective as of December 31, 2012, the maturity date of the Colatosti Note was extended to March 31, 2013. In February 2013, the principal balance and accrued interest owing under the Colatosti Note was repaid from the proceeds of the new financing (see Note 2).  At March 31, 2013 and December 31, 2012, the amount payable under the Colatosti Note  was $0 and $321,428, respectively.

2013 Note Purchase Agreement

Pursuant to a Note Purchase Agreement dated February 26, 2013 by and between the Company and DRNC (the “InterDigital NPA”). Pursuant to the InterDigital NPA, the InterDigital Note was issued in a principal amount of $497,307 and bears interest at a rate of 7% per annum, with a default rate of 9% per annum while a nonpayment default is continuing. The InterDigital Note matures on December 31, 2015, is secured by a security interest in all of the tangible and intangible assets of the Company and is subject to acceleration upon an event of default. Under the InterDigital NPA, commencing July 1, 2013, the Company is required to comply with certain financial covenants, including a leverage ratio covenant and an annual limit on capital expenditures other than in the ordinary course of business.. A portion of the proceeds from the sale of the InterDigital Note were used to repay the Colatosti Note in full, with the remaining proceeds to be used for other general corporate purposes.  At March 31, 2013, the amount payable under the InterDigital Note was $497,307.

In connection with the InterDigital NPA and InterDigital Note, the Company incurred costs totaling $57,203.  Such costs were capitalized and are being amortized over the term of the InterDigital Note on the effective interest method.

NOTE K—NOTES PAYABLE

The 2010 Exchange Agreement

Effective as of December 31, 2010, the Company entered into a Securities Exchange Agreement (the “2010 Exchange Agreement”) with the Shaar Fund, Ltd. (“Shaar”) and Colatosti.  Pursuant to the 2010 Exchange Agreement, Shaar exchanged all of its outstanding shares of the Company’s Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by the Company to Shaar in the original principal amount of $673,079 for an installment payment of $500,000 and a new non-convertible 7% Secured Promissory Note in the original principal amount of $3,157,759 (the “Shaar Note”).  The installment payment was made in January 2011. Shaar also exchanged all of its existing warrants to purchase the Company’s common stock, exercisable for an aggregate of 5,108,333 shares, for a new five-year warrant to purchase up to an aggregate of 8,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share.  In addition, pursuant to the 2010 Exchange Agreement, Mr. Colatosti agreed to exchange all of his outstanding shares of Series D Convertible Preferred Stock, including all accrued and unpaid dividends thereon, and the 7% Convertible Promissory Note dated as of December 28, 2009 issued by the Company to Mr. Colatosti in the original principal amount of $64,878 for a new non-convertible 7% Secured Promissory Note in the original principal amount of $350,804 (the “Colatosti Note”).

Pursuant to the Exchange Agreement, the Company made a cash payment to Shaar in the amount of $500,000 at the closing of the exchange and also paid approximately $125,209 to Shaar on January 31, 2011 in full satisfaction of the Company’s obligations to Shaar for all accrued and unpaid dividends with respect to the Company’s Series B Convertible Preferred Stock and Series C Convertible Preferred Stock formerly held by Shaar. Effective as of May 20, 2011, the Company exercised its option to prepay the balance due of $3,157,759 owed to Shaar on its Secured Promissory Note. 

Effective as of May 20, 2011, the Company exercised its option to prepay the balance due of $3,157,759 owed to Shaar on its Secured Promissory Note. In consideration of the $150,000 discount granted by the Company for the early payment of the Note Receivable (see “Note E — Note Receivable”), the Company’s Secured Promissory Note holders agreed to effectively absorb $50,000 of the discount, with the remainder borne by the Company. The discount was prorated to both Note holders which reduced the Shaar payment by $45,624 and the principle amount owed on the Colatosti Note by $4,376. The total amount paid by the Company to Shaar was $3,192,421 and included principal of $3,157,759, interest of $80,286 less Shaar’s share of the discount described above.

The principal and interest under the Colatosti Note was scheduled to be repaid by the Company in cash on December 31, 2012.  Pursuant to a Note Amendment and Extension Agreement effective as of December 31, 2012, the maturity date of the Colatosti Note was extended to March 31, 2013. The Company’s obligations under the Colatosti Note were secured by substantially all of the Company’s assets.  At December 31, 2012 and 2011, note payable was $321,428 and $346,428, respectively. Interest incurred on the Colatosti note amounted to $24,626 and $23,309 for the years ended December 31, 2012 and 2011, respectively. Accrued interest owed amounted to $47,935 and $23,309 at December 31, 2012 and 2011, respectively, and is included in accrued liabilities (see Note H).

In February 2013, the principal balance and accrued interest owing under the Colatosti Note was repaid from the proceeds of the new financing (see Note S).

XML

Note E - Note Receivable (Details) (USD $)	1 Months Ended			12 Months Ended
	May 31, 2011	Apr. 30, 2011	Dec. 31, 2010	Dec. 31, 2011	Dec. 31, 2009	May 20, 2011	May 19, 2011
Note E - Note Receivable (Details) [Line Items]
Disposal Group, Selling Price					$ 11,300,000
Proceeds from Divestiture of Businesses					7,300,000
Notes, Loans and Financing Receivable, Net, Noncurrent					4,000,000
Interest Rate on Note Receivable					6.00%
Initial Scheduled Repayment of Principal of Note Receivable					1,334,000
Initial Scheduled Repayment of Principle of Note Receivable, Deferred Portion					834,000
Proceeds from Collection of Notes Receivable	3,113,654	278,000	500,000	3,350,000
Warrants Forfeited (in Shares)			8,000,000
Prepayment Amount of Note Receivable	3,222,000
Discount on Legal Fees							150,000
Discount on Early Payment of Note Receivable Granted by the Company						150,000
Payments for Fees	10,766
Absorbed by Note Holders [Member]
Note E - Note Receivable (Details) [Line Items]
Discount on Early Payment of Note Receivable Granted by the Company							50,000
Principal [Member]
Note E - Note Receivable (Details) [Line Items]
Proceeds from Collection of Notes Receivable	3,222,000
Interest [Member]
Note E - Note Receivable (Details) [Line Items]
Proceeds from Collection of Notes Receivable	$ 30,888

XML

Statements of Operations (USD $)	3 Months Ended				12 Months Ended
	Mar. 31, 2013		Mar. 31, 2012		Dec. 31, 2012		Dec. 31, 2011
Services	$ 276,960		$ 395,854		$ 1,094,731		$ 848,483
License fees and other	527,683		1,014,573		2,741,162		2,660,321
	804,643		1,410,427		3,835,893		3,508,804
Cost of services	40,715		124,017		221,027		159,223
Cost of license fees and other	77,098		57,413		350,706		651,236
	117,813		181,430		571,733		810,459
Gross Profit	686,830		1,228,997		3,264,160		2,698,345
Selling, general and administrative	732,076		604,884		2,288,903		3,036,299
Research, development and engineering	262,809		254,487		947,371		1,116,658
Total Operating Expenses	994,885		859,371		3,236,274		4,152,957
Operating (loss) income	(308,055)		369,626		27,886		(1,454,612)
Interest income					7		95,033
Interest expense	(7,524)		(6,128)		(24,626)		(411,527)
Income taxes							(26,500)
Net discounts of notes payable and note receivable							(100,000)
Total Other income (expenses)	(7,524)		(6,128)		(24,619)		(442,994)
Net (loss) income	$ (315,579)		$ 363,498		$ 3,267		$ (1,897,606)
Basic (Loss) Income per Common Share (in Dollars per share)	$ 0.00	[1]	$ 0.00	[1]		[1]		[1]
Diluted (Loss) Income per Common Share (in Dollars per share)	$ 0.00	[1]	$ 0.00	[1]
Basic and Diluted Income (Loss) per Common Share: (in Dollars per share)		[1]		[1]	$ 0	[1]	$ (0.02)	[1]
Weighted Average Shares Outstanding:
Basic (in Shares)	81,465,289		78,155,413
Diluted (in Shares)	81,465,289		78,156,172
Basic and Diluted (in Shares)					78,155,413		78,155,413

[1] Represents less than $0.01

XML

Note D - Concentration of Risk

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

9.                      MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLES

For the three months ended March 31, 2013 and 2012, three customers accounted for 61% and 76% of revenue, respectively.  At March 31, 2013, one customer accounted for 56% of accounts receivable.  At December 31, 2012, two customers accounted for 88% of accounts receivable.

NOTE D—CONCENTRATION OF RISK

Financial instruments which potentially subject the Company to risk primarily consist of cash and accounts receivables.

The Company maintains its cash balances in a financial institution in Nevada. All non-interest bearing accounts are fully insured by the Federal Deposit Insurance Corporation (FDIC) through December 31, 2012 and interest-bearing accounts are insured by the FDIC up to $250,000.  The Company has not incurred any losses on these accounts.

The Company extends credit to customers on an unsecured basis in the normal course of business. The Company’s policy is to perform an analysis of the recoverability of its receivables at the end of each reporting period and to establish allowances where appropriate. The Company analyzes historical bad debts and contract losses, customer concentrations, and customer credit-worthiness when evaluating the adequacy of the allowances.

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, as follows:

	Years Ended December 31,
	2012			2011
Customer A		31	%		15	%
Customer B		18	%		—
Customer C		*	%		43	%

*      Less than 10% of total revenue

The Company had certain customers whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

	As of December 31,
	2012			2011
Customer C		74	%		78	%
Customer D		14	%		—

*      Less than 10% of total accounts receivable

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Note R - Earnings Per Share

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

4.                      EARNINGS PER SHARE (“EPS”)

The Company’s basic EPS is calculated using net income available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes and preferred stock.

The reconciliation of the numerator of the basic and diluted EPS calculations was as follows for the three month periods ended March 31, 2013 and 2012:

	Three Months ended March 31,
	2013			2012
Basic Numerator:
Net (loss) income	$	(315,579	)	$	363,498
Basic Denominator:		81,465,289			78,155,413
Per Share Amount	$	0.00		$	0.00

The following table summarizes the potential weighted average shares of common stock that were included in the diluted per share calculation for the three months ended March 31, 2013 and 2012.

	Three Months Ended March 31,
	2013		2012
Stock Options		-		759

	Three Months ended March 31,
	2013			2012
Dilutive Numerator:
Net (loss) income	$	(315,579	)	$	363,498
Dilutive Denominator:		81,465,289			78,156,172
Per Share Amount	$	0.00*		$	0.00*

* Represents less than $0.01 per share

The following table sets forth the options and warrants which were excluded from the diluted per share calculation even though the exercise prices were  less than the average market price of the common shares because the effect of including these potential shares was antidilutive due to the net losses for the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013		2012
Stock options		647,660		-
Warrants		-		-
Total		647,660		-

The following table sets forth options and warrants which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

	Three Months Ended March 31,
	2013		2012
Stock options		3,025,000		4,588,560
Warrants		8,250,000		8,250,000
Total		11,275,000		12,838,560

NOTE R—EARNINGS PER SHARE (EPS)

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes and preferred stock.

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price was less than the average market price of the common shares.

