we were among the initial pioneers in developing automated , finger identification technology that can be used without the aid of non-automated methods of identification such as a personal identification , password , token , smart card , id card , credit card , passport , driver 's license or other form of possession or knowledge based identification . this advanced bio-key identification technology improves both the accuracy and speed of finger-based biometrics . through partnerships with oems , integrators , and solution providers , we provide biometric software solutions to private and public sector customers . bio-key provides the ability to positively identify individuals in seconds before granting access to valuable corporate resources , web portals or applications . 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 . while our growth has been sluggish due to market acceptance , and lengthy processes involved with building relationships with large integrators , we believe that due to current market conditions , specifically identity theft , we are well-positioned for growth as solutions empower users to take control of their identities in a way that can not be replicated , stolen or mistaken for unauthorized use . organizations that employ bio-key 's solutions to authenticate employees and protect company data also experience a measurable return on investment . 12 results of operations consolidated results of operations two year % trend replace_table_token_3_th revenues and costs of goods sold replace_table_token_4_th 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 . 13 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 . 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 replace_table_token_5_th 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 replace_table_token_6_th 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 . story_separator_special_tag ” 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 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 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 . 17 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 . 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 companies historical performance and estimated future taxable income a full valuation allowance has been established . 5. 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

liquidity and capital resources operating activities overview 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 . investing activities overview there were no cash flows under investing activities during the year . financing activities overview net cash used for financing activities of $ 25,000 was due to a principal payment against the secured note . 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 . 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 do not expect any material capital expenditures 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 . as of december 2011 , the company entered into a 24-month accounts receivable factoring arrangement with a financial institution ( the “ factor ” ) .


 Write a concise suspicious activity report of the following text delimited by triple backquotes. Return your response as a formal report which covers the key points highlighting the location,dates,entity names and account holder information in chronological order of the text.
     ```liquidity and capital resources operating activities overview 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 . investing activities overview there were no cash flows under investing activities during the year . financing activities overview net cash used for financing activities of $ 25,000 was due to a principal payment against the secured note . 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 . 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 do not expect any material capital expenditures 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 . as of december 2011 , the company entered into a 24-month accounts receivable factoring arrangement with a financial institution ( the “ factor ” ) .
```    
 Suspicious Activity Report : we were among the initial pioneers in developing automated , finger identification technology that can be used without the aid of non-automated methods of identification such as a personal identification , password , token , smart card , id card , credit card , passport , driver 's license or other form of possession or knowledge based identification . this advanced bio-key identification technology improves both the accuracy and speed of finger-based biometrics . through partnerships with oems , integrators , and solution providers , we provide biometric software solutions to private and public sector customers . bio-key provides the ability to positively identify individuals in seconds before granting access to valuable corporate resources , web portals or applications . 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 . while our growth has been sluggish due to market acceptance , and lengthy processes involved with building relationships with large integrators , we believe that due to current market conditions , specifically identity theft , we are well-positioned for growth as solutions empower users to take control of their identities in a way that can not be replicated , stolen or mistaken for unauthorized use . organizations that employ bio-key 's solutions to authenticate employees and protect company data also experience a measurable return on investment . 12 results of operations consolidated results of operations two year % trend replace_table_token_3_th revenues and costs of goods sold replace_table_token_4_th 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 . 13 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 . 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 replace_table_token_5_th 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 replace_table_token_6_th 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 . story_separator_special_tag ” 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 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 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 . 17 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 . 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 companies historical performance and estimated future taxable income a full valuation allowance has been established . 5. 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

