##### Table of Contents



SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


FORM 10-QSB

|    |  |                                                                                   
|--- |  | ----------------------------------------------------------------------------------
|(X) |  | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

| |  |                                             
| |  | --------------------------------------------
| |  | For the quarterly period ended June 30, 2003
| |  |                                             
| |  | Commission File Number 0-11447              

DATAKEY, INC.

(Exact name of small business issuer as specified in its charter)


|                                                                         |  |                                                
|------------------------------------------------------------------------ |  | -----------------------------------------------
|MINNESOTA
(State or other jurisdiction of
incorporation or organization) |  | 41-1291472
(I.R.S. Employer
Identification No.)

407 WEST TRAVELERS TRAIL, BURNSVILLE, MN 55337
(Address of Principal Executive Offices)

Issuers telephone number: (952) 890-6850



---

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the issuers common equity as of July
31, 2003 is 10,126,119.

Transitional Small Business Disclosure Format (check One):
Yes o No x





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TABLE OF CONTENTS



|                                                  |                                                                                 |  |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                    
|                                                  | ITEM 1. FINANCIAL STATEMENTS                                                   
|                                                  | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION DATAKEY, INC.
|                                                  | ITEM 3. CONTROLS AND PROCEDURES                                                
|PART II. OTHER INFORMATION                       
|                                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS               
|                                                  | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                       
|SIGNATURES                                       
|EX-31.1 Certification of CEO Pursuant to Sec. 302
|EX-31.2 Certification of CFO Pursuant to Sec. 302
|EX-32.1 Certification of CEO Pursuant to Sec. 906
|EX-32.2 Certification of CFO Pursuant to Sec. 906



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##### Table of Contents









| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATAKEY, INC.
BALANCE SHEETS

|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |   |  |           | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------------------------------ | ------------------------- | - | ----------- | --------- | ------------ | - |  | --------- | 
|                                              |                                                                                                                                        |                          |                                      |                           |   | June 30,    |           | December 31,
|                                              |                                                                                                                                        |                          |                                      |                           |   | 2003        |           | 2002        
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|                                              |                                                                                                                                        |                          |                                      |                           |   | (UNAUDITED) |           |              |   | 
|                                              |                                                                                                                                        |                          |                                      | ASSETS                    |   |             |           |              |   |  |           | 
|CURRENT ASSETS                                |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|                                              | Cash                                                                                                                                   |                          | $                                    | 1,063,957                 |   |             | $         | 2,562,611    |  
|                                              | Trade receivables, less allowance for
doubtful accounts of $30,000 and $55,000                                                         |                          |                                      | 928,662                   |   |             |           | 1,700,434    |  
|                                              | Inventories, less reserves for obsolescence
of $194,000 and $164,000                                                                   |                          |                                      | 575,058                   |   |             |           | 996,532      |  
|                                              | Prepaid expenses and other                                                                                                             |                          |                                      | 86,531                    |   |             |           | 65,259       |  
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        |                          |                                      | Total current assets      |   |             | 2,654,208 |              |   |  | 5,324,836 | 
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|OTHER ASSETS                                  |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|                                              | Patents at cost less amortization                                                                                                      |                          |                                      | 6,220                     |   |             |           | 0            |  
|                                              | Prepaid licenses at cost less amortization                                                                                             |                          |                                      | 357,831                   |   |             |           | 236,817      |  
|                                              |                                                                                                                                        | of $324,539 and $309,183 |                                      |                           |   |             |           |              |   | 
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|                                              | Production tooling                                                                                                                     |                          |                                      | 30,230                    |   |             |           | 23,650       |  
|                                              | Equipment                                                                                                                              |                          |                                      | 724,114                   |   |             |           | 735,916      |  
|                                              | Furniture and fixtures                                                                                                                 |                          |                                      | 166,520                   |   |             |           | 166,520      |  
|                                              | Leasehold improvements                                                                                                                 |                          |                                      | 310,912                   |   |             |           | 310,912      |  
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        |                          | 1,231,776                            |                           |   |             | 1,236,998 |             
|                                              | Less accumulated depreciation                                                                                                          |                          |                                      | (996,348                  | ) |             |           | (927,844     | )
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        |                          | 235,428                              |                           |   |             | 309,154   |             
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        | $                        | 3,253,687                            |                           |   | $           | 5,870,807 |             
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        |                          | LIABILITIES AND SHAREHOLDERS EQUITY |                           |   |             |           |              |   |  |          
|CURRENT LIABILITIES                           |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|                                              | Accounts payable                                                                                                                       |                          | $                                    | 324,140                   |   |             | $         | 574,266      |  
|                                              | Accrued compensation                                                                                                                   |                          |                                      | 349,632                   |   |             |           | 287,718      |  
|                                              | Accrued expenses-other                                                                                                                 |                          |                                      | 32,367                    |   |             |           | 154,267      |  
|                                              | Deferred revenue                                                                                                                       |                          |                                      | 418,912                   |   |             |           | 355,338      |  
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        |                          |                                      | Total current liabilities |   |             | 1,125,051 |              |   |  | 1,371,589 | 
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|SHAREHOLDERS EQUITY                          |                                                                                                                                        |                          |                                      |                           |   |             |           |             
|                                              | Convertible preferred stock, voting, stated value
$2.50 per share; authorized 400,000 shares;
issued and outstanding 150,000           |                          |                                      | 375,000                   |   |             |           | 375,000      |  
|                                              | Common stock, par value $.05 per share;
authorized 20,000,000 shares; issued and outstanding
10,126,119 in 2003 and 10,082,750 in 2002 |                          |                                      | 506,306                   |   |             |           | 504,138      |  
|                                              | Additional paid-in capital                                                                                                             |                          |                                      | 18,969,951                |   |             |           | 18,921,150   |  
|                                              | Accumulated deficit                                                                                                                    |                          |                                      | (17,722,621               | ) |             |           | (15,301,070  | )
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        |                          | 2,128,636                            |                           |   |             | 4,499,218 |             
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  
|                                              |                                                                                                                                        | $                        | 3,253,687                            |                           |   | $           | 5,870,807 |             
|                                              |                                                                                                                                        |                          |                                      |                           |   |             |           |              |  