	Years ended December 31,
	2012		2011
Stock Options		—		379,865
Potentially dilutive securities		—		379,865

Items excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:

	Years ended December 31,
	2012		2011
Stock options		3,262,272		3,087,140
Warrants		8,250,000		8,250,000
Total		11,512,272		11,337,140

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Note O - Stock Options (Details) (USD $)	12 Months Ended				8 Months Ended			12 Months Ended			8 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Closing Stock Price [Member]	Aug. 31, 2009 Nonstatutory Stock [Member] 1999 Stock Option Plan [Member]	Dec. 31, 2012 In-The-Money Options [Member]	Aug. 31, 2009 1999 Stock Option Plan [Member]	Dec. 31, 2012 2004 Stock Option Plan [Member]	Dec. 31, 2012 Estimate of Fair Value, Fair Value Disclosure [Member]	Dec. 31, 2011 Estimate of Fair Value, Fair Value Disclosure [Member]	Aug. 31, 2009 Minimum [Member] 1999 Stock Option Plan [Member]	Dec. 31, 2012 Minimum [Member] 2004 Stock Option Plan [Member]
Note O - Stock Options (Details) [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance (in Shares)							2,000,000	4,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent											85.00%	85.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		4 years 76 days			10 years			10 years
Share Price (in Dollars per share)				$ 0.09
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number (in Shares)	2,230,594	2,230,594				775,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)	$ 0.09		$ 0.14						$ 0.05	$ 0.11
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value		70,026	52,879
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 47,220	$ 47,220
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition		1 year 200 days

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Note G - Intangible Assets (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Intangible Assets Disclosure [Text Block]
Amortization of Intangible Assets	$ 2,818	$ 2,817	$ 11,269	$ 11,270
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months			11,270
Finite-Lived Intangible Assets, Amortization Expense, after Year Five			$ 139,561

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Note L - Segment Information

12 Months Ended

Dec. 31, 2012

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE L—SEGMENT INFORMATION

The Company has determined that its continuing operations are one discrete segment consisting of Biometric products. Geographically, North American sales accounted for approximately 93% and 54% of the Company’s total sales for fiscal years 2012 and 2011, respectively. Of the 46% of the 2011 non-North American sales, 43% was sales to Africa.

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Note B - Factoring (Details)	24 Months Ended
	Dec. 31, 2012
Note B - Factoring (Details) [Line Items]
Factoring Arrangment Term	24 months
Percentage of Accounts Receivable Remitted by Factor	75.00%
Minimum [Member]
Note B - Factoring (Details) [Line Items]
Factoring Fees, Percent	2.75%
Maximum [Member]
Note B - Factoring (Details) [Line Items]
Factoring Fees, Percent	15.00%

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Note 7 - Segment Information (Details) (Geographic Concentration Risk [Member], North American [Member])	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Geographic Concentration Risk [Member] | North American [Member]
Note 7 - Segment Information (Details) [Line Items]
Concentration Risk, Percentage	98.00%	97.00%

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Note G - Intangible Assets (Details) - Summary of Intangible Assets (USD $)	Dec. 31, 2012	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Finite Lived Intangible Assets Gross Carrying Amount	$ 287,248	$ 287,248
Finite Lived Intangible Assets Accumulated Amortization	(91,337)	(80,068)
Finite Lived Intangible Assets Net Carrying Amount	195,911	207,180
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Finite Lived Intangible Assets Gross Carrying Amount	287,248	287,248
Finite Lived Intangible Assets Accumulated Amortization	(91,337)	(80,068)
Finite Lived Intangible Assets Net Carrying Amount	$ 195,911	$ 207,180

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Note N - Equity (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Total Warrants			Weighted average exercise price		Weighted average remaining life (in years)		Aggregate intrinsic value
Outstanding, as of December 31, 2010		10,261,615		$	0.32
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(2,011,615	)		0.39
Outstanding, as of December 31, 2011		8,250,000		$	0.30		3.97
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		—			—
Outstanding, as of December 31, 2012		8,250,000		$	0.30		2.97		—
Vested or expected to vest at December 31, 2012		8,250,000		$	0.30		2.97		—
Exercisable at December 31, 2012		8,250,000		$	0.30		2.97		—

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Note 2 - Going Concern

3 Months Ended

Mar. 31, 2013

Going Concern [Text Block]

Going Concern [Text Block]

2.                      GOING CONCERN

The Company has incurred significant losses to date and at March 31, 2013,  had an accumulated deficit of approximately $53 million. In addition, broad commercial acceptance of the Company’s technology is critical to the Company’s success and ability to generate future revenues. At March 31, 2013, the Company’s total cash and cash equivalents were approximately $452,000, as compared to approximately $84,000 at December 31, 2012.

The Company has financed itself in the past through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables. The Company currently requires approximately $390,000 per month to conduct  operations, a monthly amount that we have been unable to achieve through revenue generation.

During the three months ended March 31, 2013, the Company raised proceeds of $1,297,000 net of fees through the issuance of a senior secured promissory note and shares of common stock . See Notes 5 and 6.

If the Company is unable to generate sufficient revenue to meet our goals, it will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute its plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. No assurance can be given that any form of additional financing will be available on terms acceptable to the Company, that adequate financing will be obtained by the Company, in order to meet its needs, or that such financing would not be dilutive to existing shareholders.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The matters described in the preceding paragraphs raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

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Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2013

Basis of Accounting [Text Block]

Basis of Accounting [Text Block]

1.                      BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiary (collectively, the “Company”) and are stated in conformity with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. Significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The balance sheet at December 31, 2012 was derived from the audited financial statements, but does not include all of the disclosures required by accounting principles generally accepted in the United States of America. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Form 10-K”), filed on April 1, 2013.

Recently Issued Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

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Note A - The Company and Summary of Significant Accounting Policies (Details) - Share-Based Compensation Expenses for Continuing Operations (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share Based Compensation	$ 12,447	$ 20,741	$ 49,842	$ 57,180
Selling, General and Administrative Expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share Based Compensation	11,121	2,223	22,502	12,054
Research and Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share Based Compensation	$ 1,326	$ 18,518	$ 27,340	$ 45,126

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Note G - Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Intangible Assets Disclosure [Text Block]

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	2012							2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents and patents pending	$	287,248	$	(91,337	)	$	195,911	$	287,248	$	(80,068	)	$	207,180
Total	$	287,248	$	(91,337	)	$	195,911	$	287,248	$	(80,068	)	$	207,180

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Note P - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	2012			2011
Current asset:
Accrued compensation	$	128,000		$	119,000
Accounts receivable allowance		8,000			156,000
Non-current asset (liability):
Stock-based compensation		336,000			—
Basis differences in fixed assets		(10,000	)		(21,000	)
Basis differences in intangible assets		(77,000	)		31,000
Net operating loss carryforwards		16,143,000			15,912,000
Valuation allowances		(16,528,000	)		(16,197,000	)
	$	—		$	—

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	2012			2011
US Federal statutory income tax rate		34	%		34	%
Permanent differences		831			(4	)
Alternative minimum tax		—			1
Effect of net operating loss		(865	)		(30	)
Effective tax rate		—	%		1	%

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Note B - Factoring (Details) - Due from Factor (USD $)	Dec. 31, 2012
Due from Factor [Abstract]
Original Invoice Value	$ 744,315
Factored Amount	554,411
Factored Balance due	$ 189,904

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Note B - Factoring (Tables)

12 Months Ended

Dec. 31, 2012

Note B - Factoring (Tables) [Line Items]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	December 31,
	2012			2011
Accounts receivable	$	625,310		$	984,872
Allowance for doubtful accounts		(20,526	)		(397,526	)
Accounts receivable, net allowances for doubtful accounts		604,784			587,346

Factored Accounts Receivable [Member]

Note B - Factoring (Tables) [Line Items]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	Original Invoice Value		Factored Amount		Factored Balance due
Year Ended December 31, 2012
Factored accounts receivable	$	744,315	$	554,411	$	189,904
Year Ended December 31, 2011
Factored accounts receivable	$	-	$	-	$	-

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Note M - Commitments (Details) - Future Minimum Rental Commitments of Non-Cancelable Operating Leases (USD $)	Dec. 31, 2012
Future Minimum Rental Commitments of Non-Cancelable Operating Leases [Abstract]
2013	$ 137,870
2014	92,097
	$ 229,967

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Note P - Income Taxes (Details) - Reconciliation of the Effective Income Tax Rate to US Federal Statutory Income Tax Rate	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Reconciliation of the Effective Income Tax Rate to US Federal Statutory Income Tax Rate [Abstract]
US Federal statutory income tax rate	34.00%	34.00%
Permanent differences	831.00%	(4.00%)
Alternative minimum tax		1.00%
Effect of net operating loss	(865.00%)	(30.00%)
Effective tax rate		1.00%

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Note M - Commitments (Details) (USD $)	1 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Disclosure Text Block Supplement [Abstract]
Operating Leases, Rent Expense		$ 169,000	$ 166,000
Legal Fees	$ 208,000

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Note A - The Company and Summary of Significant Accounting Policies (Details) - Summary of Accounts Receivables (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Accounts Receivables [Abstract]
Accounts receivable		$ 625,310	$ 984,872
Allowance for doubtful accounts	(20,526)	(20,526)	(397,526)	(11,526)
Accounts receivable, net allowances for doubtful accounts	$ 449,110	$ 604,784	$ 587,346

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Note O - Stock Options (Details) - Options Outstanding and Exercisable (USD $)	2 Months Ended	12 Months Ended
	Mar. 01, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices	$ 0.17
Options Outstanding Weighted average exercise price		$ 0.16	$ 0.22	$ 0.25
Options Outstanding Weighted average remaining life		4 years 76 days
$0.08 - $0.21 [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Options Outstanding Number of shares (in Shares)		2,852,272
Options Outstanding Weighted average exercise price		$ 0.11
Options Outstanding Weighted average remaining life		4 years 83 days
Options Exercisable Number exercisable (in Shares)		1,820,594
Options Exercisable Weighted average exercise price		$ 0.12
$0.08 - $0.21 [Member] | Minimum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.08
$0.08 - $0.21 [Member] | Maximum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.21
$0.22 - $0.40 [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Options Outstanding Number of shares (in Shares)		70,000
Options Outstanding Weighted average exercise price		$ 0.40
Options Outstanding Weighted average remaining life		4 years 7 days
Options Exercisable Number exercisable (in Shares)		70,000
Options Exercisable Weighted average exercise price		$ 0.40
$0.22 - $0.40 [Member] | Minimum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.22
$0.22 - $0.40 [Member] | Maximum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.40
$0.41 - $0.68 [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Options Outstanding Number of shares (in Shares)		340,000
Options Outstanding Weighted average exercise price		$ 0.46
Options Outstanding Weighted average remaining life		4 years 7 days
Options Exercisable Number exercisable (in Shares)		340,000
Options Exercisable Weighted average exercise price		$ 0.46
$0.41 - $0.68 [Member] | Minimum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.41
$0.41 - $0.68 [Member] | Maximum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.68
$0.07 - $0.68 [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Options Outstanding Number of shares (in Shares)		3,262,272
Options Exercisable Number exercisable (in Shares)		2,230,594
$0.07 - $0.68 [Member] | Minimum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.07
$0.07 - $0.68 [Member] | Maximum [Member]
Note O - Stock Options (Details) - Options Outstanding and Exercisable [Line Items]
Range of exercise prices		$ 0.68

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Note S - Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE S—SUBSEQUENT EVENTS

On February 26, 2013, the Company entered into a number of agreements with affiliates of InterDigital, Inc. (NASDAQ: IDCC) (“InterDigital”) relating to a research and development collaboration arrangement (the “R&D Collaboration”).  In connection with this arrangement, affiliates of InterDigital have invested an aggregate of $900,000 in return for newly issued shares of the Company’s common stock (the “InterDigital Equity Investment”) and the Company’s issuance of a senior secured promissory note that will mature December 31, 2015 (the “InterDigital Note”).

