BIO KEY INTERNATIONAL INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES   Disclosure Controls and Procedures   Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are 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 recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. 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, 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) and 15d-15(f). Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.     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 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 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   No change in our internal control over financial reporting occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.     ITEM 9B. OTHER INFORMATION   None.   ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   Not Applicable.   25     PART   III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   The following sets forth certain information about each director and executive officer of the Company.   NAME   AGE   POSITIONS HELD Michael W. DePasquale     68   Chairman of the Board of Directors and Chief Executive Officer Thomas E. Bush, III (a)* (c)     70   Director Robert J. Michel (a) (b)*     66   Director Wong Kwok Fong (Kelvin)     59   Director and Vice-Chairman of the Board of Directors Emmanuel Alia (Manny) (b) (c)     58   Director Cecilia C. Welch     63   Chief Financial Officer Mira K. LaCous     62   Chief Technology Officer James D. Sullivan     55   Vice President of Strategy and Compliance, Chief Legal Officer     (a) Compensation Committee Member     (b) Audit Committee Member     (c) Nominating Committee Member     (d) Mr. Gilley resigned from the Board of Directors effective February 9, 2023     * Indicates chair of committee   Set forth below is a brief description of the background and business experience of our directors and executive officers for the past five years.    Directors   Michael W. DePasquale has served as our Chief Executive Officer and a Director since January 3, 2003, and Chairman of the Board since January 29, 2014. He served as Co-Chief Executive Officer of the Company from July 2005 to August 2006. Mr. DePasquale brings more than 30 years of executive management, sales and marketing experience to the Company. Mr. DePasquale has held executive management positions with McGraw-Hill, Digital Equipment Corporation, and other companies in the software and professional services industries. Mr. DePasquale earned a Bachelor of Science degree from the New Jersey Institute of Technology. He serves as the Vice Chairman on the Board of Directors of the International Biometrics and Identification Industry Association. We believe Mr. DePasquale’s qualifications to sit on the board of directors include his extensive executive management experience in the technology sector and biometric industry expertise which strengthen the board’s collective qualifications, skills and experience.      Thomas E. Bush, III has served as a Director of the Company since January 29, 2014. Since 2009, Mr. Bush has provided business consulting services through his firm, Tom Bush Consulting. Prior to that, Mr. Bush served with the Federal Bureau of Investigation for over 33 years. Mr. 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. Mr. Bush has received many awards during his career, most notably a Presidential Rank Award for Meritorious Service in 2007. We believe Mr. Bush’s qualifications to sit on the board of directors include his extensive experience in law enforcement, security matters, and the use of biometric technologies in the government sector, which provide the board with a unique perspective on security and public sector matters.    26     Robert J. Michel  has served as a Director of the Company since April 10, 2017. He has over 30 years of accounting and financial management experience. Since September, 2018, he has served as the Chief Financial Officer of Daxor Corporation (Nasdaq: DXR), a medical device manufacturing company specializing in blood volume analysis. 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.  Mr. Michel spent 15 years at Asta Funding, Inc. (Nasdaq: 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. Mr. 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. 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.   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. He is the co-founder of China Goldjoy Group (previously World Wide Touch Technology Holdings Limited), a company listed on The Stock Exchange of Hong Kong. From 1997 until August, 2015, Mr. Wong served as the Chairman of China Goldjoy Group and served as its Chief Technology Officer through October 2016. During this time, Kelvin played a significant role in the substantial growth of the business. Kelvin brings over 25 years of senior management experience in manufacturing, supply chain, and marketing functions in the electronics and technology industries, including establishing manufacturing plants in Hong Kong and China, and building an extensive network in the electronics and technology industries. 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.   Emmanuel Alia (Manny) was appointed Director of the Company on April 3, 2020. Since 2018, Mr. Alia has been providing management consulting services as an advisor to businesses seeking market entry strategies to emerging markets such as Africa and the Caribbean. From 2011 to 2018, Mr. Alia served as an Executive Director at the Corporate and Investment division of JPMorgan, and as a Senior Vice-President at CHASE Bank’s Consumer and Community Banking specializing in the financial and banking services industry and opportunities in Africa. During Mr. Alia’s tenure with JPMorgan, he served as head of WholeSale Operations in the Receivables Operations of the Global banking operations in the US and Canada, head of Retail Banking in the Greater Detroit area, and head of branches in the New York and New Jersey areas. For two years Mr. Alia was co-chair of the Black Organizational Leadership Development, an employee networking group in JPMorgan that works with firm’s leadership to strengthen the firm’s message, strategies and community outreach globally. Mr. Alia received a Bachelor of Arts in Accounting from SouthEastern University and a Master’s of Business Administration (MBA) from Cornell University. We believe Mr. 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.   Executive Officers   Cecilia C. Welch  has served as the Chief Financial Officer of the Company since December 21, 2009. Ms. Welch joined the Company in 2007 as Corporate Controller. Prior to joining the Company, Ms. Welch has held senior financial management positions in various industries, including software and manufacturing.  Ms. Welch has a Bachelor’s degree in Accounting from Franklin Pierce University.   Mira K. 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. Ms. 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. Ms. LaCous has been a speaker at multiple events/conferences and has worked with teams around the globe bringing biometric technology deployments to life.  Ms. 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. Ms. LaCous earned a Bachelor’s in Computer Science, with mathematics and physics from North Dakota State University.   27     James D. 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. 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. Mr. 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. Mr. 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.   Committees of the Board of Directors   Audit Committe e   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. Robert J. 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. Our independent registered public accounting firm has unrestricted access to our audit committee. Our board of directors has determined that Robert J. Michel qualifies as an “audit committee financial expert,” as such term is defined in Item 407 of Regulation S-K.   Our audit committee operates under a written charter that is reviewed annually. The charter is available on our website at  www.bio-key.com .   Compensation Committee   Our compensation committee is comprised of Thomas Bush, III (Chair) and Robert Michel, both of whom meet the independence standards established by NASDAQ and under the Exchange Act. The compensation committee’s duties include overseeing our overall compensation philosophy, policies and programs. This includes reviewing and analyzing the design and function of our various compensation components, establishing salaries, incentives and other forms of compensation for officers and non-employee directors, and administering our equity incentive plan. In fulfilling its responsibilities, the compensation committee has the authority to delegate any or all of its responsibilities to a subcommittee of the compensation committee.   Our compensation committee operates under a written charter that is reviewed annually. The charter is available on our website at  www.bio-key.com .   Code of Ethics   We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications; (iii) compliance with applicable governmental laws, rules, and regulations; (iv) the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (v) accountability for adherence to the code.  We intend to disclose amendments or waivers of the Code of Ethics on our website within four business days.  Any person may obtain a copy of our Code of Ethics free of charge by sending a written request for such to the attention of the Chief Financial Officer of the Company, 3349 Highway 138, Building A Suite E, Wall, NJ 07719.     28     Term of Office   Our directors are elected at the annual meeting of stockholders and hold office until the annual meeting of the stockholders next succeeding his or her election, or until his or her prior death, resignation or removal in accordance with our bylaws. Our officers are appointed by the Board and hold office until the annual meeting of the Board next succeeding his or her election, and until his or her successor shall have been duly elected and qualified, subject to earlier termination by his or her death, resignation or removal.   Delinquent Section 16(a) Reports   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, 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.   