What changed in this filing

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Item 9A. Controls and Procedures

2023-06-01 compared with 2022-04-01 · 559 added, 768 removed, 883 unchanged (60% of the section changed)

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Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures were not effective over the income tax provision in our financial statements.

Management ’

s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f).

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.

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Under the supervision and with the participation of our management, including our CEO and CFO, we have conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based upon the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.

Based on this evaluation, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022 as a result of certain material weaknesses discovered during the course of their review.

In particular, in connection with the audit of our financial statements as of and for the year ended December 31, 2022, our management identified a material weakness relating to the effectiveness of management’s review and controls over the income tax provision in our financial footnotes, such that management’s review procedures were not operating at a level of precision to prevent or detect a potential material misstatement in our consolidated financial statements.

We have also identified a lack of control over our foreign subsidiaries with respect to the filing of required tax returns on a timely basis.

We are currently assessing the actions that need to be taken to remedy each of the material weaknesses identified above which will include promptly establishing written controls and operating procedures to address these issues.

Each of the material weaknesses noted will only be deemed to have been remediated after the new controls and procedures have been in place for a sufficient period and management has concluded through appropriate testing that the controls are operating effectively.

However, we cannot assure you that these or other measures will fully remediate the material weaknesses in a timely manner.

As we are a smaller reporting company, this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

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Michel (a) (b)*

Thomas Gilley (c)*

Wong Kwok Fong (Kelvin)

Director and Vice-Chairman of the Board of Directors

Pieter Knook (b)

Emmanual Alia (Manny) (b)

Emmanuel Alia (Manny) (b) (c)

Chief Financial Officer

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Nominating Committee Member

Gilley resigned from the Board of Directors effective February 9, 2023

Indicates chair of committee

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DePasquale brings more than 30 years of executive management, sales and marketing experience to the Company.

Prior to joining us, Mr.

DePasquale served as the President and Chief Executive Officer of Prism eSolutions, Inc., a Pennsylvania-based provider of professional consulting services and online solutions for ISO-9001/14000 certification for customers in manufacturing, healthcare and government markets, since February 2001.

From December 1999 through December 2000, Mr.

DePasquale served as Group Vice President for WRC Media, a New York-based distributor of supplemental education products and software.

From January 1996 until December 1999, Mr.

DePasquale served as Senior Vice President of Jostens Learning Corp., a California-based provider of multimedia curriculum.

Prior to Jostens, Mr.

DePasquale held sales and marketing management positions with McGraw-Hill and Digital Equipment Corporation.

DePasquale has held executive management positions with McGraw-Hill, Digital Equipment Corporation, and other companies in the software and professional services industries.

DePasquale earned a Bachelor of Science degree from the New Jersey Institute of Technology.

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Bush served with the Federal Bureau of Investigation for over 33 years.

Bush joined the FBI in September 1975, ultimately becoming the Director of the CJIS division, with over 2,500 employees and a budget of approximately one billion dollars. Mr.

Bush is known for providing critical services in support of the criminal justice community, including two significant IT projects, Next Generation Identification and N-Dex, which were awarded by CJIS during his tenure at the FBI.

Bush joined the FBI in September 1975, ultimately becoming the Director of the CJIS division, with over 2,500 employees and a budget of approximately one billion dollars. 

During this time, Mr.

Bush provided critical services in support of the criminal justice community, including two significant IT projects, Next Generation Identification and N-Dex, which were awarded by CJIS during his tenure at the FBI.

Bush has received many awards during his career, most notably a Presidential Rank Award for Meritorious Service in 2007.

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Prior to Daxor, from November, 2017 until September 2018, Mr.

Michel served as the CFO of Roadway Moving, Inc., a transportation, moving and storage company located in New York City.

Immediately prior to Roadway Moving, Inc., Mr.

Michel served as a consultant with Feuer & Orlando, LLP, a New York City based CPA firm, from May, 2016 until November 2017.

From 2009 until March, 2016, Mr.

Michel was the Chief Financial Officer of Asta Funding, Inc.

ASFI), a diversified financial services company where he was responsible for all financial matters and SEC reporting.

From 2004 until 2009, Mr.

Michel served as the Controller and the Director of Financial Reporting and Compliance for Asta Funding.

Michel is a certified public accountant, earned a MBA in Taxation from St.

Michel served as the CFO of Roadway Moving, Inc., a transportation, moving and storage company located in New York City. 

Michel spent 15 years at Asta Funding, Inc.

ASFI), a diversified financial services company, including serving as its Chief Financial Officer from 2009 until 2017 where he was responsible for all financial matters and SEC reporting.

Michel is a certified public accountant, earned an MBA in Taxation from St.

John’s University, and a BS in Business Administration from Villanova University.

Michel gained his public accounting experience at PricewaterhouseCoopers in New York. 

We believe Mr.

Michel’s qualifications to sit on the board of directors include his substantial experience in accounting and financial management for public companies which provide the board with a deep knowledge of financial and SEC reporting and strengthen the board’s collective qualifications, skills, and experience.

Thomas Gilley has served as a Director of the Company since January 29, 2014.

Gilley is an entrepreneur, investor and advisor in the connected product Internet of Things (IoT) industry with 37 patents.

Since founding his Enterprise Software IoT company in 2012 and selling it in 2016, Mr.

Gilley invests in technology companies, serves as growth strategy advisor, and independent board member to companies in the connected industry.

Gilley was previously employed at Apple Computer, in the Advance Technology Group, Portable Products Group and Strategy Advisor.

Before and after Apple, Mr.

Gilley founded several successful companies including PicoStar, a Silicon Valley incubator-technology investment company, and an on-demand web media company he sold to Vignette.

Gilley acted as CTO throughout the transaction until the company’s ultimate acquisition by OpenText.

We believe Mr.

Gilley’s qualifications to sit on the board of directors include his substantial experience in starting, operating and financing technology companies which provides the board with a deep knowledge of the sales and development cycles applicable to growth businesses in the technology industry.

Wong Kwok Fong (Kelvin)  has served as a Director of the Company since December 4, 2015, as Managing Director of our Hong Kong Subsidiary since August 2016, and as Vice-Chairman of the Board of Directors since March 2019.

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We believe Kelvin’s qualifications to sit on the board of directors include his substantial experience in the technology industry, including biometrics and payment systems, and serving the Asian markets, which broaden and strengthen the board’s collective qualifications, skills, and experience.

Pieter Knook , has served as a Director of the Company since May 2, 2016.

Knook has over 30 years of experience in mobility and software technology in Europe, Asia and the United States.

Since 2010, Mr.

Knook has served on the boards of a number of private equity backed and publicly traded early stage technology companies, including Altitude Angel in Reading, the London Internet Exchange, BroadHorizon in the Netherlands and Telenor in Norway.

Knook served as the Director of Internet Services at Vodafone Group in London from March 2008 through October 2010.

Prior to joining Vodafone, Mr.

Knook spent 18 years at Microsoft.

As President of Microsoft Asia from 1997 to 2001, Mr.

Knook led the company’s efforts in opening and expanding Asian markets.

He subsequently served as Senior Vice President of Microsoft’s mobile communication business from 2001 through 2008.

We believe Mr.

Knook’s qualifications to sit on the board of directors include his extensive technology industry experience, which further broaden and strengthen the board’s collective qualifications, skills, and experience.

Emmanual Alia (Manny) , was appointed Director of the Company on April 3, 2020.

Emmanuel Alia (Manny) was appointed Director of the Company on April 3, 2020.

Since 2018, Mr.

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Alia’s qualifications to sit on the board of directors include his extensive industry experience and connection and networking abilities in the African communities and markets which further broaden and strengthen the board’s collective qualifications, skills, and experience.

Non-director Executive Officers

Executive Officers

Welch  has served as the Chief Financial Officer of the Company since December 21, 2009.

Welch joined the Company in 2007 as Corporate Controller.

Prior to joining the Company, from January 2006 to December 2006, she was the Controller for Savaje Technologies (acquired by Sun Microsystems), a developer of advanced mobile telephone software.

From October 2004 to January 2006, she was Controller for Crystal Systems, a manufacturer of sapphire crystals used for industrial, semiconductor, defense, and medical applications.

From December 1988 to July 2004, she was the Controller for ATN Microwave (acquired by Agilent Technologies), a manufacturer of automated test equipment.

Prior to joining the Company, Ms.

Welch has held senior financial management positions in various industries, including software and manufacturing. 

Welch has a Bachelor’s degree in Accounting from Franklin Pierce University.

LaCous  has served as Chief Technology Officer of the Company since March 13, 2014.

Prior to her appointment as Chief Technology Officer, she served as Senior Vice President of Technology & Development since 2012, and as our Vice President of Technology and Development since 2000.

LaCous has over 35 years of product/project management, solution architecture, software development, team leadership and customer relations experience, with a background that includes successfully bringing numerous innovative products and technologies to market, including automated voice response systems, automated building control systems, software piracy protection, internet training materials and testing, page layout and design software, image scanning software and systems, biometric security systems, automated national ID systems using biometrics, and biometric algorithms.

LaCous  has served as Chief Technology Officer of the Company since March 13, 2014, as Senior Vice President of Technology & Development since 2012, and as our Vice President of Technology and Development since 2000.

LaCous has over 39 years of product/project management, solution architecture, software development, team leadership and customer relations experience, with a background that includes successfully bringing numerous innovative products and technologies to market, including automated voice response systems, automated building control systems, software piracy protection, internet training materials and testing, WYSIWYG page layout and design software, image scanning / recognition software and systems, biometric security systems and algorithms, automated national ID systems using biometrics, and mobile applications with secure frameworks.

LaCous has been a speaker at multiple events/conferences and has worked with teams around the globe bringing biometric technology deployments to life. 

LaCous is the author of eight (8) US patented technologies, multiple international patents and lead the engineering team in developing other patents and inventive technologies.

LaCous has a Bachelor’s in Computer Science, with mathematics and physics from North Dakota State University.

LaCous earned a Bachelor’s in Computer Science, with mathematics and physics from North Dakota State University.

Sullivan  has served as BIO-key’s Senior Vice President of Strategy and Compliance and BIO-key’s Chief Legal Officer since February 2020, as Senior Vice President of Strategy and Business Development from April 2012 through December 2018, and the dual role as Senior Vice President of Global Sales from August 2015 through December of 2016.

Sullivan is a recognized expert in biometric authentication, cyberlaw and privacy for consumer and mobile applications.

During over 18 years with the Company, Mr.

Sullivan is a recognized expert in privacy, cybersecurity, and biometric authentication for workforce and consumer applications.

During his twenty years with the Company, Mr.

Sullivan has directly worked with dozens of the Company’s customers, including AT&T, Israel Defense Forces, LexisNexis, NCR and Omnicell, as well as large-scale biometric-centered identity management projects that interface daily with millions of corporate and consumer users.

Sullivan earned a Juris Doctor cum laude from Georgia State University College of Law, is a member of the Georgia Bar, and enrolled to practice before the IRS.

Sullivan earned a Juris Doctor with Honors from Georgia State University College of Law, is a member of the Georgia Bar, and enrolled to practice before the IRS.

Sullivan has an undergraduate degree in Computer Science from Brown University and has over 26 years of experience in IT projects and implementation, including directly working with security and identity management solutions at the Company, Computer Associates, Platinum Technology, and Memco Software.

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Audit Committe e

Our audit committee is comprised of Robert J.

Michel (Chair), Pieter Knook, and Emmanual Alia, all of whom meet the independence standards for purposes of serving on an audit committee established by NASDAQ and under the Exchange Act.

Our audit committee was comprised of Robert J.

Michel (Chair), Pieter Knook, and Emmanuel Alia until May 13, 2023, when Pieter Knook resigned from the Board of Directors.

Michel and Emmanuel Alia both meet the independence standards for purposes of serving on an audit committee established by NASDAQ and under the Exchange Act.

Our audit committee (i) assists the board of directors in its oversight of the integrity of our financial statements, compliance with legal and regulatory requirements, and corporate policies and controls, (ii) has the sole authority to retain and terminate our independent registered public accounting firm, approve all auditing services and related fees and the terms thereof, and pre-approve any non-audit services to be rendered by our independent registered public accounting firm, and (iii) is responsible for confirming the independence and objectivity of our independent registered public accounting firm.

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Reports of all transactions in our common stock by officers, directors and ten percent (10%) stockholders are required to be filed with the SEC pursuant to Section 16(a) of the Exchange Act.

Based solely on our review of copies of the reports received, or representations of such reporting persons, we believe that during the year ended December 31, 2021, all Section 16(a) filing requirements applicable to our officers, directors and ten percent (10%) stockholders were satisfied in a timely fashion, except for one late Form 4 filing by Mr.

Sullivan reporting an open market purchase.

Based solely on our review of copies of the reports received, or representations of such reporting persons, we believe that during the year ended December 31, 2022, all Section 16(a) filing requirements applicable to our officers, directors and ten percent (10%) stockholders were satisfied in a timely fashion, except for four late Form 4 filings including one late Form 4 filing by Mr.

Michel for payment for a BOD committee meeting, and one each for Mr.

Sullivan, Mr.