The InterDigital Equity Investment was made pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and DRNC Holdings, Inc. (“DRNC”) (the “InterDigital SPA”).  Pursuant to the InterDigital SPA, the Company issued 4,026,935 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693.  DRNC has anti-dilution rights under the InterDigital SPA that would require the Company to issue additional shares to DRNC on a full-ratchet basis if the Company, within the nine months following February 26, 2013, sells or issues any common stock or common stock equivalents (other than sales or issuances to directors, officers, employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect of the Company’s common stock) having a purchase, exercise or conversion price per share less than $0.10.

The InterDigital Note was issued pursuant to a Note Purchase Agreement dated February 26, 2013 by and between the Company and DRNC (the “InterDigital NPA”).  Pursuant to the InterDigital NPA, the InterDigital Note was issued in a principal amount of $497,307 and bears interest at a rate of 7% per annum, with a default rate of 9% per annum while a nonpayment default is continuing.  The InterDigital Note is secured by a security interest in all of the tangible and intangible assets of the Company, and is subject to acceleration upon an event of default.  Under the InterDigital NPA, the Company agreed to comply with certain financial covenants, including a leverage ratio covenant and an annual limit on capital expenditures other than in the ordinary course of business.  A portion of the proceeds from the sale of the InterDigital Note were used to repay the Colatosti Note (see Note I) in full, with the remaining proceeds to be used for other general corporate purposes.

Concurrently with the closing of the InterDigital transactions described above, the Company closed an equity financing with a number of private investors (the “Private Investor Investment”) pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and such private and institutional investors (the “Private Investor SPA”).  Pursuant to the Private Investor SPA, the Company issued 5,000,000 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000.

The total combination of debt, equity and R&D funding of $1,425,000 at closing was used to repay existing debt (the Colatosti Note as defined in Note L, in full), fund growth initiatives and provide general working capital for the business. The transactions are expected to close on or around the end of the first quarter of 2013, and are not expected to have a material effect on the number of common shares or potential common shares of the Company.

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Statements of Cash Flows (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Net (loss) income	$ (315,579)	$ 363,498	$ 3,267	$ (1,897,606)
Adjustments to reconcile net (loss) income to cash (used for) provided by operating activities:
Allowance for doubtful accounts			(377,000)	386,000
Depreciation	5,736	7,970	28,603	31,462
Intangible assets	2,818	2,817	11,269	11,270
Discount on secured debt				307,932
Net discounts of notes payable and note receivable				100,000
Deferred costs	1,682
Share-based compensation	12,447	20,741	49,842	57,180
Change in assets and liabilities:
Accounts receivable trade	155,674	100,290	359,562	(622,253)
Due from factor	95,524		(189,904)
Inventory	(165)	1,129	4,051	1,538
Prepaid expenses and other	(34,215)	(8,176)	33,833	129,995
Accounts payable	(281,968)	(272,814)	243,835	507,028
Accrued liabilities	(207,976)	18,016	(82,234)	221,925
Deferred revenue	(41,412)	(65,905)	(19,572)	242,418
Net cash (used for) provided by operating activities	(607,434)	167,566	65,552	(523,111)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from payment of note receivable				3,350,000
Capital expenditures				(56,204)
Net cash provided by investing activities				3,293,796
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of notes payable			(25,000)	(3,612,135)
Preferred stock dividend paid				(125,209)
Issuance of common stock	902,693
Repayment of note payable – related party	(321,428)
Proceeds from issuance of note payable	497,307
Costs to issue common stock	(46,176)
Financing costs for note payable	(57,203)
Net cash provided by financing activities	975,193		(25,000)	(3,737,344)
NET INCREASE IN CASH AND CASH EQUIVALENTS	367,759	167,566	40,552	(966,659)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	83,989	43,437	43,437	1,010,096
CASH AND CASH EQUIVALENTS, END OF PERIOD	451,748	211,003	83,989	43,437
Interest	51,494			80,286
Income taxes			$ 41,169	$ 12,393

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Note B - Factoring

12 Months Ended

Dec. 31, 2012

Factoring [Text Block]

Factoring [Text Block]

NOTE B—FACTORING

Due from factor consisted of the following as of December 31:

	Original Invoice Value		Factored Amount		Factored Balance due
Year Ended December 31, 2012
Factored accounts receivable	$	744,315	$	554,411	$	189,904
Year Ended December 31, 2011
Factored accounts receivable	$	-	$	-	$	-

As of December 2011, the Company entered into a 24 month accounts receivable factoring arrangement with a financial institution (the “Factor”). Pursuant to the terms of the arrangement, the Company, from time to time shall sell to the Factor certain of its accounts receivable balances on a non-recourse basis for credit approved accounts. The Factor shall then remit 75% of the accounts receivable balance to the Company (the “Advance Amount”), with the remaining balance, less fees to be forwarded to the Company once the Factor collects the full accounts receivable balance from the customer. Factoring fees range from 2.75% to 15% of the face value of the invoice factored, and are determined by the number of days required for collection of the invoice.

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Note E - Note Receivable

12 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE E—NOTE RECEIVABLE

As consideration for the Asset Sale of its Law Enforcement division (the “Business”) to InterAct911 Mobile Systems, Inc. in 2009, the Buyer paid the Company an aggregate purchase price of approximately $11.3 million. The consideration consisted of cash payments totaling $7.3 million and the issuance of a promissory note (the “Note”) in the original principal amount of $4 million in favor of the Company. The Note earned interest, payable on a quarterly basis, at a rate per annum equal to six percent (6%) compounded annually on the principal sum from time to time outstanding.

Effective as of December 30, 2010, the Company entered into an Amendment and Waiver agreement (the “Amendment and Waiver”) with respect to the Note. Under the original terms of the Note, the initial scheduled repayment of principal, equal to $1,334,000, was due to be paid to the Company on December 8, 2010. Pursuant to the Amendment and Waiver, the Company agreed to defer $834,000 of this initial payment into three equal payments due over the course of the first three quarters of 2011, of which the first payment of $278,000 was received in April 2011.

In exchange for this deferral, the Buyer made a principal payment of $500,000 (received in December 2010), agreed to increase the interest rate on the deferred amount from six percent to twelve percent, and agreed to have the owner of the Parent, Silkroad Equity LLC, forfeit all of the 8,000,000 warrants previously granted to it by the Company.

Effective as of May 19, 2011, the Buyer exercised its option to prepay the balance due of $3,222,000 under the Note. In consideration for the early payment from the Buyer, the Company accepted a $150,000 discount on the principal amount due, of which $50,000 was absorbed by the Secured Promissory Note holders). The total amount received by the Company was $3,113,654 which included principal amount of $3,222,000, interest income of $30,888 and a reimbursement of legal fees incurred of $10,766 net of the discount of $150,000.

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Note R - Earnings Per Share (Details) - Securities Excluded from the Diluted Per Share Calculation	12 Months Ended
	Dec. 31, 2011
Note R - Earnings Per Share (Details) - Securities Excluded from the Diluted Per Share Calculation [Line Items]
Antidilutive Securities	379,865
Stock Options [Member]
Note R - Earnings Per Share (Details) - Securities Excluded from the Diluted Per Share Calculation [Line Items]
Antidilutive Securities	379,865

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Note C - Fair Values of Financial Instruments

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

8.                      FAIR VALUES OF FINANCIAL INSTRUMENTS                                       

Cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities, and notes payable, are carried at, or approximate, fair value because of their short-term nature.

NOTE C—FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts and notes receivable, accounts payable, accrued liabilities, and notes payable, are carried at, or approximate, fair value because of their short-term nature.

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Note R - Earnings Per Share (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Years ended December 31,
	2012		2011
Stock Options		—		379,865
Potentially dilutive securities		—		379,865

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended March 31,
	2013		2012
Stock options		647,660		-
Warrants		-		-
Total		647,660		-

	Three Months Ended March 31,
	2013		2012
Stock options		3,025,000		4,588,560
Warrants		8,250,000		8,250,000
Total		11,275,000		12,838,560

	Years ended December 31,
	2012		2011
Stock options		3,262,272		3,087,140
Warrants		8,250,000		8,250,000
Total		11,512,272		11,337,140

Schedule of Calculation of Numerator and Denominator in Earnings Per Share [Table Text Block]

	Three Months ended March 31,
	2013			2012
Basic Numerator:
Net (loss) income	$	(315,579	)	$	363,498
Basic Denominator:		81,465,289			78,155,413
Per Share Amount	$	0.00		$	0.00

	Three Months Ended March 31,
	2013		2012
Stock Options		-		759

	Three Months ended March 31,
	2013			2012
Dilutive Numerator:
Net (loss) income	$	(315,579	)	$	363,498
Dilutive Denominator:		81,465,289			78,156,172
Per Share Amount	$	0.00*		$	0.00*

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Note 7 - Segment Information

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

7.                      SEGMENT INFORMATION

The Company has determined that its continuing operations are one discrete segment consisting of Biometric products. Geographically, North American sales accounted for approximately 98% and 97% of the Company’s total sales for the three months ended March 31, 2013 and 2012, respectively.

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Note D - Concentration of Risk (Tables)

12 Months Ended

Dec. 31, 2012

Risks and Uncertainties [Abstract]

Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block]

	Years Ended December 31,
	2012			2011
Customer A		31	%		15	%
Customer B		18	%		—
Customer C		*	%		43	%

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	As of December 31,
	2012			2011
Customer C		74	%		78	%
Customer D		14	%		—

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Note P - Income Taxes (Details) - Components of Deferred Taxes (USD $)	Dec. 31, 2012	Dec. 31, 2011
Current asset:
Accrued compensation	$ 128,000	$ 119,000
Accounts receivable allowance	8,000	156,000
Non-current asset (liability):
Stock-based compensation	336,000
Basis differences in fixed assets	(10,000)	(21,000)
Basis differences in intangible assets	(77,000)	31,000
Net operating loss carryforwards	16,143,000	15,912,000
Valuation allowances	$ (16,528,000)	$ (16,197,000)

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Note M - Commitments (Tables)

12 Months Ended

Dec. 31, 2012

Disclosure Text Block Supplement [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Years ending December 31,
2013	$	137,870
2014		92,097
	$	229,967

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Note P - Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2012
Income Tax Disclosure [Abstract]
Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax	$ 16,500
Income Tax Reconciliation, State and Local Income Taxes	10,000
Deferred Tax Assets, Operating Loss Carryforwards, Domestic		$ 44,800,000

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Note F - Equipment and Leashold Improvements (Details) - Summary of Equipment and Leasehold Improvements (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Property, Plant, and Equipment		$ 469,850	$ 469,850
Less accumulated depreciation and amortization		(445,583)	(416,980)
Total	18,531	24,267	52,870
Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant, and Equipment		302,052	302,052
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property, Plant, and Equipment		99,199	99,199
Software [Member]
Property, Plant and Equipment [Line Items]
Property, Plant, and Equipment		28,624	28,624
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant, and Equipment		$ 39,975	$ 39,975

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Note D - Concentration of Risk (Details) (USD $)	12 Months Ended	3 Months Ended
	Dec. 31, 2012	Mar. 31, 2013 Three Customers [Member] Sales Revenue, Goods, Net [Member]	Mar. 31, 2012 Three Customers [Member] Sales Revenue, Goods, Net [Member]	Mar. 31, 2013 One Customer [Member] Accounts Receivable [Member]	Dec. 31, 2012 Two Customers [Member] Accounts Receivable [Member]
Note D - Concentration of Risk (Details) [Line Items]
Cash, FDIC Insured Amount (in Dollars)	$ 250,000
Entity-Wide Revenue, Major Customer, Percentage	10.00%
Concentration Risk, Percentage		61.00%	76.00%
Concentration Risk, Percentage 2				56.00%	88.00%