See Notes to Financial Statements

2



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##### Table of Contents



DATAKEY, INC.
STATEMENTS OF INCOME
(UNAUDITED)

|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |           |            |  
|---------------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------------- | ---------- | ------------------ | --------- | ---------------- | ---------- | -------- | --------- | -------- | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | -
|                                                                       |                                                                 |                                              |            | Three Months Ended |           | Six Months Ended
|                                                                       |                                                                 |                                              |            | June 30,           |           | June 29,         |            | June 30, |           | June 29,
|                                                                       |                                                                 |                                              |            | 2003               |           | 2002             |            | 2003     |           | 2002    
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |         
|Revenue                                                                |                                                                 | $                                            | 1,032,692  |                    |           | $                | 1,869,522  |          |           | $        | 1,827,060  |           |            | $ | 4,362,416  |          
|Cost of goods sold                                                     |                                                                 |                                              | 567,878    |                    |           |                  | 826,118    |          |           |          | 1,173,751  |           |            |   | 2,326,752  |          
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       |                                                                 | Gross Profit                                 |            |                    | 464,814   |                  |            |          | 1,043,404 |          |            |           | 653,309    |   |            |           | 2,035,664  |  
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |         
|Operating expenses:                                                    |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       | Research, development, technical support
and engineering        |                                              |            | 517,246            |           |                  |            | 590,020  |           |          |            | 1,065,804 |            |   |            | 1,172,129 |           
|                                                                       | Marketing and sales                                             |                                              |            | 706,823            |           |                  |            | 794,849  |           |          |            | 1,482,540 |            |   |            | 1,677,026 |           
|                                                                       | General and administrative                                      |                                              |            | 117,079            |           |                  |            | 198,288  |           |          |            | 535,372   |            |   |            | 395,427   |           
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       |                                                                 | Total operating expenses                     |            |                    | 1,341,148 |                  |            |          | 1,583,157 |          |            |           | 3,083,716  |   |            |           | 3,244,582  |  
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       |                                                                 | Operating loss                               |            |                    | (876,334  | )                |            |          | (539,753  | )        |            |           | (2,430,407 | ) |            |           | (1,208,918 | )
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |         
|Interest income                                                        |                                                                 |                                              | 3,859      |                    |           |                  | 11,997     |          |           |          | 8,856      |           |            |   | 24,723     |          
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|Loss from continuing operations
before income taxes                    |                                                                 |                                              | (872,475   | )                  |           |                  | (527,756   | )        |           |          | (2,421,551 | )         |            |   | (1,184,195 | )        
|Income tax expense                                                     |                                                                 |                                              | 0          |                    |           |                  | 0          |          |           |          | 0          |           |            |   | 0          |          
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |         
|Net loss from continuing operations                                    |                                                                 | $                                            | (872,475   | )                  |           | $                | (527,756   | )        |           | $        | (2,421,551 | )         |            | $ | (1,184,195 | )        
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|Profit from operations of discontinued segment                         |                                                                 |                                              | 0          |                    |           |                  | 0          |          |           |          | 0          |           |            |   | 0          |          
|Gain from disposal of discontinued segment                             |                                                                 |                                              | 0          |                    |           |                  | 361,767    |          |           |          | 0          |           |            |   | 351,045    |          
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       |                                                                 | Net loss attributable to common stockholders |            | $                  | (872,475  | )                |            | $        | (165,989  | )        |            | $         | (2,421,551 | ) |            | $         | (833,150   | )
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       | Basic and diluted loss per share
from continuing operations     |                                              | $          | (0.09              | )         |                  | $          | (0.05    | )         |          | $          | (0.24     | )          |   | $          | (0.12     | )         
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|                                                                       | Basic and diluted income per share
from discontinued operations |                                              |            |                    |           |                  | $          | 0.04     |           |          |            |           |            |   | $          | 0.03      |           
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |         
|                                                                       | Basic and diluted
loss per share                                |                                              | $          | (0.09              | )         |                  | $          | (0.02    | )         |          | $          | (0.24     | )          |   | $          | (0.08     | )         
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          
|Weighted average number of common
shares outstanding-basic and diluted |                                                                 |                                              | 10,125,261 |                    |           |                  | 10,082,750 |          |           |          | 10,119,945 |           |            |   | 10,066,772 |          
|                                                                       |                                                                 |                                              |            |                    |           |                  |            |          |           |          |            |           |            |   |            |          