DePasquale and Ms.

LaCous reporting shares acquired under the BIO-key International, Inc.

2021 Employee Stock Purchase Plan.

EXECUTIVE COMPENSATION

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Chief Technology Officer

James Sullivan

Chief Legal Officer

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Effective January 1, 2021, we increased the base salary of Mr.

Sullivan to $225,000 to compensate for the fact that in connection with his promotion to Chief Legal Officer, he would be limited to sales commissions on only three of his existing long term accounts.  

Sullivan and Ms.

Performance-based bonuses have historically been based upon the achievement of certain revenue milestones established by the compensation committee.

The committee believes that this higher emphasis on performance-based cash bonuses places an appropriate linkage between a named executive officer’s pay, his or her individual performance, and the achievement of specific business goals by placing a higher proportion of annual cash compensation at risk, thereby aligning executive opportunity with the interests of stockholders.

In 2020, due to extraordinary efforts in maintaining operations during the pandemic, acquiring PistolStar, and the completing an underwritten public offering, Mr.

DePasquale and Mr.

Sullivan were awarded cash bonuses of $50,000 and $35,000, respectively.

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

In August 2020, we issued 4,125 shares of restricted stock to Mr.

DePasquale, Mr.

Sullivan, and Ms.

These shares vest in equal annual installments over a three-year period from the date of grant.

We did not issue any stock options or restricted shares to our named executive officers in 2021.

We did not issue any stock options or restricted stock awards to our named executive officers during 2021. 

In 2022, we issued restricted stock awards to each of our named executive officers in 

recognition of the revenue growth of the Company in 2021 and successful integration of Portal Guard.

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

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

DECEMBER 31, 2021

The following table sets forth for each named executive officer, information regarding outstanding equity awards as at December 31, 2022.

The option awards and per share amounts for all periods reflect our 1-for-8 reverse stock split, which was effective November 20, 2020.

Option Awards

unexercisable

of stock that

James Sullivan

Calculated based on the closing market price of the Company’s common stock on December 31, 2022 of $0.59 per share.

The options vest equally in three annual installments commencing March 21, 2020.

Narrative Disclosure to Outstanding Equity Awards at Fiscal Year End Table

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DePasquale his base salary and benefits earned but unpaid through the date of termination, and any prorated bonus earned during the then current bonus year, plus two times his then current base salary.

DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2021

DIRECTOR COMPENSATION

The following table sets forth for each director, information regarding their compensation for the year ended December 31, 2022:

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Pieter Knook (3)(5)

Robert J Michel (4)

Emmanual Alia (5)

Emmanuel Alia (6)

DePasquale and Kelvin Wong have been omitted from the above table because they do not receive any additional compensation for serving on our Board of Directors.

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At December 31, 2022, Messrs.

Bush and Gilley each held options to purchase 2,325 shares of common stock.

At December 31, 2021, Messrs.

Knook and Michel each held options to purchase 2,064 shares of common stock.

Bush, Gilley, Knook and Michel each held options to purchase 2,064 shares of common stock and each held 5,000 shares restricted common stock.

Gilley resigned from the Board of Directors on February 9, 2023.

Knook resigned from the Board of Directors effective May 13, 2023.

At December 31, 2022, Mr.

Alia held options to purchase 313 shares of common stock.

Alia held options to purchase 313 shares of common stock and held 5,000 shares restricted common stock.

Narrative Disclosure to Director Compensation Table

During 2021, we had a policy to pay to each non-employee director $3,000 per board meeting, $1,000 per telephonic board meeting, and $500 per board committee meeting attended.

During 2022, we had a policy to pay each non-employee director $3,000 per board meeting, $1,000 per telephonic board meeting, and $1,000 per board committee meeting attended.

Fees for attendance at regular quarterly board meetings held during the first three quarters of each fiscal year are paid through the issuance of common stock and payments for the last meeting of the year are paid in cash or, at the option of the director, in shares of common stock.

All of our directors elected to receive payment in common stock for the last board meeting in 2022.

We recently revised our policy regarding non-employee director fees to provide for payment of $3,000 per board meeting and $1,000 per board committee meeting attended payable in the manner described above.

All directors will be indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware law.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 29, 2022, information with respect to the securities holdings of all persons that we, pursuant to filings with the SEC and our stock transfer records, have reason to believe may be deemed the beneficial owner of more than 5% of our common stock.

The following table also sets forth, as of such date, the beneficial ownership of our common stock by all of our current officers and directors, both individually and as a group.

The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance therewith, include all shares of our common stock that may be acquired by such beneficial owners within 60 days of March 29, 2022 upon the exercise or conversion of any options, warrants or other convertible securities.

This table has been prepared based on 8,405,209 shares of common stock outstanding on March 28, 2022.

The following table sets forth, as of May 30, 2023 information with respect to the securities holdings of all persons that we, pursuant to filings with the SEC and our stock transfer records, have reason to believe may be deemed the beneficial owner of more than 5% of our common stock.

The following table also sets forth, as of such date, the beneficial ownership of our common stock by all of our current executive officers and directors, both individually and as a group.

The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as awarded, and, in accordance therewith, include all shares of our common stock that may be acquired by such beneficial owners within 60 days of May 30, 2023 upon the exercise or conversion of any options, warrants or other convertible securities.

This table has been prepared based on 9,234,833 shares of common stock outstanding on May 30, 2023.

Name and Address of Beneficial Owner (1)

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of Beneficial

Cecilia Welch

James Sullivan

Thomas Gilley

Emmanual Alia

Directors and Executive Officers

Emmanuel Alia

Wong Kwok Fong (Kelvin)

All officers and directors as a group ten (10) persons

All officers and directors as a group (eight (8) persons)

Beneficial Owners

Lind Global Micro Fund, LP

AJB Capital Investments LLC

Unless otherwise indicated, the address of each person listed below is c/o BIO-key International, Inc., 3349 Highway 138, Building A, Suite E, Wall, NJ 07719.

Includes 39,584 shares issuable on exercise of options and 39,125 shares of restricted stock of which 24,709 remain subject to vesting.

Does not include 1,389 shares issuable upon exercise of options subject to vesting.

Includes 22,500 of shares issuable upon exercise of options and 34,125 shares of restricted stock of which 21.375 remain subject to vesting.

Does not include 1,041 shares issuable upon exercise of options subject to vesting.

Includes 15,626 of shares issuable upon exercise of options and 11,625 shares of restricted stock of which 6,375 remain subject to vesting.

Does not include 521 shares issuable upon exercise of options subject to vesting.

Includes 18,750 of shares issuable on exercise of options and 34,125 shares of restricted stock of which 21,375 remain subject to vesting.

Does not include 1,041 shares issuable upon exercise of options subject to vesting.

Includes 2,013 of shares issuable on exercise of options and 5,000 shares of restricted stock which  remain subject to vesting.

Does not include 312 shares issuable upon exercise of options subject to vesting.

Includes 1,752 of shares issuable on exercise of options and 5,000 shares of restricted stock which  remain subject to vesting.

Does not include 312 shares issuable upon exercise of options subject to vesting.

Includes 2,013 of shares issuable on exercise of options and 5,000 shares of restricted stock which remain subject to vesting.

Includes 1,960 of shares issuable on exercise of options and 5,000 shares of restricted stock of which 3,334 remain subject to vesting.

Does not include 104 shares issuable upon exercise of options subject to vesting.

Includes 1,752 of shares issuable on exercise of options and 5,000 shares of restricted stock which 5, remain subject to vesting.

Includes 1,960 of shares issuable on exercise of options and 5,000 shares of restricted stock of which 3,334 remain subject to vesting.

Does not include 104 shares issuable upon exercise of options subject to vesting.

Includes 105 of shares issuable on exercise of options and 5,000 shares of restricted stock  which  remain subject to vesting.

Includes 209 of shares issuable on exercise of options and 5,000 shares of restricted stock of which 3,334 remain subject to vesting.

Does not include 104 shares issuable upon exercise of options subject to vesting.

Includes 27,084 of shares issuable on exercise of options and 9,125 shares of restricted stock of which 4,709 remain subject to vesting.

Does not include 1,389 shares issuable upon exercise of options subject to vesting.The address of Kelvin is Flat C, 27/F, Block 5, Grand Pacific Views, Siu Lam, Hong Kong N7.

The address of Kelvin is Flat C, 27/F, Block 5, Grand Pacific Views, Siu Lam, Hong Kong N7.

Consists of shares issuable upon exercise of warrants.

The address of Lind Global Capital Micro Fund, LP is 444 Madison Ave, Floor 41, New York, NY 10022

Includes 200,000 shares issuable upon exercise of warrants. 

The address of AJB Capital Investments LLC is 4700 Sheridan Street, Suite J, Hollywood, FL 33021.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth, as of December 31, 2022, information with respect to securities authorized for issuance under equity compensation plans.

The shares and per share amounts reflect BIO-key’s 1-for-8 reverse stock split, which was effective November 20, 2020.

On January 27, 2016, the stockholders approved the 2015 Equity Incentive Plan, which was amended on June 13, 2019 by vote of stockholders, and amended and restated by vote of stockholders on June 18, 2021 (as amended and restated, the “2015 Plan”).

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In addition to options issued under the 2015 Plan, we have issued options to purchase common stock to employees, officers, directors and consultants outside of the plan.

As of December 31, 2021, there were outstanding non-plan options to purchase 121,653 shares of common stock.

The terms of these outstanding options are substantially similar to the provisions of the 2015 Plan and options issued thereunder. 

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Standstill Agreement with Principal Stockholder

Pursuant to separate securities purchase agreements dated October 29, 2015 and November 11, 2015 with each of Wong Kwok Fong (Kelvin), Micron, and Giant Leap we issued and sold shares of series A-1 stock to Kelvin and shares of series B-1 stock to Micron and Giant Leap, which were subsequently converted into shares of our common stock.

The forgoing agreements contain a standstill provision (the “Standstill”) which prohibits each of these investors either alone or together with any other person, from acquiring additional shares of our common stock or any of our assets, soliciting proxies, or seeking representation on our board of directors.

Pursuant to separate securities purchase agreements dated October 29, 2015 and November 11, 2015 with Wong Kwok Fong (Kelvin), we issued and sold shares of series A-1 stock to Kelvin which were subsequently converted into shares of our common stock.

The forgoing agreements contain a standstill provision (the “Standstill”) which prohibits Kelvin either alone or together with any other person, from acquiring additional shares of our common stock or any of our assets, soliciting proxies, or seeking representation on our board of directors.

Kelvin is the Co-Chairman of the board of directors and an executive officer.

Loans from Wong Kwok Fong (Kelvin)  

Between March 2019 and February 2020, we received a series of non-interest-bearing advances from Mr.

Wong Kwok Fong (Kelvin) in the aggregate amount of $217,360 to pay current liabilities.

The amounts were repaid in their entirety during the 2020 fiscal year.

Wong is the Vice-Chairman of the Board, an executive officer, and a principal stockholder of the Company.

Loans from Michael W.

In December 2019, we received two non-interest-bearing advances from Michael DePasquale in the aggregate amount of $114,000 to pay current liabilities.

The amounts were repaid in their entirety during the 2020 fiscal year.

DePasquale serves as the Chairman of the Board and Chief Executive Officer of the Company.

Sales Incentive Agreement with Technology Transfer Institute ( “

On March 25, 2020, we entered into a sales incentive agreement TTI.

The agreement provides that for each $5,000,000 in revenue (up to a maximum of $20,000,000), TTI generates for the Company during the first year that generate net income (calculated under U.S.

generally accepted accounting principles) of at least 20%, we will pay TTI a sales incentive fee of $500,000 payable by the issuance of 62,500 shares of common stock.

In the event that TTI generates revenue for the Company in excess of $20,000,000 during first year, we will issue TTI a five-year warrant to purchase 12,500 shares of Common Stock at an exercise price of $12.00 per share for each $1,000,000 of revenue in excess of $20,000,000 (up to a maximum of $25,000,000).

In no event will we be obligated to issue more than 250,000 shares of common stock or warrants to purchase more than 62,500 shares of common stock pursuant to this agreement.

Emmanual Alia, a member of our board of directors, served as the Chief Executive Officer of TTI until August 12, 2020.

Director Independence

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under Rule 5605(a)(2) of the NASDAQ Marketplace Rules.

Based upon such definition and SEC regulations, we have determined that Robert Michel, Pieter Knook, Emmanual Alia, Thomas Bush, III, and Thomas Gilley are “independent”

Based upon such definition and SEC regulations, we have determined that Robert Michel, Emmanuel Alia, and Thomas Bush, III, are “independent”

under NASDAQ standards. 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table shows fees for professional services and quarterly audit fees billed to us by Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

(“RMSBG”) for the audit of our annual consolidated financial statements for the years ended December 31, 2021 and 2020:

The following table shows fees for professional services and quarterly audit fees billed to us by Marcum LLC for the audit of our annual consolidated financial statements for the year ended December 31, 2022, and reviews of our second and third quarters 2022 and Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

(“RMSBG”), prior to RMSBG’s merger with Marcum, for the audit of our annual consolidated financial statements for the year ended December 31, 2021 and for the first quarter 2022:

Audit-Related Fees

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Audit Committee Pre-Approval Procedures

The audit committee of our board of directors consists of Robert J.