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Note A - The Company and Summary of Significant Accounting Policies (Details) - Estimated Useful Lives For Depreciation and Amortization	12 Months Ended
	Dec. 31, 2012
Equipment [Member] | Minimum [Member]
Equipment and leasehold improvements
Property, Plant, and Equipment Estimated Useful life	3 years
Equipment [Member] | Maximum [Member]
Equipment and leasehold improvements
Property, Plant, and Equipment Estimated Useful life	5 years
Furniture and Fixtures [Member] | Minimum [Member]
Equipment and leasehold improvements
Property, Plant, and Equipment Estimated Useful life	3 years
Furniture and Fixtures [Member] | Maximum [Member]
Equipment and leasehold improvements
Property, Plant, and Equipment Estimated Useful life	5 years
Software [Member]
Equipment and leasehold improvements
Property, Plant, and Equipment Estimated Useful life	3 years

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Consolidated Balance Sheets (Parentheticals) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Accounts receivable, allowance for doubtful accounts (in Dollars)	$ 20,526	$ 20,526	$ 397,526
Common stock, shares authorized	170,000,000	170,000,000	170,000,000
Common stock, shares issued	87,182,348	78,155,413	78,155,413
Common stock, shares outstanding	87,182,348	78,155,413	78,155,413
Common stock, par value (in Dollars per share)	$ 0.0001	$ 0.0001	$ 0.0001

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Note H - Accrued Laibilites

12 Months Ended

Dec. 31, 2012

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

NOTE H—ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of December 31:

	2012		2011
Compensation	$	243,049	$	227,579
Compensated absences		133,535		159,949
Dividends payable (see Note K)		3,435		3,435
Interest payable – related party (Note K)		47,935		23,309
Accrued legal and accounting fees		84,954		111,300
Income taxes (see Note P)		-		26,500
Other		80,691		123,761
Total	$	593,599	$	675,833

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Statements of Stockholders' (Deficit) Equity (USD $)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance as of December 31 at Dec. 31, 2010	$ 7,815	$ 50,955,602	$ (50,394,082)	$ 569,335
Balance as of December 31 (in Shares) at Dec. 31, 2010	78,155,413
Share-based compensation		57,180		57,180
Net Income (Loss)			(1,897,606)	(1,897,606)
Balance as of December 31 at Dec. 31, 2011	7,815	51,012,782	(52,291,688)	(1,271,091)
Balance as of December 31 (in Shares) at Dec. 31, 2011	78,155,413
Share-based compensation		49,842		49,842
Net Income (Loss)			3,267	3,267
Balance as of December 31 at Dec. 31, 2012	$ 7,815	$ 51,062,624	$ (52,288,421)	$ (1,217,982)
Balance as of December 31 (in Shares) at Dec. 31, 2012	78,155,413

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Note H - Accrued Laibilites (Details) - Summary of Accrued Liabilities (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Summary of Accrued Liabilities [Abstract]
Compensation		$ 243,049	$ 227,579
Compensated absences		133,535	159,949
Dividends payable (see Note K)		3,435	3,435
Interest payable – related party (Note K)		47,935	23,309
Accrued legal and accounting fees		84,954	111,300
Income taxes (see Note P)			26,500
Other		80,691	123,761
Total	$ 385,623	$ 593,599	$ 675,833

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Consolidated Balance Sheets (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 451,748	$ 83,989	$ 43,437
Accounts receivable, net of allowance for doubtful accounts of $20,526 at March 31, 2013, $20,526 at December 31, 2012 and $397,526 at December 31, 2011	449,110	604,784	587,346
Due from factor	94,380	189,904
Inventory	4,351	4,186	8,238
Prepaid expenses and other	59,303	25,088	58,920
Total current assets	1,058,892	907,951	697,941
Equipment and leasehold improvements, net	18,531	24,267	52,870
Deferred finance costs	55,521
Deposits and other assets	8,712	8,712	8,712
Intangible assets—less accumulated amortization	193,093	195,911	207,180
Total non-current assets	275,857	228,890	268,762
TOTAL ASSETS	1,334,749	1,136,841	966,703
LIABILITIES
Accounts payable	649,308	931,276	687,441
Accrued liabilities	385,623	593,599	675,833
Deferred revenue	467,108	508,520	527,092
Note payable – related party		321,428	346,428
Total current liabilities	1,502,039	2,354,823	2,236,794
Note Payable	497,307
Deferred revenue, net of current portion			1,000
Total non-current liabilities	497,307		1,000
TOTAL LIABILITIES	1,999,346	2,354,823	2,237,794
STOCKHOLDERS’ DEFICIT:
Common stock — authorized, 170,000,000 shares; issued and outstanding; 87,182,348 of $.0001 par value at March 31, 2013, 78,155,413 at December 31, 2012 and December 31, 2011	8,718	7,815	7,815
Additional paid-in capital	51,930,685	51,062,624	51,012,782
Accumulated deficit	(52,604,000)	(52,288,421)	(52,291,688)
TOTAL STOCKHOLDERS’ DEFICIT	(664,597)	(1,217,982)	(1,271,091)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$ 1,334,749	$ 1,136,841	$ 966,703

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Note D - Concentration of Risk (Details) - Revenue Concentration Risk by Major Customer	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Revenue, Major Customer [Line Items]
Customer	10.00%
Customer A [Member]
Revenue, Major Customer [Line Items]
Customer	31.00%		15.00%
Customer B [Member]
Revenue, Major Customer [Line Items]
Customer	18.00%
Customer C [Member]
Revenue, Major Customer [Line Items]
Customer		[1]	43.00%

[1] Less than 10% of total revenue

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Note 4 - Earnings Per Share ("EPS") (Details) - Anti-dilutive Securities	12 Months Ended	3 Months Ended
	Dec. 31, 2011	Mar. 31, 2013 Exercise Price Less Than Average Market Price Of Common Shares [Member] Stock Options [Member]	Mar. 31, 2013 Exercise Price Less Than Average Market Price Of Common Shares [Member]	Mar. 31, 2013 Exercise Price Greater Than Average Market Price Of Common Shares [Member] Stock Options [Member]	Mar. 31, 2012 Exercise Price Greater Than Average Market Price Of Common Shares [Member] Stock Options [Member]	Mar. 31, 2013 Exercise Price Greater Than Average Market Price Of Common Shares [Member] Warrant [Member]	Mar. 31, 2012 Exercise Price Greater Than Average Market Price Of Common Shares [Member] Warrant [Member]	Mar. 31, 2013 Exercise Price Greater Than Average Market Price Of Common Shares [Member]	Mar. 31, 2012 Exercise Price Greater Than Average Market Price Of Common Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities	379,865	647,660	647,660	3,025,000	4,588,560	8,250,000	8,250,000	11,275,000	12,838,560

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Note S - Subsequent Events (Details) (USD $)	3 Months Ended				1 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Feb. 26, 2013 Subsequent Event [Member] Continuing Nonpayment Default [Member]	Feb. 26, 2013 Subsequent Event [Member] InterDigital SPA [Member]	Feb. 26, 2013 Subsequent Event [Member] Private Investor SPA [Member]	Feb. 26, 2013 Subsequent Event [Member]
Note S - Subsequent Events (Details) [Line Items]
Proceeds from Issuance of Common Stock	$ 902,693						$ 900,000
Common Stock, Shares, Issued (in Shares)	87,182,348	78,155,413	78,155,413		4,026,935	5,000,000
Sale of Stock, Price Per Share (in Dollars per share)					$ 0.10	$ 0.10
Stock Issued During Period, Value, New Issues					402,693	500,000
Share Price (in Dollars per share)							$ 0.10
Debt Instrument, Face Amount							497,307
Debt Instrument, Interest Rate, Stated Percentage				9.00%			7.00%
Repayments of Debt							$ 1,425,000

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Accounting Policies, by Policy (Policies)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Basis of Presentation

We have incurred significant losses to date, and at December 31, 2012, we had an accumulated deficit of approximately $52 million. In addition, broad commercial acceptance of our technology is critical to the Company’s success and ability to generate future revenues. At December 31, 2012, our total cash and cash equivalents were approximately $84,000, as compared to approximately $43,000 at December 31, 2011.

As discussed below, the Company has financed itself in the past through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock,  common stock, and recently through factoring receivables. We currently require approximately $385,000 per month to conduct our operations, a monthly amount that we have been unable to achieve through revenue generation.

If the Company is unable to generate sufficient revenue to meet our goals, we will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute our plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. No assurance can be given that any form of additional financing will be available on terms acceptable to the Company, that adequate financing will be obtained by the Company in order to meet its needs, or that such financing would not be dilutive to existing shareholders.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The matters described in the preceding paragraphs raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Consolidation, Policy [Policy Text Block]

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiary (collectively, the “Company”). Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission (SEC). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Revenues from software licensing are recognized in accordance with ASC 985-605, “Software Revenue Recognition. Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

The Company intends to enter into arrangements with end users for items which may include software license fees, and services or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain.

Multiple-Element Arrangements: For multiple-element arrangements, the Company applies the residual method in accordance with ASC 985-605. The residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its VSOE of fair value and subsequently recognized as the service is delivered. The difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements, which is generally the software license. VSOE of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately. VSOE of fair value for support services is additionally determined by the renewal rate in customer contracts. The Company has established VSOE of fair value for support as well as consulting services.

License Revenues: Amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met.

Revenue from licensing software, which requires significant customization and modification, is recognized using the percentage of completion method, based on the hours of effort incurred by the Company in relation to the total estimated hours to complete. In instances where third party hardware, software or services form a significant portion of a customer’s contract, the Company recognizes revenue for the element of software customization by the percentage of completion method described above. Otherwise, third party hardware, software, and services are recognized upon shipment or acceptance as appropriate. If the Company makes different judgments or utilizes different estimates of the total amount of work expected to be required to customize or modify the software, the timing and revenue recognition, from period to period, and the margins on the project in the reporting period, may differ materially from amounts reported. Anticipated contract losses are recognized as soon as they become known and are estimable.

Service Revenues: Revenues from services are comprised of maintenance and consulting and implementation services. Maintenance revenues include providing for unspecified when-and-if available product updates and customer telephone support services, and are recognized ratably over the term of the service period. Consulting services are generally sold on a time-and-materials basis and include a range of services including installation of software and assisting in the design of interfaces to allow the software to operate in customized environments. Services are generally separable from other elements under the arrangement since performance of the services are not essential to the functionality of any other element of the transaction and are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services. Revenues from services are generally recognized as the services are performed.

The Company provides customers, free of charge or at a minimal cost, testing kits which potential licensing customers may use to test compatibility/acceptance of the Company’s technology with the customer’s intended applications.

Costs and other expenses: Includes professional compensation and other direct contract expenses, as well as costs attributable to the support of client service professional staff, depreciation and amortization costs related to assets used in revenue-generating activities, and other costs attributable to serving the Company’s client base. Professional compensation consists of payroll costs and related benefits including stock-based compensation and bonuses. Other direct contract expenses include costs directly attributable to client engagements, such as out-of-pocket costs including travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors. The allocation of lease and facilities charges for occupied offices is included in costs of service.