ITEM 11. EXECUTIVE COMPENSATION   The following table sets forth a summary of the compensation paid to or accrued by our chief executive officer and the two most highly compensated executive officers other than our chief executive officer, for the fiscal years ended December 31, 2022 and 2021:   SUMMARY COMPENSATION TABLE Name and Principal Position   Year   Salary ($)     Stock Awards ($) (1)     All Other Compensation ($) (2)     Total ($)                                       Michael W. DePasquale 2022     295,833       75,250       997       372,080   Chief Executive Officer 2021     275,000       -       1,944       276,944                                       Mira K. LaCous 2022     223,000       16,125       1,301       240,426   Chief Technology Officer 2021     216,333       -       3,092       219,425                                       James D. Sullivan 2022     233,333       64,500       134,157 (3)     431,990   Chief Legal Officer 2021     225,000       -       10,241 (4)     235,241     (1) The aggregate grant date fair value of the restricted shares is calculated by the multiplying the quantity of shares issued by the closing trading price of the shares on the date of issuance calculated under FASB ASC 718. (2) Consists of life insurance premiums paid by the Company except as otherwise noted. (3) Consists of $132,826 of sales commissions and $1,331 of life insurance premiums paid by the Company. (4) Consists of $8,987 of sales commissions and $1,254 of life insurance premiums paid by the Company.   Narrative Disclosure to Summary Compensation Table   Compensation for our executives is comprised of three main components: base salary, annual performance-based cash bonus, and long-term equity awards. We do not target a specific weighting of these three components or use a prescribed formula to establish pay levels. Rather, the board of directors and compensation committee considers changes in the business, external market factors and our financial position each year when determining pay levels and allocating between long-term and current compensation for the named executive officers.   Cash compensation is comprised of base salary and an annual performance-based cash bonus opportunity. The compensation committee generally seeks to set a named executive officer’s targeted total cash compensation opportunity within a range that is the average of the applicable peer company and/or general industry compensation survey data, adjusted as appropriate for individual performance and internal pay equity and labor market conditions.   In setting cash compensation levels, we favor a balance in which base salaries are generally targeted at slightly below the peer average and a bonus opportunity that is targeted at slightly above the average. The base salary of our CEO has not been increased since 2018. 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.  Effective January 1, 2022, we increased the base compensation of Mr. Sullivan and Ms. LaCous.   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.   29     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. 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.   Employment Agreements   On March 26, 2010, we entered into an employment agreement, effective as of March 25, 2010, with Michael W. DePasquale to serve as our Chief Executive Officer until March 24, 2011. The agreement automatically renews for subsequent one-year terms, unless the employment relationship is terminated by either party, or modified in accordance with the terms and conditions of the agreement. Since 2018, Mr. DePasquale’s annual base salary has been $275,000, subject to adjustment by the compensation committee. In addition to the base salary, a “Performance Bonus” may be awarded to Mr. DePasquale on the basis of the Company achieving certain corporate and strategic performance goals, as determined by the compensation committee in its sole discretion. The employment agreement contains standard and customary confidentiality, non-solicitation and “work made for hire” provisions as well as a covenant not to compete which prohibits Mr. DePasquale from doing business with any current or prospective customer of the Company or engaging in a business competitive with that of the Company during the term of his employment and for the one-year period thereafter. This agreement also contains a number of termination and change in control provisions as described under the captions “ Termination Arrangements ” and “ Change in Control Arrangements ” below.   On April 5, 2017, we entered into an employment agreement with James Sullivan. The agreement automatically renews for subsequent one-year terms, unless terminated by the Company upon at least two months prior written notice which is treated as termination without cause. Since 2021, Mr. Sullivan’s annual base salary has been $225,000, subject to adjustment by the compensation committee. The agreement contains standard and customary confidentiality, technical invention provisions as well as non-competition and non-solicitation covenants which prohibit Mr. Sullivan from doing business with any current or prospective customer of the Company or engaging in any business competitive with that of the Company during the term or his employment and for the one-year period thereafter. The agreement also contains a number of termination provisions as described under the caption “ Termination Agreements ” below.   On November 20, 2001, we entered into an employment agreement with Mira LaCous. The agreement automatically renews for subsequent one-year terms, unless terminated by the Company upon at least one-month prior written notice which is treated as termination without cause and provides for a discretionary bonus which shall not exceed 50% of base salary. The agreement contains standard and customary confidentiality, technical invention provisions as well as non-competition and non-solicitation covenants which prohibit Ms. LaCous from doing business with any current or prospective customer of the Company or engaging in any business competitive with that of the Company during the term or her employment and for the one-year period thereafter. The agreement also contains a number of termination provisions as described under the caption “ Termination Agreements ” below.   Stock Option Grants and Restricted Stock Awards   In the event of any change in the outstanding shares of our common stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the board deems to be similar circumstances, the number and kind of shares subject to outstanding options and restricted stock awards, and the exercise price of such options shall be appropriately adjusted. Restricted Furthermore, option agreements and restricted stock award agreements contain change of control provisions as described under the caption “ Change in Control Provisions ” below.    30     OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END   The following table sets forth for each named executive officer, information regarding outstanding equity awards as at December 31, 2022.       Option Awards   Stock Awards   Name   Number of securities underlying unexercised options exercisable (#)     Option exercise price ($)   Option expiration date   Number of shares or units of stock that have not vested (#)     Market value of shares of units of stock that have not vested ($)(1)                                       Michael W. DePasquale     31,250       21.20   3/16/2024     36,375       21,461         4,167       15.68   3/23/2025                       4,167       9.44   3/21/2026                                                     Mira K. LaCous     12,500       21.20   3/16/2024     8,875       5,236         1,563       15.68   3/23/2025                       1,563       9.44   3/21/2026                                                     James D. Sullivan     12,500       21.20   3/16/2024     31,375       18,511         3,125       15.68   3/23/2025                       3,125       9.44   3/21/2026                     (1) Calculated based on the closing market price of the Company’s common stock on December 31, 2022 of $0.59 per share.   Narrative Disclosure to Outstanding Equity Awards at Fiscal Year End Table   The following are the material terms of each agreement, contract, plan or arrangement that provide for payments to one or more of our named executive officers at, following or pursuant to their resignation, retirement or termination, or in connection with a change in control of the Company.   Termination Arrangements   We may terminate our employment agreement with Mr. DePasquale at any time with or without cause. In the event of termination by us without cause, we will continue to pay Mr. DePasquale his then current base salary for the greater of nine months from the date of such termination or the number of months remaining until the end of the term of the agreement.   We may terminate our employment agreement with Mr. Sullivan at any time with or without cause. In the event of termination by us without cause, we will continue to pay Mr. Sullivan his then current base salary, plus earned commissions, for the greater of six months from the date of such termination or the number of months remaining until the end of the term of the agreement.   We may terminate our employment agreement with Ms. LaCous at any time with or without cause. In the event of termination by us without cause, we will continue to pay Ms. LaCous her then current base salary for nine months from the date of such termination.   Change in Control Provisions   Our 2015 Equity Incentive Plan (the “Plan”) provides for the acceleration of vesting of unvested options and termination of any restriction or forfeiture provisions applicable to restricted stock awards upon a “Change in Control” of the Company. A Change in Control is defined in the Plans to include (i) a sale or transfer of substantially all of the Company’s assets; (ii) the dissolution or liquidation of the Company; (iii) a merger or consolidation to which the Company is a party and after which the prior stockholders of the Company hold less than 50% of the combined voting power of the surviving corporation’s outstanding securities; (iv) the incumbent directors cease to constitute at least a majority of the Board of Directors; or (v) a change in control of the Company which would otherwise be reportable under Section 13 or 15(d) of the Exchange Act. In the event of a “Change In Control” the Plan provides for the immediate vesting of all options issued thereunder and termination of all forfeiture provisions applicable to restricted stock award issued thereunder. Options issued to executive officers outside of the Plans contain change in control provisions substantially similar to those contained in the Plans.   Our employment agreement with Mr. DePasquale contains a change in control provision that is triggered if Mr. DePasquale is not offered continued employment with us or any successor, or within five years following such Change of Control, we or any successor terminate Mr. DePasquale’s employment without cause. If this occurs, then we will pay Mr. DePasquale his base salary and benefits earned but unpaid through the date of termination, and any prorated bonus earned during the then current bonus year, plus two times his then current base salary.   31     DIRECTOR COMPENSATION   The following table sets forth for each director, information regarding their compensation for the year ended December 31, 2022:   Name (1)   Stock Awards ($) (2)     Total ($)   Thomas E. Bush, III (3)     14,007       14,007   Thomas Gilley (3)(4)     14,007       14,007   Pieter Knook (3)(5)     16,008       16,008   Robert J. Michel (3)     16,008       16,008   Emmanuel Alia (6)     16,008       16,008       (1) Mr. 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.   (2) The aggregate fair value of the common stock issued was calculated based on the closing price of our common stock on the date of issuance in accordance with FASB ASC 718.   (3) At December 31, 2022, Messrs. 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.   (4) Mr. Gilley resigned from the Board of Directors on February 9, 2023.   (5) Mr. Knook resigned from the Board of Directors effective May 13, 2023.   (6) At December 31, 2022, Mr. 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 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. All directors will be indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware law. We reimburse each of our non-employee directors for their reasonable expenses incurred in connection with attending meetings of the board of directors and related committees.    32     ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   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)   Amount and Nature of Beneficial Ownership     Percentage of Class                     Directors and Executive Officers                                   Michael W. DePasquale     128,227 (2)     1.4 % Cecilia C. Welch     69,375 (3)     *   Mira K. LaCous     40,001 (4)     *   James D. Sullivan     110,500 (5)     1.2 % Robert J. Michel     32,760 (6)     *   Thomas E. Bush, III     29,869 (7)     *   Emmanuel Alia     27,360 (8)     *   Wong Kwok Fong (Kelvin)     589,464 (9)     6.4 % All officers and directors as a group (eight (8) persons)     1,047,472       11.3 %                   Beneficial Owners                                   Lind Global Micro Fund, LP     833,125 (10)     9.0 % AJB Capital Investments LLC     900,000 (11)     9.7 %     * Less than 1%   (1) 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.   (2) Includes 39,584 shares issuable on exercise of options and 39,125 shares of restricted stock of which 24,709 remain subject to vesting.   (3) 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.   (4) 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.   (5) 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.   (6) 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.   (7) 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.   (8) 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.   (9) 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. The address of Kelvin is Flat C, 27/F, Block 5, Grand Pacific Views, Siu Lam, Hong Kong N7.   (10) 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   (11) 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.   33     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.   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”). The 2015 Plan reserves 789,000 shares of common stock for issuance of options, restricted stock, and other equity based awards to employees, officers, directors, and consultants of the Company. Options are issued at exercise prices which may not be below 100-110% of fair market value and have terms not to exceed ten years. Options issued under the 2015 Plan vest pursuant to the terms of stock option agreements with the recipients. In the event of a change in control, certain stock awards issued under this plan may be subject to additional acceleration of vesting as may be provided in the participants’ written agreement. The 2015 Plan expires in December 2025.   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. The terms of these outstanding options are substantially similar to the provisions of the 2015 Plan and options issued thereunder.  In the event of change in control, as defined, certain of the non-plan options outstanding vest immediately.   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 and sale to employees and officers of the Company at a purchase price equal to 85% of the lower of the closing price of our common stock as reported on the Nasdaq Capital Market on the first day or the last day of the offering period. Eligible employees are granted an option to purchase shares of common stock funded by payroll deductions. The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031.   Plan Category   Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)     Weighted- average exercise price of outstanding options, warrants and rights (b)     Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)   Equity compensation plans approved by security holders     90,808 (1)(2)       10.79       989,032 (3)   Equity compensation plans not approved by security holders     112,188     $ 21.18       —   Total     202,996 (1)(2)     $ 16.53       989,032 (3)     (1) Consists of shares of common stock issuable upon the exercise of options outstanding as of December 31, 2022 under the 2015 Plan.   (2) Excludes employee stock purchase rights accruing under the ESPP.   (3) Amount includes 280,065 shares of common stock available as of December 31, 2022 for future issuance under the 2015 Plan and 708,967 shares of common stock available as of December 31, 2022 for future issuance under the ESPP.   34     ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   Standstill Agreement with Principal Stockholder   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.   Director Independence   As required under the NASDAQ Marketplace Rules, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the board of directors. Our board considered certain relationships between our directors and us when determining each director’s status as an “independent director” under Rule 5605(a)(2) of the NASDAQ Marketplace Rules. Based upon such definition and SEC regulations, we have determined that Robert Michel, Emmanuel Alia, and Thomas Bush, III, are “independent” under NASDAQ standards.      ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   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:       2022     2021                     Audit Fees   $ 133,000     $ 123,900   Audit-Related Fees     27,913       9,795   Tax Fees     17,000       17,000                     Total Fees   $ 177,913     $ 150,695     Audit Fees  consist of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.   Audit-Related Fees  consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and which are not reported under audit fees. These fees relate primarily to services provided in connection with registration of securities and review of documents filed with the SEC.   Tax Fees  consist of fees billed for professional services for tax compliance assistance rendered during the fiscal year.   35     Audit Committee Pre-Approval Procedures   The audit committee approves the engagement of our independent auditors to render audit and non-audit services before they are engaged. All of the fees for 2022 and 2021 shown above were pre-approved by the audit committee.   The audit committee pre-approves all audit and other permitted non-audit services provided by our independent auditors. Pre-approval is generally provided for up to one year, is detailed as to the particular category of services and is subject to a monetary limit. Our independent auditors and senior management periodically report to the audit committee the extent of services provided by the independent auditors in accordance with the pre-approval, and the fees for the services performed to date. The audit committee may also pre-approve particular services on a case-by-case basis.   Our audit committee will not approve engagements of our independent registered public accounting firm to perform non-audit services for us if doing so will cause our independent registered public accounting firm to cease to be independent within the meaning of applicable SEC rules. 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.   PART IV   ITEM 15. – EXHIBITS   AND FINANCIAL STATEMENT SCHEDULES   (a)       The following documents are filed as part of this Report. Portions of Item 15 are submitted as separate sections of this Report:       (1)  Financial statements filed as part of this Report:           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—Years ended December 31, 2022 and 2021           Consolidated Statements of Cash Flows—Years ended December 31, 2022 and 2021           Notes to Consolidated Financial Statements—December 31, 2022 and 2021   (b)       The exhibits listed in the Exhibits Index immediately preceding such exhibits are filed as part of this Report   36       ITEM 16. – FORM 10-K SUMMARY   None.   FINANCIAL STATEMENTS   The following financial statements of BIO-key International, Inc. are included herein at the indicated page numbers:   Report of Independent Registered Public Accounting Firm ( Marcum LLC. , Saddle Brook, NJ , PCAOB ID: 688 ) 38 Report of Independent Registered Public Accounting Firm ( Rotenberg Meril Solomon Bertiger & Guttilla, P.C. , Saddle Brook, NJ , PCAOB ID: 361 ) 39 Consolidated Balance Sheets as of December 31, 2022 and 2021 40 Consolidated Statements of Operations and Comprehensive Loss—Years ended December 31, 2022 and 2021 41 Consolidated Statements of Stockholders’ Equity —Years ended December 31, 2022 and 2021 42 Consolidated Statements of Cash Flows—Years ended December 31, 2022 and 2021 43 Supplementary Disclosures of Cash Flow Information—Years ended December 31, 2022 and 2021 44 Notes to the Consolidated Financial Statements—December 31, 2022 and 2021 45   37     Report of Independent Registered Public Accounting Firm   To the Shareholders and Board of Directors of BIO-key International, Inc. Wall, NJ   Opinion on the Financial Statements 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 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 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.   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 audit provides a reasonable basis for our opinion.   Critical Audit Matters   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   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 June 1, 2023   38     Report of Independent Registered Public Accounting Firm   To the Shareholders and Board of Directors of BIO-key International, Inc. Wall, NJ   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. 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 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.   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 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 auditors from 2010 to 2022.   