Michel (Chairman), Pieter Knook, and Emmanual Alia.

The audit committee approves the engagement of our independent auditors to render audit and non-audit services before they are engaged.

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In addition, our audit committee considers, among other things, whether our independent registered public accounting firm is able to provide the required services in a more or less effective and efficient manner than other available service providers.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS  

AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Report.

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(1)  Financial statements filed as part of this Report:

Report of Independent Registered Public Accounting Firm ( Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

, Saddle Brook, NJ , PCAOB ID:

Consolidated Balance Sheets as at December 31, 2021 and 2020

Report of Independent Registered Public Accounting Firm (Marcum LLP, Saddle Brook, NJ, PCAOB ID:688

Report of Independent Registered Public Accounting Firm (Rotenberg Meril Solomon Bertiger & Guttilla, P.C., Saddle Brook, NJ, PCAOB ID:361)

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations—Years ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ Equity (Deficit)—Years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows—Years ended December 31, 2022 and 2021

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are included herein at the indicated page numbers:

Report of Independent Registered Public Accounting Firm (Rotenberg Meril Solomon Bertiger & Guttilla, P.C., Saddle Brook, NJ, PCAOB ID:361

Consolidated Balance Sheets as at December 31, 2021 and 2020

Consolidated Statements of Operations—Years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity (Deficit) —Years ended December 31, 2021 and 2020

Report of Independent Registered Public Accounting Firm ( Marcum LLC.

, Saddle Brook, NJ , PCAOB ID:

Report of Independent Registered Public Accounting Firm ( Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

, Saddle Brook, NJ , PCAOB ID:

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Loss—Years ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ Equity —Years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows—Years ended December 31, 2022 and 2021

Supplementary Disclosures of Cash Flow Information—Years ended December 31, 2022 and 2021

Notes to the Consolidated Financial Statements—December 31, 2022 and 2021

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of BIO-key International, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’

equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of BIO-key International, Inc.

and Subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations and comprehensive loss, stockholders’

equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Revision to Correct Previously Issued Financial Statements

As discussed in Note S to the financial statements, the 2021 financial statements have been revised to correct certain previously issued disclosures related to the reconciliation of the Company’s income tax rate for the year ended December 31, 2021 and the components of the Company’s deferred tax assets and liabilities and valuation allowance as of December 31, 2021 and 2020.

The financial statements of the Company for the year ended December 31, 2021, before the effects of the adjustments to correct the errors discussed in Note S to the financial statements, were audited by other auditors whose report, dated March 31, 2022, expressed an unqualified opinion on those statements.

We have also audited the adjustments described in Note S that were applied to revise the 2021 financial statements to correct the errors.

In our opinion, such adjustments are appropriate and have been properly applied.

Except for the corrections to revise the tax footnote we were not engaged to audit, review, or apply any procedures to the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, other than stated above and, accordingly, we do not express an opinion or any other form of assurance on the 2021 financial statements taken as a whole.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As disclosed in Note A of the financial statements, the Company has suffered substantial net losses and negative cash flows from operations in recent years and is dependent on debt and equity financing to fund its operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans regarding these matters are disclosed in Note A.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements based on our audits.

Our responsibility is to express an opinion on these financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) are especially challenging, subjective, or complex judgements.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition –

Refer to Notes A and B of the consolidated financial statements

Description of the Matter

The Company’s revenues are generated pursuant to written contractual arrangements to provide software licenses and/or hardware and to provide related maintenance and support services or professional services.

The Company’s performance obligations are either satisfied at a point in time when the customer obtains control of the hardware or is granted the software license or satisfied over time for maintenance revenue over the contractual period.

Software licenses may be sold as perpetual licenses or subscription licenses.

Contracts may include multiple performance obligations.

Significant judgment is exercised by the Company in determining revenue recognition for these contractual arrangements, and includes the following: 

Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software licenses and related services that are sold with cloud-based services.

The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.

Identification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g., variable consideration and/or optional purchases).

Determination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures included:

We obtained an understanding of the Company’s revenue recognition process including the various product and service offerings;

We reviewed management’s assessment of the terms and conditions of contracts with customers which included an analysis of the distinct performance obligations and a review of the conclusion as to whether revenue from such performance obligations should be recognized over time or at a point in time;

We selected a sample of contracts with customers and performed the following:

Obtained and read customer sales orders and/or sales invoices and other documents that are part of the agreement;

Tested management’s process for identifying distinct performance obligation(s) in the contract;

Tested the allocation between software revenue and maintenance revenue including testing any carve out of maintenance from subscription based software and maintenance sales.

The outcome of the audit procedures resulted in determining the amounts of revenue and the application of ASC 606 is reasonable.

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements.

We determined that there are no critical audit matters.

/s/ Marcum LLP

We have served as the Company’s auditor since 2010 (such date takes into account the acquisition of Rotenberg Meril Solomon Bertiger & Guttilla, P.C., by Marcum LLP effective February 1, 2022).

Saddle Brook, New Jersey

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

BIO-key International, Inc.

Opinion on the Financial Statements

We have audited, before the effects of the adjustment for the correction of the errors described in Note S, the accompanying consolidated balance sheets of BIO-key International, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’

equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the errors described in Note S, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by Marcum LLP.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.

ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.

We have served as the Company's auditor since 2010.

We have served as the Company's auditors from 2010 to 2022.

Saddle Brook, New Jersey

March 31, 2022  

BIO-key International,  

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Cash and cash equivalents

$ 7,754,046  

$ 16,993,096  

Accounts receivable, net

970,626  

548,049  

Due from factor

49,500  

60,453  

Note receivable, net of allowance

82,000  

295,000  

4,940,660  

330,947  

Inventory, net of reserve

Prepaid expenses and other

216,041  

201,507  

Investment –

debt security

512,821  

Total current assets

14,012,873  

18,941,873  

Resalable software license rights

48,752  

58,882  

Investment –

debt security, net

452,821  

Equipment and leasehold improvements, net

69,168  

81,793  

Capitalized contract costs, net

249,012  

165,315  

Deposits and other assets

Note receivable, net of allowance

113,000  

Operating lease right-of-use assets

254,100  

487,325  

Intangible assets, net

1,298,077  

1,514,146  

1,262,526  

Total non-current assets

3,756,168  

3,578,699  

$ 17,769,041  

$ 22,520,572  

Accounts payable

$ 427,772  

$ 244,158  

Accrued liabilities

828,997  

508,487  

Note payable –

PistolStar acquisition, net of debt discount

232,000  

Convertible note payable

Government loan –

BBVA Bank, current portion

Deferred revenue - current

565,355  

657,349  

Operating lease liabilities, current portion

177,188  

234,309  

Total current liabilities

1,999,312  

1,876,303  

Deferred revenue, net of current portion

67,300  

44,987  

Deferred tax liability

Government loan –

BBVA Bank, net of current portion

Operating lease liabilities, net of current portion

86,974  

264,163  

Total non-current liabilities

154,274  

309,150  

TOTAL LIABILITIES

2,153,586  

2,185,453  

Commitments (Note O)

STOCKHOLDERS ’

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Additional paid-in capital

120,190,139  

119,844,026  

Accumulated other comprehensive loss

Accumulated deficit

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TOTAL STOCKHOLDERS ’

15,615,455  

20,335,119  

TOTAL LIABILITIES AND STOCKHOLDERS ’

$ 17,769,041  

$ 22,520,572  

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-8 reverse stock split, which was effective November 20, 2020.

The accompanying notes are an integral part of these statements.

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and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Years ended December 31,

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Research, development and engineering

Reversal of earnout payable –

Swivel acquisition

Impairment of goodwill

Total operating expenses

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Interest income

Foreign currency loss

Loss on foreign currency transactions

Investment-debt security reserve

Government grant –

Paycheck Protection Program

Loan transaction costs

Change in fair value of convertible note

Interest expense

Loss on extinguishment of debt

Total other income (expense)

Deemed dividend from trigger of anti-dilution provision feature

Net loss available to common stockholders

Loss before provision for income tax benefit

Provision for income tax benefit

Comprehensive loss:

Other comprehensive loss- Foreign translation adjustment

Comprehensive loss

Basic and Diluted Loss per Common Share

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Basic and Diluted

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-8 reverse stock split, which was effective November 20, 2020.

The accompanying notes are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’

EQUITY (DEFICIT)

Comprehensive

Income (Loss)

Balance as of December 31, 2020

Issuance of common stock for directors’

Issuance of common stock pursuant to securities purchase agreements

Issuance of common stock pursuant to public offering

Issuance of common stock pursuant to warrant exercises

Issuance of common stock for conversion of convertible note payable

Issuance of restricted common stock to employees

Warrants issued with convertible notes

Warrant issued for consulting fees

Legal and commitment fees

Beneficial conversion feature

Deemed dividends related to down-round features

Forfeiture of restricted stock

Issuance of common stock for Employee stock purchase plan

Share based compensation for employee stock purchase plan

Share-based compensation

Balance as of December 31, 2021

( 104,575,470

Issuance of common stock for directors’

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Forfeiture of restricted stock

 (1,250)

Issuance of common stock pursuant to Swivel purchase agreement

Issuance of common stock for note issuance fees

Issuance of warrant in conjunction with note payable

Issuance of common stock for employee stock purchase plan

Share based compensation for employee stock purchase plan

Foreign currency translation adjustment

Share-based compensation

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( 116,485,373

All BIO-key shares issued and outstanding for all periods reflect BIO-key’s 1-for-8 reverse stock split, which was effective November 20, 2020.

The accompanying notes are an integral part of these statements.

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Adjustments to reconcile net loss to cash used for operating activities:

Impairment of goodwill

Reversal of earnout payable –

Swivel acquisition

Amortization of intangible assets and write-off

Amortization of resalable software license rights

Loan transaction costs

Loss on foreign currency

Reserve for investment security

Allowance for note receivable

Reserve for inventory

Reserve for note receivable

Allowance for doubtful account

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Amortization of capitalized contract costs

Amortization of debt issuance costs

Loss on extinguishment of debt

Amortization of beneficial conversion feature

Share based and warrant compensation for employees and consultants

Stock based fees to directors

Bad debt expense

Change in fair value of convertible note

Deferred income tax benefit

Amortization of operating lease right-of-use assets

Change in assets and liabilities:

Change in operating assets and liabilities:

Accounts receivable

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Capitalized contract costs

Resalable software license rights

Prepaid expenses and other

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CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of Swivel Secure, net of cash acquired of $ 729,905

Receipt of cash from note receivable

Capital expenditures

Issuance of note receivable

Purchase of PistolStar

Cash acquired from purchase of PistolStar

Proceeds from maturity of debt security

Purchase of debt security

Net cash used for investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from public offering

Proceeds from issuance of convertible notes

Costs incurred for issuance of convertible note

Proceeds from Employee Stock Purchase Plan

Repayment of convertible notes

Proceeds from the exercise of warrants

Costs to issue notes and common stock

Repayment of note payable - PistolStar

Net repayments of loans payable to related parties

Net cash (used in) provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Effect of exchange rate changes

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

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Years ended December 31,

Cash paid for:

Cash paid during the year for:

Noncash investing and financing activities:

Accounts receivable acquired from PistolStar

Prepaid expenses acquired from PistolStar

Equipment acquired from PistolStar

Intangible assets acquired from PistolStar

Goodwill related to PistolStar acquisition

Issuance of note payable for PistolStar acquisition, net of discount

Accrued expenses acquired from PistolStar

Deferred revenue acquired from PistolStar

Right-of-use asset addition under ASC 842

Operating lease liabilities under ASC 842

Issuance of common stock for conversion of note payable

Issuance of common stock pursuant to securities purchase agreements

Warrants issued with convertible notes

Beneficial conversion feature

Deemed dividends related to down-round features

Accounts receivable acquired from Swivel Secure

Equipment acquired from Swivel Secure

Other assets acquired from Swivel Secure

Intangible assets acquired from Swivel Secure

Goodwill resulting from the acquisition from Swivel Secure

Accounts payable and accrued expenses acquired from Swivel Secure

Government loan acquired from Swivel Secure

Deferred tax liability from the acquisition of Swivel Secure

Common stock issued for acquisition of Swivel Secure

Common stock issued for acquisition of note payable

Issuance of warrant for acquisition of note payable

Operating lease right-of-use asset and liability for new lease

The accompanying notes are an integral part of these statements.

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Going Concern and Basis of Presentation

The Company has historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables.

The Company currently requires approximately $ 735,000 per month to conduct operations, a monthly amount that it has been unable to consistently achieve through revenue generation.

During 2021, the Company generated approximately $5,114,000 of revenue, which is below its average monthly requirements.

During 2020, the Company raised approximately $24,000,000 from financing activities and at December 31, 2021 had approximately $7,800,000 in cash.

With the addition of the Swivel Secure Europe, SA (see Note W), the Company expects $1,000,000 of additional cash flow, based on Swivel Secure’s current recurring revenue and expenses, to provide additional operating income.