The Company accounts for its warranties under the FASB ASC 450 “Contingencies.” The Company generally warrants that its products are free from defects in material and workmanship for a period of one year from the date of initial receipt by our customers. The warranty does not cover any losses or damage that occurs as a result of improper installation, misuse or neglect or repair or modification by anyone other than the Company or its authorized repair agent. The Company’s policy is to accrue anticipated warranty costs based upon historical percentages of items returned for repair within one year of the initial sale. The Company’s repair rate of products under warranty has been minimal, and a historical percentage has not been established. The Company’s software license agreements generally include certain provisions for indemnifying customers against liabilities if the Company’s software products infringe upon a third party’s intellectual property rights. The Company has not provided for any reserves for warranty liabilities as it was determined to be immaterial.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less.  At December 31, 2012 and 2011, cash equivalents consisted of a money market account.

Receivables, Policy [Policy Text Block]

Accounts Receivable

Accounts receivable billed and unbilled are carried at original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful receivables by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Accounts receivable at December 31, 2012 and 2011 consisted of the following:

	December 31,
	2012			2011
Accounts receivable	$	625,310		$	984,872
Allowance for doubtful accounts		(20,526	)		(397,526	)
Accounts receivable, net allowances for doubtful accounts		604,784			587,346

The allowance for doubtful accounts for the years ended December 31, 2012 and 2011 is as follows:

	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions From Reserves		Balance at End of Year
Year Ended December 31, 2012
Allowance for Doubtful Accounts	$	397,526	$	-	$	377,000	$	20,526
Year Ended December 31, 2011
Allowance for Doubtful Accounts	$	11,526	$	386,000	$	-	$	397,526

The allowance was set up primarily for one customer whose payments under a contract were behind schedule. $400,000 was collected from the customer in 2012, and subsequently, $150,000 was collected in 2013. The final payment for the balance due under the contract has been approved to be paid, although the funds have not been received as of the filing date.  As of the date of the filing, the customer owes approximately $313,000.

6. Property and Equipment, Intangible Assets and Depreciation and Amortization

Property and equipment are stated at cost.  Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

The estimated useful lives used to compute depreciation and amortization for financial reporting purposes are as follows:

Equipment and leasehold improvements
Equipment (years)	3	-	5
Furniture and fixtures (years)	3	-	5
Software (years)		3
Leasehold improvements	life or lease term

Intangible assets consist of patents.  Patent costs are capitalized until patents are awarded. Upon award, such costs are amortized using the straight-line method over their respective economic lives. If a patent is denied, all costs are charged to operations in that year.

7. Impairment or Disposal of Long Lived Assets, including Intangible Assets

We review our long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, we must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, we may be required to record impairment charges. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. We did not record any impairment charges in any of the years presented.

8. Advertising Expense

The Company expenses the costs of advertising as incurred. Advertising expenses for the years ended December 31, 2012 and 2011 were approximately $114,000 and $170,000, respectively.

9. Deferred Revenue

Deferred revenue includes customer advances and amounts that have been billed per the contractual terms but have not been recognized as revenue. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12 months from the date the customer accepts the products.

10. Research and Development Expenditures

Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.

11. Earnings Per Share of Common Stock (“EPS”)

The Company’s EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes, when the effect of their inclusion is dilutive. See Note R -  Earnings Per Share “EPS”, for additional information.

12.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment, Intangible Assets and Depreciation and Amortization

Property and equipment are stated at cost.  Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

The estimated useful lives used to compute depreciation and amortization for financial reporting purposes are as follows:

Equipment and leasehold improvements
Equipment (years)	3	-	5
Furniture and fixtures (years)	3	-	5
Software (years)		3
Leasehold improvements	life or lease term

Intangible assets consist of patents.  Patent costs are capitalized until patents are awarded. Upon award, such costs are amortized using the straight-line method over their respective economic lives. If a patent is denied, all costs are charged to operations in that year.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Impairment or Disposal of Long Lived Assets, including Intangible Assets

We review our long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, we must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, we may be required to record impairment charges. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. We did not record any impairment charges in any of the years presented.

Advertising Costs, Policy [Policy Text Block]

Advertising Expense

The Company expenses the costs of advertising as incurred. Advertising expenses for the years ended December 31, 2012 and 2011 were approximately $114,000 and $170,000, respectively.

Revenue Recognition, Deferred Revenue [Policy Text Block]

Deferred Revenue

Deferred revenue includes customer advances and amounts that have been billed per the contractual terms but have not been recognized as revenue. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12 months from the date the customer accepts the products.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Expenditures

Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share of Common Stock (“EPS”)

The Company’s EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes, when the effect of their inclusion is dilutive. See Note R -  Earnings Per Share “EPS”, for additional information.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Accounting for Stock-Based Compensation

The Company accounts for share based compensation in accordance with the provisions of ASC 718-10, “Compensation — Stock Compensation,” which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The majority of our share-based compensation arrangements vest over either a three or four year vesting schedule. The Company expenses its share-based compensation under the ratable method, which treats each vesting tranche as if it were an individual grant. The fair value of stock options is determined using the Black-Scholes valuation model, and requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected option term”), the estimated volatility of our common stock price over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized as an expense in the consolidated statements of operations. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the service period, net of estimated forfeitures (the number of individuals that will ultimately not complete their vesting requirements). The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates.

The compensation expense recognized under ASC 718 amounted to $49,842 and $57,180 for the years ended December 31, 2012 and 2011 respectively.

The following table presents share-based compensation expenses for continuing operations included in the Company’s consolidated statements of operations:

	Year ended December 31,
	2012		2011
Selling, general and administrative	$	22,502	$	12,054
Research, development and engineering		27,340		45,126
	$	49,842	$	57,180

Valuation Assumptions for Stock Options

For the years ended December 31, 2012 and 2011, 600,000 and 845,000 stock options were granted, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Year ended December 31,
	2012			2011
Risk free interest rate		0.80	%		1.64	%
Expected life of options (in years)		4.48			4.52
Expected dividends		0	%		0	%
Volatility of stock price		114	%		114	%

The stock volatility for each grant is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term. The expected term was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

Income Tax, Policy [Policy Text Block]

Income Taxes

The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Because of the Company’s historical performance and estimated future taxable income, a full valuation allowance has been established.

The Company accounts for uncertain tax provisions in accordance with ASC 740-10-05 “Accounting for Uncertainty in Income Taxes.” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

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Note Q - Profit Sharing Plan

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

NOTE Q—PROFIT SHARING PLAN

The Company has established a savings plan under section 401(k) of the Internal Revenue Code. All employees of the Company, after completing one day of service are eligible to enroll in the 401(k) plan. Participating employees may elect to defer a portion of their salary on a pre-tax basis up to the limits as provided by the IRS Code. The Company is not required to match employee contributions but may do so at its discretion. The Company made no contributions during the years ended December 31, 2012 and 2011.

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Note A - The Company and Summary of Significant Accounting Policies (Details) - Allowance for Doubtful Accounts (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2013
Allowance for Doubtful Accounts [Abstract]
Balance at Beginning of Year	$ 397,526	$ 11,526	$ 20,526
Charged to Costs and Expenses		386,000
Deductions From Reserves	377,000
Balance at End of Year	$ 20,526	$ 397,526	$ 20,526

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Note 3 - Share Based Compensation (Details) - Share Based Compensation Expense (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 12,447	$ 20,741	$ 49,842	$ 57,180
Selling, General and Administrative Expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	11,121	2,223	22,502	12,054
Research and Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 1,326	$ 18,518	$ 27,340	$ 45,126

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Note F - Equipment and Leashold Improvements (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Abstract]
Depreciation, Depletion and Amortization, Nonproduction	$ 28,603	$ 31,462

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Note N - Equity (Details) (USD $)	2 Months Ended		3 Months Ended	12 Months Ended		1 Months Ended			0 Months Ended		2 Months Ended
	Mar. 01, 2013	Mar. 01, 2012	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Feb. 26, 2013 Subsequent Event [Member] InterDigital SPA [Member]	Feb. 26, 2013 Subsequent Event [Member] Private Investor SPA [Member]	Feb. 26, 2013 Subsequent Event [Member]	Feb. 26, 2013 InterDigital SPA [Member]	Feb. 26, 2013 Private Investor SPA [Member]	Mar. 01, 2013 Private Investor SPA [Member]
Note N - Equity (Details) [Line Items]
Preferred Stock, Shares Authorized				5,000,000
Common Stock, Shares Authorized			170,000,000	170,000,000	170,000,000
Common Stock, Shares, Outstanding			87,182,348	78,155,413	78,155,413
Common Stock, Shares, Issued (in Shares)			87,182,348	78,155,413	78,155,413	4,026,935	5,000,000
Sale of Stock, Price Per Share (in Dollars per share)						$ 0.10	$ 0.10
Stock Issued During Period, Value, New Issues (in Dollars)						$ 402,693	$ 500,000		$ 4,026,935
Stock Issued During Period, Value, New Issues						402,693	500,000		4,026,935
Stock Issued During Period Sale Price Per Share									0.10	0.10
Proceeds from Issuance of Common Stock			902,693					900,000	402,693
Purchase Exercise Or Conversion Price Per Share Threshold Of Common Stock									0.10
Stock Issued During Period, Shares, New Issues (in Shares)										5,000,000
Proceeds from Issuance of Private Placement										500,000
Adjustments to Additional Paid in Capital, Stock Issued, Issuance Costs											$ 46,176
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)	2,300,000	1,125,000		600,000	845,000
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Exercisable Options, Weighted Average Remaining Contractual Term		7 years
Investment Options, Exercise Price (in Dollars per share)		$ 0.17
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years

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Note O - Stock Options (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Options											Weighted average exercise		Weighted average remaining life		Aggregate intrinsic
	1999 Plan		2004 Plan			Non Plan			Total			price		(in years)		value
Outstanding, as of December 31, 2010		500,000		2,580,689			1,329,841			4,410,530		$	0.25
Granted		—		845,000			—			845,000			0.14
Exercised		—		—			—			—			—
Forfeited		—		(210,000	)		—			(210,000	)		0.14
Expired		—		(383,853	)		(257,265	)		(641,118	)		0.36
Outstanding, as of December 31, 2011		500,000		2,831,836			1,072,576			4,404,412		$	0.22
Granted		—		600,000			—			600,000			0.09
Exercised		—		—			—			—			—
Forfeited		—		(164,623	)		(365,378	)		(530,001	)		0.09
Expired		—		(504,941	)		(707,198	)		(1,212,139	)		0.30
Outstanding, as of December 31, 2012		500,000		2,762,272			—			3,262,272			0.16		4.21	$	2,325
Vested or expected to vest at December 31, 2012										2,972,404			0.16		4.04	$	2,325
Exercisable at December 31, 2012										2,230,594			0.18		3.43	$	2,325

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

				Options Outstanding				Options Exercisable
Range of exercise prices				Number of shares	Weighted average exercise price		Weighted average remaining  life (in years)	Number exercisable	Weighted average exercise price
	$ 0.08	-	0.21	2,852,272	$	0.11	4.23	1,820,594	$	0.12
	0.22	-	0.40	70,000	0.40		4.02	70,000	0.40
	0.41	-	0.68	340,000	0.46		4.02	340,000	0.46
	$ 0.07	-	0.68	3,262,272				2,230,594

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended March 31,
	2013		2012
Selling, general and administrative	$	11,121	$	2,223
Research, development and engineering		1,326		18,518
	$	12,447	$	20,741

	Year ended December 31,
	2012		2011
Selling, general and administrative	$	22,502	$	12,054
Research, development and engineering		27,340		45,126
	$	49,842	$	57,180

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Note H - Accrued Laibilites (Tables)

12 Months Ended

Dec. 31, 2012

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

Schedule of Accrued Liabilities [Table Text Block]

	2012		2011
Compensation	$	243,049	$	227,579
Compensated absences		133,535		159,949
Dividends payable (see Note K)		3,435		3,435
Interest payable – related party (Note K)		47,935		23,309
Accrued legal and accounting fees		84,954		111,300
Income taxes (see Note P)		-		26,500
Other		80,691		123,761
Total	$	593,599	$	675,833

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Note J - Deferred Revenue (Tables)

12 Months Ended

Dec. 31, 2012

Deferred Revenue Disclosure [Abstract]

Deferred Revenue, by Arrangement, Disclosure [Table Text Block]

	2012		2011
Current Portion
Maintenance contracts	$	496,055	$	335,246
Customer deposit		12,465		122,500
Fully deferred systems, installation and acceptance revenue		-		69,346
		508,520		527,092
Long-Term Portion
Maintenance contracts		-		1,000
Total	$	508,520	$	528,092

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Note G - Intangible Assets

12 Months Ended

Dec. 31, 2012

Intangible Assets Disclosure [Text Block]

Intangible Assets Disclosure [Text Block]

NOTE G—INTANGIBLE ASSETS

Intangible assets consisted of the following as of December 31:

	2012							2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents and patents pending	$	287,248	$	(91,337	)	$	195,911	$	287,248	$	(80,068	)	$	207,180
Total	$	287,248	$	(91,337	)	$	195,911	$	287,248	$	(80,068	)	$	207,180

Aggregate amortization expense for the years ended December 31, 2012 and 2011, was $11,269 and $11,270 respectively. The estimated aggregate amortization expense of intangible assets for the years following December 31, 2012 is approximately $11,270 per year for 2013 through 2017, and $139,561 thereafter.