Saddle Brook, New Jersey March 31, 2022    39       BIO-key International,   Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS       December 31,       2022     2021   ASSETS                 Cash and cash equivalents   $ 2,635,522     $ 7,754,046   Accounts receivable, net     1,522,784       970,626   Due from factor     49,500       49,500   Note receivable, net of allowance     -       82,000   Inventory, net of reserve     4,434,369       4,940,660   Prepaid expenses and other     342,706       216,041   Total current assets     8,984,881       14,012,873   Resalable software license rights     -       48,752   Investment – debt security, net     -       452,821   Equipment and leasehold improvements, net     107,413       69,168   Capitalized contract costs, net     283,069       249,012   Deposits and other assets     8,712       8,712   Note receivable, net of allowance     -       113,000   Operating lease right-of-use assets     197,355       254,100   Intangible assets, net     1,762,825       1,298,077   Goodwill     -       1,262,526   Total non-current assets     2,359,374       3,756,168   TOTAL ASSETS   $ 11,344,255     $ 17,769,041                     LIABILITIES                 Accounts payable   $ 1,108,279     $ 427,772   Accrued liabilities     1,009,123       828,997   Convertible note payable     2,596,203       -   Government loan – BBVA Bank, current portion     120,000       -   Deferred revenue - current     462,418       565,355   Operating lease liabilities, current portion     159,665       177,188   Total current liabilities     5,455,688       1,999,312   Deferred revenue, net of current portion     52,134       67,300   Deferred tax liability     170,281       -   Government loan – BBVA Bank, net of current portion     326,767       -   Operating lease liabilities, net of current portion     37,829       86,974   Total non-current liabilities     587,011       154,274   TOTAL LIABILITIES     6,042,699       2,153,586                     Commitments (Note O)                               STOCKHOLDERS ’ EQUITY                 Common stock — authorized, 170,000,000 shares; issued and outstanding; 9,190,504 and 7,853,759 of $ .0001 par value at December 31, 2022 and December 31, 2021, respectively     919       786   Additional paid-in capital     122,028,612       120,190,139   Accumulated other comprehensive loss     ( 242,602 )     -   Accumulated deficit     ( 116,485,373 )     ( 104,575,470 ) TOTAL STOCKHOLDERS ’ EQUITY     5,301,556       15,615,455   TOTAL LIABILITIES AND STOCKHOLDERS ’ EQUITY   $ 11,344,255     $ 17,769,041     The accompanying notes are an integral part of these statements.   40       BIO-key International,   Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS         Years ended December 31,       2022     2021                     Revenues                 Services   $ 1,789,720     $ 1,273,354   License fees     4,584,052       2,555,809   Hardware     646,486       1,285,326   Total revenues     7,020,258       5,114,489                     Costs and other expenses                 Cost of services     722,152       686,175   Cost of license fees     906,417       183,199   Cost of hardware     811,001       803,555   Total costs and other expenses     2,439,570       1,672,929   Gross Profit     4,580,688       3,441,560                     Operating expenses                 Selling, general and administrative     9,364,887       6,028,360   Research, development and engineering     3,252,236       2,355,056   Reversal of earnout payable – Swivel acquisition     ( 500,000 )     -   Impairment of goodwill     2,387,193       -   Total operating expenses     14,504,316       8,383,416   Operating loss     ( 9,923,628 )     ( 4,941,856 )                   Other income (expense)                 Interest income     233       4,075   Loss on foreign currency transactions     -       ( 50,000 ) Investment-debt security reserve     ( 452,821 )     ( 60,000 ) Loan transaction costs     ( 1,147,456 )     -   Change in fair value of convertible note     ( 396,203 )     -   Interest expense     ( 10,462 )     ( 18,000 ) Total other income (expense)     ( 2,006,709 )     ( 123,925 )                   Loss before provision for income tax benefit     ( 11,930,337 )     -                     Provision for income tax benefit     20,434       -                     Net loss   $ ( 11,909,903 )     ( 5,065,781 )                   Comprehensive loss:                 Net loss   $ ( 11,909,903 )   $ ( 5,065,781 ) Other comprehensive loss- Foreign translation adjustment     ( 242,602 )     -   Comprehensive loss   $ ( 12,152,505 )   $ ( 5,065,781 )                   Basic and Diluted Loss per Common Share   $ ( 1.47 )   $ ( 0.65 )                   Weighted Average Shares Outstanding:                 Basic and Diluted     8,100,785       7,791,741     The accompanying notes are an integral part of these statements.   41       BIO-key International,   Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY       Common Stock     Additional Paid-in     Accumulated Other Comprehensive     Accumulated               Shares     Amount     Capital     Income (Loss)     Deficit     Total   Balance as of December 31, 2020     7,814,572     $ 782     $ 119,844,026     $ -     $ ( 99,509,689 )   $ 20,335,119   Issuance of common stock for directors’ fees     7,828       1       25,535       -       -       25,536   Issuance of restricted common stock to employees     13,125       1       ( 1 )     -       -       -   Forfeiture of restricted stock     ( 1,250 )     -       -       -       -       -   Legal fees     -       -       ( 5,228 )     -       -       ( 5,228 ) Issuance of common stock for Employee stock purchase plan     19,484       2       36,628       -       -       36,630   Share based compensation for employee stock purchase plan     -       -       10,680       -       -       10,680   Share-based compensation     -       -       278,499       -       -       278,499   Net loss     -       -       -       -       ( 5,065,781 )     ( 5,065,781 ) Balance as of December 31, 2021     7,853,759     $ 786     $ 120,190,139     $ -     $ ( 104,575,470 )   $ 15,615,455   Issuance of common stock for directors’ fees     39,636       4       76,039       -       -       76,043   Issuance of restricted common stock to employees     278,000       27       ( 27 )     -       -       -   Forfeiture of restricted stock     ( 10,500 )     ( 1 )     -       -       -       ( 1 ) Issuance of common stock pursuant to Swivel purchase agreement     269,060       27       599,977       -       -       600,004   Issuance of common stock for note issuance fees     700,000       70       699,930       -       -       700,000   Issuance of warrant in conjunction with note payable     -       -       94,316       -               94,316   Issuance of common stock for employee stock purchase plan     60,549       6       56,374       -       -       56,380   Share based compensation for employee stock purchase plan     -       -       18,787       -       -       18,787   Foreign currency translation adjustment     -       -               ( 242,602 )     -       ( 242,602 ) Share-based compensation     -       -       293,077       -       -       293,077   Net loss     -       -       -       -       ( 11,909,903 )     ( 11,909,903 ) Balance as of December 31, 2022     9,190,504     $ 919     $ 122,028,612     $ ( 242,602 )   $ ( 116,485,373 )   $ 5,301,556     The accompanying notes are an integral part of these statements.   42       BIO-key International,   Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS       Years ended December 31,       2022     2021                     CASH FLOW FROM OPERATING ACTIVITIES:                 Net loss   $ ( 11,909,903 )   $ ( 5,065,781 ) Adjustments to reconcile net loss to cash used for operating activities:                 Depreciation     43,794       54,649   Impairment of goodwill     2,387,193       -   Reversal of earnout payable – Swivel acquisition     ( 500,000 )     -   Amortization of intangible assets and write-off     298,113       216,069   Amortization of resalable software license rights     48,752       10,130   Loan transaction costs     1,147,456       -   Loss on foreign currency     -       50,000   Reserve for investment security     452,821       60,000   Reserve for inventory     400,000       -   Reserve for note receivable     186,000       100,000   Allowance for doubtful account     360,000       200,000   Amortization of debt discount     -       18,000   Amortization of capitalized contract costs     106,624       110,681   Share based and warrant compensation for employees and consultants     311,864       289,179   Stock based fees to directors     76,043       25,536   Bad debt expense     130,111       -   Change in fair value of convertible note     396,203       -   Deferred income tax benefit     ( 20,434 )     -   Amortization of operating lease right-of-use assets     155,353       233,225   Change in operating assets and liabilities:                 Accounts receivable     ( 339,383 )     ( 672,577 ) Due from factor     -       10,953   Capitalized contract costs     ( 140,681 )     ( 194,378 ) Inventory     106,291       ( 4,609,713 ) Prepaid expenses and other     ( 46,655 )     ( 14,534 ) Accounts payable     239,144       183,614   Accrued liabilities     167,614       320,510   Deferred revenue     ( 120,078 )     ( 69,681 ) Operating lease liabilities     ( 165,276 )     ( 234,310 ) Net cash used for operating activities     ( 6,229,034 )     ( 8,978,428 ) CASH FLOWS FROM INVESTING ACTIVITIES:                 Purchase of Swivel Secure, net of cash acquired of $ 729,905     ( 623,578 )     -   Receipt of cash from note receivable     9,000       -   Capital expenditures     ( 82,040 )     ( 42,024 ) Net cash used for investing activities     ( 696,618 )     ( 42,024 ) CASH FLOWS FROM FINANCING ACTIVITIES:                 Proceeds from issuance of convertible notes     2,002,000       -   Costs incurred for issuance of convertible note     ( 155,140 )     -   Proceeds from Employee Stock Purchase Plan     56,380       36,630   Repayment of note payable - PistolStar     -       ( 250,000 ) Legal fees     -       ( 5,228 ) Net cash (used in) provided by financing activities     1,903,240       ( 218,598 ) Effect of exchange rate changes     ( 96,112 )     -   NET DECREASE IN CASH AND CASH EQUIVALENTS     ( 5,118,524 )     ( 9,239,050 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR     7,754,046       16,993,096   CASH AND CASH EQUIVALENTS, END OF YEAR   $ 2,635,522     $ 7,754,046     The accompanying notes are an integral part of these statements.   43     SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION       Years ended December 31,       2022     2021                     Cash paid during the year for:                 Taxes   $ 25,682     $ -   Interest   $ 10,462     $ -                     Noncash investing and financing activities:                                   Accounts receivable acquired from Swivel Secure   $ 702,886     $ -   Equipment acquired from Swivel Secure   $ 65,640     $ -   Other assets acquired from Swivel Secure   $ 20,708     $ -   Intangible assets acquired from Swivel Secure   $ 762,860     $ -   Goodwill resulting from the acquisition from Swivel Secure   $ 1,258,087     $ -   Accounts payable and accrued expenses acquired from Swivel Secure   $ 431,884     $ -   Government loan acquired from Swivel Secure   $ 544,000     $ -   Deferred tax liability from the acquisition of Swivel Secure   $ 190,715     $ -   Common stock issued for acquisition of Swivel Secure   $ 600,004     $ -   Common stock issued for acquisition of note payable   $ 700,000     $ -   Issuance of warrant for acquisition of note payable   $ 94,316     $ -   Operating lease right-of-use asset and liability for new lease   $ 105,893     $ -     The accompanying notes are an integral part of these statements.   