As of the date of this report, the Company has enough cash and receivables for twelve months of operations.

Effective November 20, 2020, the Company implemented a reverse stock split of its outstanding common stock at a ratio of 1 -for- 8 .

All share figures and results are reflected on a post-split basis.

The Company has historically financed our operations through access to the capital markets by issuing convertible debt securities, convertible preferred stock, common stock, and through factoring receivables.

As of the date of this report, the Company does not have enough cash for twelve months of operations.

The history of significant losses, the negative cash flow from operations, the limited cash resources on hand and the dependence by the Company on its ability, to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company's ability to continue as a going concern.

The Company has lowered our expenses through decreasing spending in marketing, and research and development.

In addition, the Company has purchased inventory for projects in Nigeria, which have been delayed in deployment, and therefore is looking into other markets and opportunities to sell or return the product to generate additional cash.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplate continuation of the Company as a going concern, and assumes continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

The Company has suffered substantial net losses and negative cash flows from operations in recent years and is dependent on debt and equity financing to fund its operations all of which raise substantial doubt about the Company’s ability to continue as a going concern.

Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company’s ability to increase its revenue and meet its financing requirements on a continuing basis and become profitable in its future operations.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Foreign Currency

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dollar, which is the currency of the primary economic environment in which it operates.

In accordance with ASC 830, monetary balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. 

For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used.

Gains or losses arising from changes in the exchange rates used in the translation of such transactions and from the remeasurement of the monetary balance sheet items are recorded as gain (loss) on foreign currency transactions.

The functional currency of Swivel Secure Europe, SA is the Euro.

Under ASC 830, all assets and liabilities are translated into U.

dollars using the current exchange rate at the end of each fiscal period.

Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods.

All transaction gains and losses from the measurement of monetary balance sheet items denominated in Euros are reflected in the statement of operations as appropriate.

Translation adjustments are included in accumulated other comprehensive loss.

Summary of Significant Accounting Policies

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

Principles  

of Consolidation

The accompanying consolidated financial statements include the accounts of BIO-key International, Inc.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of BIO-key International, Inc.

and its wholly-owned subsidiaries (collectively, the “Company”).

Intercompany accounts and transactions have been eliminated in consolidation. 

Use of Estimates

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These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented.

Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, accounts receivable, inventory, intangible assets and long-lived assets, and income taxes.

To the extent there are material differences between these estimates, judgments or assumptions and actual results, its consolidated financial statements will be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application.

There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

Certain significant accounting policies that contain subjective management estimates and assumptions include those related to accounts receivable, inventory, intangible assets and goodwill, fair value of convertible note payable, and income taxes.

Revenue Recognition

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The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.

To achieve this core principle, the Company applies the following five steps: 

Identify the contract with a customer

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Software licenses

Software license revenue consist of fees for perpetual and subscription licenses for one or more of the Company’s biometric fingerprint solutions or identity access management solutions.

Software license revenue consists of fees for perpetual and subscription licenses for one or more of the Company’s biometric fingerprint solutions or identity access management solutions.

Revenue is recognized at a point in time once the software is available to the customer for download.

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assistance as required over the contract period.

The Company records deferred revenue (contract liability) at time of prepayment until the contracts term occurs.

The Company records deferred revenue (contract liability) at time of prepayment until the term of the contract begins.

Revenue is recognized over time on a ratable basis over the contract term.

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The standalone selling prices are determined based on overall pricing objectives, taking into consideration market conditions and other factors, including the value of the contracts, the cloud applications sold, customer demographics, geographic locations, and the number and types of users within the contracts.

The Company considered several factors in determining that control transfers to the customer upon shipment of hardware and availability of download of software. 

These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risks and rewards of ownership.

Accounts receivable from customers are typically due within 30 days of invoicing. 

The Company does not record a reserve for product returns or warranties as amounts are deemed immaterial based on historical experience.

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Amortization expense is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Deferred Revenue  

Deferred revenue includes customer advances and amounts that have been paid by customer for which the contractual maintenance terms have not yet occurred.

Deferred Revenue

Deferred revenue includes customer advances and amounts that have been paid by customers for which the contractual maintenance terms have not yet occurred.

The majority of these amounts are related to maintenance contracts for which the revenue is recognized ratably over the applicable term, which generally is 12-60 months.

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Business Combinations

In accordance with ASC 805,  

Business Combinations  (ASC 805 ), the Company recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

In accordance with ASC 805, Business Combinations (ASC 805), the Company recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets.

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If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required.

The annual goodwill impairment test will be performed as of 

December 31st  of each year.

To date, the Company has not identified any impairment to goodwill.

The annual goodwill impairment test will be performed as of December 31st of each year.

Refer Note K for more information regarding the impairment of goodwill in 2022.

Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition.

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Cash Equivalents

Cash equivalents consist of liquid investments with original maturities of three months or less. At December 31, 2021 and 2020, cash equivalents consisted of a money market account.

Cash equivalents consist of liquid investments with original maturities of three months or less.

At December 31, 2022 and 2021, cash equivalents consisted of a money market account.

Accounts Receivable

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Accounts receivable are written off when deemed uncollectible.

Accounts receivable at December 31, 2021 and 2020 consisted of the following: 

Accounts receivable at December 31, 2022 and 2021 consisted of the following:

Accounts receivable

$ 1,234,411  

$ 561,834  

Loss on foreign currency  

( 50,000 )  

Loss on foreign currency

Allowance for doubtful accounts

Accounts receivable, net of allowances for doubtful accounts

$ 970,626  

$ 548,049  

Bad debt expenses (if any) are recorded in selling, general, and administrative expense. 

Equipment and Leasehold Improvements,  

Intangible Assets and Depreciation and Amortization

Equipment and leasehold improvements are stated at cost.  Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods.

Bad debt expenses (if any) are recorded in selling, general, and administrative expense.

The allowance for doubtful accounts for the years ended December 31, 2022 and 2021 is as follows:

Beginning of Year

Charged to Costs and Expenses

Deductions from Reserves

Balance at End of Year

Year ended December 31, 2022 Allowance for Doubtful Accounts

Year ended December 31, 2021 Allowance for Doubtful Accounts

Equipment and Leasehold Improvements, Intangible Assets and Depreciation and Amortization

Equipment and leasehold improvements are stated at cost.

Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods.

Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

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Equipment and leasehold improvements

Equipment (years)

Furniture and fixtures (years)

Software (years)

Furniture and fixtures

Leasehold improvements

life or lease term

Intangible assets other than goodwill consist of patents, trade name, proprietary software, and customer relationships.  Patent costs are capitalized until patents are awarded.

Intangible assets other than goodwill consist of patents, trade name, proprietary software, and customer relationships.

Patent costs are capitalized until patents are awarded.

Upon award, such costs are amortized using the straight-line method over their respective economic lives.

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If these estimates or related assumptions change in the future, the Company 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. 

There were no impairments in 2022 and 2021.

Advertising Expense

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Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services.

All costs associated with research and development are expensed as incurred. 

Earnings Per Share of Common Stock ( “

The Company’s EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period.

The Company’s EPS is calculated by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the reporting period.

Diluted EPS includes the effect from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants, when the effect of their inclusion is dilutive.

Accounting for Stock-Based Compensation

The Company accounts for share based compensation in accordance with the provisions of ASC 718 - 10, “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 its share-based compensation arrangements vest over either a three or four year vesting schedule.

The majority of its share-based compensation arrangements vest over a three 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.

The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of certain 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 its 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.

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Selling, general and administrative

$ 269,368  

$ 705,971  

Research, development and engineering

45,347  

86,124  

$ 314,715  

$ 792,095  

Valuation Assumptions for Stock Options

2020, 28,440 stock options were granted.

No options were granted in 2021.

The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Weighted average Risk free interest rate

Expected life of options (in years)

Expected dividends

Weighted average Volatility of stock price

The stock volatility for each grant is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term.

The expected term was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla”

and the risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. 

Derivative Liabilities

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock.

In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity.

In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument.

The Company early-adopted the new provisions issued July 2017, for derivative liability instruments under FASB ASU 2017 - 11, Earnings Per Share (Topic 260 ), Distinguishing Liabilities from Equity (Topic 480 ) and Derivatives and Hedging (Topic 815 ):

Accounting for Certain Financial Instruments with Down Round Features;

Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception.

Under ASU 2017 - 11, down round features do not meet the criteria for derivative accounting and no liability is to be recorded until an actual issuance of securities triggers the down-round feature.

Prior to these provisions, the liabilities were recorded without the actual issuance of the securities triggering the down-round feature.

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.

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Because of the Company’s historical performance and estimated future taxable income, a full valuation allowance has been established.

The Company accounts for uncertain tax provisions in accordance with ASC 740 - 10 - 05, “Accounting for Uncertainty in Income Taxes.”

The Company accounts for uncertain tax provisions in accordance with ASC 740.

The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.

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The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In accordance with ASC 842,  

Lease s (ASC 842 ), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases. 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset.

In accordance with ASC 842, Leases (ASC 842), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset.

Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities.

The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient in paragraph ASC 842 - 20 - 25 - 2.

For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component.

The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2.

For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term.

The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

The determination of the Company’s incremental borrowing rate requires judgment.

The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease.

The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments.

The determination of the Company’s incremental borrowing rate requires judgment.

The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease.

The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.

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An option to terminate is considered unless it is reasonably certain we will not exercise the option.

The Fair Value Measurement Option

The Company has elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the entire hybrid financing instrument at fair value under the guidance of ASC 825, Financial Instruments .

As a result, the convertible promissory note was recorded at fair value upon issuance and will subsequently be remeasured at each reporting date until settled or converted.

The Company recognized the note initially at fair value, which exceeded the proceeds received resulting in a day one loss that has been recognized in net loss.

The Company reports interest expense, including accrued interest, related to the convertible debt under the fair value option, separately from within the change in fair value of the convertible debt in the accompanying consolidated statement of operations.

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date.

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

These tiers include:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Quoted prices in markets that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or liability;

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e.

supported by little or no market activity).

The following table summarizes our financial instruments measured at fair value at December 31, 2022:

Convertible note at fair value

The Company issued a convertible note to which included an original issue discount, conversion features and a detachable warrant, as further discussed in Note M.

The detachable warrant represents a freestanding, separable equity-linked financial instrument recorded at fair value.

The fair value of the detachable warrant was calculated using a Black-Scholes valuation model.

The Company elected the fair value option for the convertible debt which was determined based on significant unobservable inputs including the likelihood of default, the estimated date at which the default could take place, and the present value discount rate, which causes it to be classified as a Level 3 measurement within the fair value hierarchy.

The fair value option requires recognition at fair value upon issuance and on each balance sheet date thereafter.

Changes in the estimated fair value are recognized as change in fair value of convertible note in the consolidated statements of operations.

As a result of applying the fair value option, direct costs and fees related to the issuance of the convertible note were expensed and not deferred.

The Company estimated the fair value of the convertible note using a probability-weighted discounted cash flow model with the following assumptions and significant terms of the convertible note at December 22, 2022:

Face amount - $ 2,200,000

Nominal interest rate –

Default interest rate –

Increase in principal upon a default –

Present value discount rate –

Likelihood of default –

estimated to be 50 % at the extended maturity date

The following table shows the changes in fair value measurements for the convertible note using significant unobservable inputs (Level 3) during the year ended December 31, 2022:

Beginning balance

Purchases and issuances

Day one loss on value of hybrid instrument

Ending balance

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016 - 13,  

Financial Instruments-Credit Losses  (Topic 326 ), referred to herein as ASU 2016 - 13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016- 13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments.

Under ASU 2016 - 13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset.

Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct writedown of the amortized cost basis of a financial asset.

The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset.

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For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13.

ASU 2016 - 13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies.

Early adoption is permitted.

ASU 2016-13 is effective for the Company for annual periods, including interim periods within those annual periods, beginning on January 1, 2023.

The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.

Effective January 1, 2021, the Company adopted ASU 2019 - 12, Simplifying the Accounting for Income Taxes (“ASU 2019 - 12”

) to reduce the cost and complexity in accounting for income taxes.

ASU 2019 - 12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019 - 12 also amends other aspects of the guidance to help simplify and promote consistent application of U.S.

Most amendments within ASU 2019 - 12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

The adoption of ASU 2019 - 12 did not have a significant impact on the Company’s consolidated financial statements.

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

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Europe, Middle East, South America

Revenue recognized during the year ended December 31, 2021 

from amounts included in deferred revenue at the beginning of the year was approximately $ 529,000 .

Revenue recognized during the year ended December 31, 2022 from amounts included in deferred revenue at the beginning of the year was approximately $ 489,000 .

The Company did not recognize any revenue from performance obligations satisfied in prior periods.

Total deferred revenue (contract liability) was $ 632,655 and $ 702,336 at December 31, 2021 and 2020, respectively.

Revenue recognized during the year ended December 31, 2021 from amounts included in deferred revenue at the beginning of the year was approximately $ 529,000 .

Total deferred revenue (contract liability) was approximately $ 515,000 and $ 633,000 at December 31, 2022 and 2021, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as at December 31, 2021.