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Note L - Segment Information (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Note L - Segment Information (Details) [Line Items]
Number of Reportable Segments	1
Entity-Wide Revenue, Major Customer, Percentage	10.00%
North American [Member]
Note L - Segment Information (Details) [Line Items]
Entity-Wide Revenue, Major Customer, Percentage	93.00%	54.00%
Non-North American [Member]
Note L - Segment Information (Details) [Line Items]
Entity-Wide Revenue, Major Customer, Percentage		46.00%
Africa [Member]
Note L - Segment Information (Details) [Line Items]
Entity-Wide Revenue, Major Customer, Percentage		43.00%

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Note A - The Company and Summary of Significant Accounting Policies (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Business Description and Accounting Policies [Text Block]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	December 31,
	2012			2011
Accounts receivable	$	625,310		$	984,872
Allowance for doubtful accounts		(20,526	)		(397,526	)
Accounts receivable, net allowances for doubtful accounts		604,784			587,346

Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions From Reserves		Balance at End of Year
Year Ended December 31, 2012
Allowance for Doubtful Accounts	$	397,526	$	-	$	377,000	$	20,526
Year Ended December 31, 2011
Allowance for Doubtful Accounts	$	11,526	$	386,000	$	-	$	397,526

Property, Plant and Equipment, Estimated Useful Lives

Equipment and leasehold improvements
Equipment (years)	3	-	5
Furniture and fixtures (years)	3	-	5
Software (years)		3
Leasehold improvements	life or lease term

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended March 31,
	2013		2012
Selling, general and administrative	$	11,121	$	2,223
Research, development and engineering		1,326		18,518
	$	12,447	$	20,741

	Year ended December 31,
	2012		2011
Selling, general and administrative	$	22,502	$	12,054
Research, development and engineering		27,340		45,126
	$	49,842	$	57,180

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Year ended December 31,
	2012			2011
Risk free interest rate		0.80	%		1.64	%
Expected life of options (in years)		4.48			4.52
Expected dividends		0	%		0	%
Volatility of stock price		114	%		114	%

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Note A - The Company and Summary of Significant Accounting Policies (Details) (USD $)	2 Months Ended		3 Months Ended		12 Months Ended			24 Months Ended		12 Months Ended
	Mar. 01, 2013	Mar. 01, 2012	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2010	Dec. 31, 2013 Subsequent Event [Member]	Dec. 31, 2012 Discontinued Operations [Member]	Dec. 31, 2011 Discontinued Operations [Member]	Dec. 31, 2012 Minimum [Member]	Dec. 31, 2012 Maximum [Member]
Note A - The Company and Summary of Significant Accounting Policies (Details) [Line Items]
Retained Earnings (Accumulated Deficit) (in Dollars)			$ (52,604,000)		$ (52,288,421)	$ (52,288,421)	$ (52,291,688)	$ (52,288,421)
Cash and Cash Equivalents, at Carrying Value (in Dollars)			451,748	211,003	83,989	83,989	43,437	83,989	1,010,096
Operational Costs Per Month (in Dollars)						385,000
Allowance for Doubtful Accounts Receivable, Recoveries (in Dollars)						400,000				150,000
Advertising Expense (in Dollars)						114,000		170,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years											3 years	4 years
Share-based Compensation (in Dollars)			$ 12,447	$ 20,741		$ 49,842	$ 57,180				$ 49,842	$ 57,180
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)	2,300,000	1,125,000			600,000		845,000

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Note J - Deferred Revenue

12 Months Ended

Dec. 31, 2012

Deferred Revenue Disclosure [Abstract]

Deferred Revenue Disclosure [Text Block]

NOTE J—DEFERRED REVENUE

The components of deferred revenue are as follows as of December 31:

	2012		2011
Current Portion
Maintenance contracts	$	496,055	$	335,246
Customer deposit		12,465		122,500
Fully deferred systems, installation and acceptance revenue		-		69,346
		508,520		527,092
Long-Term Portion
Maintenance contracts		-		1,000
Total	$	508,520	$	528,092

Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services, and are recognized ratably over the term of the service period. Fully deferred systems, installation and acceptance revenue relates to projects that have been billed per the contractual terms, however because of undelivered elements or acceptance criteria, revenue has not yet been recognized. These amounts are expected to be completed within the next 12 months and are classified as current liabilities.

Long-term maintenance contracts are comprised of multiple year support contracts, and are recognized ratably over the applicable term.

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Note R - Earnings Per Share (Details) - Exclusions from the Diluted Per Share Calculation	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Exclusions from the Diluted Per Share Calculation [Abstract]
Stock options	3,262,272	3,087,140
Warrants	8,250,000	8,250,000
Total	11,512,272	11,337,140

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Note F - Equipment and Leashold Improvements

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE F—EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following as of December 31:

	2012			2011
Equipment	$	302,052		$	302,052
Furniture and fixtures		99,199			99,199
Software		28,624			28,624
Leasehold improvements		39,975			39,975
		469,850			469,850
Less accumulated depreciation and amortization		(445,583	)		(416,980	)
Total	$	24,267		$	52,870

Depreciation and amortization were $28,603 and $31,462 for the periods ending December 31, 2012 and 2011, respectively.

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Note A - The Company and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Business Description and Accounting Policies [Text Block]

Business Description and Accounting Policies [Text Block]

NOTE A —THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company, founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions. We also deliver advanced identification solutions and information services to law enforcement departments, public safety agencies and other government and private sector customers. Our mobile wireless technology provides first responders with critical, reliable, real-time data and images from local, state and national databases.

Basis of Presentation

We have incurred significant losses to date, and at December 31, 2012, we had an accumulated deficit of approximately $52 million. In addition, broad commercial acceptance of our technology is critical to the Company’s success and ability to generate future revenues. At December 31, 2012, our total cash and cash equivalents were approximately $84,000, as compared to approximately $43,000 at December 31, 2011.

As discussed below, the Company has financed itself in the past through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock,  common stock, and recently through factoring receivables. We currently require approximately $385,000 per month to conduct our operations, a monthly amount that we have been unable to achieve through revenue generation.

If the Company is unable to generate sufficient revenue to meet our goals, we will need to obtain additional third-party financing to (i) conduct the sales, marketing and technical support necessary to execute our plan to substantially grow operations, increase revenue and serve a significant customer base; and (ii) provide working capital. No assurance can be given that any form of additional financing will be available on terms acceptable to the Company, that adequate financing will be obtained by the Company in order to meet its needs, or that such financing would not be dilutive to existing shareholders.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The matters described in the preceding paragraphs raise substantial doubt about the Company’s ability to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and become profitable in its future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Summary of Significant Accounting Policies

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

1.  Basis of Consolidation

The accompanying consolidated financial statements include the accounts of BIO-key International, Inc. and its wholly-owned subsidiary (collectively, the “Company”). Intercompany accounts and transactions have been eliminated in consolidation.

2. Use of Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission (SEC). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

3. Revenue Recognition

Revenues from software licensing are recognized in accordance with ASC 985-605, “Software Revenue Recognition. Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

The Company intends to enter into arrangements with end users for items which may include software license fees, and services or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain.

Multiple-Element Arrangements: For multiple-element arrangements, the Company applies the residual method in accordance with ASC 985-605. The residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its VSOE of fair value and subsequently recognized as the service is delivered. The difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements, which is generally the software license. VSOE of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately. VSOE of fair value for support services is additionally determined by the renewal rate in customer contracts. The Company has established VSOE of fair value for support as well as consulting services.

License Revenues: Amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met.

Revenue from licensing software, which requires significant customization and modification, is recognized using the percentage of completion method, based on the hours of effort incurred by the Company in relation to the total estimated hours to complete. In instances where third party hardware, software or services form a significant portion of a customer’s contract, the Company recognizes revenue for the element of software customization by the percentage of completion method described above. Otherwise, third party hardware, software, and services are recognized upon shipment or acceptance as appropriate. If the Company makes different judgments or utilizes different estimates of the total amount of work expected to be required to customize or modify the software, the timing and revenue recognition, from period to period, and the margins on the project in the reporting period, may differ materially from amounts reported. Anticipated contract losses are recognized as soon as they become known and are estimable.

Service Revenues: Revenues from services are comprised of maintenance and consulting and implementation services. Maintenance revenues include providing for unspecified when-and-if available product updates and customer telephone support services, and are recognized ratably over the term of the service period. Consulting services are generally sold on a time-and-materials basis and include a range of services including installation of software and assisting in the design of interfaces to allow the software to operate in customized environments. Services are generally separable from other elements under the arrangement since performance of the services are not essential to the functionality of any other element of the transaction and are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services. Revenues from services are generally recognized as the services are performed.

The Company provides customers, free of charge or at a minimal cost, testing kits which potential licensing customers may use to test compatibility/acceptance of the Company’s technology with the customer’s intended applications.

Costs and other expenses: Includes professional compensation and other direct contract expenses, as well as costs attributable to the support of client service professional staff, depreciation and amortization costs related to assets used in revenue-generating activities, and other costs attributable to serving the Company’s client base. Professional compensation consists of payroll costs and related benefits including stock-based compensation and bonuses. Other direct contract expenses include costs directly attributable to client engagements, such as out-of-pocket costs including travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors. The allocation of lease and facilities charges for occupied offices is included in costs of service.

The Company accounts for its warranties under the FASB ASC 450 “Contingencies.” The Company generally warrants that its products are free from defects in material and workmanship for a period of one year from the date of initial receipt by our customers. The warranty does not cover any losses or damage that occurs as a result of improper installation, misuse or neglect or repair or modification by anyone other than the Company or its authorized repair agent. The Company’s policy is to accrue anticipated warranty costs based upon historical percentages of items returned for repair within one year of the initial sale. The Company’s repair rate of products under warranty has been minimal, and a historical percentage has not been established. The Company’s software license agreements generally include certain provisions for indemnifying customers against liabilities if the Company’s software products infringe upon a third party’s intellectual property rights. The Company has not provided for any reserves for warranty liabilities as it was determined to be immaterial.

4.  Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less.  At December 31, 2012 and 2011, cash equivalents consisted of a money market account.