44     BIO-key International,   Inc. and Subsidiaries NOTES TO THE FINANCIAL STATEMENTS December   31, 2022 and 2021       NOTE A — THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Nature of Business   The Company, founded in 1993, develops and markets proprietary fingerprint identification biometric technology and software solutions enterprise-ready identity access management solutions to commercial, government and education customers throughout the United States and internationally. The Company was a pioneer in developing automated, finger identification technology that supplements or compliments other methods of identification and verification, such as personal inspection identification, passwords, tokens, smart cards, ID cards, PKI, credit cards, passports, driver’s licenses, OTP or other form of possession or knowledge-based credentialing. Additionally, advanced BIO-key® technology has been, and is, used to improve both the accuracy and speed of competing finger-based biometrics.   Going Concern and Basis of Presentation   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   The Company accounts for foreign currency transactions pursuant to ASC 830, Foreign Currency Matters ("ASC 830”). The functional currency of the Company is the U.S. 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. S. 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:   1. 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.   45     2. Use of Estimates   Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission (SEC). These accounting principles require us to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which it relies are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. 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.   3. Revenue Recognition   In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. 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     ● Identify the performance obligations in the contract     ● Determine the transaction price     ● Allocate the transaction price to performance obligations in the contract     ● Recognize revenue when or as the Company satisfies a performance obligation   All of the Company's performance obligations, and associated revenues, are generally transferred to customers at a point in time, with the exception of support and maintenance, and professional services, which are generally transferred to the customer over time.   Software licenses 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. Software license contracts are generally invoiced in full on execution of the arrangement.   Hardware Hardware revenue consists of fees for associated equipment sold with or without a software license arrangement, such as servers, locks and fingerprint readers. Customers are not obligated to buy third party hardware from the Company, and may procure these items from a number of suppliers. Revenue is recognized at a point in time once the hardware is shipped to the customer. Hardware items are generally invoiced in full on execution of the arrangement.   Support and Maintenance Support and maintenance revenue consists of fees for unspecified upgrades, telephone assistance and bug fixes. The Company satisfies its support and maintenance performance obligation by providing “stand-ready” assistance as required over the contract period. 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. Support and maintenance contracts are one to five years in length and are generally invoiced in advance at the beginning of the term. Support and Maintenance revenue for subscription licenses is carved out of the total license cost at 18 % and recognized on a ratable basis over the license term.   Professional Services Professional services revenues consist primarily of fees for deployment and optimization services, as well as training. The majority of the Company’s consulting contracts are billed on a time and materials basis, and revenue is recognized based on the amount billable to the customer in accordance with practical expedient ASC 606-10-55-18. For other professional services contracts, the Company utilizes an input method and recognizes revenue based on labor hours expended to date relative to the total labor hours expected to be required to satisfy its performance obligation.   Contracts with Multiple Performance Obligations Some contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. 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.   46     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.   Costs to Obtain and Fulfill a Contract Costs to obtain and fulfill a contract are predominantly sales commissions earned by the sales force and are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit determined to be four years. These costs are included as capitalized contract costs on the balance sheet. The period of benefit was determined by taking into consideration customer contracts, technology, and other factors based on historical evidence. 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 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. Contracts greater than 12 months are segregated as long term deferred revenue. Maintenance contracts include provisions for unspecified when-and-if available product updates and customer telephone support services. At December 31, 2022 and 2021, amounts in deferred revenue were approximately $ 515,000 and $ 633,000 , respectively.   4. 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. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets.   The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair value. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net acquisition date fair value of the assets acquired and the liabilities assumed and represents the expected future economic benefits arising from other assets acquired that are not individually identified and separately recognized. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. Assumptions may be incomplete or inaccurate, and unanticipated events or circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.   5. Goodwill and acquired intangible assets   Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, the Company estimates the fair value of the reporting unit, based on the Company’s market capitalization, and compares this amount to the carrying value of the reporting unit. 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. 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. The Company amortizes acquired definite-lived intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.   6. Cash Equivalents   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.   47     7. Accounts Receivable   Accounts receivable are carried at original amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful receivables by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible.   Accounts receivable at December 31, 2022 and 2021 consisted of the following:       December 31,       2022     2021                     Accounts receivable   $ 2,096,569     $ 1,234,411   Loss on foreign currency     -       ( 50,000 ) Allowance for doubtful accounts     ( 573,785 )     ( 213,785 ) Accounts receivable, net of allowances for doubtful accounts   $ 1,522,784     $ 970,626     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:       Balance at 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   $ 213,785     $ 360,000     $ -     $ 573,785   Year ended December 31, 2021 Allowance for Doubtful Accounts   $ 1,733,785     $ 200,000     $ ( 1,720,000 )   $ 213,785     8. 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.   The estimated useful lives used to compute depreciation and amortization for financial reporting purposes are as follows:     Years   Equipment and leasehold improvements           Equipment   3 - 5   Furniture and fixtures   3 - 5   Software     3     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. Upon award, such costs are amortized using the straight-line method over their respective economic lives. If a patent is denied, all costs are charged to operations in that year. Trade names, proprietary software, and customer relationships are amortized over the economic useful life.   9. Impairment or Disposal of Long Lived Assets, including Intangible Assets   The Company reviews long-lived assets, including intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, the Company must make assumptions regarding estimated future cash flows and discount factors. 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.   10. Advertising Expense   The Company expenses the costs of advertising as incurred. Advertising expenses for 2022 and 2021 were approximately $ 842,000 and $ 527,000 , respectively.   11. Research and Development Expenditures   Research and development expenses include costs directly attributable to the conduct of research and development programs primarily related to the development of our software products and improving the efficiency and capabilities of our existing software. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation on research equipment, services provided by outside contractors, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. All costs associated with research and development are expensed as incurred.   48     12. Earnings Per Share of Common Stock ( “ EPS ” )   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.   13. Accounting for Stock-Based Compensation   The Company accounts for share based compensation in accordance with the provisions of ASC 718-10, “Compensation — Stock Compensation,” which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The majority of 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 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. Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized as an expense in the consolidated statements of operations. As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, the Company is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as expense over the service period, net of estimated forfeitures (the number of individuals that will ultimately not complete their vesting requirements). The estimation of stock awards that will ultimately vest requires significant judgment. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from current estimates. Options and warrants to outsiders are accounted for under ASC 718.   The following table presents share-based compensation expenses included in the Company’s consolidated statements of operations:       Year ended December 31,       2022     2021                     Selling, general and administrative   $ 310,017     $ 269,368   Research, development and engineering     77,890       45,347       $ 387,907     $ 314,715     49     14. Income Taxes   The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. Because of the Company’s historical performance and estimated future taxable income, a full valuation allowance has been established.   The Company accounts for uncertain tax provisions in accordance with ASC 740. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.   15 . Leases   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.   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 operating lease ROU asset also includes any lease prepayments, offset by lease incentives.   An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.   16. 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.   17. 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: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities; Level 2: 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; and Level 3: 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:       Total     Level 1     Level 2     Level 3                                     Convertible note at fair value   $ 2,596,203     $ -     $ -     $ 2,596,203     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: 1. Face amount - $ 2,200,000 2. Nominal interest rate – 10 % - 12 % 3. Default interest rate – 18 % 4. Increase in principal upon a default – 30 % 5. Present value discount rate – 15.18 % 6. 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     2,200,000   Day one loss on value of hybrid instrument     396,203   Ending balance   $ 2,596,203     18. 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. 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 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. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. 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 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.   Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.     NOTE B — REVENUE FROM CONTRACTS WITH CUSTOMERS   Disaggregation of Revenue   The following table summarizes revenue from contracts with customers for the years ended December 31, 2022 and 2021:       North America     Africa     EMESA*     Asia     December 31, 2022                                             License fees   $ 1,856,814     $ 517,161     $ 2,124,088     $ 85,989     $ 4,584,052   Hardware     422,275       25,833       19,914       178,464       646,486   Services     1,270,067       83,306       436,293       54       1,789,720   Total Revenues   $ 3,549,156     $ 626,300     $ 2,580,295     $ 264,507     $ 7,020,258     50         North America     Africa     EMESA*     Asia     December 31, 2021                                             License fees   $ 1,854,088     $ 521,751     $ 105,314     $ 74,656     $ 2,555,809   Hardware     278,655       698,264       265,996       42,411       1,285,326   Services     1,162,526       42,000       54,918       13,910       1,273,354   Total Revenues   $ 3,295,269     $ 1,262,015     $ 426,228     $ 130,977     $ 5,114,489     * EMESA – Europe, Middle East, South America   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 . 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. The guidance provides certain practical expedients that limit this requirement, which the Company’s contracts meet as follows:     ● The performance obligation is part of a contract that has an original expected duration of one year or less, in accordance with ASC 606-10-50-14.   Deferred revenue represents the Company’s remaining performance obligations related to prepaid support and maintenance, all of which is expected to be recognized from one to five years.       NOTE C — 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, including working capital adjustment   $ 1,273,483   Earnout payable     500,000   Common stock issued     600,004   Total purchase price consideration   $ 2,373,487             Fair value of assets acquired and liabilities assumed:         Cash and cash equivalents   $ 729,905   Accounts receivable     702,886   Equipment acquired     65,640   Other assets     20,708   Intangible assets     762,860   Goodwill     1,258,087   Total estimated assets acquired     3,540,086             Accounts payable and accrued expenses     431,884   Government loan     544,000   Deferred tax liability     190,715   Total liabilities assumed     1,166,599   Total estimated fair value of assets acquired and liabilities assumed   $ 2,373,487     51     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. 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:       Amount     Estimated useful life (in years)   Customer relationships   $ 762,860       7   Total identifiable intangible assets   $ 762,860             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 — FAIR VALUES OF FINANCIAL INSTRUMENTS   Cash and cash equivalents, accounts receivable, due from factor, accounts payable and accrued liabilities are carried at, or approximate, fair value because of their short-term nature. 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.   52       NOTE E — CONCENTRATION OF RISK   Financial instruments which potentially subject the Company to risk primarily consist of cash, and cash equivalents, investment in debt security, and accounts receivables.   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 $ 2,000,000 and $ 7,057,000 at December 31, 2022 and 2021, respectively. The Company has not incurred any losses on these accounts.   The Company extends credit to customers on an unsecured basis in the normal course of business. The Company’s policy is to perform an analysis of the recoverability of its receivables at the end of each reporting period and to establish allowances where appropriate. The Company analyzes historical bad debts and contract losses, customer concentrations, and customer credit-worthiness when evaluating the adequacy of the allowances.   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 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. 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.       December 31,     December 31,       2022     2021                     Note receivable   $ 195,000     $ 295,000   Repayment of note     ( 9,000 )     -   Allowance for doubtful account     ( 186,000 )     ( 100,000 ) Note receivable, net of allowance     -       195,000   Current portion, net of allowance   $ -     $ 82,000   Noncurrent portion, net of allowance   $ -     $ 113,000         NOTE G — INVENTORY   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:       2022     2021                     Finished goods   $ 4,764,643     $ 4,798,203   Fabricated assemblies     69,726       142,457   Reserve on finished goods     ( 400,000 )     -   Total inventory   $ 4,434,369     $ 4,940,660     53       NOTE H — RESALABLE SOFTWARE LICENSES   RIGHTS   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.       NOTE I — INVESTMENT IN DEBT SECURITY   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, 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 31:       2022     2021                     Equipment   $ 825,058     $ 831,784   Furniture and fixtures     225,978       164,079   Software     49,143       32,045   Leasehold improvements     34,903       25,135         1,135,082       1,053,043                                       Less accumulated depreciation and amortization     ( 1,027,669 )     ( 983,875 )                   Total   $ 107,413     $ 69,168     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 K — INTANGIBLE ASSETS AND GOODWILL   Intangible assets consisted of the following as of December 31:       2022     2021                     Trade name   $ 130,000     $ 130,000   Proprietary software     420,000       420,000   Customer relationships     1,692,860       930,000   Patents and patents pending     365,080       365,080         2,607,940       1,845,080                                       Less accumulated amortization     ( 845,115 )     ( 547,003 )                   Total   $ 1,762,825     $ 1,298,077     54     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         2023   $ 320,000   2024     320,000   2025     280,000   2026     230,000   2027     220,000   Thereafter     392,825   Total   $ 1,762,825     Goodwill   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 31:       2022     2021                     Compensation   $ 377,958     $ 254,433   Compensated absences     378,874       293,297   Accrued legal and accounting fees     110,008       95,738   Franchise taxes     7,000       40,000   Employee expenses reimbursement     114,209       76,000   Sales tax payable     17,594       18,548   Other     3,480       50,981                     Total   $ 1,009,123     $ 828,997         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.   55     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. #3). 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 .   56       NOTE N — LEASES   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 following tables present the components of lease expense and supplemental balance sheet information related to the operating leases were:       Year ended December 31, 2022     Year ended December 31, 2021   Lease cost                 Operating lease cost   $ 254,649     $ 255,892   Total lease cost   $ 254,649     $ 255,892                     Balance sheet information           Operating right-of-use assets   $ 197,355     $ 254,100                     Operating lease liabilities, current portion   $ 159,665     $ 177,188   Operating lease liabilities, non-current portion     37,829       86,974   Total operating lease liabilities   $ 197,494     $ 264,162                     Weighted average remaining lease term (in years) – operating leases     0.96       1.45   Weighted average discount rate – operating leases     5.50 %     5.50 %                   Supplemental cash flow information related to leases were as follows:                                   Cash paid for amounts included in the measurement of operating lease liabilities   $ 259,558     $ 256,977                     Maturities of operating lease liabilities were as follows as of December 31, 2022:                                   2023   $ 164,596           2024     38,808           Total future lease payments   $ 203,404           Less: imputed interest     ( 5,910 )         Total   $ 197,494               57       NOTE O — COMMITMENTS AND CONTINGENCIES   Distribution Agreement   Swivel Secure has a distribution agreement with Swivel Secure Limited (“SSL”). Terms of the agreement include the following:     1. 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.     2. 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.     3. 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.     Litigation   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 P — EQUITY   1. Preferred Stock   Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of preferred stock, $ .0001 par value per share, in one or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.   2. Common Stock   Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights.   Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.   On 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. 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. 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.   58     Issuances of Restricted Stock   Restricted stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Restricted stock is expensed ratably over the term of the restriction period.   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. 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 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.   3. Warrants   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 the warrant issued in 2022 was estimated with the following assumptions:       Years ended December 31,       2022     2021   Weighted average risk-free interest rate     3.70 %     - % Weighted average exercise price   $ 3.00     $ -   Weighted average exercise period     5       -   Weighted average Volatility of stock price     108.60 %     - %   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. Treasury yield curve in effect at the time of grant for periods corresponding with the years to maturity.   A summary of warrant activity is as follows:       Total Warrants     Weighted average exercise price     Weighted average remaining life (in years)     Aggregate intrinsic value                                     Outstanding, as of December 31, 2020     4,689,387     $ 6.04       4.48       —   Granted     —       —                   Exercised     —       —                   Forfeited     —       —                   Expired     —       —                   Outstanding, as of December 31, 2021     4,689,387       6.04       3.48       —   Granted     200,000       3.00                   Exercised     —       —                   Forfeited     —       —                   Expired     ( 17,362 )     28.80                   Outstanding, as of December 31, 2022     4,872,025     $ 5.83       2.59       —     59     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.       NOTE Q — STOCK OPTIONS   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 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. In the event of a change in control, certain stock awards issued under the 2015 Plan may be subject to additional acceleration of vesting as may be provided in the participants’ written agreement. The 2015 Plan expires in December 2025.   Non-Plan Stock Options   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.   Stock Option Activity   Information summarizing option activity is as follows:       Number of Options     Weighted average     Weighted average remaining     Aggregate       2015 Plan     Non Plan     Total     exercise price     life (in years)     intrinsic value                                                     Outstanding, as of December 31, 2020     94,183       133,091       227,274     $ 17.61       3.87     $ 0   Granted     —       —       —       —                   Exercised     —       —       —       —                   Forfeited     ( 3,291 )     —       ( 3,291 )     3.87                   Expired     ( 84 )     ( 11,438 )     ( 11,522 )     39.13                   Outstanding, as of December 31, 2021     90,808       121,653       212,461     $ 16.65       3.03     $ 0   Granted     —       —       —       —                   Exercised     —       —       —       —                   Forfeited     —       —       —       —                   Expired     —       ( 9,465 )     ( 9,465 )     17.28                   Outstanding, as of December 31, 2022     90,808       112,188       202,996     $ 16.63       2.14     $ 0   Vested or expected to vest at December 31, 2022                     201,271     $ 16.72       2.12     $ 0   Exercisable at December 31, 2022                     194,561     $ 17.12       2.03     $ 0     60     The options outstanding and exercisable at December 31, 2022 were in the following exercise price ranges:               Options Outstanding     Options Exercisable   Range of exercise prices     Number of shares     Weighted average exercise price     Weighted average remaining life (in years)     Number exercisable     Weighted average exercise price   $ 4.08 - 5.84       25,565     $ 5.20       4.63       17,130     $ 5.20   $ 5.85 - 28.00       177,431       18.27       1.81       177,431       18.27   $ 4.08 - 28.00       202,996                       194,561             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, 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 — INCOME TAXES   The components of net loss consist of the following:       Year ended December 31, 2022     Year ended December 31, 2021                     United States   $ ( 10,416,593 )   $ ( 4,507,071 ) Hong Kong     ( 458,839 )     ( 439,814 ) Nigeria     ( 143,499 )     ( 118,896 ) Spain     ( 890,972 )     -   Total   $ ( 11,909,903 )   $ ( 5,065,781 )   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):       Year ended December 31, 2022     Year ended December 31, 2021                     Current – federal, states, and foreign   $ -     $ -   Deferred- Federal     1,175,000       128,000   Deferred - States     122,000       47,000   Deferred - Foreign     ( 20,000 )     -   Total     1,277.000       175,000   Change in valuation allowance     ( 1,297,000 )     ( 175,000 )                   Provision for income tax benefits   $ ( 20,434 )   $ —     Significant components of deferred tax assets and liabilities are as follows at December 31, 2022 and 2021 (in thousands):       December 31, 2022     December 31, 2021 As Revised                     Accrued compensation   $ 113,000     $ 110,000   Allowance for doubtful accounts     169,000       70,000   Research and development expenses     633,000       -   Capital loss carry forward     114,000       -   Stock-based compensation     456,000       486,000   Equipment and leasehold improvements     ( 19,000 )     1,000   Intangible assets - US     341,000       61,000   Intangible assets - Foreign     ( 170,000 )     -   Inventory reserve     89,000       -   Interest expense     44,000       -   Operating lease liabilities     44,000       59,000   Reserve on debt security     -       13,000   Operating lease right-of-use assets     ( 44,000 )     ( 57,000 ) Net operating loss and research and credit carryforwards     15,248,000       15,148,000   Valuation allowance     ( 17,188,000 )     ( 15,891,000 )                   Net deferred tax liability   $ ( 170,000 )   $ —     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. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income. 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.   61     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.       Year ended December 31, 2022     Year ended December 31, 2021 As Revised                     Federal statutory income tax rate     21.0 %     21.0 % State taxes, net of federal benefit     0.9       1.1   Permanent differences     ( 4.7 )     ( 1.0 ) Expiration of net operating loss and research credit carryforwards     ( 5.7 )     ( 13.8 ) Expiration and forfeiture of stock options     ( 0.3 )     ( 1.5 ) Other     ( 0.5 )     ( 2.4 ) Valuation allowance     ( 10.9 )     ( 3.4 )                   Effective tax rate     ( 0.2 )%     — %   The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The periods from 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, 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.   62     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:       December 31,       2021 As Reported     Adjustments     2021 As Revised                             U.S. statutory income tax rate     21.0 %     - %     21.0 % State taxes, net of federal benefit     -       1.1       1.1   Permanent differences     -       ( 1.0 )     ( 1.0 ) Expiration of net operating loss and research credit carryforwards     -       ( 13.8 )     ( 13.8 ) Expiration and forfeiture of stock options     -       ( 1.5 )     ( 1.5 ) Other     -       ( 2.4 )     ( 2.4 ) Valuation allowance     -       ( 3.4 )     ( 3.4 ) Effect of net operating loss     ( 21.0 )%     21.0       -   Total     - %     - %     - %   The table below summarizes the revisions to the attributes of the deferred tax assets and liabilities as of December 31, 2021 (in thousands):       December 31,       2021 As Reported     Adjustments     2021 As Revised                             Accrued compensation   $ 135,000     $ ( 25,000 )   $ 110,000   Allowance for doubtful accounts     75,000       ( 5,000 )     70,000   Stock based compensation     1,149,000       ( 663,000 )     486,000   Equipment and leasehold improvements     ( 10,000 )     11,000       1,000   Intangible assets     75,000       ( 14,000 )     61,000   Operating lease liability     -       59,000       59,000   Reserve on debt security     -       13,000       13,000   Operating lease right-of -use assets     -       ( 57,000 )     ( 57,000 ) Net operating loss and research credit carryforwards     14,467,000       681,000       15,148,000   Valuation allowance     ( 15,891,000 )     -       ( 15,891,000 ) 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):       December 31,       2020 As Reported     Adjustments     2020 As Revised                             Accrued compensation   $ 81,000     $ ( 15,000 )   $ 66,000   Allowance for doubtful accounts     474,000       ( 471,000 )     3,000   Stock based compensation     1,073,000       ( 511,000 )     562,000   Equipment and leasehold improvements     ( 14,000 )     19,000       5,000   Intangible assets     65,000       ( 12,000 )     53,000   Operating lease liability     -       111,000       111,000   Operating lease right-of -use assets     -       ( 109,000 )     ( 109,000 ) Net operating loss and research credit carryforwards     13,337,000       1,688,000       15,025,000   Valuation allowance     ( 15,016,000 )     ( 700,000 )     ( 15,716,000 ) Net deferred tax assets   $ -     $ -     $ -     63       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. 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 matching contributions during the years ended December 31, 2022 and 2021.     NOTE U — EARNINGS PER SHARE (EPS)   Items excluded from the diluted per share calculation because the exercise price was greater than the average market price of the common shares:       Years ended December 31,       2022     2021                     Stock options     202,996       212,461   Warrants     4,872,025       4,689,387   Total     5,075,021       4,901,848         NOTE V — SUBSEQUENT EVENTS   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.   64       EXHIBIT   INDEX   Exhibit   Exhibit   No.           2.1   Stock Purchase Agreement by and among the Company, Thomas J. Hoey, and PistolStar, Inc. dated June 6, 2020 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed with the SEC on July 7, 2020)       2.2   Stock Purchase Agreement by and among the Company, Alex Rocha and Swivel Secure Europe, SA dated February 2, 2022 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed with the SEC on February 3, 2022)       2.3   Amendment No. 1 to Stock Purchase Agreement by and among the Company, Alex Rocha and Swivel Secure Europe, SA dated March 4, 2022 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed with the SEC on March 9, 2022)       3.1   Certificate of Incorporation of BIO-key International, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the SEC on January 5, 2005)       3.2   Bylaws (incorporated by reference to Exhibit 3.3 to the current report on Form 8-K, filed with the SEC on January 5, 2005)       3.3   Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Appendix A to the definitive proxy statement, filed with the SEC on January 18, 2006)       3.4   Certificate of Amendment of Certificate of Incorporation of Bio-key International, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.4 to the annual report on Form 10-K, filed with the SEC on March 31, 2015)       3.5   Certificate of Elimination of BIO-key International, Inc. filed October 6, 2015 (incorporated by reference to Exhibit 3.5 to the registration statement on Form S-1 File No. 333-208747 filed with the SEC on December 23, 2015)       3.6   Certificate of Designation of Preferences, Rights and Limitations of Series A-1 Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the SEC on November 2, 2015)       3.7   Certificate of Designation of Preferences, Rights and Limitations of Series B-1 Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the quarterly report on Form 10-Q, filed with the SEC on November 16, 2015)       3.8   Certificate of Amendment of Certificate of Incorporation of Bio-key International, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the SEC on December 28, 2016)       3.9   Certificate of Amendment of Certificate of Incorporation of Bio-Key International, Inc., a Delaware corporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the SEC on November 19, 2020)       4.1   Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the registration statement on Form SB-2, File No. 333-16451)       4.2   Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-1/A, filed with the SEC on July 17, 2020)       4.3   Form of Warrant (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Registration Statement on Form S-1/A, filed with the SEC on July 17, 2020)       4.4   Form of Warrant Agency Agreement (incorporated by reference to Exhibit 4.4 to Amendment No. 2 to the Registration Statement on Form S-1/A, filed with the SEC on July 20, 2020)       4.5   BIO-key International, Inc. 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       10.1   Employment Agreement by and between BIO-key International, Inc. and Mira LaCous dated November 20, 2001 (incorporated by reference to Exhibit 10.39 to the current report on Form 8-K, filed with the SEC on January 22, 2002)***   65     10.2   BIO-key International, Inc. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.48 to amendment no. 1 the registrant’s registration statement on Form SB-2, File No. 33-120104, filed with the SEC on December 14, 2004)***       10.3   Employment Agreement, effective March 25, 2010, by and between the Company and Michael W. DePasquale (incorporated by reference to Exhibit 10.93 to the annual report on Form 10-K, filed with the SEC on March 26, 2010)***       10.4   Employment Agreement by and between BIO-key International, Inc. and Cecilia Welch dated May 15, 2013 (incorporated by reference to Exhibit 10.42 to the annual report on Form 10-K, filed with the SEC on March 31, 2014)***       10.5   Employment Agreement by and between BIO-key International, Inc. and James Sullivan dated April 5, 2017 (incorporated by reference to Exhibit 10.42 to the annual report on Form 10-K, filed with the SEC on March 29, 2021)***   10.6   First Amendment to Lease Agreement by and between BIO-key International, Inc. and BRE/DP MN LLC dated September 12, 2013 (incorporated by reference to Exhibit 10.44 to the annual report on Form 10-K, filed with the SEC on March 31, 2014)       10.7   BIO-key International, Inc. 2015 Equity Incentive Plan (incorporated by reference to Appendix B to the definitive proxy statement filed with the SEC on December 15, 2015)***       10.8   Software License Purchase Agreement Dated November 11, 2015 by and among BIO-key Hong Kong Limited, Shining Union Limited, WWTT Technology China, Golden Vast Macao Commercial Offshore Limited, Giant Leap International Limited (incorporated by reference to Exhibit 10.36 to the registration statement on Form S-1 File No. 333-208747 filed with the SEC on December 23, 2015)**       10.9   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)***       10.10   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)       10.11   Securities Purchase Agreement dated May 23, 2018 by and between the Registrant and Micron Technology Development Limited (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the SEC on May 30, 2018)       10.12   Securities Purchase Agreement dated May 31, 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 June 4, 2018)       10.13   Underwriting Agreement dated August 22, 2018 by and between the Registrant and Maxim Group LLP (incorporated by reference to Exhibit 1.1 to the current report on Form 8-K, filed with the SEC on August 27, 2018)       10.14   Form of Common Stock Purchase Warrant dated August 24, 2018 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K, filed with the SEC on August 27, 2018)       10.15   GLP 2nd Amendment to Lease dated July 27, 2018 (incorporated by reference to Exhibit 10.26 to the annual report on Form 10-K, filed with the SEC on April 1, 2019)       10.16   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)   66     10.17   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)   10.18   Sales Incentive Agreement with Technology Transfer Institute dated March 25, 2020. (incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.19   Form of Technology Transfer Institute Warrant. (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.20   Amended and Restated Senior Secured Convertible Promissory Note, due April 13, 2020 issued by the Company to Lind Global Macro Fund, LP. (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.21   Amendment to Amended and Restated Senior Secured Convertible Promissory Note, due April 13, 2020 by and between the Company and Lind Global Macro Fund, LP dated April 12, 2020. (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.22   Securities Purchase Agreement dated May 6, 2020 by and between the Company and Lind Global Macro Fund, LP. (incorporated by reference to Exhibit 10.5 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.23   $2,415,000 Senior Secured Convertible Promissory Note dated May 6, 2020. (incorporated by reference to Exhibit 10.6 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.24   Common Stock Purchase Warrant dated May 6, 2020. (incorporated by reference to Exhibit 10.7 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.25   Amended and Restated Security Agreement dated May 6, 2020 by and between the Company and Lind Global Macro Fund, LP. (incorporated by reference to Exhibit 10.8 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.26   Amendment No. 2 to Amended and Restated Senior Secured Convertible Promissory Note, due April 13, 2020 by and between the Company and Lind Global Macro Fund, LP dated May 13, 2020. (incorporated by reference to Exhibit 10.9 to the quarterly report on Form 10-Q, filed with the SEC on June 8, 2020)       10.27   Securities Purchase Agreement dated June 29, 2020 by and between the Company and Lind Global Macro Fund, LP (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the SEC on July 1, 2020)       10.28   $1,811,250 Senior Secured Convertible Promissory Note dated June 29, 2020. (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the SEC on July 1, 2020)       10.29   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)       10.30   Second Amended and Restated Security Agreement dated June 29, 2020 by and between the Company and Lind Global Macro Fund, LP (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K, filed with the SEC on July 1, 2020)       10.31   $500,000 Promissory note, dated June 30, 2020 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on July 7, 2020)       10.32   Form of Restricted Stock Award Agreement under the BIO-key International, Inc. Amended & Restated 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the SEC on August 28, 2020)***   67     10.33   BIO-key International, Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to Appendix A to the definitive proxy statement filed with the SEC on May 4, 2021)       10.34   BIO-key International, Inc. 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)       10.35   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)       10.36   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)       10.37   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) +       10.38   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) +       10.39   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)       10.40   $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)       10.41   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)       10.42   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)       21.1*   List of subsidiaries of BIO-key International, Inc.       23.1*   Consent of Marcum LLP       23.2*   Consent of Rotenberg Meril Solomon Bertiger & Guttilla, P.C.       31.1*   Certification of the Chief Executive Officer pursuant to Section   302 of the Sarbanes-Oxley Act of 2002 31.2*   Certification of the Chief Financial Officer pursuant to Section   302 of the Sarbanes-Oxley Act of 2002 32.1*   Certification of the Chief Executive Officer pursuant to Section   906 of the Sarbanes-Oxley Act of 2002 32.2*   Certification of the Chief Financial Officer pursuant to Section   906 of the Sarbanes-Oxley Act of 2002   101.INS* Inline XBRL Instance     101.SCH* Inline XBRL Taxonomy Extension Schema     101.CAL* Inline XBRL Taxonomy Extension Calculation     101.DEF* Inline XBRL Taxonomy Extension Definition     101.LAB* Inline XBRL Taxonomy Extension Labels     101.PRE* Inline XBRL Taxonomy Extension Presentation     104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)   *  filed herewith   ** Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted sections have been filed separately with the Securities and Exchange Commission.   *** 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.   68     SIGNATURES   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.       Date: June 1, 2023 By: /s/  MICHAEL W. DEPASQUALE     Michael W. DePasquale     CHIEF EXECUTIVE OFFICER (Principal Executive Officer)     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated.     Signature   Title   Date           /s/  MICHAEL W. DEPASQUALE   Chairman of the Board of Directors, Chief Executive Officer and Director (Principal Executive Officer)   June 1, 2023 Michael W. DePasquale                   /s/  CECILIA WELCH   Chief Financial Officer (Principal Financial and Accounting Officer)   June 1, 2023 Cecilia Welch                   /s/ROBERT J. MICHEL   Director   June 1, 2023 Robert J. Michel                   /s/  WONG KWOK FONG   Director   June 1, 2023 Wong Kwok Fong                   /s/  Thomas Bush III   Director   June 1, 2023 Thomas Bush III                   /s/  MANNY ALIA   Director   June 1, 2023 Manny Alia           69