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied.

The guidance provides certain practical expedients that limit this requirement, which the Company’s contracts meet as follows:

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NOTE C —

PISTOLSTAR, INC.

June 30, 2020, the Company acquired PistolStar, Inc., a private company based in the United States, which provides enterprise-ready identity access management solutions, including multi-factor authentication, identity-as-a-service, single sign-on and self-service password reset to commercial, government and education customers throughout the United States and internationally.

From April 10, 2020 until the Company acquired PistolStar, it licensed PortalGuard®, PistolStar’s authentication software, which the Company combines with its biometric authentication solutions offered to existing and prospective customers.

The total purchase price of $ 2.5 million included cash payment of $ 2.0 million and the issuance of a $500,000 promissory note.

The acquisition of PistolStar was accounted for as a business combination and, in accordance with ASC 805,  the Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

The following table summarizes the final purchase price allocation:

SWIVEL SECURE EUROPE, SA ACQUISITION

On March 8, 2022, the Company completed the acquisition of 100 % of the issued and outstanding capital stock of Swivel Secure based in Madrid, Spain, pursuant to the terms of a stock purchase agreement.

The aggregate purchase price consisted of a base purchase price of $ 1.75 million, subject to closing adjustments based on the closing date working capital, indebtedness and unpaid transaction expenses, and an earn-out of $ 500,000 .

The earn-out was payable based on Swivel Secure generating $ 3,000,000 of revenue and $ 1,000,000 of operating profit during an earn-out period commencing on the closing date and ending on January 31, 2023, which was not attained.

At the closing, the Company made a cash payment of $ 1.27 million and issued 269,060 shares of common stock of which 89,687 shares were held back by the Company to secure certain indemnification obligations under the stock purchase agreement.

The shares of Company common stock were priced at $ 2.23 , the contractual 20 day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market.

The business combination has been accounted for as an acquisition and, in accordance with ASC 805.

The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

The following table summarizes the purchase price allocation, with no earnout payment:

Purchase consideration:

Total cash paid, net of acquired cash

$ 2,000,000  

Present value of 4 % Promissory note

464,000  

Total cash paid, including working capital adjustment

Earnout payable

Common stock issued

Total purchase price consideration

$ 2,464,000  

Fair value of assets acquired and liabilities assumed:

Cash and cash equivalents

$ 100,747  

Accounts receivable

184,792  

Prepaid expenses and other current assets

36,467  

Equipment acquired

Intangible assets

1,480,000  

1,262,526  

Total assets acquired

3,074,017  

Accrued expenses and other current liabilities

Accrued payroll

19,279  

Deferred revenue

590,000  

Total fair value of assets acquired and liabilities assumed

$ 2,464,000  

The promissory note accrued interest at 4 % per annum and was payable in four installments over the 12 -month period following the closing.

The balance of the note at December 31, 2020 was $ 232,000 , net of the unamortized debt discount.

On January 21, 2021, the Company paid the $ 250,000 balance due on the note.

Total estimated assets acquired

Accounts payable and accrued expenses

Government loan

Deferred tax liability

Total liabilities assumed

Total estimated fair value of assets acquired and liabilities assumed

The fair value of the assets acquired and liabilities assumed was less than the purchase price, resulting in the recognition of goodwill.

The goodwill reflected the value of the synergies the Company expected to realize and the assembled workforce.

The significant intangible assets identified in the purchase price allocation discussed above include the trade name, proprietary software, and customer relationships.

To value the trade name and proprietary software, the Company utilized the Relief from Royalty Method, which quantifies the cost savings associated with asset ownership via a discounted cash flow analysis.

To value the customer relationships, the Company utilized the Excess Earnings Method, which isolates the value of the specific intangible asset by discounting its income stream to present value. 

The fair value of the assets acquired and liabilities assumed reflected in the tables above is less than the purchase price, resulting in the recognition of goodwill.

The goodwill reflects the value of the synergies the Company expects to realize and the assembled workforce.

Refer to Note K for more information regarding the impairment of goodwill.

The significant intangible asset identified in the purchase price allocation discussed above was Customer Relationships.

To value the Customer Relationships, the Company utilized the Excess Earnings Method, which isolates the value of the specific intangible asset by discounting its income stream to present value.

The government loan was issued through BBVA Bank during the COVID-19 pandemic.

The loan bears interest at the rate of 1.75 % per annum and is payable in monthly installments of approximately $ 11,900 inclusive of interest from May 2022 through April 2026.

The installment payments have been paid monthly as per the schedule, as of the date of this report.

The following table presents the final fair values and useful lives of the identifiable intangible assets acquired:

Estimated useful

Proprietary Software

Customer relationships

Total identifiable intangible assets

As discussed above, the earnout payable was not achieved.

As such, the Company reversed the earnout payable of $ 500,000 and recognized the income on the reversal of the earnout payable.

For the period from March 8, 2022 to December 31, 2022, revenue from Swivel Secure amounted to $ 2,351,975 and net loss amounted to $ 720,691 .

NOTE D —

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

Original Invoice

Year Ended December 31, 2021

Factored accounts receivable

Year Ended December 31, 2020

Factored accounts receivable

The Company entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to 

October 31, 

 Pursuant to the terms of the arrangement, the Company, from time to time, sells to the Factor a minimum of $ 150,000  per quarter of certain of its accounts receivable balances on a non-recourse basis for credit approved accounts.

The Factor remits 

35 % of the foreign and 

75 % of the domestic accounts receivable balance to the Company (the “Advance Amount”), with the remaining balance, less fees, forwarded to the Company once the Factor collects the full accounts receivable balance from the customer.

In addition, the Company, from time to time, receives over advances from the Factor.

Factoring fees range from 

2.75 % to 

15 % of the face value of the invoice factored and are determined by the number of days required for collection of the invoice.

The cost of factoring is included in selling, general and administrative expenses.

The cost of factoring was as follows:  

Years Ended December 31,

Factoring fees

NOTE E —

FAIR VALUES OF FINANCIAL INSTRUMENTS

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The carrying value of the Company’s notes and loan payables approximated fair value as the interest rates related to the financial instruments approximated market.

NOTE F —

NOTE E —

CONCENTRATION OF RISK

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The Company maintains its cash and cash equivalents with various financial institutions, which, at times may exceed insured limits.

The exposure to the Company is solely dependent upon daily bank balances and the respective strength of the financial institutions. The Company was in excess of coverage of approximately $ 7,057,000 and $ 16,020,000 at December 31, 2021 and 2020, respectively.

The exposure to the Company is solely dependent upon daily bank balances and the respective strength of the financial institutions.

The Company was in excess of coverage of approximately $ 2,000,000 and $ 7,057,000 at December 31, 2022 and 2021, respectively.

The Company has not incurred any losses on these accounts.

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The Company analyzes historical bad debts and contract losses, customer concentrations, and customer credit-worthiness when evaluating the adequacy of the allowances.

For the year ended December 31, 2021 and 2020,  

one  customer accounted for 

13 % and 18 % of total revenue, respectively.

Three customers accounted for 87 % and one customer accounted for 31 % of total accounts receivable, as of December 31, 2021 and 2020, respectively.

NOTE G —

For the year ended December 31, 2022 no  customer accounted for 10 % of total revenue.

For the year ended December 2021, 

one customer accounted for 

13 % of total revenue.

At December 31, 2022, one customer accounted for 35 % of the total accounts receivable.

At December 31, 2021, 

three customers accounted for 87 % of total accounts receivable.

NOTE F —

NOTE RECEIVABLE

During the third quarter 2020, the Company loaned $ 295,000 as an advance to Technology Transfer Institute (“TTI”) to aid in fulfilling the African contracts.

The note does not bear any interest if paid within the nine ( 9 ) monthly installments beginning December 31, 2020.

The note bears a default rate of 5 %.

During the third quarter of 2020, the Company loaned $ 295,000 as an advance to Technology Transfer Institute (“TTI”) to aid in fulfilling the African contracts.

The note did not bear any interest if paid within the nine (9) monthly installments beginning December 31, 2020.

The note bore a default rate of 5 %.

Due to the ongoing delays in payment, the Company reserved $ 186,000 of the note as an allowance.

On February 17, 2022, the Company amended the note to modify the payment terms to provide for lower monthly payments, with an updated maturity date on or before December 6, 2023.

A member of our board of directors served as Chief Executive Officer off TTI until August 12, 2020.

On May 5, 2022, the Company amended the note to modify the payment terms to eight biweekly installments of $ 1,000 beginning February 25, 2022, nineteen consecutive monthly installments of $ 15,000 beginning on July 6, 2022, and $ 2,000 on or before February 6, 2024.

Currently, the payments are several months behind schedule.

Due to the delay in payments, the Company has increased the allowance for the remainder of the balance owed under the note.

We are continuing to pursue payment and expect that we will start to receive funds in the second quarter of 2023.

A member of our board of directors served as Chief Executive Officer of TTI until August 12, 2020.

Note receivable

Repayment of note

Allowance for doubtful account

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Noncurrent portion, net of allowance

NOTE H —

Inventory is stated at the lower of cost, determined on a first in, first out basis, or realizable value, and consists primarily of fabricated assemblies and finished goods.

Inventory is comprised of the following as of December 31: 

NOTE G —

Inventory is stated at the lower of cost, determined on a first in, first out basis, or realizable value.

The Company periodically evaluates inventory items and establishes reserves for obsolescence accordingly.

The Company also reserves for excess quantities, slow moving goods, and for other impairment of value based upon assumptions of future demand and market conditions.

The $ 400,000 reserve on inventory is due to slow moving inventory purchased for projects in Nigeria.

The Company is looking into other markets and opportunities to sell or return the product.

Inventory is comprised of the following as of December 31:

Finished goods

Fabricated assemblies

Reserve on finished goods

Total inventory

NOTE I —

NOTE H —

RESALABLE SOFTWARE LICENSES  

On December 31, 2015, the Company purchased third -party software licenses in the amount of $ 180,000  in anticipation of a large pending deployment that has yet to materialize.

The Company is amortizing the total cost at the greater of the actual unit cost per license sold or straight line amortization over 10 years.

On December 31, 2015, the Company purchased third-party software licenses in the amount of $ 180,000 in anticipation of a large pending deployment that has yet to materialize.

The Company was amortizing the total cost at the greater of the actual unit cost per license sold or straight-line amortization over 10 years.

Since the license purchase, the actual per unit cost (actual usage) of such license rights in the cumulative amount of $ 141,190 has been charged to cost of sales.

Since we have not received any sales for the license within the last two years, we accelerated the amortization for the balance of the license in 2022, leaving a carrying balance of $ 0 and $ 48,752 as of December 31, 2022 and 2021, respectively.

A total of $ 48,752 and $ 10,130 was charged to cost of sales during the years ended December 31, 2022 and 2021, respectively.

Since the license purchase, the actual per unit cost (actual usage) of such license rights in the cumulative amount of $ 131,248 has been charged to cost of sales, with a carrying balance of $ 48,752 and $ 58,882 as of December 31, 2021 and 2020, respectively.

The Company has classified the balance as non-current until a larger deployment occurs.

Estimated minimum amortization expense based on straight line amortization of the software license rights over the remaining useful life approximates the following:

Years ending December 31

NOTE J —

NOTE I —

INVESTMENT IN DEBT SECURITY

During 2019, the Company purchased a 4,000,000 Hong Kong dollar denominated Bond Certificate with a financial institution in Hong Kong.

The Company purchased a 4,000,000 Hong Kong dollar denominated Bond Certificate with a financial institution in Hong Kong in September 2020 bearing interest at 5 % per annum.

The Bond Certificate translated to $ 512,821 U.S.

Dollars on the June 2019 purchase date.

The bond had a one -year term which matured in June 2020, bearing interest at 5 % per annum.

The Company redeemed the bond and recorded interest income of approximately $ 25,800 .

The Company then purchased a new 4,000,000 Hong Kong dollar denominated Bond Certificate with a financial institution in Hong Kong in June 2020.

The new Bond Certificate translated to $ 512,821 U.S.

Dollars, based on the exchange rate at the purchase date. The Company can invest up to 20,000,000 Hong Kong dollars under the terms of the certificate, bearing interest at 5 % per annum.

The investment is recorded at amortized cost which approximates fair value was held to maturity. The Company has yet to receive the proceeds and accrued interest from the investment.

The Company has sent a legal letter of demand to confirm the status of the bond, and as such, the debt security was classified as noncurrent.

In addition, due to the delay in the receipt of the proceeds, the Company recorded a $ 60,000 reserve.

NOTE K —

Dollars, based on the exchange rate at the purchase date.

 The investment was originally recorded at amortized cost and was scheduled to mature in June 2021.

The Company never received the proceeds and accrued interest from the investment and as such, wrote off the investment during 2022 as the bond issuer defaulted on repayment, and the Company had no recourse.

NOTE J —

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following as of December 

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

Furniture and fixtures

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Less accumulated depreciation and amortization

Depreciation was $ 54,649 and $ 85,751 for 2021 and 2020, respectively.

Depreciation was $ 43,794  and $ 54,649 for 2022 and 2021, respectively.