See Notes to Financial Statements

3



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##### Table of Contents



DATAKEY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |           |        |  |          |  
|------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------- | --------------------------------------------------- | ------ | ------------------ | ---------- | ---------------- | ------ | -------- | -------- | ---------- | ------ |  | ---------- | --------- | ------ |  | -------- | -
|                                     |                                                                             |                                                                 |                         |                                                     |        | Three Months Ended |            | Six Months Ended
|                                     |                                                                             |                                                                 |                         |                                                     |        | June 30,           |            | June 29          |        | June 30, |          | June 29   
|                                     |                                                                             |                                                                 |                         |                                                     |        | 2003               |            | 2002             |        | 2003     |          | 2002      
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |           
|CASH FLOWS FROM OPERATING ACTIVITIES |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     | Net loss                                                                    |                                                                 | $                       | (872,475                                            | )      |                    | $          | (165,989         | )      |          | $        | (2,421,551 | )      |  | $          | (833,150  | )     
|                                     | Adjustments to reconcile net loss
to net cash used in operating activities: |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |           |       
|                                     |                                                                             | Depreciation                                                    |                         |                                                     | 45,484 |                    |            |                  | 32,318 |          |          |            | 90,450 |  |            |           | 62,735 | 
|                                     |                                                                             | Amortization                                                    |                         |                                                     | 8,309  |                    |            |                  | 31,104 |          |          |            | 15,356 |  |            |           | 53,658 | 
|                                     |                                                                             | Change in assets and liabilities
(Increase) decrease in assets: |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |           |        | 
|                                     |                                                                             |                                                                 |                         | Trade receivables                                   |        |                    | (221,609   | )                |        |          | 675,005  |            |        |  | 771,772    |           |        |  | 456,690  |  
|                                     |                                                                             |                                                                 |                         | Inventories                                         |        |                    | 211,004    |                  |        |          | 120,609  |            |        |  | 421,474    |           |        |  | (142,492 | )
|                                     |                                                                             |                                                                 |                         | Prepaid expenses and other                          |        |                    | (81,822    | )                |        |          | (40,797  | )          |        |  | (163,862   | )         |        |  | (14,320  | )
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                 
|                                     |                                                                             |                                                                 | Increase (decrease) in: |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |           |        |  |         
|                                     |                                                                             |                                                                 |                         | Accounts payable                                    |        |                    | (45,686    | )                |        |          | (392,067 | )          |        |  | (250,126   | )         |        |  | (177,500 | )
|                                     |                                                                             |                                                                 |                         | Accrued expenses                                    |        |                    | (116,186   | )                |        |          | (68,317  | )          |        |  | (59,986    | )         |        |  | 2,114    |  
|                                     |                                                                             |                                                                 |                         | Deferred revenue                                    |        |                    | (15,177    | )                |        |          | (139,373 | )          |        |  | 63,574     |           |        |  | (115,446 | )
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     |                                                                             |                                                                 |                         | Net cash provided by (used in)
operating activities |        |                    | (1,088,158 | )                |        |          | 52,493   |            |        |  | (1,532,899 | )         |        |  | (707,711 | )
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|CASH FLOWS FROM INVESTING ACTIVITIES |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     | Purchase of equipment and leasehold improvements                            |                                                                 |                         | (5,730                                              | )      |                    |            | (8,440           | )      |          |          | (16,724    | )      |  |            | (70,023   | )     
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     |                                                                             |                                                                 |                         | Net cash used in
investing activities               |        |                    | (5,730     | )                |        |          | (8,440   | )          |        |  | (16,724    | )         |        |  | (70,023  | )
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|CASH FLOWS FROM FINANCING ACTIVITIES |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     | Net proceeds from issuance of
common stock                                  |                                                                 |                         | (194                                                | )      |                    |            | 0                |        |          |          | 50,969     |        |  |            | 346,298   |       
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     |                                                                             |                                                                 |                         | Net cash provided by financing activities           |        |                    | (194       | )                |        |          | 0        |            |        |  | 50,969     |           |        |  | 346,298  |  
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     |                                                                             |                                                                 |                         | Decrease in cash                                    |        |                    | (1,094,082 | )                |        |          | 44,053   |            |        |  | (1,498,654 | )         |        |  | (431,436 | )
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                 
|CASH                                 |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     | Beginning                                                                   |                                                                 |                         | 2,158,039                                           |        |                    |            | 3,636,775        |        |          |          | 2,562,611  |        |  |            | 4,112,264 |       
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          
|                                     | Ending                                                                      |                                                                 | $                       | 1,063,957                                           |        |                    | $          | 3,680,828        |        |          | $        | 1,063,957  |        |  | $          | 3,680,828 |       
|                                     |                                                                             |                                                                 |                         |                                                     |        |                    |            |                  |        |          |          |            |        |  |            |          

See Notes to Financial Statements

4



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##### Table of Contents



DATAKEY, INC.
NOTES TO FINANCIAL STATEMENTS

Note 1. NATURE OF BUSINESS
Datakey, Inc. provides products and systems directed to the information
security market, which enables user identification and authentication, secure
data exchange and information validation. In 2000 the Company discontinued a
segment which provided electronic products, consisting of proprietary memory
keys, cards and other custom-shaped tokens. Such products served as a
convenient way to carry electronic information and were packaged to survive in
portable environments. The Company has a wholly owned subsidiary which is
inactive.

Note 2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly Datakeys financial
position as of June 30, 2003, and December 31, 2002, and results of its
operations and cash flows for the three-month and six-month periods ended June
30, 2003, and June 29, 2002. The adjustments that have been made are of a
normal recurring nature.

