BIO KEY INTERNATIONAL INC

EXPLANATORY NOTE

BIO-key International, Inc., and its consolidated subsidiaries (the “Company”, “we” or “us”) is filing this comprehensive annual report on Form 10-K for the fiscal year ended December 31, 2023 (the “Comprehensive Form 10-K”). This Comprehensive Form 10-K contains our audited financial statements for the fiscal year ended December 31, 2023 and 2022 as well as restatement of the following previously filed periods: (i) our unaudited consolidated financial statements covering the quarterly reporting periods during fiscal year 2023, consisting of the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023.

Restatement Background

As previously disclosed, on April 16, 2024, the Audit Committee (the “Audit Committee”) of the Board of Directors of the Company determined, after consultation with the Company’s management and its independent auditors, that the Company made certain errors in the manner in which it recognized revenue generated by its European subsidiary, Swivel Secure Europe, SA, in the first quarter of 2023. In addition, certain allowances for accounts receivable and certain reserves for inventory were understated. As a result, the Company concluded that its previously issued consolidated financial statements for the three months ended March 31, 2023, the three and six months ended June 30, 2023, and the three and nine months ended September 30, 2023 included in the Company’s previously filed Quarterly Reports on Form 10-Q for such periods (collectively, the “Restatement Periods”) should be restated to correct historical errors related principally to the of recognition of the Company’s revenues, allowances for accounts receivable, and certain reserves for inventory.

The need for the restatement arose out of the results of certain financial analysis the Company performed in the course of preparing its fiscal year-end 2023 consolidated financial statements. In the course of the audit of the Company’s consolidated financial statements for the fiscal year ended December 31, 2023, the Company determined that certain errors were made which require the restatement of the Company’s previously issued financial statements for the Restatement Periods. These errors resulted in the overstatement of accounts receivable and revenue, understatements in certain allowances for accounts receivable and certain reserves for inventory, and an understatement of net loss and an overstatement of total stockholders’ equity which errors may also impact other amounts included in the financial statements for the Restatement Periods. The Company principally attributes the errors to a material weakness in internal controls over the recording and processing of revenues, allowances for accounts receivable, and certain reserves for inventory, which the Company is working to remediate in fiscal year 2024.

Items Restated in this Form 10-K

This Form 10-K for the fiscal year ended December 31, 2023 includes the restatement of consolidated financial statements for the quarterly and year-to-date periods in fiscal year which are disclosed in Note U to the consolidated financial statements. Other sections impacted are: Part I, Item 1A. Risk Factors; and Part II, Item 9A. Controls and Procedures.

The Company has not filed, and does not intend to file, amendments to the previously filed Quarterly Reports on Form 10-Q for any of the quarters for the year ended December 31, 2023. Accordingly, investors should rely only on the financial information and other disclosures regarding the Restatement Periods in this Form 10-K or in future filings with the SEC (as applicable), and not on any previously issued or filed reports, earnings releases, or similar communications relating to these periods.

See Note U to the consolidated financial statements, included in Part II, Item 8 of this Form 10-K, for additional information on the restatement and the related consolidated financial statement effects.

PRIVATE SECURITIES LITIGATION REFORM ACT

All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “should,” “estimate,” “will,” “may,” “future,” “plan,” “intend” and “expect” and similar expressions generally identify forward-looking statements. These statements are not guarantees of future performance or events and are subject to risks and uncertainties that may cause actual results to differ materially from those included within or implied by such forward-looking statements. These risks and uncertainties include, without limitation, our history of losses and limited revenue; our ability to raise additional capital; our ability to protect our intellectual property; changes in business conditions; changes in our sales strategy and product development plans; changes in the marketplace; continued services of our executive management team; security breaches; competition in the biometric technology and identity access management industries; market acceptance of biometric products generally and our products under development; our ability to convert sales opportunities to customer contracts; our ability to expand into Asia, Africa and other foreign markets; our ability to integrate the operations and personnel of Swivel Secure into our business; fluctuations in foreign currency exchange rates; the duration and extent of continued hostilities in Ukraine and its impact on our European customers; delays in the development of products, the commercial, reputational and regulatory risks to our business that may arise as a consequence of our need to restate our financial statements, including any consequences of non-compliance with Securities and Exchange Commission (“SEC”) and Nasdaq periodic reporting requirements; our temporary loss of the use of a Registration Statement on Form S-3 to register securities in the future; any disruption to our business that may occur on a longer-term basis should we be unable to remediate during fiscal year 2024 certain material weaknesses in our internal controls over financial reporting, the nature and amount of adjustments that may be required from our preliminary estimates of our results of operations for the first quarter of 2024, as the results may vary from the narrative included in prior reports filed with the SEC, and such variance may be material, statements of assumption underlying any of the foregoing, and numerous other matters of national, regional and global scale, including those set forth under the caption “Risk Factors”** **in Item 1A of this Annual Report and other filings with the Securities and Exchange Commission (“SEC”). These factors are not intended to represent a complete list of the general or specific factors that may affect us. It should be recognized that other factors, including general economic factors and business strategies, may be significant, presently or in the future. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.