Amounts are recorded in selling, general, and administrative expense as well as in cost of services.

NOTE L —

INTANGIBLE ASSETS

Intangible assets consisted of the following as of December 

NOTE K —

INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following as of December 31:

Proprietary software

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Patents and patents pending

Aggregate amortization expense for 2021 and 

2020 was approximately $ 216,000 and $ 120,000 , respectively.

Less accumulated amortization

Aggregate amortization expense for 2022 and 2021 was approximately $ 298,000 and $ 216,000 , respectively.

Estimated minimum amortization expense based on straight line amortization of the software license rights for each of the next five years and thereafter approximates the following:

Years ending December 31

NOTE M —

The Company conducted its annual impairment analysis of its goodwill balances as at December 31, 2022.

The Company noted the noted the cyclical downturn in technology stock values over the 2022 period, since our previous annual impairment assessment.

The analysis showed the carrying value of the Company’s reporting segment was in excess of the Company’s market valuation as at December 31, 2022 based on a fair valuation measure as the quoted market price for the Company’s publicly traded stock as of that date.

Accordingly, the Company concluded the amounts in goodwill had been fully impaired and accordingly wrote-off the entire balance in full as at December 31, 2022.

NOTE L —

ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of December 

Accrued liabilities consisted of the following as of December 31:

Compensated absences

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Sales tax payable

Factoring fees

NOTE M —

CONVERTIBLE NOTE PAYABLE

Securities Purchase Agreement dated December 22, 2022

On December 22, 2022, the Company entered into and closed a securities purchase agreement (the “Purchase Agreement”) which issued a $ 2,200,000 principal amount senior secured promissory note (the “Note”).

At closing, a total of $ 2,002,000 was funded, with the proceeds to be used for general working capital.

The principal amount of the Note is due six months following the date of issuance, subject to one six-month extension by the Company.

Interest under the Note accrues at a rate of 10 % per annum, payable monthly through month six.

In the event the maturity date of the Note is extended, interest will accrue at the rate of 12 % per annum in months seven through twelve, payable monthly.

The Note is secured by a lien on substantially all of the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.

In connection with the issuance of the Note, the Company issued to the investor 700,000 shares of Common Stock (the “Commitment Shares”) valued at $ 1.00 per share and a warrant (the “Warrant”) to purchase 200,000 shares of common stock (the “Warrant Shares”) at an exercise price of $ 3.00 per share, exercisable commencing on the date of issuance with a term of five years.

The warrant was valued at $ 94,316 (see Note P.

In the event the Note is paid in full within six months after the date of issuance, the Company will exercise its right to repurchase 350,000 of the Commitment Shares for aggregate payment to the Investor of $1.00.

Upon issuance, the Note is not convertible into common stock or any other securities of the Company.

Only after a date that is six (6) months following the issuance date of the Note and upon the occurrence of any events of default (as defined) and expiration of any applicable cure periods, all amounts due under the Note will immediately and automatically become due and payable in full, interest will accrue at the higher of 18 % per annum or the maximum amount permitted by applicable law, the outstanding principal amount due under the Note will be increased by 30 %, and the Investor will have the right to convert all amounts due under the Note into shares of common stock (the “Conversion Shares”) at a conversion price equal to the 10 day volume weighted average sales price of the Company’s common stock on the date of conversion, subject to the Share Cap described in the paragraph below.

The aggregate number of shares of common stock issuable in the forgoing transaction consisting of the Commitment Shares, the Warrant Shares, and the Conversion Shares are capped at 1,684,576 which is 19.9 % of the Company’s issued and outstanding shares of common stock on December 22, 2022, the date the definitive transaction documents were executed (the “Share Cap”).

During April 2023, we were in default under the Note due to our failure to timely file this annual report and timely file a registration statement covering the public resale of the shares issued to the holder of the Note in connection with the financing.

We have obtained a waiver and, therefore, as of the date of this report we are not in default.

As of December 31, 2022, the Note with principal balance of $ 2,200,000 , at fair value, was recorded at $ 2,596,203 .

NOTE N —

RELATED PARTY TRANSACTIONS

Non-Interest-Bearing Advances

During the 2019 fiscal year, the Company received a series of non-interest-bearing advances from Mr.

Wong Kwok Fong, and Mr.

Michael DePasquale, to pay current liabilities.

The balance of the advances as at December 31, 2019 was $ 74,737 and $ 114,000 , respectively, which were both repaid in full during 2020.

NOTE O —

CONVERTIBLE NOTES PAYABLE

There was no balance outstanding for convertible notes payable as of December 31, 2021 and 2020.

Details for Notes that were either converted or redeemed during the 2020 fiscal year were as follows: 

Securities Purchase Agreement dated July 10, 2019

On July 10, 2019, the Company issued a $ 3,060,000 principal amount senior secured convertible note (the “Original Note”).

At closing, a total of $ 2,550,000 was funded. The original issue discount was $ 510,000 .

The principal amount due of the Original Note was due and payable as follows:

$ 918,000 was due 180 days after funding, $ 1,071,000 was due 270 days after funding, and the remaining balance due 12 months after the date of funding.

The Original Note was secured by a lien on substantially all of the Company’s assets and properties and was convertible at the option of the Investor in shares of common stock at a fixed conversion price of $ 12.00 per share.

In connection with the closing of the Original Note, the Company issued a five -year warrant to the Investor to purchase 250,000 shares of common stock at a fixed exercise price of $ 12.00 per share, paid a $ 50,000 commitment fee, and issued 33,334 shares of common stock in payment of a $ 400,000 due diligence fee.

The Company also paid banker fees of $ 193,500 and legal fees of $ 71,330 .

The valuation of the warrant of $ 595,662 was recorded to debt discount and was amortized over the life of the Original Note.

The fees associated with the agreement were allocated to debt issuance costs and additional paid-in capital based on the respective ratio of the valuation of the note and warrant. Amortization of the debt issuance costs and debt discount are included in interest expense on the statement of operations.

On March 12, 2020, the Company issued a $ 3,789,000 principal amount senior secured convertible note (the “Amended Note”), which replaced the Original Note and included an additional $ 729,000 in interest due to the debt restructuring.

The principal amount was due and payable in full on April 13, 2020.

The Amended Note was secured by a lien on substantially all of the Company’s assets and properties and was convertible at the option of the Investor into shares of common stock at a fixed conversion price of $ 5.20 per share.

The Company accounted for the transaction as a debt extinguishment and, therefore, the balance of the fees and unamortized discount associated with the Original Note were written off and included as loss on extinguishment of debt.

On the day of the amendment, the closing stock price for the day was $ 6.08 , which resulted in a beneficial conversion of $ 0.88 per share outstanding or $ 641,215 to be amortized to interest expense over the term of the Amended Note, as adjusted for any debt conversion.

On April 12, 2020 and May 6, 2020, the Company entered into amendments (the “Amendments”) to the Amended Note.

The Amendments extended the maturity date to June 12, 2020 and extended the Investor’s right to convert the Amended Note into shares of the Company’s common stock at a price of $ 5.20 per share through June 12, 2020.

All other provisions of the Amended Note remained the same.

On June 10, 2020, the investor converted the last of the remaining principal into shares of common stock for payment in full, and the remaining principal balance was $ 0 .

The Amended Note amount of $ 3,789,000 was converted into 728,654 shares of common stock in 2020.

January 2020 Note

On January 13, 2020, the Company issued a $ 157,000 principal amount secured 10 % convertible redeemable note (the “January 2020 Note”) to an institutional investor with a maturity date of June 13, 2020 which was convertible into common stock at a conversion price of $ 12.00 per share.

At the closing, the Company agreed to issue 81,250 shares of common stock in lieu of payment of a $ 75,000 commitment fee which was reduced to 6,250 shares as the January 2020 Note was repaid prior to the maturity date.

On June 12, 2020, the January 2020 Note was paid in full by payment of $ 211,984 .

February 2020 Note

On February 13, 2020, the Company issued a $ 126,000 principal amount secured 10 % convertible redeemable note (the “February 2020 Note”) to an institutional investor with a maturity date of July 13, 2020 which was convertible into common stock at a conversion price of $ 9.20 per share. 

On March 12, 2020, the Original Note was amended to reduce the conversion price to $ 5.20 per share, which reduced the conversion price of the February Note to $5.20 and resulted in a deemed dividend of $ 70,998 . The February 2020 Note was redeemable at any time by payment of a premium to the principal balance starting at 10 % and increasing to 30 %.  

The Company issued 6,250 shares of common stock to the investor in lieu of payment of a $ 57,500 commitment fee.

The Company paid $ 6,000 of legal fees in connection with the issuance of February 2020 Note. 

The February 2020 Note was paid in full on July 10, 2020 by payment of $ 170,442 .

May 2020 Note

On May 6, 2020, the Company issued a $ 2,415,000 principal amount senior secured convertible note (the “May 2020 Note”).

At closing, $ 2,100,000 was funded. The principal amount was due and payable in five equal monthly installments of $ 268,333 beginning seven months after the funding date with the remaining balance due on the twelfth month after the date of funding.

The May 2020 Note was convertible at a fixed convertible price of $ 9.28 per share.

In connection with the issuance of the May 2020 Note, the Company paid a $ 133,333 due diligence fee by issuing 14,368 shares of common stock to the Investor priced at $ 9.28 per share.

The Company also paid a placement fee of 7 % of the gross proceeds to a placement agent.

In connection with the closing of the May 2020 Note, the Company issued a five -year warrant to the investor to purchase 

237,500 shares of common stock at a fixed exercise price of $ 9.28 and was immediately exercisable.

The valuation of the warrant of $ 876,937 was recorded to debt discount and was amortized over the life of the May 2020 Note.

The fees associated with the agreement were allocated to debt issuance costs and additional paid-in-capital based on the respective ratio of the valuation of the note and warrant.

Amortization of the debt issuance costs and debt discount were included in the interest expense on the statement of operations.

Following the completion of the underwritten offering in July 2020, the principal balance of $ 2,415,000 was paid in full during the third quarter of 2020.

As a result of the repayment, the Company expensed the remaining debt discounts and issuance costs of $ 1,218,163  in July 2020.

June 2020 Note

On June 29, 2020, the Company issued a $ 1,811,250 principal amount senior secured convertible note (the “June 2020 Note”). 

At closing, $ 1,575,000 was funded. The principal amount was due and payable in nine equal monthly installments of $ 201,250 beginning four months after the funding date with the remaining balance due on the twelfth month after the date of funding.

The June 2020 Note was convertible at a fixed convertible price of $ 9.28 per share.

In connection with the issuance of the June 2020 Note, the Company paid a $ 100,000 due diligence fee by issuing 17,071 shares to the Investor priced at $ 5.86 per share.

The Company also paid a placement fee of 7 % of the gross proceeds to a placement agent.

In connection with the closing of the June 2020 Note, the Company issued a five -year warrant to the Investor to purchase 178,125 shares of common stock at a fixed exercise price of $ 9.28 per share and was immediately exercisable.

The valuation of the warrant of $ 511,402 was recorded to debt discount and is was amortized over the life of the June 2020 Note.

Following the completion of the underwritten offering in July 2020, the principal balance of $ 1,811,250 was paid in full during the third quarter of 2020.

As a result of the repayment, the Company expensed the remaining debt discounts and issuance costs of $ 957,919 in July 2020.

NOTE P —

The Company’s leases office space in New Jersey under a lease terminating in 2023 and Hong Kong, Minnesota, and New Hampshire with lease termination dates in 2022.

The Company’s leases office space in New Jersey, Minnesota, New Hampshire, Madrid and Hong-Kong with lease termination dates in 2023 and 2024.

The property leased in China is paid monthly as used, without a formal agreement.

The leases include non-lease components with variable payments.

The following tables present the components of lease expense and supplemental balance sheet information related to the operating leases were:

Operating lease cost

Short-term lease cost

Total lease cost

13 unchanged sentences

imputed interest

NOTE Q —

NOTE O —

COMMITMENTS AND CONTINGENCIES

Sales Incentive Agreement with TTI

On March 25, 2020, the Company entered into a sales incentive agreement Technology Transfer Institute (“TTI”).

Distribution Agreement

Swivel Secure has a distribution agreement with Swivel Secure Limited (“SSL”).

Terms of the agreement include the following:

The original term of the agreement was one year and has been automatically extended for an additional one -year term.

For each $ 5,000,000 in revenue (up to a maximum of $ 20,000,000 ) the Company generates from contracts sourced by TTI which are executed during the original term and generate net income of at least 20 % (as defined) within eighteen months after the date such contract is executed, the Company will pay TTI a sales incentive fee of $ 500,000 payable by the issuance of 62,500 shares of common stock.

In the event that the Company generates revenue in excess of $20,000,000 from contracts sourced by TTI which are executed during the original term and generate net income of at least 20% (as defined) within eighteen months after the date such contract is executed, the Company will issue TTI a five -year warrant to purchase 12,500 shares of Common Stock at an exercise price of $ 12.00 per share for each $1,000,000 of revenue in excess of $20,000,000 (up to a maximum of $ 25,000,000 ).