5. Accounts Receivable

Accounts receivable billed and unbilled are carried at original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful receivables by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Accounts receivable at December 31, 2012 and 2011 consisted of the following:

	December 31,
	2012			2011
Accounts receivable	$	625,310		$	984,872
Allowance for doubtful accounts		(20,526	)		(397,526	)
Accounts receivable, net allowances for doubtful accounts		604,784			587,346

The allowance for doubtful accounts for the years ended December 31, 2012 and 2011 is as follows:

	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions From Reserves		Balance at End of Year
Year Ended December 31, 2012
Allowance for Doubtful Accounts	$	397,526	$	-	$	377,000	$	20,526
Year Ended December 31, 2011
Allowance for Doubtful Accounts	$	11,526	$	386,000	$	-	$	397,526

The allowance was set up primarily for one customer whose payments under a contract were behind schedule. $400,000 was collected from the customer in 2012, and subsequently, $150,000 was collected in 2013. The final payment for the balance due under the contract has been approved to be paid, although the funds have not been received as of the filing date.  As of the date of the filing, the customer owes approximately $313,000.

6. Property and Equipment, Intangible Assets and Depreciation and Amortization

Property and equipment are stated at cost.  Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

The estimated useful lives used to compute depreciation and amortization for financial reporting purposes are as follows:

Equipment and leasehold improvements
Equipment (years)	3	-	5
Furniture and fixtures (years)	3	-	5
Software (years)		3
Leasehold improvements	life or lease term

Intangible assets consist of patents.  Patent costs are capitalized until patents are awarded. Upon award, such costs are amortized using the straight-line method over their respective economic lives. If a patent is denied, all costs are charged to operations in that year.

7. Impairment or Disposal of Long Lived Assets, including Intangible Assets

We review our long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, we must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, we may be required to record impairment charges. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. We did not record any impairment charges in any of the years presented.

8. Advertising Expense

The Company expenses the costs of advertising as incurred. Advertising expenses for the years ended December 31, 2012 and 2011 were approximately $114,000 and $170,000, respectively.

9. Deferred Revenue

Deferred revenue includes customer advances and amounts that have been billed per the contractual terms but have not been recognized as revenue. The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12 months from the date the customer accepts the products.

10. Research and Development Expenditures

Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.

11. Earnings Per Share of Common Stock (“EPS”)

The Company’s EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes, when the effect of their inclusion is dilutive. See Note R -  Earnings Per Share “EPS”, for additional information.

12. Accounting for Stock-Based Compensation

The Company accounts for share based compensation in accordance with the provisions of ASC 718-10, “Compensation — Stock Compensation,” which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The majority of our share-based compensation arrangements vest over either a three or four year vesting schedule. The Company expenses its share-based compensation under the ratable method, which treats each vesting tranche as if it were an individual grant. The fair value of stock options is determined using the Black-Scholes valuation model, and requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected option term”), the estimated volatility of our common stock price over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized as an expense in the consolidated statements of operations. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the service period, net of estimated forfeitures (the number of individuals that will ultimately not complete their vesting requirements). The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates.

The compensation expense recognized under ASC 718 amounted to $49,842 and $57,180 for the years ended December 31, 2012 and 2011 respectively.

The following table presents share-based compensation expenses for continuing operations included in the Company’s consolidated statements of operations:

	Year ended December 31,
	2012		2011
Selling, general and administrative	$	22,502	$	12,054
Research, development and engineering		27,340		45,126
	$	49,842	$	57,180

Valuation Assumptions for Stock Options

For the years ended December 31, 2012 and 2011, 600,000 and 845,000 stock options were granted, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Year ended December 31,
	2012			2011
Risk free interest rate		0.80	%		1.64	%
Expected life of options (in years)		4.48			4.52
Expected dividends		0	%		0	%
Volatility of stock price		114	%		114	%

The stock volatility for each grant is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term. The expected term was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

13. Income Taxes

The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Because of the Company’s historical performance and estimated future taxable income, a full valuation allowance has been established.

The Company accounts for uncertain tax provisions in accordance with ASC 740-10-05 “Accounting for Uncertainty in Income Taxes.” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

14. Recent Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

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Note D - Concentration of Risk (Details) - Accounts Receivable Concentration Risk by Customer (Accounts Receivable [Member])	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Customer C [Member]
Concentration Risk [Line Items]
Customer	74.00%	78.00%
Customer D [Member]
Concentration Risk [Line Items]
Customer	14.00%

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Note A - The Company and Summary of Significant Accounting Policies (Details) - Valuation Assumptions for Stock Options	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Valuation Assumptions for Stock Options [Abstract]
Risk free interest rate	0.80%	1.64%
Expected life of options (in years)	4 years 175 days	4 years 189 days
Expected dividends	0.00%	0.00%
Volatility of stock price	114.00%	114.00%

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Note F - Equipment and Leashold Improvements (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

	2012			2011
Equipment	$	302,052		$	302,052
Furniture and fixtures		99,199			99,199
Software		28,624			28,624
Leasehold improvements		39,975			39,975
		469,850			469,850
Less accumulated depreciation and amortization		(445,583	)		(416,980	)
Total	$	24,267		$	52,870

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Note N - Equity (Details) - Summary of Warrant Activity (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2010
Summary of Warrant Activity [Abstract]
Outstanding	8,250,000	8,250,000	10,261,615
Outstanding (in Dollars per share)	$ 0.30	$ 0.30	$ 0.32
Outstanding	3 years 354 days	2 years 354 days
Vested or expected to vest at December 31, 2012		8,250,000
Vested or expected to vest at December 31, 2012 (in Dollars per share)		$ 0.30
Vested or expected to vest at December 31, 2012		2 years 354 days
Exercisable at December 31, 2012		8,250,000
Exercisable at December 31, 2012 (in Dollars per share)		$ 0.30
Exercisable at December 31, 2012		2 years 354 days
Expired	(2,011,615)
Expired (in Dollars per share)	$ 0.39

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Note I - Related Party (Details) (USD $)	24 Months Ended	12 Months Ended
	Dec. 31, 2011 Monthly Payment to Mr. Colatosti [Member]	Dec. 31, 2011 Chief Financial Officer [Member]	Dec. 31, 2012 Chief Financial Officer [Member]
Note I - Related Party (Details) [Line Items]
Related Party Transaction, Amounts of Transaction	$ 5,000
Salaries, Wages and Officers' Compensation		60,000
Accounts Payable, Related Parties			$ 50,000

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Note M - Commitments

12 Months Ended

Dec. 31, 2012

Disclosure Text Block Supplement [Abstract]

Commitments Disclosure [Text Block]

NOTE M—COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company does not own any real estate but conducts operations from three leased premises. These non-cancelable operating leases expire at various dates through 2014. In addition to base rent, the Company pays for property taxes, maintenance, insurance and other occupancy expenses according to the terms of the individual leases.

Future minimum rental commitments of non-cancelable operating leases are approximately as follows:

Years ending December 31,
2013	$	137,870
2014		92,097
	$	229,967

Rental expense was approximately $169,000 and $166,000 during 2012 and 2011, respectively.

Lawsuit

During August 2012, Blue Spike, LLC filed suit against the Company in the United States District Court for the Eastern District of Texas alleging that the Company infringed one or more claims of U.S. Patents Nos. 7,346,472, 7,660,700, 7,949,494, and 8,214,175.  In December 2012, the Company reached an agreement to resolve litigation, which resulted in a dismissal of all claims asserted in this litigation (both against and by the Company) with prejudice.   Legal and settlement fees amounted to approximately $208,000.

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Note I - Related Party

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE I—RELATED PARTY

Consulting Arrangement with Thomas J. Colatosti (“Colatosti”)

In connection with his appointment to the Board of Directors in September 2002, and as acting Chief Financial Officer from November 2008 to December 2009, the Company has entered into a number of consulting arrangements with Colatosti. Under the most recent arrangement, which was entered into on January 12, 2010, Mr. Colatosti provided services to the Company and its subsidiary for the two-year term ended December 31, 2011 at a rate of $5,000 per month.

Mr. Colatosti has substantial experience in the biometric industry and in addition to his role as the Chairman of the Board of Directors of the Company, provides extensive service to the Company in the areas of strategic planning and corporate finance. For the year ended December 31, 2011, Mr. Colatosti earned  $60,000, of which $50,000 remained outstanding and payable at both December 31, 2012 and 2011.  The balance owed to Colatosti is included in accounts payable.

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Note O - Stock Options (Details) - Option Activity (USD $)	2 Months Ended		12 Months Ended
	Mar. 01, 2013	Mar. 01, 2012	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Note O - Stock Options (Details) - Option Activity [Line Items]
Outstanding, as of December 31			3,262,272	3,262,272	4,404,412	4,410,530
Outstanding, as of December 31 (in Dollars per share)			$ 0.16	$ 0.16	$ 0.22	$ 0.25
Outstanding, as of December 31				4 years 76 days
Outstanding, as of December 31 (in Dollars)			$ 2,325	$ 2,325
Vested or expected to vest at December 31, 2012			2,972,404	2,972,404
Vested or expected to vest at December 31, 2012 (in Dollars per share)			$ 0.16	$ 0.16
Vested or expected to vest at December 31, 2012				4 years 14 days
Vested or expected to vest at December 31, 2012 (in Dollars)			2,325	2,325
Exercisable at December 31, 2012			2,230,594	2,230,594
Exercisable at December 31, 2012 (in Dollars per share)			$ 0.18	$ 0.18
Exercisable at December 31, 2012				3 years 156 days
Exercisable at December 31, 2012 (in Dollars)			$ 2,325	$ 2,325
Granted	2,300,000	1,125,000	600,000		845,000
Granted (in Dollars per share)			$ 0.09		$ 0.14
Forfeited			(530,001)		(210,000)
Forfeited (in Dollars per share)			$ 0.09		$ 0.14
Expired			(1,212,139)		(641,118)
Expired (in Dollars per share)			$ 0.30		$ 0.36
1999 Stock Option Plan [Member]
Note O - Stock Options (Details) - Option Activity [Line Items]
Outstanding, as of December 31			500,000	500,000	500,000	500,000
2004 Stock Option Plan [Member]
Note O - Stock Options (Details) - Option Activity [Line Items]
Outstanding, as of December 31			2,762,272	2,762,272	2,831,836	2,580,689
Outstanding, as of December 31				10 years
Granted			600,000		845,000
Forfeited			(164,623)		(210,000)
Expired			(504,941)		(383,853)
Non Plan [Member]
Note O - Stock Options (Details) - Option Activity [Line Items]
Outstanding, as of December 31					1,072,576	1,329,841
Forfeited			(365,378)
Expired			(707,198)		(257,265)

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Note P - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE P—INCOME TAXES

There was no provision for federal or state taxes as at December 31, 2012. The provision for income taxes as at December 31, 2011 was comprised of federal alternative minimum tax of $16,500 and minimum state taxes of $10,000. 

The Company has deferred taxes due to income tax credits, net operating loss carryforwards, and the effect of temporary differences between the carrying values of certain assets and liabilities for financial reporting and income tax purposes. Significant components of deferred taxes are as follows at December 31:

	2012			2011
Current asset:
Accrued compensation	$	128,000		$	119,000
Accounts receivable allowance		8,000			156,000
Non-current asset (liability):
Stock-based compensation		336,000			—
Basis differences in fixed assets		(10,000	)		(21,000	)
Basis differences in intangible assets		(77,000	)		31,000
Net operating loss carryforwards		16,143,000			15,912,000
Valuation allowances		(16,528,000	)		(16,197,000	)
	$	—		$	—

The Company has a valuation allowance against the full amount of its net deferred taxes due to the uncertainty of realization of the deferred tax assets due to operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income. Similarly, income tax benefits related to stock options exercised have not been recognized in the financial statements.