As discussed in the Liquidity and Financial
Condition section of Managements Discussion and Analysis or Plan of Operation, the Company is in need of
additional capital to fund operations at the current level after the third quarter. The
financial statements contained herein contain no adjustments that may be necessary should
the Company be unable to obtain the needed financing.

The accounting policies followed by the Company are set forth in Note 1 to the
Companys financial statements in the 2002 Datakey, Inc. Annual Report and in
Form 10-KSB for the year ended December 31, 2002.

Note 3. SOFTWARE DEVELOPMENT COSTS
The Companys policy is to expense those costs of software development incurred
until the point of technical feasibility is attained, at which time such costs
are capitalized. No amounts have been capitalized due to uncertainties about
the market acceptance of the underlying products.

Note 4. STOCK BASED COMPENSATION
The Company regularly grants options to its employees under various plans. As
permitted under accounting principles generally accepted in the United States
of America, these grants are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, compensation cost has been recognized for
those grants whose exercise price is less than the fair market value of the
stock on the date of grant. Compensation expense recorded for employee grants
for the quarters ended June 30, 2003 and June 29, 2002 was $1,921 and $0,
respectively. Compensation expense recorded for employee grants for the
six-month periods ended June 30, 2003 and June 29, 2002 was $4,546 and $0,
respectively. The Company also grants options and warrants to non-employees
for goods and services and in conjunction with certain agreements. These grants
are accounted for under FASB Statement No. 123 based on the grant date fair
values.

Had compensation cost for all of the stock-based compensation grants and
warrants issued been determined based on the fair values at the grant date
consistent with the provisions of Statement No. 123, the Companys net loss and
net loss per basic and diluted common share would have been as indicated below.

5



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|                                                                                                                   |                     |               |          |               |   |   |          |          |  
|------------------------------------------------------------------------------------------------------------------ | ------------------- | ------------- | -------- | ------------- | - | - | -------- | -------- | -
|Quarters Ended                                                                                                     |                     | June 30, 2003 |          | June 29, 2002
|                                                                                                                   |                     |               |          |              
|Net loss, as reported                                                                                              |                     | $             | (872,475 | )             |   | $ | (165,989 | )       
|Deduct total stock-based employee
compensation expense determined
under the fair value-based method
for all awards |                     |               | (177,176 | )             |   |   | (185,602 | )       
|                                                                                                                   |                     |               |          |               |  
|                                                                                                                   | Net loss, pro forma |               | $        | (1,049,651    | ) |   | $        | (351,591 | )
|                                                                                                                   |                     |               |          |               |  
|Basic and diluted loss per share, as reported                                                                      |                     | $             | (.09     | )             |   | $ | (.02     | )       
|Basic and diluted loss per share, pro forma                                                                        |                     | $             | (.10     | )             |   | $ | (.03     | )       

|                                                                                                                   |                     |               |            |               |   |   |          |            |  
|------------------------------------------------------------------------------------------------------------------ | ------------------- | ------------- | ---------- | ------------- | - | - | -------- | ---------- | -
|Six Month Periods Ended                                                                                            |                     | June 30, 2003 |            | June 29, 2002
|                                                                                                                   |                     |               |            |              
|Net loss, as reported                                                                                              |                     | $             | (2,421,551 | )             |   | $ | (833,150 | )         
|Deduct total stock-based employee
compensation expense determined
under the fair value-based method
for all awards |                     |               | (350,482   | )             |   |   | (366,012 | )         
|                                                                                                                   |                     |               |            |               |  
|                                                                                                                   | Net loss, pro forma |               | $          | (2,772,033    | ) |   | $        | (1,199,162 | )
|                                                                                                                   |                     |               |            |               |  
|Basic and diluted loss per share, as reported                                                                      |                     | $             | (.24       | )             |   | $ | (.08     | )         
|Basic and diluted loss per share, pro forma                                                                        |                     | $             | (.27       | )             |   | $ | (.12     | )         

The above pro forma effects on net loss and net loss per basic and diluted
common share are not likely to be representative of the effects on reported net
loss or net loss per common share for future years because options vest over
several years and additional awards generally are made each year.

Note 5. PRODUCT WARRANTY
The Company provides a limited 90-day warranty for the replacement of defective
products. The Companys standard warranty policy requires the Company to repair
or replace defective products at no cost to its customers. The Company
estimates the costs that may be incurred under its basic limited warranty and
records a liability in the amount of such costs at the time product revenue is
recognized. Factors that affect the Companys warranty liability include the
number of units sold, historical and anticipated rates of warranty claims, and
cost per claim. The Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary. The Company utilizes
historical trends and information received from its customers to assist in
determining the appropriate loss reserve levels. The warranty accrual was
reduced in late 2002 to reflect the occurrence of fewer warranty claims.

Changes in the Companys warranty liability are as follows:

|                              |                            |   |                            |    |                          |   |        |     |      |   |       |     |  |   |        |       | 
|----------------------------- | -------------------------- | - | -------------------------- | -- | ------------------------ | - | ------ | --- | ---- | - | ----- | --- |  | - | ------ | ----- | 
|                              |                            |   | Three Months Ended June 30 |    | Six Months Ended June 30
|                              |                            |   | 2003                       |    | 2002                     |   | 2003   |     | 2002
|                              |                            |   |                            |    |                          |   |        |     |     
|Balances, Beginning of period |                            | $ | 3,503                      |    |                          | $ | 26,570 |     |      | $ | 4,175 |     |  | $ | 26,894 |      
|                              | Accruals for products sold |   |                            | 0  |                          |   |        | 0   |      |   |       |     |  |   |        |       | 
|                              | Payments made              |   |                            | 78 |                          |   |        | 929 |      |   |       | 750 |  |   |        | 1,253 | 
|Balances, End of period       |                            | $ | 3,425                      |    |                          | $ | 25,641 |     |      | $ | 3,425 |     |  | $ | 25,641 |      

6



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##### Table of Contents



Note 6. LICENSES
Licenses are stated at cost. The costs of the license agreements are amortized
to cost of goods sold as the products incorporating the licensed units are
sold. Under these agreements, the Company generally agrees to purchase a
minimum quantity of software units over a specified period of time.

|                         |  |               |          |                   |  |   |          |  
|------------------------ |  | ------------- | -------- | ----------------- |  | - | -------- | -
|Licenses:                |  | June 30, 2003 |          | December 31, 2002
|                         |  |               |          |                  
|Gross carrying amount    |  | $             | 682,370  |                   |  | $ | 546,000  |  
|Accumulated amortization |  |               | (324,539 | )                 |  |   | (309,183 | )
|                         |  |               |          |                   |  |   |          |  
|Net carrying amount      |  | $             | 357,831  |                   |  | $ | 236,817  |  
|                         |  |               |          |                   |  |   |          |  

Aggregate amortization expense is as follows:

|                               |  |   |         | 
|------------------------------ |  | - | ------- | 
|Quarter ended June 30, 2003    |  | $ | 8,309   | 
|Quarter ended June 29, 2002    |  | $ | 31,104  | 
|Six months ended June 30,2003  |  | $ | 15,356  | 
|Six months ended June 29, 2002 |  | $ | 53,658  | 
|Year ended December 31, 2002   |  | $ | 182,847 | 

The Company expects that the remainder carrying amount of the license
agreements as of the December 31, 2002 will be charged to amortization in 2003
and 2004 based upon the expected sales of its products which incorporate the
licenses. In 2002, the Company entered into a license agreement, and amended
the agreement in 2003, under which it purchased licenses for $195,000 and
agreed to minimum future purchase of licenses for $325,000 by March 2004. The
Company presently expects to acquire and utilize the minimum number of licenses
under the agreement by the end of 2004.

The Company reviews its license costs for impairment and records impairment
charges if sales of products incorporating the licenses are less than expected.
As a result, the Company recognized no impairment expense during the quarter
ended June 30, 2003, $12,167 during the quarter ended June 29, 2002 and $48,667
for the year ended December 31, 2002 to reduce the carrying amount of certain
license costs to the amount required based on sales levels. These impairment
charges are included in the caption cost of goods sold in the accompanying
income statement.

Note 7. Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) has issued Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. Statement No. 150 requires that certain freestanding
financial instruments be reported as liabilities in the balance sheet.
Depending on the type of financial instrument, it will be accounted for at
either fair value or the present value of future cash flows determined at each
balance sheet date with the change in that value reported as interest expense
in the income statement. Prior to the application of Statement No. 150, either
those financial instruments were not required to be recognized, or if
recognized were reported in the balance sheet as equity and changes in the
value of those instruments were normally not recognized in net income. The
Company is required to apply Statement No. 150 for the quarter beginning on
July 1, 2003.

The Company does not expect the application of Statement No. 150 to have a
material effect on its financial statements.

7



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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
DATAKEY, INC.

RESULTS OF OPERATIONS
CONTINUING OPERATIONS

REVENUE
Revenue for the three-month period ended June 30, 2003, decreased by $837,000,
or 45 percent, as compared to the same period in 2002. Revenue for the
six-month period ended June 30, 2003 decreased by $2,535,000 or 58 percent, as
compared to the same period in 2002. The significant decrease in revenue in
the three-month and six-month periods resulted primarily from a reduction
demand for our products created by the slowdown in IT spending and budgetary
issues.

GROSS PROFIT MARGIN
Gross profit, as a percentage of revenue, decreased to 45 percent and 36
percent in the three-month and six-month periods, respectively, ended June 30,
2003, from 56 percent and 47 percent in the three-month and six-month periods,
respectively, ended June 29, 2002. The decrease in gross profit percentage in
the three-month and six-month periods related primarily to fixed overhead being
spread over the significant reduction in revenue and a write-down in Q1 2003 of
the book value of prepaid license fees due to a successful contractual
reduction in the unit price paid for these licenses. The gross margin
percentage for the balance of 2003 is expected to increase if the Company is
successful in increasing quarterly revenue and selling products with more
software content that contain a high margin.

OPERATING EXPENSES
Operating expenses decreased by $242,000 in the three-month period and $161,000
in the six-month period ended June 30, 2003, primarily as the result of a
reduction in personnel and discretionary expenditures offset by accruals, in
the amount of $278,000 during the first quarter of 2003, for severance pay and
other expenses related to a reduction in staff. Operating expenses during the
balance of 2003 are expected to remain at approximately the level reflected in
the second quarter.

INTEREST INCOME
Interest income, net of interest expense, decreased to $4,000 and $8,000 in the
three-month and six-month periods ended June 30, 2003 from $12,000 and $25,000
in the three-month and six-month periods ended June 29, 2002, reflecting a
lower rate of interest and a reduction in cash. Interest income is expected to
decrease slightly over the balance of the year due to a further expected
decrease in cash.

OUTLOOK
There is continuing evidence of a worldwide slowdown in IT spending in the
commercial market as well as in the government market which has resulted in a
reduction in new orders placed. Although we are beginning to see a gradual
improvement in orders and a slightly more positive attitude about future orders
when communicating with customers we are unable to determine when or if a
measurable increase in orders will occur. Accordingly, we are not providing
revenue guidance at this time.

LIQUIDITY AND FINANCIAL CONDITION
The Company experienced a decrease in cash of $1,095,000 in the three-month
period ended June 30, 2003. The decrease in cash during the three-month period
ended June 30, 2003 related to the operating loss, a $222,000 increase in
accounts receivable, a $177,000 decrease in accounts payable, accrued expenses
and deferred revenue and a $82,000 increase in prepaid license fees. The cash
decrease was offset by a $211,000 decrease in inventory. The statements of
cash flows include discontinued operations as well as continuing operations in
the 2002 periods.

8



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##### Table of Contents



Accounts receivable increased $222,000 during the three-month period ended June
30, 2003 primarily as a result of an increase in revenue in the quarter ended
June 30, 2003 compared to the quarter ended March 31, 2003. Accounts payable
declined $46,000 during the three-month period as a result of a reduction in
inventory purchases in the quarter ended June 30, 2003. Inventory decreased by
$211,000 during the three-month period ended June 30, 2003 as the Company
curtailed inventory purchases in light of the reduction in revenue.

Deferred revenue decreased $15,000 during the three-month period ended June 30,
2003 as the additional deferred revenue booked was less than the amortization
of deferred revenue during the three-month period. Deferred revenue consists
of extended maintenance contracts from which the Company typically charges a
fixed percentage of revenue from the sale of products, with such amounts
amortized over the term of the contracts.

Datakeys balance sheet reflects $1,529,000 in working capital as of June 30,
2003 and a current assets to current liabilities ratio of 2.4 to 1. The
Company believes that its current level of cash will provide sufficient
liquidity to fund operations for the third quarter. The Company believes that
it will need to raise capital to continue funding its operations in its current
form beyond the third quarter. There are no assurances that the Company will
be successful in raising capital at competitive rates or at all. If the
Company is unsuccessful in raising a minimum of $1 million in new capital by
the end of the third quarter, management actions will be required to curtail
its operations. Even if operations are curtailed, without additional funding
there are no assurances that the Company would be able to continue its
operations much beyond the third quarter. In addition, in order to maintain
the listing of its Common Stock on the Nasdaq Stock Market, the Company must
meet certain financial tests (including, but not limited to, a minimum bid
price of our Common Stock of $1.00). Except for a few days, the Companys
Common Stock has consistently traded below the $1.00 minimum level since March
3, 2003, and the Company was notified by Nasdaq that its Common Stock would be
delisted if it did not regain compliance with this listing requirement prior to
October 14, 2003. The Companys Common Stock has continued to trade
substantially below $1.00, and there is no assurance that it will meet the
compliance requirement prior to October 14, 2003. In addition, the National
Association of Securities Dealers has a minimum listing requirement of $2.5
million of minimum net equity (unless either the market value of a companys
securities exceeds $35 million or the company has net income of at least
$500,000). As of June 30, 2003, the Company no longer met such minimum net
equity requirement or alternative requirements; and, on August 6, 2003, it
received notice from Nasdaq that it was reviewing the Companys eligibility for
continued listing on Nasdaq. By August 20, 2003, Datakey must present to
Nasdaq staff a specific plan to achieve and sustain compliance with this
requirement. Given the Companys current financial status and need for
additional capital, there is no assurance that it will be able to either
present a plan acceptable to Nasdaq or meet the net capital requirement in the
future. Failure to meet either or both the minimum bid price and the minimum
net equity requirements (or a plan acceptable to Nasdaq) will likely cause the
Company to be delisted from the Nasdaq Stock Market. If the Companys Common
Stock does not remain listed on Nasdaq, the market price and liquidity of our
Common Stock would likely be impaired.

CONTRACTUAL CASH OBLIGATIONS
The Company presently has no long-term debt outstanding and its contractual
cash obligations are those from minimum payments under a software license
agreement and operating lease obligations. These obligations total $497,000 as
shown below:

|           |  |   |         |                        |  |  |  | 
|---------- |  | - | ------- | ---------------------- |  |  |  | 
|2003       |  | $ | 231,000 | (remaining six months) |  | 
|2004*      |  |   | 236,000 |                        |  |  |  | 
|2005       |  |   | 21,000  |                        |  |  |  | 
|thereafter |  |   | 9,000   |                        |  |  |  | 



---

|* |  | The lease on the Companys primary facility expires June 30, 2004.
|- |  | ------------------------------------------------------------------

9



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##### Table of Contents



OPERATING SEGMENTS
Through July 31, 2001, the Company had two reportable segments: Electronic
Products (EP) and Information Security Solutions (ISS). As discussed in the
following notes, the EP segment has been shown as discontinued operations
beginning in December 2000. The Electronic Products segment produced and
marketed proprietary memory keys, cards, and custom-shaped tokens and systems
that utilize these products that serve as a convenient way to carry electronic
information. The assets related to the ongoing business of the EP business
segment were sold in August 2001 and the final EP contract was fulfilled in
2002. The Information Security Solutions segment produces and markets products
for the information security market, which enable user identification and
authentication, secure data exchange, and information validation.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. There are no inter-segment
transactions. The Company evaluates performance based on operating earnings of
the respective segments.

|                              |  |                                  |   |                                |  |             |           |       |  |    |       |     |  |             |           |       |  |   |   |  |  |   |            |   |  |   |       |  |  |   |            |  
|----------------------------- |  | -------------------------------- | - | ------------------------------ |  | ----------- | --------- | ----- |  | -- | ----- | --- |  | ----------- | --------- | ----- |  | - | - |  |  | - | ---------- | - |  | - | ----- |  |  | - | ---------- | -
|                              |  | Three Months Ended June 30, 2003 |   | Six Months Ended June 30, 2003
|                              |  |                                  |   |                               
|                              |  | EP                               |   | ISS                            |  | UNALLOCATED |           | TOTAL |  | EP |       | ISS |  | UNALLOCATED |           | TOTAL
|                              |  |                                  |   |                                |  |             |           |       |  |    |       |     |  |             |           |      
|Revenue                       |  | $                                | 0 |                                |  | $           | 1,032,692 |       |  | $  |      |     |  | $           | 1,032,692 |       |  | $ | 0 |  |  | $ | 1,827,060  |   |  | $ |      |  |  | $ | 1,827,060  |  
|Interest income
(expense)     |  |                                  |   |                                |  |             |           |       |  |    | 3,859 |     |  |             | 3,859     |       |  |   |   |  |  |   |            |   |  |   | 8,856 |  |  |   | 8,856      |  
|Depreciation and
amortization |  |                                  | 0 |                                |  |             | 53,793    |       |  |    |       |     |  |             | 53,793    |       |  |   | 0 |  |  |   | 105,806    |   |  |   |       |  |  |   | 105,806    |  
|Segment profit (loss)         |  |                                  | 0 |                                |  |             | (876,334  | )     |  |    | 3,859 |     |  |             | (872,475  | )     |  |   | 0 |  |  |   | (2,430,407 | ) |  |   | 8,856 |  |  |   | (2,421,551 | )

|                              |  |                                  |         |                                |  |             |           |       |  |    |        |     |  |             |           |       |  |   |         |  |  |   |            |   |  |   |        |  |  |   |           |  
|----------------------------- |  | -------------------------------- | ------- | ------------------------------ |  | ----------- | --------- | ----- |  | -- | ------ | --- |  | ----------- | --------- | ----- |  | - | ------- |  |  | - | ---------- | - |  | - | ------ |  |  | - | --------- | -
|                              |  | Three Months Ended June 29, 2002 |         | Six Months Ended June 29, 2002
|                              |  |                                  |         |                               
|                              |  | EP                               |         | ISS                            |  | UNALLOCATED |           | TOTAL |  | EP |        | ISS |  | UNALLOCATED |           | TOTAL
|                              |  |                                  |         |                                |  |             |           |       |  |    |        |     |  |             |           |      
|Revenue                       |  | $                                | 851,601 |                                |  | $           | 1,869,522 |       |  | $  |       |     |  | $           | 2,721,123 |       |  | $ | 870,051 |  |  | $ | 4,362,416  |   |  | $ |       |  |  | $ | 5,232,467 |  
|Interest income
(expense)     |  |                                  |         |                                |  |             |           |       |  |    | 11,997 |     |  |             | 11,997    |       |  |   |         |  |  |   |            |   |  |   | 24,723 |  |  |   | 24,723    |  
|Depreciation and
amortization |  |                                  | 0       |                                |  |             | 63,422    |       |  |    |        |     |  |             | 63,422    |       |  |   | 0       |  |  |   | 116,393    |   |  |   |        |  |  |   | 116,393   |  
|Segment profit (loss)         |  | $                                | 361,767 |                                |  |             | (539,753  | )     |  |    | 11,997 |     |  |             | (165,989  | )     |  |   | 351,045 |  |  |   | (1,208,918 | ) |  |   | 24,723 |  |  |   | (833,150  | )

DISCONTINUED OPERATIONS
In February 2001 the Companys Board of Directors approved managements plan to
discontinue the operations of the EP segment. The plan anticipated the phase
down of the operations through December 31, 2001, although the Company
continued to pursue the possibility of selling the operations.

The estimated loss, taken in 2000, on the phase down of the EP segment included
the write-off of inventory, patents, and equipment anticipated to remain at the
date of closedown and expenses associated with the phase down, net of estimated
operating income through that date. The phase down of the segment was
accounted for as discontinued operations and, accordingly, its net assets and
net liabilities have been segregated from continuing operations in the balance
sheets and the results of operations have been excluded from continuing
operations for all periods presented. There were no net assets of the EP
segment as of June 30, 2003 and December 31, 2002.

SALE OF DISCONTINUED BUSINESS SEGMENT
On August 3, 2001, the Company completed the sale of the EP business segment
fixed assets, inventory, patents and prepaid expense along with customer lists,
assignment of certain customer contracts and all intellectual property required
to operate the EP business segment. The Company retained certain customer
contracts, and all EP accounts receivable, accounts payable and accrued expense
as of July 31, 2001. The Company received $550,000 in cash on the date of
closing, and recorded the cash difference between accounts receivable and
accounts payable and accrued expense and profit on the customer contracts
retained. Due to the nature of the transaction, the Company recorded a loss of
$492,000 during the year ended December 31, 2001 from the disposal of
discontinued operations because the loss on disposal of the selected assets and
the loss from discontinued operations exceeded the $1,281,000 reserve that was
established for these losses in 2000.

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##### Table of Contents



Under terms of the primary contract retained upon sale of the EP segment, the
customer was required to provide certain components that were necessary to
complete the manufacture and shipment of the final product, provide necessary
test fixtures and also was required to approve the final test results prior to
shipping the product. Due to a delay in delivery of the customer provided
materials and a delay in providing the necessary test fixtures, the completion
date of the contract extended beyond the date that was initially expected at
the time the EP segment was sold.

During the second quarter of 2002, the Company completed the final delivery
under the contract retained at the time of sale of the EP segment and realized
a profit of $361,767. This amount was reflected on the Income Statement as
gain on disposition of discontinued operation. This completed the sale of the
EP segment and no further gain or loss from discontinued operations is
expected.

FORWARD LOOKING STATEMENTS AND RISK FACTORS

The Managements Discussion and Analysis contains certain forward-looking
statements including that: (i) annual revenues in 2003 will increase; (ii)
gross margins will increase and (iii) the Company will have sufficient
financial resources to fund its operations for the next quarter. These
statements are subject to certain risks and uncertainties which may cause
actual results to differ materially from those projected. These risks and
uncertainties include that: (i) market acceptance and demand for the Companys
information security products, including the new Axis product, may not
increase at the rate expected or may decrease due to economic, competitive or
other market conditions; (ii) that the Companys sales may continue to be
negatively impacted, and perhaps to a greater extent, due to the overall
slowdown in the Information Technology market; (iii) that the Companys sales
may not continue to reflect a favorable product mix seen in past quarters, and
the Companys expected sales of products with more software content may not
materialize depending on the actual demand and timing of its customers; and
(iv) the Companys overall funding depends on actual sales given the state of
the economy as well as its ability to effectively control expenses in general
while pursuing financing options.




ITEM 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company conducted an
evaluation under the supervision and with the participation of the companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, regarding the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Rules 13a-15(b) of the
Securities Exchange Act of 1934 (the Exchange Act). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are effective to ensure
that information that is required to be disclosed by the Company in reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within the time period specified in the rules of the Securities
Exchange Commission.

There were no changes in the Companys internal control over financial
reporting that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

11



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##### Table of Contents






PART II. OTHER INFORMATION




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS

The Company held its Annual Meeting on Wednesday, May 28, 2003.

Proxies for the Annual Meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. There was no solicitation in opposition
to managements nominees as listed in the Companys proxy statement, and all
nominees were elected.

By 7,529,689 votes in favor, with 216,716 votes opposed, and 25,217 votes
abstaining, the shareholders set the number of directors at six (6).

The shareholders elected the nominees named below for Class II Directors, each
to serve a three-year term, pursuant to the following votes:

|                   |  |           |           |                 |  |  |         | 
|------------------ |  | --------- | --------- | --------------- |  |  | ------- | 
|                   |  | NUMBER OF |           | NUMBER OF VOTES
|NOMINEE            |  | VOTES FOR |           | WITHHELD       
|                   |  |           |           |                
|Carl P. Boecher    |  |           | 6,941,931 |                 |  |  | 829,691 | 
|Eugene W. Courtney |  |           | 6,955,344 |                 |  |  | 816,578 | 

The terms of Gary Holland, Thomas King, Terrence Glarner and Timothy Russell,
as directors of the Company, continued after the meeting. On August 11, 2003,
the Company announced that Gary Holland had resigned as a director of the
Company.

The shareholders approved, by a vote of 7,377,546 in favor, with 376,809
against and 17,267 abstaining, an increase in the shares under the 1998
Employee Stock Purchase Plan from 100,000 to 200,000.

The shareholders also ratified the appointment of McGladrey and Pullen, LLP, as
independent auditors for the Company, for the fiscal year ending December 31,
2003, by 7,577,196 votes in favor, 183,626 opposing and 10,800 abstaining.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits
| | --- |  | --------

See Exhibit Index following Certifications



| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                        
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | A Form 8-K dated April 24, 2003 was filed announcing the financial results
for the quarter ended March 31, 2003 and announcing that the Company had
received a notice of potential delisting from Nasdaq for failure to meet
the $1 minimum bid price rule.

12



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##### Table of Contents






SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                       |  |               |  |                                                                                                                       
|---------------------- |  | ------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Dated: August 14, 2003 |  | Datakey, Inc.
|                      
|                       |  | By:           |  | /s/ Timothy L. RussellTimothy L. Russell
Chief Executive Officer
(Principal Executive Officer)                        
|                      
|                       |  | By:           |  | /s/ Alan G. ShulerAlan G. Shuler
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)

13



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##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

EXHIBIT INDEX TO FORM 10-QSB

|                                           |  |                            
|------------------------------------------ |  | ---------------------------
|For the fiscal quarter ended
June 30, 2003 |  | Commission File No. 0-11447



---

DATAKEY, INC.



---

|            |  |                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                       
|            |  |                                                                                                   
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                   
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                   
|32.1        |  | Certification of Chief Executive Officer under §906 of the Sarbanes-Oxley Act of 2002             
|            |  |                                                                                                   
|32.2        |  | Certification of Chief Financial Officer under §906 of the Sarbanes-Oxley Act of 2002             

14