In no event will the Company be obligated to issue more than 250,000 shares of common stock or warrants to purchase more than 62,500 shares of common stock pursuant to this agreement. 

There has been no revenue generated nor sales incentive fees paid during the periods ended December 31, 2021 and 2020.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

The initial term of the agreement ends on January 31, 2027 and will be automatically extended for additional one-year terms thereafter unless either party provides written notice to the other party not later than 30 days before the end of the term that it does not wish to extend the term.

SSL appoints Swivel Secure as the exclusive distributor of SSL’s products, to market, sell and distribute in the EMEA (Europe, Middle East and Africa), excluding the United Kingdom and Republic of Ireland, for a defined discount on the sale price.

Swivel Secure is expected to generate a certain minimum level of orders of SSL products each year during the term of the agreement.

If Swivel Secure fails to meet such minimum level of orders in any year, the exclusive distribution rights will terminate and Swivel Secure will serve as a non-exclusive distributer of SSL Products.

The Company expects the revenue targets to continue to be met based on historical performance and increasing distribution by Swivel Secure.

From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business.

As of December 31, 2022, the Company was not a party to any pending lawsuits.

NOTE R —

NOTE P —

Preferred Stock

0001 par value per share, in one or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.

Effective November 20, 2020, the Company implemented a reverse stock split of its outstanding common stock at a ratio of 1 -for- 8 . The number of authorized shares and the par value of the Company's common stock and preferred stock were not affected by the reverse stock split.

Stockholders who otherwise would be entitled to receive fractional shares were rounded up to the nearest whole share.

The reverse stock split became effective at the opening of trading on November 20, 2020.

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

Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor.

3 unchanged sentences

All outstanding shares of common stock are fully paid and nonassessable.

On June 18, 2021, the stockholders approved the 2021 Employee Stock Purchase Plan (“ESPP”).

Under the terms of this plan, 789,000 shares of common stock are reserved for issuance to employees and officers of the Company at 85 % of the lower of the closing price of the common stock as reported on the Nasdaq Capital Market at the first day or the last day of the offering period.

Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions.

The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031.

Issuances of Common Stock

On December 22, 2022, the Company issued the Commitment Shares.

See Note M - Convertible Note Payable for more information.

On March 8, 2022, the Company issued 269,060 shares of common stock of which 89,687 shares were held back by the Company to secure certain indemnification obligations under the Swivel Secure stock purchase agreement.

The shares of Company common stock were issued at a total cost of $ 600,004 , priced at $ 2.23 , based on the contractual 20-day volume-weighted average price of the Company’s common stock immediately prior to the payment date as reported on the Nasdaq Capital Market

On June 18, 2021, the stockholders approved the 2021 Employee Stock Purchase Plan.

2 unchanged sentences

The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031.

On December 31, 2021, 19,484 shares were issued to employees which resulted in a $ 10,680 non-cash compensation expense for the Company.

On July 23, 2020, the Company completed an underwritten public offering of shares of common stock and warrants resulting in net proceeds of approximately $ 22.7 million, after deducting underwriting discounts and commissions and estimated offering expenses.

4,264,313 shares of common stock were issued as a result of this offering, and a further 797,038 shares of common stock were issued upon the exercise of 512,500 prefunded warrants and 284,538 warrants exercised in conjunction with the offering.

On March 30, 2020, the Company issued 121,500 shares of common stock upon exercise of warrants at $ 12.00 per share, resulting in proceeds of $ 1,458,000 to the Company.

See Note O Convertible Notes Payable for common stock issuances related to conversion of convertible notes payable and shares of common stock issued for fees in connection with the agreements during fiscal 2020.

During 2022 and 2021, 60,549 , and 19,484 shares respectively were issued under the ESPP to employees, which resulted in a $ 18,787 , and $ 10,680 non-cash compensation expense respectively for the Company.

Issuances of Restricted Stock

3 unchanged sentences

The Company issued 278,000 shares of restricted common stock to certain employees of the Company and 10,500 of shares of restricted common stock were forfeited during fiscal year 2022.

These shares vest in equal annual installments over a three -year period from the date of grant and had a fair value on the date of issuance of $ 44,025 .

The Company issued 38,250 and 3,125 shares of restricted common stock in August and November of 2020, respectively to certain employees and directors of the Company.

These shares vest in equal annual installments over a three -year period from the date of grant and had a fair value on the date of issuance of $ 198,900 , and $ 11,250 , respectively.

The Company issued 13,125 shares of restricted common stock to certain employees of the Company and 1,250 of shares of restricted common stock were forfeited during fiscal year 2021.

These shares vest in equal annual installments over a three-year period from the date of grant.

Restricted stock compensation for the years ended December 31, 2022 and 2021 was $ 218,552 and $ 71,819 , respectively.

Issuances to Directors, Executive Officers & Consultants

During the year ended December 31, 2021, the Company issued 7,828 shares of common stock to its directors in lieu of payment of board fees, valued at $ 25,536 .

During the year ended December 31, 2020, the Company issued 5,270 shares of common stock to its directors in lieu of payment of board fees, valued at $ 28,511 .

Employees ’

exercise options

During 2021 and 2020, no employee stock options were exercised.

There were no warrants issued during fiscal 2021.

Warrants Issued for Services:

During the second quarter of 2020, the Company issued a warrant to purchase 15,625 shares of common stock to an investor in payment for a business referral valued at $ 94,655 .

During the third quarter of 2020, the Company issued a warrant to purchase 3,125 shares of common stock to a former employee for a business referral valued at $ 12,921 .

Warrants Issued with Convertible Notes:

See Note O Convertible Notes Payable for warrants issued with convertible notes in connection with the agreements during fiscal 2020.

During the 2022 and 2021 years, the Company issued 39,636 and 7,828 shares of common stock respectively to its directors in lieu of payment of board fees, valued at $ 76,043 and $ 25,536 respectively.

There were no warrants issued during 2021.

Warrants Issued with Convertible Note:

See Note M - Convertible Note Payable for the warrant issued with a convertible note in 2022.

Valuation Assumptions for Warrants:

The Company records the warrants at their fair value which is determined using the Black-Scholes valuation model on the date of the grant.

The fair value of each warrant was estimated with the following assumptions:

The fair value of the warrant issued in 2022 was estimated with the following assumptions:

Weighted average risk-free interest rate

Weighted average price

$ 9.25  

Weighted average exercise price

Weighted average exercise period

Weighted average Volatility of stock price

The warrant volatility for each issuance is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected exercise period.

The volatility for each issuance is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected exercise period.

The risk-free rate is based on the U.S.

2 unchanged sentences

Outstanding, as of December 31, 2020

423,559  

Granted –

public offering

4,264,313  

Granted –

prefunded warrants from the public offering

512,500  

Granted –

434,375  

Increase due to trigger of anti-dilution provision feature

27,244  

Exercised –

public offering

Exercised –

prefunded warranted from the public offering

Exercised –

Outstanding, as of December 31, 2021

4,689,387  

Outstanding, as of December 31, 2022

4,689,387  

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $ 0.59 , $ 2.21 , and $ 3.52 as of December 31, 2022, 2021 and 2020, respectively, which would have been received by the warrant holders had all warrant holders exercised their options as of that date.

There were no in-the-money warrants exercisable as of December 31, 2022, 2021 and 2020.

Securities Purchase Agreement dated September 23, 2015

On September 23, 2015, the Company issued warrants (the “2015 Warrants”) to purchase 8,681 shares of common stock in connection with the issuance of a promissory note.

The warrants were immediately exercisable at an initial exercise price of $ 28.80 per share and had a term of five years. 

The 2015 Warrants expired in September 2020.

The 2015 Warrants had a “full ratchet”

anti-dilution adjustment provision. 

The anti-dilution adjustment provision was triggered in the first quarter of 2020 from the February 2020 Note and amendments to the Original Note.

As a result of the forgoing transactions, the number of shares of common stock issuable upon the full exercise of the 2015 Warrants increased to 48,078 , the exercise price was reduced to $ 5.20 per share, and the Company recorded a non-cash deemed dividend in amount of $ 41,688 . 

NOTE S —

NOTE Q —

STOCK OPTIONS

2015 Stock Option Plan

On October 

12, 2004, the Board of Directors of the Company approved the 2004 Stock Option Plan (the “2004 Plan”).

The 2004 Plan was not presented to stockholders for approval and thus incentive stock options were not available under this plan.

Under the terms of this plan, 20,834 shares of common stock were reserved for issuance to employees, officers, directors, and consultants of the Company at exercise prices which may not be below 85 % of fair market value.

The term of stock options granted may not exceed ten years.

Options issued under the 2004 Plan vest pursuant to the terms of stock option agreements with the recipients.

In the event of a change in control, as defined, all options outstanding vest immediately.

The 2004 Plan expired in October 

2015 Stock Option Plan

On January 27, 2016, the stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”).

The 2015 Plan initially reserved 187,500 shares of common stock for issuance of options, restricted stock, and other equity based awards to employees, officers, directors, and consultants of the Company.

In 2019, the stockholders approved an amendment to the 2015 Plan which increases the number of shares of common stock authorized for issuance under the 2015 Plan from 83,334 shares to 187,500 shares and also effected certain changes in light of the Tax Cuts and Jobs Act of 2017 and its impact on Section 162 (m) of the United States Internal Revenue Code of 1986, as amended.

In 2021, the stockholders approved an amendment to the 2015 to increase the shares of common stock authorized for issuance under the 2015 Plan from 187,500 shares to 789,000 shares together with other technical changes.

The term of stock options granted under the 2015 Plan, may not exceed ten years, exercise prices may not be below 100 - 110 % of fair market value, and vesting occurs over time periods set forth in written agreements with the recipients.

3 unchanged sentences

Non-Plan Stock Options

Periodically, the Company has granted options outside of the 2004 and 2015 Plans to various employees and consultants.

Periodically, the Company has granted options outside of the 2015 Plan to various employees and consultants.

In the event of change in control, as defined, certain of the non-plan options outstanding vest immediately.

3 unchanged sentences

Outstanding, as of December 31, 2020

70,991  

144,070  

218,967  

$ 20.08  

28,440  

Outstanding, as of December 31, 2021

94,183  

133,091  

227,274  

$ 17.61  

‐—

Outstanding, as of December 31, 2022

90,808  

121,653  

212,461  

$ 16.65  

Vested or expected to vest at December 31, 2022

206,283  

$ 16.98  

Exercisable at December 31, 2022

186,538  

$ 18.04  

The options outstanding and exercisable at December 

31, 2021 were in the following exercise price ranges:

The options outstanding and exercisable at December 31, 2022 were in the following exercise price ranges:

Options Outstanding

2 unchanged sentences

life (in years)

$ 4.08 - 5.20  

24,940  

$ 5.19  

$ 5.17  

$ 5.21 - 15.68  

49,669  

40,284  

$ 15.69 - 39.36  

137,852  

$ 4.08 - 39.36  

212,461  

186,538  

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $ 2.21 , $ 3.52 and $ 4.00 as of December 

31, 2021, 2020 and 2019, respectively, which would have been received by the option holders had all option holders exercised their options as of that date.

There were no in-the-money options exercisable as of December 

31, 2021, 2020 and 2019.

The weighted average fair value of options granted during the year ended December 31, 2020 was $ 3.16 per share.

The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 0 as no options were exercised in either year.

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $ 0.59 , $ 2.21 , and $ 3.52 as of December 31, 2022, 2021 and 2020, respectively, which would have been received by the option holders had all option holders exercised their options as of that date.

There were no in-the-money options exercisable as of December 31, 2022, 2021 and 2020.

The weighted average fair value of options granted during the years ended December 31, 2022 and 2021 was $ 0 as no options were granted in either year.

The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $ 0 as no options were exercised in either year.

The total fair value of shares vested during the years ended December 31, 2022 and 2021 was $ 100,668 and $ 252,874 , respectively.

As of December 

31, 2021, future forfeiture adjusted compensation cost related to nonvested stock options is $ 75,035 and will be recognized over an estimated weighted average period of 0.86 years.

NOTE T —

There was no provision for federal or state taxes as at December 31, 2021 and 2020.

The Company has deferred taxes due to income tax credits, net operating loss carryforwards, and the effect of temporary differences between the carrying values of certain assets and liabilities for financial reporting and income tax purposes.

Significant components of deferred taxes are as follows at December 

As of December 31, 2022, future forfeiture adjusted compensation cost related to nonvested stock options is $ 17,630 and will be recognized over an estimated weighted average period of 0.64 years.

NOTE R —

The components of net loss consist of the following:

United States

There was no provision for current federal, foreign or state taxes for both of the years ended December 31, 2022 and 2021 as a result of taxable losses incurred in these jurisdictions.