As of December 31, 2012, the Company has federal net operating loss carryforwards of approximately $44,800,000 subject to expiration between 2018 and 2032.  These net operating loss carryforwards are subject to the limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company.

A reconciliation of the effective income tax rate on operations reflected in the Statements of Operations to the US Federal statutory income tax rate is presented below.

	2012			2011
US Federal statutory income tax rate		34	%		34	%
Permanent differences		831			(4	)
Alternative minimum tax		—			1
Effect of net operating loss		(865	)		(30	)
Effective tax rate		—	%		1	%

The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The periods from 2009 through 2012 remain open to examination by the IRS and state jurisdictions. The Company believes it is not subject to any tax audit risk beyond those periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any significant interest expense recognized during the years ended December 31, 2012 and 2011.

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Note N - Equity

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

6.                      STOCKHOLDERS’ DEFICIENCY

Issuances of Common Stock

Pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and DRNC (the “InterDigital SPA”), the Company issued 4,026,935 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693. DRNC has anti-dilution rights under the InterDigital SPA that would require the Company to issue additional shares to DRNC on a full-ratchet basis if the Company, within the nine months following February 26, 2013, sells or issues any common stock or common stock equivalents (other than sales or issuances to directors, officers, employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect of the Company’s common stock) having a purchase, exercise or conversion price per share of less than $0.10.

Concurrently with the closing of the transactions described above, the Company closed an equity financing with a number of private investors pursuant to a Securities Purchase Agreement dated February 26, 2013 by and between the Company and such private and institutional investors (the “Private Investor SPA”). Pursuant to the Private Investor SPA, the Company issued 5,000,000 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000.

In connection with the share issuances described above, the Company incurred costs of $46,176 which were offset against additional paid-in capital.

Issuances of Stock Options

For the three months ended March 31, 2013 and 2012, 2,300,000 and 1,125,000 stock options were granted, respectively. Terms of the options issued in 2013 include the following: term - 7 years, exercise price - $0.17, vesting - 3 years.

Derivative Liabilities

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC 815, “Derivatives and Hedging.”

As discussed above, the Company issued shares to DRNC that contain anti-dilution rights.  The Company determined that the anti-dilution rights are embedded derivatives that must be bifurcated and recorded as derivative liabilities. In addition, the Company would be required to revalue the derivative liabilities at the end of each reporting period with the change in value reported on the statement of operations. The Company did not account for these derivative liabilities in its financial statements as it was determined to not be material.

NOTE N— EQUITY

1. Redeemable Preferred Stock

Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of preferred stock, $.0001 par value per share, in one or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.

2. Common Stock

The Company is authorized to issue 170,000,000 shares of common stock, $.0001 par value per share, of which 78,155,413 were outstanding as of December 31, 2012 and 2011.

Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights.

Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.

On February 26, 2013, the Company entered into an agreement to issue 4,026,935 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $402,693.  Concurrently, the Company closed an equity financing with a number of private and institutional investors and issued 5,000,000 shares of its common stock at a purchase price $0.10 per share, for an aggregate purchase price of $500,000.  See Note S below.

3. Warrants

The Company has issued warrants to certain creditors, investors, investment bankers and consultants. A summary of warrant activity is as follows:

	Total Warrants			Weighted average exercise price		Weighted average remaining life (in years)		Aggregate intrinsic value
Outstanding, as of December 31, 2010		10,261,615		$	0.32
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(2,011,615	)		0.39
Outstanding, as of December 31, 2011		8,250,000		$	0.30		3.97
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		—			—
Outstanding, as of December 31, 2012		8,250,000		$	0.30		2.97		—
Vested or expected to vest at December 31, 2012		8,250,000		$	0.30		2.97		—
Exercisable at December 31, 2012		8,250,000		$	0.30		2.97		—

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Document And Entity Information (USD $)	12 Months Ended
	Mar. 31, 2013	May 12, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	BIO KEY INTERNATIONAL INC
Document Type	S-1
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		87,182,348
Entity Public Float			$ 5,287,670
Amendment Flag	false
Entity Central Index Key	0001019034
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY

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Note O - Stock Options

3 Months Ended

12 Months Ended

Mar. 31, 2013

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3.                      SHARE BASED COMPENSATION

The following table presents share-based compensation expenses for continuing operations included in the Company’s unaudited condensed consolidated statements of operations:

	Three Months Ended March 31,
	2013		2012
Selling, general and administrative	$	11,121	$	2,223
Research, development and engineering		1,326		18,518
	$	12,447	$	20,741

NOTE O—STOCK OPTIONS

1999 Stock Option Plan

During 1999, the Board of Directors of the Company adopted the 1999 Stock Option Plan (the 1999 Plan). The 1999 Plan was not presented to stockholders for approval and thus incentive stock options are not available under the plan. Under the 1999 Plan, 2,000,000 shares of common stock are reserved for issuance to employees, officers, directors, and consultants of the Company at exercise prices which may not be below 85% of fair market value. The term of nonstatutory stock options granted may not exceed ten years. Options issued under the Plan vest pursuant to the terms of stock option agreements with the recipients. In the event of a change in control, as defined, all options outstanding vest immediately. The 1999 Plan expired in August 2009.

2004 Stock Option Plan

On October 12, 2004, the Board of Directors of the Company approved the 2004 Stock Option Plan (the 2004 Plan). The 2004 Plan has not yet been presented to stockholders for approval and thus incentive stock options are not available under this plan. Under the terms of this plan, 4,000,000 shares of common stock are reserved for issuance to employees, officers, directors, and consultants of the Company at exercise prices which may not be below 85% of fair market value. The term of stock options granted may not exceed ten years. Options issued under the Plan vest pursuant to the terms of stock option agreements with the recipients. In the event of a change in control, as defined, all options outstanding vest immediately. The Plan expires in October 2014.

Non-Plan Stock Options

Periodically, the Company has granted options outside of the 1999 and 2004 Plans to various employees and consultants. In the event of change in control, as defined, certain of the non-plan options outstanding vest immediately.

Stock Option Activity

Information summarizing option activity is as follows:

	Number of Options											Weighted average exercise		Weighted average remaining life		Aggregate intrinsic
	1999 Plan		2004 Plan			Non Plan			Total			price		(in years)		value
Outstanding, as of December 31, 2010		500,000		2,580,689			1,329,841			4,410,530		$	0.25
Granted		—		845,000			—			845,000			0.14
Exercised		—		—			—			—			—
Forfeited		—		(210,000	)		—			(210,000	)		0.14
Expired		—		(383,853	)		(257,265	)		(641,118	)		0.36
Outstanding, as of December 31, 2011		500,000		2,831,836			1,072,576			4,404,412		$	0.22
Granted		—		600,000			—			600,000			0.09
Exercised		—		—			—			—			—
Forfeited		—		(164,623	)		(365,378	)		(530,001	)		0.09
Expired		—		(504,941	)		(707,198	)		(1,212,139	)		0.30
Outstanding, as of December 31, 2012		500,000		2,762,272			—			3,262,272			0.16		4.21	$	2,325
Vested or expected to vest at December 31, 2012										2,972,404			0.16		4.04	$	2,325
Exercisable at December 31, 2012										2,230,594			0.18		3.43	$	2,325

The options outstanding and exercisable at December 31, 2012 were in the following exercise price ranges:

				Options Outstanding				Options Exercisable
Range of exercise prices				Number of shares	Weighted average exercise price		Weighted average remaining  life (in years)	Number exercisable	Weighted average exercise price
	$ 0.08	-	0.21	2,852,272	$	0.11	4.23	1,820,594	$	0.12
	0.22	-	0.40	70,000	0.40		4.02	70,000	0.40
	0.41	-	0.68	340,000	0.46		4.02	340,000	0.46
	$ 0.07	-	0.68	3,262,272				2,230,594

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $0.09 as of December 31, 2012, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 31, 2012 was 775,000.

The weighted average fair value of options granted during the years ended December 31, 2012 and 2011 was $0.05 and $0.11 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was $0. The total fair value of shares vested during the years ended December 31, 2012 and 2011 was $70,026 and $52,879 respectively.

As of December 31, 2012 future compensation cost related to nonvested stock options is $47,220 and will be recognized over an estimated weighted average period of 1.55 years.

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Note K - Notes Payable (Details) (USD $)	1 Months Ended		12 Months Ended				24 Months Ended								24 Months Ended			12 Months Ended					0 Months Ended
	May 31, 2011	Jan. 31, 2011	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012	May 20, 2011	Dec. 31, 2012 Principal [Member] Shaar Note [Member]	Dec. 31, 2012 Interest [Member] Shaar Note [Member]	Dec. 31, 2010 Existing Warrants [Member]	Dec. 31, 2010 New Warrant [Member]	Dec. 28, 2009 Shaar [Member] Convertible Promissory Note [Member]	Dec. 28, 2009 Colatosti [Member] Convertible Promissory Note [Member]	Dec. 28, 2009 Thomas Colatosti [Member] Seven Percent Convertible Promissory Note [Member]	May 20, 2011 Absorbed by Note Holders [Member]	Dec. 31, 2012 Shaar Note [Member]	May 20, 2011 Shaar Note [Member]	Dec. 31, 2010 Shaar Note [Member]	Dec. 31, 2012 Colatosti Note [Member]	Dec. 31, 2011 Colatosti Note [Member]	Mar. 31, 2013 Colatosti Note [Member]	May 20, 2011 Colatosti Note [Member]	Dec. 31, 2010 Colatosti Note [Member]	Feb. 26, 2013 Inter Digital Note [Member]	Mar. 31, 2013 Inter Digital Note [Member]
Note K - Notes Payable (Details) [Line Items]
Debt Instrument, Interest Rate, Stated Percentage											7.00%	7.00%	7.00%				7.00%					7.00%	7.00%
Debt Instrument, Face Amount											$ 673,079	$ 64,878					$ 3,157,759					$ 350,804	$ 497,307
Debt Instrument, Annual Principal Payment				500,000									64,878
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)									5,108,333	8,000,000
Term of Warrant										5 years
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)										0.30
Proceeds from (Payments for) Other Financing Activities				500,000
Payments of Ordinary Dividends, Preferred Stock and Preference Stock		125,209	125,209
Repayments of Secured Debt	3,157,759						3,157,759	80,286							3,192,421
Discount on Early Payment of Note Receivable Granted by the Company						150,000								50,000
Reduction in Note Repayment																45,624
Reduction in Principle Amount of Note Payable																					4,376
Notes Payable			346,428		321,428													321,428		0				497,307
Interest Expense, Debt																		24,626	23,309
Interest Payable																		47,935	23,309
Debt Instrument Default Rate While A Nonpayment DefaultIs Continuing																							0.09
Debt Issuance Cost																							$ 57,203

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Note J - Deferred Revenue (Details) - Components of Deferred Revenue (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Current Portion
Deferred Revenue, Current	$ 467,108	$ 508,520	$ 527,092
Long-Term Portion
Maintenance contracts			1,000
Total		508,520	528,092
Maintenance Contracts [Member]
Current Portion
Deferred Revenue, Current		496,055	335,246
Long-Term Portion
Maintenance contracts			1,000
Customer Deposit [Member]
Current Portion
Deferred Revenue, Current		12,465	122,500
Fully Deferred Systems, Installation and Acceptance Revenue [Member]
Current Portion
Deferred Revenue, Current			$ 69,346