The provision for income tax benefits consist of the following (in thousands):

Current –

federal, states, and foreign

Deferred- Federal

Deferred - States

Deferred - Foreign

Change in valuation allowance

Provision for income tax benefits

Significant components of deferred tax assets and liabilities are as follows at December 31, 2022 and 2021 (in thousands):

Accrued compensation

$ 135,000  

$ 81,000  

Accounts receivable allowance

75,000  

474,000  

Allowance for doubtful accounts

Research and development expenses

Capital loss carry forward

Stock-based compensation

1,149,000  

1,073,000  

Basis differences in fixed assets

Basis differences in intangible assets

75,000  

65,000  

Net operating loss and credit carryforwards

14,467,000  

13,337,000  

Valuation allowances

( 15,891,000 )

( 15,016,000 )

Equipment and leasehold improvements

Intangible assets - US

Intangible assets - Foreign

Inventory reserve

Interest expense

Operating lease liabilities

Reserve on debt security

Operating lease right-of-use assets

Net operating loss and research and credit carryforwards

Valuation allowance

Net deferred tax liability

During the year ended December 31, 2022, the Company determined that certain attributes of deferred tax assets and liabilities were incorrect for December 31, 2021 and 2020.

See Note S for further information.

The Company has a valuation allowance against the full amount of its net deferred taxes due to the uncertainty of realization of the deferred tax assets due to operating loss history of the Company.

1 unchanged sentence

The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.

Similarly, income tax benefits related to stock options exercised have not been recognized in the financial statements.

As of December 

31, 2021, the Company has federal net operating loss carryforwards of approximately $ 61 million.

Approximately $ 46 million are subject to expiration between 2021 and 2037, and $ 15 million net operating loss carryforwards have no expiration date.

These net operating loss carryforwards are subject to the limitations under Section 

382 of the Internal Revenue Code due to changes in the equity ownership of the Company.

With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance.

At December 31, 2022 and 2021, the Company provided a valuation allowance on its net deferred tax assets of $ 17,188,000 and $ 15,891,000 , respectively.

As of December 31, 2022, the Company has U.S.

federal net operating loss carryforwards of approximately $ 61.3 million.

Approximately $ 43.1 million are subject to expiration between 2023 and 2037, and $ 18.2 million net operating loss carryforwards have no expiration date.

These net operating loss carryforwards could be subject to the limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company.

In addition, the Company has net operating loss carry forwards from various states of approximately $ 6.87 million which expire from 2026 through 2042.

A reconciliation of the effective income tax rate on operations reflected in the statements of operations to the US federal statutory income tax rate is presented below.

Federal statutory income tax rate

State taxes, net of federal benefit

Permanent differences

Effect of net operating loss

Expiration of net operating loss and research credit carryforwards

Expiration and forfeiture of stock options

Valuation allowance

Effective tax rate

3 unchanged sentences

The periods from 2019 through 2022 remain open to examination by the IRS and state jurisdictions.

Our subsidiary in Nigeria has not filed its required returns since inception.

Management believes that when the returns are filed, no taxes will be owed due to the losses incurred during those periods.

We are also not subject to minimum tax during the first four years of operations.

As a result, management could not calculate the amount of net operating loss carryforwards that are available to offset future taxable income.

Our subsidiary in Hong Kong has not filed its required returns in several years.

Management believes that when the returns are filed, no taxes will be owed due to losses incurred during those periods.

As a result, management could not calculate the amount of net operating loss carryforwards are available to offset future taxable income.

The Company believes it is not subject to any tax audit risk beyond those periods.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense incurred during the years ended December 

31, 2021 and 2020.

NOTE U —

The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense incurred during the years ended December 31, 2022 and 2021.

In August 2022, the Inflation Reduction Act of 2022 was signed into law which includes a stock buyback excise tax of 1% on share repurchases, which will apply to net stock buybacks after December 31, 2022.

We do not expect this to have a material impact if and when share repurchases occur.

NOTE S —

REVISION OF PREVIOUSLY ISSUED CONSOLDATED FINANCIAL STATEMENTS

Due to errors discovered in the Company’s 2020 and 2021 tax provisions, the Company revised certain previously issued disclosures related to the components of its deferred tax assets and liabilities and valuation allowance as of December 31, 2021 and 2020.

Additionally, the Company has revised the reconciliation of its income tax rate computed using the federal statutory rate for the year ended December 31, 2021.

The errors related primarily to the calculation of available net operating loss carryforwards and to stock based compensation.

Since the Company provided a full valuation allowance on its net deferred tax assets, there was no impact to the Consolidated Balance Sheet as of December 31, 2021 and the consolidated statements of operations, stockholders’

equity and cash flows as of and for the year ended December 31, 2021.

The Company further reviewed its disclosure of the rate reconciliation and deferred tax calculation along with the valuation allowance of its net deferred tax assets.

Other items that were corrected in the disclosure included allowance for doubtful accounts, equipment and leasehold improvements and operating lease liability along with the associated operating lease ROU assets.

The below table summarizes the revisions to the reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate for the year ended December 31, 2021:

statutory income tax rate

State taxes, net of federal benefit

Permanent differences

Expiration of net operating loss and research credit carryforwards

Expiration and forfeiture of stock options

Valuation allowance

Effect of net operating loss

The table below summarizes the revisions to the attributes of the deferred tax assets and liabilities as of December 31, 2021 (in thousands):

Accrued compensation

Allowance for doubtful accounts

Stock based compensation

Equipment and leasehold improvements

Intangible assets

Operating lease liability

Reserve on debt security

Operating lease right-of -use assets

Net operating loss and research credit carryforwards

Valuation allowance

Net deferred tax assets

The table below summarizes the revisions to the attributes of the deferred tax assets and liabilities as of December 31, 2020 (in thousands):

Accrued compensation

Allowance for doubtful accounts

Stock based compensation

Equipment and leasehold improvements

Intangible assets

Operating lease liability

Operating lease right-of -use assets

Net operating loss and research credit carryforwards

Valuation allowance

Net deferred tax assets

NOTE T —

PROFIT SHARING PLAN

The Company has established a savings plan under section 

401 (k) of the Internal Revenue Code.

All employees of the Company, after completing one day of service, are eligible to enroll in the 401 (k) plan.

The Company has established a savings plan under section 401(k) of the Internal Revenue Code.

All employees of the Company, after completing one day of service, are eligible to enroll in the 401(k) plan.

Participating employees may elect to defer a portion of their salary on a pre-tax basis up to the limits as provided by the IRS Code.

The Company is not required to match employee contributions but may do so at its discretion.

The Company made no contributions during the years ended December 

31, 2021 and 2020.

NOTE V —

The Company made no matching contributions during the years ended December 31, 2022 and 2021.

NOTE U —

EARNINGS PER SHARE (EPS)

The Company’s basic EPS is calculated using net income (loss) available to common shareholders and the weighted-average number of shares outstanding during the reporting period.

Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of preferred stock.

The reconciliation of the numerator of the basic and diluted EPS calculations for the following fiscal years ended December 

Basic Numerator:

Deemed dividend from trigger of anti-dilution provision feature

Net loss available to common stockholders (basic and diluted EPS)

The following table summarizes the weighted average securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to net losses.

Years ended December 31,

Stock options

Restricted stock

Potentially dilutive securities

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

1 unchanged sentence

Stock options

NOTE W —

NOTE V —

SUBSEQUENT EVENTS

On March 8, 2022, the Company completed the acquisition of 100 % of the issued and outstanding capital stock of Swivel Secure Europe, SA pursuant to the terms of a stock purchase agreement.

On March 10, 2022, the Company issued 6,360 shares of common stock to its directors in payment of board fees. Additionally, the Company issued an aggregate of 848 shares of common stock to its directors in payment of board committee fees. 

On March 11, 2022, the Company issued 932 shares of common stock to its directors in payment of board committee fees. The Company issued an aggregate of 274,250 shares of restricted common stock to employees and the board of directors which vest in equal annual installments over a three -year period from the date of grant.

The Company has reviewed subsequent events through the date of this filing. 

On March 16, 2023, the Company issued 15,388 shares of common stock to its directors in payment of board fees.

On March 16, 2023, the Company issued an aggregate of 40,000 shares of restricted common stock to new employees which vest in equal annual installments over a three-year period from the date of grant.

On May 5, 2023, the Company issued 2,858 shares of common stock to its directors in payment of board committee fees.

On May 5, 2023, the Company received 14,375  shares of restricted common stock from employees who left the Company before the vesting period was completed.

On May 11, 2023, the Company issued 17,392 shares of common stock to its directors in payment of board fees.

On May 11, 2023, the Company issued 2,900 shares of common stock to its directors in payment of board committee fees.

EXHIBIT  

25 unchanged sentences

BIO-key International, Inc.

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934*

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.5 to the annual report on From 10-K filed with the SEC on April 1, 2022

Employment Agreement by and between BIO-key International, Inc.

16 unchanged sentences

333-208747 filed with the SEC on December 23, 2015)**

Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K, filed with the SEC on May 3, 2017)

Form Non-Plan Option Agreement between the Company and certain of its directors, officers, employees and contractors (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q filed with the SEC on May 15, 2017)***

Securities Purchase Agreement dated April 3, 2018 by and between the Registrant and Wong Kwok Fong (Kelvin) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the SEC on April 4, 2018)

Securities Purchase Agreement dated May 23, 2018 by and between the Registrant and Giant Leap International Limited (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the SEC on May 30, 2018)

5 unchanged sentences

Marlen 4th Amendment to Lease dated June 2, 2018 (incorporated by reference to Exhibit 10.27 to the annual report on Form 10-K, filed with the SEC on April 1, 2019)

Securities Purchase Agreement dated July 10, 2019 by and between the Registrant and Lind Global Macro Fund, LP.

(incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q, filed with the SEC on August 14, 2019)

Security Agreement dated July 10, 2019 by and between the Registrant and Lind Global Macro Fund, LP.

(incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q, filed with the SEC on August 14, 2019)

Collateral Sharing Agreement dated July 10, 2019 by and among the Registrant, Lind Global Macro Fund, LP and Versant Funding LLC (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q, filed with the SEC on August 14, 2019)

$3,060,00 Senior Secured Convertible Promissory Note dated July 10, 2019 (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q, filed with the SEC on August 14, 2019)

Common Stock Purchase Warrant dated July 10, 2019 (incorporated by reference to Exhibit 10.5 to the quarterly report on Form 10-Q, filed with the SEC on August 14, 2019)

BIO-key International, Inc.

Amended and Restated 2015 Equity Incentive Plan (incorporated by reference to Appendix A to the definitive proxy statement filed with the SEC on April 30, 2019)***

Sales Incentive Agreement with Technology Transfer Institute dated March 25, 2020.

20 unchanged sentences

(incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the SEC on July 1, 2020)

Common Stock Purchase Warrant dated May 6, 2020.

Common Stock Purchase Warrant dated June 29, 2020.

(incorporated by reference to Exhibit 10.3 to the current report on Form 8-K, filed with the SEC on July 1, 2020)

7 unchanged sentences

Amended and Restated 2015 Equity Incentive Plan (incorporated by reference to Appendix B to the definitive proxy statement filed with the SEC on May 4, 2021)

Management Services Agreement dated March 8, 2022 by and among Swivel Aman-FZCO, Swivel Secure Europe, SA, and Alex Rocha (incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q filed with the SEC on May 23, 2022)

Option Agreement dated March 8, 2022 by and between the Company and Alex Rocha (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q filed with the SEC on May 23, 2022)

Distribution Agreement dated October 23, 2020 by and between Swivel Secure Europe, SA and Swivel Secure Limited (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q filed with the SEC on May 23, 2022) +

Deed of Variation dated January 26, 2022 by and between Swivel Secure Europe, SA and Swivel Secure Limited (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q filed with the SEC on May 23, 2022) +

Securities Purchase Agreement dated December 22, 2022 by and between the Company and AJB Capital Investments, LLC (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on December 23, 2022)

$2,200,000 Senior Secured Promissory Note, dated December 22, 2022 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed with the SEC on December 23, 2022)

Common Stock Purchase Warrant, dated December 22, 2022 (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K filed with the SEC on December 23, 2022)

Security Agreement dated December 22, 2022 by and between the Company and AJB Capital Investments, LLC (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K filed with the SEC on December 23, 2022)

List of subsidiaries of BIO-key International, Inc.

Consent of RMSBG

Certification of the Chief Executive Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer pursuant to Section  302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Executive Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002

Consent of Marcum LLP

Consent of Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

Certification of the Chief Executive Officer pursuant to Section  

302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer pursuant to Section  

302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Executive Officer pursuant to Section  

906 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer pursuant to Section  

906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance

9 unchanged sentences

*** Management compensatory plan.

+ Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Company has determined that such portions are (a) not material and (b) would likely cause competitive harm to the Company if publicly disclosed.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BIO-KEY INTERNATIONAL, INC.

March 31, 2022

/s/  MICHAEL W.

5 unchanged sentences

(Principal Executive Officer)

March 31, 2022

/s/  CECILIA WELCH

Chief Financial Officer (Principal Financial and Accounting Officer)

March 31, 2022

Cecilia Welch

March 31, 2022

/s/  THOMAS E.

March 31, 2022

/s/  THOMAS GILLEY

March 31, 2022

Thomas Gilley

/s/  WONG KWOK FONG

March 31, 2022

Wong Kwok Fong

/s/  PIETER KNOOK

March 31, 2022

/s/  Thomas Bush III

Thomas Bush III

/s/  MANNY ALIA

March 31, 2022

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures