Q2 2026 BIO-Key International Inc Earnings Call

August 14, 2026

Speaker #1: Good morning, everyone. Thank you for standing by, and welcome to the BIO-key International Q2 2026 conference call. During management's prepared remarks, all participants will be in listen-only mode.

Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International Q2 2026 conference call. During management's prepared remarks, all participants will be in listen-only mode. Afterwards, listeners will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today, Friday, 14 August 2026. I will now turn the call over to Bill Jones of Investor Relations. Please go ahead.

Speaker #1: Afterwards, listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Friday, August 14, 2026. I will now turn the call over to Bill Jones of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Chloe. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Cece Welsh. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements.

William Jones: Thank you, Chloe. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Cecilia Welch. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements. These are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as anticipate, believe, expect, plan or project, and similar words, identify and express forward-looking statements. These statements are made based on beliefs, assumptions, and information currently available to management pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of these risks and uncertainties that affect future performance, please see risk factors in the company's annual report on Form 10-K and the current Form 10-Q filed with the SEC.

Bill Jones: Thank you, Chloe. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Ceci Welch. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements. These are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as anticipate, believe, expect, plan or project, and similar words, identify and express forward-looking statements. These statements are made based on beliefs, assumptions, and information currently available to management pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of these risks and uncertainties that affect future performance, please see risk factors in the company's annual report on Form 10-K and the current Form 10-Q filed with the SEC.

Speaker #2: These are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as "anticipate," "believe," "expect," "plan," or "project," and similar words identify and express forward-looking statements.

Speaker #2: These statements are made based on beliefs, assumptions, and information currently available to management, pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act, for a more complete description of these risks and uncertainties that affect future performance.

Speaker #2: Please see risk factors in the company's annual report on Form 10-K and the current Form 10-Q filed with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call.

William Jones: Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call. Now I will turn the call over to Mike to begin. Mike?

Bill Jones: Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call. Now I will turn the call over to Mike to begin. Mike?

Speaker #2: Now, I'll turn the call over to Mike to begin. Mike?

Speaker #3: Thanks, Bill. And thank you all for joining us this morning. After my remarks, Cece will review the financials, and then we will take investor questions.

Mike DePasquale: Thanks, Bill, and thank you all for joining us this morning. After my remarks, Cece will review the financials, and then we will take investor questions. Let me start with the headline. Our Q2 bottom line improved 51% on 13% revenue growth. For the H1 of the year, our net loss improved almost 60% on 23% growth in revenues. To be clear, these results did not meet our proposed expectations, not because of any softness in demand, but due to a delayed shipment for a hardware order that we had anticipated in Q2. The order was delayed, and we expect to ship it in the H2 of the year. Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth and are targeting profitability for the H2 of 2026. Let me spend some time talking about what is driving our outlook.

Mike DePasquale: Thanks, Bill, and thank you all for joining us this morning. After my remarks, Ceci will review the financials, and then we will take investor questions. Let me start with the headline. Our Q2 bottom line improved 51% on 13% revenue growth. For the H1 of the year, our net loss improved almost 60% on 23% growth in revenues.

Speaker #3: Let me start with the headline. Our second-quarter bottom line improved 51% on 13% revenue growth. And for the first half of the year, our net loss improved almost 60% on 23% growth in revenues.

Speaker #3: To be clear, these results didn't meet our proposed expectations—not because of any softness in demand, but due to a delayed shipment for a hardware order that we had anticipated in Q2.

Mike DePasquale: To be clear, these results did not meet our proposed expectations, not because of any softness in demand, but due to a delayed shipment for a hardware order that we had anticipated in Q2. The order was delayed, and we expect to ship it in the H2 of the year. Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth and are targeting profitability for the H2 of 2026. Let me spend some time talking about what is driving our outlook.

Speaker #3: The order was delayed, and we expect to ship it in the second half of the year. Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth, and we are targeting profitability for the second half of 2026.

Speaker #3: So, let me spend some time talking about what's driving our outlook. It's really about the broader momentum we're building, particularly across Europe, the Middle East, and Africa, or EMEA.

Mike DePasquale: It is really about the broader momentum we are building, particularly across Europe, the Middle East, and Africa, or EMEA, which is really starting to bear fruit. We are closing deals, adding productive channel partners, and developing new project discussions at an accelerated pace, all of which fundamentally underlie our business momentum. Our revenue gains are also supported by strong secular backdrops. According to Future Market Insights, the global market for authentication solutions is projected to grow rapidly over the next 10 years from roughly $26 billion this year to over $114 billion by 2036. This represents a 16% compounded annual growth rate as organizations of all kinds and all sizes take action to defend against increasingly sophisticated cyber threats.

Speaker #3: Which is really starting to bear fruit. We're closing deals, adding productive channel partners, and developing new project discussions at an accelerated pace—all of which fundamentally underlie our business momentum.

Speaker #3: Our revenue gains are also supported by strong secular backdrops. According to Future Market Insights, the global market for authentication solutions is projected to grow rapidly over the next 10 years—from roughly $26 billion this year to over $114 billion by 2036.

Speaker #3: This represents a 16% compounded annual growth rate, as organizations of all kinds and all sizes take action to defend against increasingly sophisticated cyber threats.

Speaker #3: In the area of passwordless authentication, where BIO-key delivers industry-leading solutions, a recent FIDO Alliance report found that 68% of organizations are actively deploying or piloting passkeys for employee sign-in.

Mike DePasquale: In the area of passwordless authentication, where BIO-key delivers industry-leading solutions, a recent FIDO Alliance report found that 68% of organizations are actively deploying or piloting Passkeys for employee sign-in. In addition to our biometric and Passkey:YOU passwordless solutions, our flexible authentication platform, PortalGuard, supports 16 different authentication factors and does not depend on any single device. This provides us with a unique ability to support complex authentication environments because when it comes to enterprise and government authentication needs, one size simply does not fit all. To put that in context, let me walk through several recent wins and partnerships, most of which were announced just in the past few weeks. In the Middle East, we partnered with Maktabi Tech to bring PortalGuard, including passwordless authentication and Identity-Bound Biometrics to educational institutions in Saudi Arabia, supporting their Saudi Vision 2030 digital transformation agenda, as well as to Jordan and the UAE.

Speaker #3: In addition to our biometric and passkey, passwordless solutions, our flexible authentication platform, PortalGuard, supports 16 different authentication factors and doesn't depend on any single device.

Speaker #3: This provides us with a unique ability to support complex authentication environments because, when it comes to enterprise and government authentication needs, one size simply doesn't fit all.

Speaker #3: To put that in context, let me walk through several recent wins and partnerships, most of which were announced just in the past few weeks.

Speaker #3: In the Middle East, we partnered with Maktabi Tech to bring PortalGuard—including passwordless authentication and identity-bound biometrics—to educational institutions in Saudi Arabia, supporting their Vision 2030 digital transformation agenda.

Speaker #3: As well as to Jordan and the UAE. Separately, the Central Bank of Jordan is working with us on a national initiative to modernize authentication across the country's financial sector using our PortalGuard and WEB-key technologies to move away from passwords and tokens entirely.

Mike DePasquale: Separately, the Central Bank of Jordan is working with us on a national initiative to modernize authentication across the country's financial sector using our PortalGuard and WEB-key technologies to move away from passwords and tokens entirely. We believe growing examples of national-scale mandates, including Self-Sovereign ID, represent the future of authentication in the region, a future where we intend to play a substantial role. Turning to Europe, a national security agency in Portugal selected BIO-key and our in-country partner, Visualforma, to deploy PortalGuard and WEB-key with our FBI-certified EcoID III fingerprint scanners. This follows our earlier nationwide public sector rollout and a digital identity contract we secured with Visualforma for deployment in a major Portuguese tourist city. It is an example of how one successful public sector deployment can help foster additional opportunities as trust and reference relationships continue to build over time.

Speaker #3: We believe that growing examples of national-scale mandates, including sovereign ID, represent the future of authentication in the region—a future where we intend to play a substantial role.

Speaker #3: Turning to Europe, a national security agency in Portugal selected BIO-key and our in-country partner, Visual Eforma, to deploy PortalGuard and WEB-key with our FBI-certified EcoID3 fingerprint scanners.

Speaker #3: This follows our earlier nationwide public sector rollout and a digital identity contract we secured with VisualEforma for deployment in a major Portuguese tourist city.

Speaker #3: It's an example of how one successful public sector deployment can help foster additional opportunities, as trust and reference relationships continue to build over time.

Speaker #3: In the US, Alabama's AOD Federal Credit Union, which serves more than 37,000 members, deployed our phishing-resistant, biometric-based authentication solution through our partner, BlueAlly, citing our platform's flexibility versus alternatives that they evaluated.

Mike DePasquale: In the US, Alabama's AOD Federal Credit Union, which serves more than 37,000 members, deployed our phishing-resistant biometric-based authentication solution through our partner, BlueAlly, citing our platform's flexibility versus alternatives that they evaluated, as well as reduced help desk burden from eliminating frequent password resets. As phishing and MFA fatigue attacks escalate against financial institutions, our Identity-Bound Biometrics is gaining traction as smart and powerful protection with a compelling cost of ownership. I will also note we continue to see attractive H2 opportunities building in our EMEA pipeline as our momentum in the region is broad-based, spanning government, defense, financial services, and now education. We believe this reflects rising urgency among these customers, driven both by increasing cybersecurity incidents and growing geopolitical tensions, and supported by generally more favorable regulatory frameworks that let us move from first conversation to signed contracts much more quickly.

Speaker #3: As well as reduced helpdesk burden from eliminating frequent password resets. As phishing and MFA fatigue attacks escalate against financial institutions, our identity-bound biometrics is gaining traction as a smart and powerful protection with a compelling cost of ownership.

Speaker #3: I'll also note, we continue to see attractive second-half opportunities building in our EMEA pipeline, as our momentum in the region is broad-based, spanning government, defense, financial services, and now education.

Speaker #3: We believe this reflects rising urgency among these customers, driven both by increasing cybersecurity incidents and growing geopolitical tensions, and supported by generally more favorable regulatory frameworks that let us move from the first conversation to signed contracts much more quickly.

Speaker #3: In the second quarter, we completed a one-for-10 reverse stock split to support our continued NASDAQ listing. In July, we regained compliance with the NASDAQ listing rules and resumed trading on the NASDAQ Capital Market, which provides a visible and respected platform for our common stock.

Mike DePasquale: In Q2, we completed a one-for-10 reverse stock split to support our continued Nasdaq listing. In July, we regained compliance with the Nasdaq listing rules and resumed trading on the Nasdaq Capital Market, which provides a visible and respected platform for our common stock. Earlier this week, we enhanced our financial liquidity and balance sheet through a warrant transaction that raised gross proceeds of $2.5 million. This new capital will continue to support our operations and, more importantly, our growth initiatives and perceived financial strength with prospective customers while also bolstering our compliance with current and proposed listing requirements. Most importantly, we are focused on executing against the significant opportunities in front of us. Our go-to-market model continues to scale efficiently through partners. Roughly half of our new US business and virtually all of our international business is developed through our channel network.

Speaker #3: And earlier this week, we enhanced our financial liquidity and balance sheet through a warrant transaction that raised gross proceeds of $2.5 million. This new capital will continue to support our operations and, more importantly, our growth initiatives and perceived financial strength with prospective customers, while also bolstering our compliance with current and proposed listing requirements.

Speaker #3: Most importantly, we are focused on executing against the significant opportunities in front of us. Our go-to-market model continues to scale efficiently through partners—roughly half of our new U.S. business and virtually all of our international business is developed through our channel network.

Speaker #3: On the domestic public sector side, we're building out our working relationship with our new partner, DLT Solutions, a division of TD Synnex. This relationship provides a streamlined procurement path into DLT's very large base of public sector customers.

Mike DePasquale: On the domestic public sector side, we are building out our working relationship with our new partner, DLT Solutions, a division of TD SYNNEX. This relationship provides a streamlined procurement path into DLT's very large base of public sector customers, most of whom must work with pre-approved vendors to meet Zero Trust and MFA mandates. On the product side, our major PortalGuard 7.0 platform upgrade is now being demonstrated to prospects and has already begun to roll out more broadly across our existing customer base. I will now touch on an area of exciting potential, which is the role biometric authentication can play in securing the AI ecosystem, as we believe that human oversight of Agentic AI operations really is a killer app opportunity for biometrics.

Speaker #3: Most of whom must work with pre-approved vendors to meet zero trust and MFA mandates. On the product side, our major PortalGuard 7.0 platform upgrade is now being demonstrated to prospects and has already begun to roll out more broadly across our existing customer base.

Speaker #3: I will now touch on an area of exciting potential, which is the role biometric authentication can play in securing the AI ecosystem. As we believe that human oversight of agentic operations really is a killer app opportunity for biometrics.

Speaker #3: Several recent high-profile AI control failures have helped to highlight the need and the potential for biometrics to play a critical role in providing non-repudiable authentication and approval for material AI agent actions.

Mike DePasquale: Several recent high-profile AI control failures have helped to highlight the need and the potential for biometrics to play a critical role in providing non-repudiable authentication and approval for material AI agent actions. This is not just our internal view. In January, the first government's framework built specifically for Agentic AI was released at the World Economic Forum's annual meeting with a central pillar that humans must remain meaningfully accountable for decisions and actions taken by autonomous systems. We see biometrics as the ideal method for enabling such human control. Separately, the Cloud Security Alliance have described a governance vacuum around non-human identities as service accounts, bots, and AI agents now outnumber human users inside many enterprises by more than 100 to one. Most organizations have no reliable way to tie an agent's actions back to an accountable person.

Speaker #3: This isn't just our internal view. In January, the first government framework built specifically for agentic AI was released at the World Economic Forum's annual meeting, with a central pillar that humans must remain meaningfully accountable for decisions and actions taken by autonomous systems.

Speaker #3: We see biometrics as the ideal method for enabling such human control. Separately, the Cloud Security Alliance has described a governance vacuum around non-human identities, as service accounts, bots, and AI agents now outnumber human users inside many enterprises by more than 100 to 1.

Speaker #3: And most organizations have no reliable way to tie an agent's actions back to an accountable person. Chief Information Security Officers rank identity assurance for an AI world as a top security priority in 2026 and 2027.

Mike DePasquale: Chief information security officers rank identity assurance for an AI world as a top security priority in 2026 and 2027. We think that is exactly the gap that biometric Identity-Bound Biometrics authentication is built to close, anchoring high-stakes approvals to a real person rather than a device or a credential that can be shared, stolen, or cloned. We are actively working to develop strategies around our existing solutions such as Pass2U, and working to identify and develop strategic partners to build out AI governance connection points around this opportunity. Before I turn the call over to Cece, I want to reiterate our excitement about the business progress so far this year and the strength of our outlook for the H2 and moving forward.

Mike DePasquale: Chief information security officers rank identity assurance for an AI world as a top security priority in 2026 and 2027. We think that is exactly the gap that biometric Identity-Bound Biometrics authentication is built to close, anchoring high-stakes approvals to a real person rather than a device or a credential that can be shared, stolen, or cloned. We are actively working to develop strategies around our existing solutions such as Pass2U, and working to identify and develop strategic partners to build out AI governance connection points around this opportunity. Before I turn the call over to Ceci, I want to reiterate our excitement about the business progress so far this year and the strength of our outlook for the H2 and moving forward.

Speaker #3: We think that's exactly the gap that biometric, identity-bound authentication is built to close—anchoring high-stakes approvals to a real person, rather than a device or a credential that can be shared, stolen, or cloned.

Speaker #3: We are actively working to develop strategies around our existing solutions, such as passkeys, and working to identify and develop strategic partners to build out AI governance connection points around this opportunity.

Speaker #3: Before I turn the call over to CC, I want to reiterate our excitement about the business progress so far this year and the strength of our outlook for the second half and moving forward.

Speaker #3: It's a genuinely exciting time for BIO-key, as the work we have put into this business over many years is increasingly being recognized and, more importantly, validated by a growing base of private and public sector customers around the world.

Mike DePasquale: It is a genuinely exciting time for BIO-key, as the work we have put into this business over many years is increasingly being recognized and, more importantly, validated by a growing base of private and public sector customers around the world. With that, I will turn the call over to Cece for her financial review.

Speaker #3: With that, I'll turn the call over to CC for her financial review.

Speaker #1: Thank you, Mike. We released our results after yesterday's close via press release and also filed our Form 10-Q. Let me walk you through some of the important highlights.

Cecilia Welch: Thank you, Mike. We released our results after yesterday's close via press release and also filed our Form 10-Q. Let me walk you through some of the important highlights. Total revenue for Q2 2026 increased 13% to $1.92 million, compared to $1.7 million in Q2 2025. That growth was driven by a 53% increase in license fee revenue to $1.2 million from $800,000, reflected several new customer license agreements signed during the quarter. Hardware revenue decreased 19% to $460,000 from $569,000, principally due to the timing of customer deployments, including the absence of a large order Mike mentioned that shifted from Q2 into our H2, compared with a large deployment for a long-term customer in prior year period. Service, maintenance, and other revenue decreased 28% to $231,000 from $322,000 due to lower non-recurring service revenues tied to product customization and the timing of recurring revenue service agreements renewals.

Ceci Welch: Thank you, Mike. We released our results after yesterday's close via press release and also filed our Form 10-Q. Let me walk you through some of the important highlights. Total revenue for Q2 2026 increased 13% to $1.92 million, compared to $1.7 million in Q2 2025. That growth was driven by a 53% increase in license fee revenue to $1.2 million from $800,000, reflected several new customer license agreements signed during the quarter. Hardware revenue decreased 19% to $460,000 from $569,000, principally due to the timing of customer deployments, including the absence of a large order Mike mentioned that shifted from Q2 into our H2, compared with a large deployment for a long-term customer in prior year period. Service, maintenance, and other revenue decreased 28% to $231,000 from $322,000 due to lower non-recurring service revenues tied to product customization and the timing of recurring revenue service agreements renewals.

Speaker #1: Total revenue for Q2 '26 increased 13% to $1.92 million, compared to $1.7 million in Q2 '25. That growth was driven by a 53% increase in license fee revenue to $1.2 million from $800,000, reflecting several new customer license agreements signed during the quarter.

Speaker #1: Hardware revenue decreased 19% to $460,000 from $569,000, principally due to the timing of customer deployments, including the absence of a large order Mike mentioned that shifted from Q2 into our second half.

Speaker #1: Compared with the large deployment for a long-term customer in the prior-year period, service, maintenance, and other revenue decreased 28% to $231,000 from $322,000 due to lower non-recurring service revenues tied to product customization and the timing of recurring revenue service agreement renewals.

Speaker #1: In the first half of the year, total revenue grew 23%, also driven primarily by license fee growth. Gross profit for the quarter increased 36% to $1.7 million from $1.2 million in Q2 2025, and gross margin improved to 87%, up from 73% a year ago.

Cecilia Welch: The H1 of the year, total revenue grew 23%, also driven primarily by the license fee growth. Gross profit for the quarter increased 36% to $1.7 million from $1.2 million in Q2 2025, and gross margin improved to 87%, up from 73% a year ago. That improvement reflects growth as well as larger concentration of high-margin license fee revenue and increased benefit from sales of hardware inventory that had previously been fully reserved. Much of the reserved inventory relates to units originally purchased for projects that were delayed indefinitely during the pandemic. We have been selling that inventory into other markets, and since it has been fully reserved, those sales carry 100% gross profit contribution.

Ceci Welch: The H1 of the year, total revenue grew 23%, also driven primarily by the license fee growth. Gross profit for the quarter increased 36% to $1.7 million from $1.2 million in Q2 2025, and gross margin improved to 87%, up from 73% a year ago. That improvement reflects growth as well as larger concentration of high-margin license fee revenue and increased benefit from sales of hardware inventory that had previously been fully reserved. Much of the reserved inventory relates to units originally purchased for projects that were delayed indefinitely during the pandemic. We have been selling that inventory into other markets, and since it has been fully reserved, those sales carry 100% gross profit contribution.

Speaker #1: That improvement reflects growth as well as a larger concentration of high-margin license fee revenue and increased benefit from sales of hardware inventory that had previously been fully reserved.

Speaker #1: Much of the reserved inventory relates to units originally purchased for projects that were delayed indefinitely during the pandemic. We have been selling that inventory into other markets, and since it's been fully reserved, those sales carry 100% gross profit contribution.

Speaker #1: Total operating expenses decreased 5% to $2.2 million, principally reflecting lower selling, general, and administrative expense from our ongoing cost containment efforts. This was partially offset by higher expenses related to the reverse stock split and audit and tax-related costs.

Cecilia Welch: Total operating expenses decreased 5% to $2.2 million, principally reflecting lower selling, general, and administrative expense from our ongoing cost containment efforts, partially offset by higher expenses related to the reverse stock split and audit and tax-related costs. In all, our Q2 2026 net loss improved to $577,000, or $0.56 per share, compared to a net loss of $1.17 million or $2.01 per share in Q2 2025, a 51% improvement. For H1, our net loss improved 59% to $782,000 or $0.75 per share, compared to $1.9 million or $3.61 per share in H1 2025. Weighted average common shares outstanding and per share results reflect an impact of the 30 April one-for-10 reverse stock split, as well as warrant exercises and other financing activities through 30 June.

Ceci Welch: Total operating expenses decreased 5% to $2.2 million, principally reflecting lower selling, general, and administrative expense from our ongoing cost containment efforts, partially offset by higher expenses related to the reverse stock split and audit and tax-related costs. In all, our Q2 2026 net loss improved to $577,000, or $0.56 per share, compared to a net loss of $1.17 million or $2.01 per share in Q2 2025, a 51% improvement. For H1, our net loss improved 59% to $782,000 or $0.75 per share, compared to $1.9 million or $3.61 per share in H1 2025. Weighted average common shares outstanding and per share results reflect an impact of the 30 April one-for-10 reverse stock split, as well as warrant exercises and other financing activities through 30 June.

Speaker #1: In all, our Q2 2026 net loss improved to $577,000, or $0.56 per share, compared to a net loss of $1.17 million, or $2.01 per share, in Q2 2025.

Speaker #1: A 51% improvement. For the first half, our net loss improved 59% to $782,000, or $0.75 per share, compared to $1.9 million, or $3.61 per share, in the first half of 2025.

Speaker #1: Weighted average common shares outstanding and per-share results reflect the impact of the April 30th 1-for-10 reverse stock split, as well as warrant exercises and other financing activities through June 30th.

Speaker #1: Turning to the balance sheet, stockholders' equity was $4.3 million as of June 30, and we had $3.8 million of current assets at quarter-end, including $1.4 million of cash and $1.7 million of accounts receivable.

Cecilia Welch: Turning to the balance sheet, stockholders' equity was $4.3 million as of 30 June, and we had $3.8 million of current assets at the quarter end, including $1.4 million of cash and $1.7 million of accounts receivable and $376,000 of inventory. Following the quarter end, we reduced the outstanding balance due for our outstanding note by $350,000 or 51% to $325,000 in exchange for the issuance of 81,100 BIO-key shares, or approximately $4.32 per share. As Mike mentioned, we raised gross proceeds of $2.5 million earlier this week through a warrant inducement transaction involving the share sale of 681,334 shares of common stock upon the exercise price of $4.06 per share, and the new issuance of warrants to purchase 1.2 million shares of common stock at an exercise price, also $4.06 per share.

Ceci Welch: Turning to the balance sheet, stockholders' equity was $4.3 million as of 30 June, and we had $3.8 million of current assets at the quarter end, including $1.4 million of cash and $1.7 million of accounts receivable and $376,000 of inventory. Following the quarter end, we reduced the outstanding balance due for our outstanding note by $350,000 or 51% to $325,000 in exchange for the issuance of 81,100 BIO-key shares, or approximately $4.32 per share. As Mike mentioned, we raised gross proceeds of $2.5 million earlier this week through a warrant inducement transaction involving the share sale of 681,334 shares of common stock upon the exercise price of $4.06 per share, and the new issuance of warrants to purchase 1.2 million shares of common stock at an exercise price, also $4.06 per share.

Speaker #1: And $376,000 of inventory. Following the quarter end, we reduced the outstanding balance due for our outstanding note by $350,000, or 51%, to $325,000 in exchange for the issuance of 81,100 BIO-Key shares.

Speaker #1: Or approximately $4.32 per share. And as Mike mentioned, we raised gross proceeds of $2.5 million earlier this week through a warrant inducement transaction involving the sale of 681,334 shares of common stock upon the exercise price of $4.06 per share.

Speaker #1: And the new issuance of warrants to purchase 1.2 million shares of common stock at an exercise price also of $4.06 per share. Given the effect of the financing proceeds, the company’s current cash position is now over $4.5 million, which provides ample working capital support for our operations and growth.

Cecilia Welch: Given the effect of the financing proceeds, the company's current cash position is now over $4.5 million, which provides ample working capital support for our operations and growth. As Mike outlined, we expect continued growth, and we are targeting profitability for H2 of the year. Operator, we can now proceed with questions and answers.

Ceci Welch: Given the effect of the financing proceeds, the company's current cash position is now over $4.5 million, which provides ample working capital support for our operations and growth. As Mike outlined, we expect continued growth, and we are targeting profitability for H2 of the year. Operator, we can now proceed with questions and answers.

Speaker #1: As Mike outlined, we expect continued growth, and we are targeting profitability for the second half of the year. Operator, we can now proceed with questions and answers.

Speaker #2: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one, on your telephone keypad.

Operator 2: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Speaker #2: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Speaker #2: At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Vander Ardy with Maxim Group. Please go ahead.

Speaker #3: Okay. Good morning. Great update, Mike. Thanks for taking my questions. So, Mike, maybe I'll start with a question on your business outlook for the back half of the year.

Jack Vander Aarde: Okay. Good morning. Great update, Mike. Thanks for taking my questions. Mike, maybe I will start with a question on your business outlook for the back half of the year. You are expecting revenue growth and profitability, which is great to hear. Can you just maybe touch on that, I guess, specifically that large hardware order that got pushed into the H2. Do you have any line of sight there, visibility, how that is going to be allocated as it ships? Or is it going to be allocated across both the Q3 and the Q4?

Speaker #3: You're expecting revenue growth and profitability, which is great to hear. Can you maybe just touch on that—specifically, that large hardware order that got pushed into the second half?

Speaker #3: Do you have any line of sight there, visibility, how that's going to be allocated as it ships? And is it going to be or is it going to be allocated across both the third and the fourth quarter?

Mike DePasquale: It is hard for me to say right now. We would like to see it all ship in the Q3, but we will see as things evolve. More importantly, Jack, that is not the only large order, or let us say project or contract that we are working for the H2. What I did not mention in my prepared remarks is what we are really enthused and excited about is the size of our orders and the size of our contracts are going up significantly. As we work in the regulated industries, especially in government, defense, and in banking, the opportunities in general themselves are bigger, right? The user counts and user population are larger, and so therefore, so are the value of those contracts.

Speaker #4: It's hard for me to say right now. We'd like to see it all ship in the third quarter, but we'll see as things evolve.

Speaker #4: But more importantly, Jack, that's not the only large order, or let's say, project or contract that we're working on for the second half. What I didn't mention in my prepared remarks is that what we're really enthused and excited about is the size of our orders, and the size of our contracts, are going up significantly.

Speaker #4: So, as we work in regulated industries, especially in government, defense, and banking, the opportunities in general themselves are bigger, right? The user counts and user population are larger, and so therefore so is, or are, the value of those contracts.

Speaker #4: So, the reason that we're enthused and excited about continued growth in the second half—and obviously getting to profitability—is that we need just a couple of those large ones to fall, and we should easily get there.

Mike DePasquale: The reason that we are enthused and excited about continued growth in the H2 and obviously getting to profitability is we need just a couple of those large ones to fall and we should easily get there. It is that order and many others that we are working in the H2 as well in our pipeline.

Speaker #4: But that's—so it's that order and many others that we're working on in the second half, as well, in our pipeline.

Speaker #3: Okay, great. No, I appreciate all that. Of course, it's really growth across the board here. If I look at your license revenue as well, that did look like it picked up a bit here in the second quarter.

Jack Vander Aarde: Okay, great. No, I appreciate all that. Of course, it is really growth across the board here. If I look at your license revenue as well, that did look like it picked up a bit here in the Q2. Just a sort of housekeeping question. Normally, you have a slower Q3 sometimes in the licensing front because of EMEA. Now things have changed a little bit in your business model, but do we expect growth across, I guess, all the segments as well then in the back half, including license revenue?

Speaker #3: I just have kind of a housekeeping question. Normally, you have a slower third quarter sometimes on the licensing front because of EMEA. Now, things have changed a little bit in your business model, but should we expect growth across all the segments as well in the back half, including license revenue?

Speaker #4: Yeah. Well, first of all, license revenue is growing, and that's really what we're after, right? I mean, that's what drives our gross margin and maintaining a high gross margin because most of our customers who buy our biometric, identity-bound biometric solutions buy both hardware and software.

Mike DePasquale: Yeah. Well, first of all, license revenue is growing and that's really what we're after, right? I mean, that's what drives our gross margin and maintaining a high gross margin because most of our customers who buy our Identity-Bound Biometric solutions buy both hardware and software. But, for sure, the Q3 given, again, EMEA, right now, virtually everyone is off in August. Things don't pick up until first or so, first, second week of September. But I still feel like we have enough in the pipeline to have growth in the Q3 and absolutely, certainly significant growth in the Q4 as we close out the year. So, yeah, I think we're going to continue to see growth across the board. License is what we're after, right? That's the business here.

Speaker #4: But for sure, the third quarter, given again, EMEA—right now, virtually everyone is off in August—so things don't pick up until the first or second week of September.

Speaker #4: But I still feel like we have enough in the pipeline to have growth in the third quarter, and absolutely, certainly significant growth in the fourth quarter as we close out the year.

Speaker #4: So yeah, I think we're going to continue to see growth across the board. And licenses, that's what we're after, right? That's the business here—recurring revenue, signing customers up, getting more contracts in play, and building a recurring revenue base.

Mike DePasquale: Recurring revenue, signing customers up, getting more contracts in play, and building a recovering revenue base. That and maintaining our expense levels. We had a little bit of a blip in the Q2 with one-time expenses. But that was a one-time event. Our expenses have been very stable, if not declining. So, we need to hold in that realm, and we need to build that license revenue with gross margins in the 85% range. Most of what we sell drops to the bottom line.

Speaker #4: That, and maintaining our expense levels. We had a bit of a blip in the second quarter with one-time expenses, but that was a one-time event.

Speaker #4: Our expenses have been very stable, if not declining, so we need to hold in that realm. And we need to build that license revenue with gross margins in the 85% range.

Speaker #4: Most of what we sell drops to the bottom line.

Speaker #3: Yep. No, definitely. This actually might be a historical record quarter on the gross margin front, as I'm looking back at my model here. But no, that was great to see.

Jack Vander Aarde: Yep. No, definitely. This actually might be a historical record quarter on the gross margin front. I'm looking back at my model here, but no, that was great to see. Plus you got this cash that came in with these warrant inducements. I think you're over $4 million of cash now pro forma-wise. As you look forward and you're going to be profitable, what are the specific use cases for cash? Or is this just good working capital on hand to have? No further dilution expected?

Speaker #3: And then, plus, you got this cash that came in with these warrant inducements. I think you're over $4 million of cash now, kind of pro forma-wise.

Speaker #3: As you look forward and you're going to be profitable, I mean, is this cash—what are some of the specific use cases for cash?

Speaker #3: Or is this just good working capital on hand to have, and no further dilution expected?

Speaker #4: Well, there's no further dilution expected—that's for sure at this point. We have adequate cash resources to not only operate our business, but to continue to invest in the areas I mentioned around agentic AI. Securing that whole ecosystem right now is really a wonderful opportunity for biometrics.

Mike DePasquale: Well, there's no further dilution expected, that's for sure. At this point, we have adequate cash resources to not only operate our business but to continue to invest in the areas, as I mentioned, around Agentic AI. Securing that whole ecosystem right now is really a wonderful opportunity for biometrics, and no one does it better than us. It's pretty clear, and we've been validating this, as I mentioned in my prepared remarks, with many prospect customers and, in particular, partners, that we have a very unique offering for roaming users and use cases where phones and tokens just don't work. Because again, users cannot have, for example, a phone in their hand if they're in a service bay, or they don't want them with a phone in a call center where you can take photographs of customer records and that kind of thing.

Speaker #4: And no one does it better than us. I mean, it's pretty clear—and we've been validating this, as I mentioned in my prepared remarks, with many prospective customers and, in particular, partners—that we have a very unique offering for roaming users and use cases where phones and tokens just don't work.

Speaker #4: And because, again, users cannot have, for example, a phone in their hand if they're in a service bay, or they don't want them with a phone in a call center where you could take photographs of customer records and that kind of thing.

Speaker #4: So we've got the perfect solution, and our Passkey offering, which is now ramping, is going to be a really big benefit for us.

Mike DePasquale: We've got the perfect solution, and our Passkey:YOU offering, which is now ramping, is going to be a really big benefit for us. We're just really optimistic about being able to take advantage of that. We're not anticipating any additional dilution at this point. We've got adequate cash on hand to continue to operate our business, and we'd like to keep working capital at the highest level we can. It gives us credibility with our prospects and our customers. That was the impetus behind doing this last raise that we did.

Speaker #4: So, we're just really optimistic about being able to take advantage of that. But yeah, we're not anticipating any additional dilution at this point. We've got adequate cash on hand to continue to operate our business, and we'd like to keep working capital at the highest level we can.

Speaker #4: It gives us credibility with our prospects and our customers. And so that was the impetus behind doing this last raise that we did.

Speaker #3: Okay, great. Great to hear. And just because you mentioned it, maybe one more question—is Passkey, do you have a rough sense of what percentage, or just roughly how much of that is a business driver for your results, I guess, in the back half to get profitable or your revenues recently?

Jack Vander Aarde: Okay, great to hear. Just because you mentioned it, maybe one more question is Passkey:YOU. Do you have a rough sense what percentage or just roughly how much of that is a business driver for your results, I guess, in the back half to get profitable or your revenues recently? Just what does that make up in terms of BIO-key's overall revenue mix?

Speaker #3: Just kind of, what does that make up in terms of BIO-key's overall revenue mix?

Speaker #4: Well, we're just scaling. So it's hard for me to give you a percentage, but it's that kind of solution. Maybe I can put it in context.

Mike DePasquale: Well, we're just scaling that.

Jack Vander Aarde: Just as I think about things going forward.

Mike DePasquale: So it's hard for me to give you a percentage, but it's the kind of solution to maybe put it in context. It's a solution that can be sold anywhere to anyone, even if they're running today a competitive offering. Let's just take a classic Okta, ForgeRock, Duo, SailPoint customer that has those use cases that I just mentioned. They have employees in the call center. They have service employees that cannot utilize a phone or a token. They can take advantage of our solution because it can just bolt on to their existing, what we call IDP, right? So it can just bolt on and can be utilized today without changing out their infrastructure. That's pretty powerful. We don't really know what the potential is over the next probably 12 months, but it's significant.

Speaker #4: It's a solution that can be sold anywhere to anyone, even if they're currently running a competitive offering. So let's just take a classic Okta, FordRock, Duo, SailPoint customer.

Speaker #4: That has those use cases that I just mentioned. They have employees in the call center. They have service employees that cannot utilize a phone or a token.

Speaker #4: They can take advantage of our solution because it can just bolt on to their existing, what we call, IDP, right? So it can just bolt on and can be utilized today.

Speaker #4: Without changing out their infrastructure, so that's pretty powerful. We don't really know what the potential is over the next, probably, 12 months, but it's significant.

Speaker #4: And as we continue to right now, we're in a number of different evaluations and pilots with some large customers. As we get more data and information on that, I think we'll be able to predict.

Mike DePasquale: As we continue to, right now, we're in a number of different evaluations and pilots with some large customers. As we get more data and information on that, I think we'll be able to predict. But at this point, we know it's large. We'll see how large. By the way, if we can attach this directly to those partners for them to make available to their customers that are in those fringe use cases, it can be even bigger. It could be really significant. But we have work to do.

Speaker #4: But at this point, we know it's large. We'll see how large. And by the way, if we can attach this directly to those partners, for them to make available to their customers that are in those fringe use cases, it could be even bigger.

Speaker #4: It could be really significant, but we have work to do.

Speaker #3: Excellent. Well, great to hear, Mike. I appreciate all the time, and I'll hop back in the queue. Thanks.

Jack Vander Aarde: Well, great to hear, Mike. I appreciate all the time, and I'll hop back in the queue. Thanks.

Speaker #4: Thank you.

Mike DePasquale: Thank you.

Speaker #2: Again, if you have a question, please press star, then one. The next question comes from Dan Camhis, private investor. Please go ahead.

Operator 2: Again, if you have a question, please press star then one. The next question comes from Dan Khamis, private investor. Please go ahead.

Operator: Again, if you have a question, please press star then one. The next question comes from Dan Khamis, private investor. Please go ahead.

Speaker #5: Good morning. Just some—hi. The Bank of Jordan, the release said there was a—that the central bank was developing an initiative. Does that mean that they're studying what they want to do, or have they been—or are you contracted and actually receiving revenues in the second quarter, or expecting them in the third quarter?

Dan Khamis: Good morning.

Mike DePasquale: Morning.

Dan Khamis: Hi. The Central Bank of Jordan, the release said that the central bank was developing an initiative. Does that mean that they are studying what they want to do, or are you contracted and actually receiving revenues, like in Q2 or expect in Q3?

Speaker #4: Yes, we are, and we're expecting it to be much more significant going forward—so in the second half, and then obviously into the first part of 2027.

Mike DePasquale: Yes. We are, and we are expecting it to be much more significant going forward. So in H2, and then obviously into the first part of 2027. As we described in that press release, it is a significant initiative that could impact their entire user population. So, if you think about our South African bank customer, where we are generating well over $1 million in ARR, it certainly has that potential and capability, but we will crescendo to that over the next probably two to three quarters.

Speaker #4: As we described in that press release, it's a significant initiative that could impact their entire user population. So if you think about our South African bank customer, where we're generating well over a million dollars in ARR, it certainly has that potential and capability, but we'll crescendo to that over the next probably two to three quarters.

Speaker #5: I see. Will you be selling hardware?

Dan Khamis: I see. Will you be selling hardware?

Speaker #4: Both hardware and software. But obviously, our focus is on the software, right? The user accounts. That's always driving. Well, again, our blended gross margins are really, really good—75% plus.

Mike DePasquale: Both hardware and software, but obviously our focus is on the software, right? The user accounts. That's always driving. Well, again, our blended gross margins are really, really good, 75% plus, but obviously software is a higher gross margin.

Speaker #4: But obviously, software is a higher gross margin.

Speaker #5: I see. So, what has to happen for you to actually ramp up and make some of these bigger sales? Is there something higher than that?

Dan Khamis: I see. What has to happen for you to actually ramp up and make some of these bigger sales? Is there some pilots that-

Mike DePasquale: We're really in the deployment planning stage right now. It's how we go from point A to point B, and there's a lot of work when you're doing a deployment this large, right? There's logistics. There's everything, right? Provisioning, logistics, all that kind of stuff. We're in the planning stages with them right now.

Speaker #4: We're really in the deployment planning stage right now. It's how we go from point A to point B, and there's a lot of work when you're doing a deployment this large, right?

Speaker #4: There's not only logistics; there's everything, right? Provisioning, logistics, all that kind of stuff. So we're in the planning stages with them right now.

Speaker #5: I see. But my question is, is this like a pilot where they'll then decide whether they want to continue to ramp up?

Dan Khamis: I see. My question is this like a pilot where they will then decide whether they want to continue to ramp?

Mike DePasquale: No. We are well beyond that. We have been selected. I think the press release was clear on that, as was the quote from the senior cyber resource who has been working with us.

Speaker #4: No, no, no, no, no, no, no. We're well beyond that, so—yeah. We've been selected. I think the press release was clear on that, as was the quote from the senior cyber resource who's been working with us.

Speaker #5: I see. And was that a competitive bid?

Dan Khamis: I see. Was that a competitive bid?

Speaker #4: Believe it or not, it was a competitive situation and we were selected as the sole source.

Mike DePasquale: Believe it or not, it was a competitive situation, and we were selected sole source.

Speaker #5: Okay. All right. Let's switch to the Portugal release. How do we estimate the value of the rollout of BIO-key's IAM and biometric authentication technologies to Portugal's public sector ecosystem?

Dan Khamis: Okay. All right. Let's switch to the PortalGuard release. How do we estimate the value of the rollout of BIO-key's IAM and biometric authentication technologies to the Portugal's public sector ecosystem? What is your margin considering you are partnering with Visualforma?

Speaker #5: What is your margin, and what is your margin considering your partnership with VisualForma?

Mike DePasquale: The margins are the same. Typically, a partner, it could be Visualforma or it could be DLT Solutions, could be any one of our partners, domestic or international. Typically, they get a 25%, anywhere from 20% to 30% on the high end, discount off the software. Again, the gross margin to us, because it is software, is the same. So it is 85% of a lower number, but it is 85%. So typically, again, Dan, that is the classic partner discount that these partners get. Generally, they get a discount on the software, then they are providing services to the customer, right? That is where they really make most of their money, right? Obviously, they get a margin on selling the product, but their real business is providing the services and all of the support to the end customers.

Speaker #4: The margins are the same. Typically, a partner—it could be VisualForma or it could be DLT. It could be any one of our partners, domestic or international.

Speaker #4: Typically, they get a 25%—anywhere from 20% to 30% on the high end—discount off the software. But again, the gross margin to us, because it's software, is the same.

Speaker #4: So it's 85% of a lower number, but it's 85%. So typically, again, Dan, that's the classic partner discount that these partners get. And so, generally, they get a discount on the software.

Speaker #4: And then they're providing services to the customer, right? And that's where they really make most of their money, right? They get obviously, they get a they get a margin on selling the product but their real business is providing the services and all of the support to the end customers.

Speaker #4: And in EMEA, 100%. It doesn't matter how large the enterprise is or how small they are; they're generally buying through an MSP, MSSP, reseller, or distributor.

Mike DePasquale: In EMEA, 100%, it does not matter how large the enterprise is or how small they are, they are generally buying through an MSP, MSSP, or reseller, or a distributor. So that is the way that model works, and it really is a force multiplier. We bought the Swivel Secure Europe business. When we bought it almost five years ago now, we bought that to get the distribution channel and the resources that we have there now in EMEA to sell through our products, right? We were always planning on a transition from selling the Swivel Secure product to BIO-key product, right? The Swivel Secure product had a 50% gross margin. Our BIO-key products have margins that are significantly higher than that.

Speaker #4: So that's the way that model works. And it really is a force multiplier. And we bought the Swivel Secure Europe business. When we bought it—four or five, almost five years ago now—we bought that to get the distribution channel and the resources that we have there now in EMEA to sell through our products, right?

Speaker #4: And we were always planning on a transition from selling the Swivel product to the BioKey product, right? The Swivel product had a 50% gross margin.

Speaker #4: Our BioKey products have margins that are significantly higher than that. What's astounding to me, especially over the last year—given that we jettisoned the SSC product and decided not to renew that contract—is how these partners have very, very rapidly picked up on the BioKey solutions and the biometric component in the BioKey solutions that they're now selling through to all these customers.

Mike DePasquale: What is astounding to me, especially over the last year, given that we jettisoned the SSC product and decided not to renew that contract, it is amazing how these partners have very rapidly picked up on the BIO-key solutions and the biometric component in the BIO-key solutions that they are now selling through to all these customers. It really is amazing, and that is why we have such a significant pipeline there.

Speaker #4: It really is amazing, and that's why we have such a significant pipeline there.

Speaker #5: Okay, and the first part of that question was: How do we value the rollout to the public sector?

Dan Khamis: Okay. The first part of that question was, how do we value the rollout to the public sector?

Speaker #4: Well, again, you're talking about a country. You're talking about a public sector component in—I call it state and local, right? We did sell a large municipality a solution that now can be replicated into 50 or 100 types of scenarios like that.

Mike DePasquale: Well, again, you are talking about a country, you are talking about a public sector component in, I call it state and local, right? We did sell a large municipality a solution that now can be replicated into 50 or 100 types of scenarios like that. Then you have what we announced last week, or the week before, was a federal government agency that secured our product for a very high-profile defense-related initiative. So that was federal. We sold about four to six months ago, a municipal-type scenario, and now connect the dots, you got references. What is that potential? It is certainly in the millions of ARR over the next quarters. But again, that business will be developed in combination with that partner and other partners as well that are selling in that space.

Speaker #4: And then you have what we announced last week or the week before, which was a federal government agency that secured our product for a very high-profile defense-related initiative.

Speaker #4: So that was federal. We sold about four to six months ago—a municipal-type scenario. And now, connect the dots; you've got references. What is that potential?

Speaker #4: It's certainly in the millions of ARR over the next quarters. But again, that business will be developed in combination with that partner, and other partners as well that are selling in that space.

Speaker #5: I see. Now, I think Portugal's got about a million people in their public sector. So, are you basically looking to get that whole niche over the next couple of years or something like that?

Dan Khamis: I see. Now, I think Portugal has got about 1 million people in their public sector. So are you basically looking to get that whole niche over the next couple of years or something like that? Is that what we are looking at?

Speaker #5: Is that what we're looking at?

Speaker #4: Well, again, if you're thinking about state and local, that's one thing. But think about all the government-related initiatives in security, in military, in intelligence, right?

Mike DePasquale: Well, again, if you are thinking about state and local, that is one thing. But think about all the government-related initiatives in security, in military, in intelligence, right? These are all the things that are ramping up, not just in Portugal. They are ramping up in every country in the region. In the fuller EMEA region, not just in Europe. In the Middle East. Look at the way the countries in the Middle East are ramping from a defense initiative perspective, from an intelligence perspective. This is why I think our business there has just astounding potential, because we are now collaborative. As a country, we are collaborating more with those Middle Eastern countries than we ever have before. They are buying a lot from us on the defense side, right? Not just weapons, but we are collaborating from an intelligence perspective. We are collaborating from a financial perspective.

Speaker #4: These are all the things that are ramping up not just in Portugal—they're ramping up in every country in the region, in the full EMEA region, not just in Europe.

Speaker #4: In the Middle East—I mean, look at the way the countries in the Middle East are ramping up from a defense initiative perspective, from an intelligence perspective.

Speaker #4: And the fact that—and this is why I think our business there has just astounding potential—is because now, as a country, we are collaborating more with those Middle Eastern countries than we ever have before.

Speaker #4: And they're buying a lot from us on the defense side, right? Not just weapons, but we're collaborating from an intelligence and a financial perspective.

Speaker #4: So, I mean, I just think the potential is incredible.

Mike DePasquale: I just think the potential is incredible.

Speaker #5: Got it. We'll stop you right here.

Dan Khamis: Well, Saudi Arabia.

Speaker #4: Yeah. One other thing, Dan. And we have references—real references. So when we find an opportunity or when an opportunity comes to our doorstep through a partner, it's easy for us to refer them to someone who's already using the solution to solve a similar problem.

Mike DePasquale: We have references, like real references.

Dan Khamis: Right.

Mike DePasquale: When we find an opportunity or an opportunity comes to the doorstep through a partner, it is easy for us to refer them to someone who is already using the solution to solve a similar problem. To me, that is huge. That is 60% of what you need to continue to build and scale a business.

Speaker #4: To me, that's huge. That's 60% of what you need to continue to build and scale a business.

Speaker #5: Yeah, I understand. Regarding Saudi Arabia, I found it interesting that they were interested in your technology or your education, or your technology for education, not necessarily for finance and defense.

Dan Khamis: Yeah, I understand. On Saudi Arabia, I found it interesting that they were interested in your technology for education, not necessarily for finance and defense. Is there an opportunity there?

Speaker #5: Is there an opportunity there?

Speaker #4: Well, there is. And again, it all comes down to the partners, right? So we signed on a partner that has a very strong base in education.

Mike DePasquale: Well, there is. Again, it all comes down to the partners, right? We signed on a partner that has a very strong base in education, and we have the references in other applications where it is being used. Here to what I just described is a proof point that we can continue to find ourselves expanding into other sectors of the economy, and education is just one of them. We have a very large project in healthcare in a Middle Eastern country that we are deploying right now. A lot going on.

Speaker #4: And we have the references in other applications where it's being used, and so here, to what I just described, is a proof point that we can continue to find ourselves expanding into other sectors of the economy.

Speaker #4: And education is just one of them. We have a very large project in healthcare in a Middle Eastern country that we're deploying right now.

Speaker #4: A lot going on.

Speaker #5: Okay. Well, you said Jordan wasn't it was Sole Source. Is that true of these some of these other ones too or are there any is there any competition?

Dan Khamis: Okay. Well, you said Jordan was sole source. Is that true of some of these other ones, too, or is there any competition? I am just kind of wondering who are you competing against on these things that you are winning.

Speaker #5: I'm just kind of wondering, who are you competing against on these things?

Mike DePasquale: Many of these projects come in through partners, but also come in through large technology partner companies as well. For example, we have been working very closely with SailPoint in the Middle East, who has multi-million dollar contracts to provide security solutions, mostly for governance and not necessarily authentication. They need an authentication partner, someone who has the flexibility and someone who provides the biometrics like we do, which is very unique. That is why our business is growing. It is the relationships with the partners and the big technology companies that are driving these large contracts on these international opportunities. That is where our group, in particular in EMEA, has done an incredible job, and they have been doing this for 15 years. That partner network that we built there is very valuable because it takes a lot of time to build that network.

Speaker #4: Yeah. So many of these projects come in through partners but also come in through large technology partner companies as well. So for example, we have been working very closely with SailPoint in the Middle East who has multi, multi, multi-million dollar contracts to provide security solutions, mostly for governance and the not necessarily authentication.

Speaker #4: And they need an authentication partner—someone who has the flexibility, and someone who provides biometrics like we do, which is very unique. And so, that's why our business is growing.

Speaker #4: It's the relationships with the partners and the big technology companies that are driving these large contracts and these international opportunities. And that's where our group, in particular in EMEA, has done an incredible job.

Speaker #4: And they've been doing this for 15 years. So that partner network that we built there is very valuable, because it takes a lot of time to build that network.

Speaker #4: It takes even more time to get real deals going with them, and then it takes just really good relationship management to continue to grow and scale.

Mike DePasquale: It takes even more time to get real deals going with them, and then it takes just really good relationship management to continue to grow and scale the business.

Speaker #4: Scale the business.

Speaker #5: Got it. Let's move to the US. The US financial system seems to me like it's been quite resistant to moving toward identity-bound biometrics. Is the Alabama Federal Credit Union any kind of—even minor—harbinger of change for that in the US?

Dan Khamis: Got it. Let's move to the US. The US financial system seems to me like it's been quite resistant to moving towards Identity-Bound Biometrics. Is the AOD Federal Credit Union any kind of even minor harbinger of change for that in the US?

Speaker #4: I think it is. Dan, I think that the whole—first of all, the cyberattack acceleration, especially since we've been engaged with the international altercations and geopolitical stuff that we're going through, is kind of escalating.

Mike DePasquale: I think it is, Dan. First of all, the cyber attack acceleration, especially since we've been engaged with the international altercations and geopolitical stuff that we're going through, is kind of escalating. That's number one. Number two, I think the Agentic AI situation has everyone on edge. You're right. Biometrics in general, there was this perception that biometrics infringed on privacy, and the US was all about protecting your privacy, right? Not caring necessarily about your security. Well, I shouldn't say not caring, but caring less about the security and more about your privacy. That line is moving, for sure, because good security protects your privacy. It doesn't impinge on your privacy. That perception of biometrics potentially impinging on privacy is really starting to move, and I think consumers are starting to recognize that as well. They're also recognizing the convenience of a biometric.

Speaker #4: That's number one. Number two, I think the agentic AI situation has everyone on edge. And you're right—biometrics in general, there was this perception that biometrics infringed on privacy, and the US was all about protecting your privacy, right?

Speaker #4: Not necessarily not caring about your security—I shouldn't say not caring—but caring less about the security and more about your privacy. That line is moving.

Speaker #4: For sure. Because good security protects your privacy—it doesn't impinge on your privacy. And that perception of biometrics potentially impinging on privacy is really starting to move.

Speaker #4: And I think consumers are starting to recognize that as well. And they're also recognizing the convenience of biometrics. They're also seeing that traditional SMS multi-factor authentication, like the hard token we've been using for years to validate accounts, is going away.

Mike DePasquale: They're also seeing that the traditional SMS, multi-factor type authentication, that the hard token that we've been using for years to validate accounts are going away. I mean, Microsoft announced it fundamentally that they're killing SMS authentication in Microsoft Entra over the next couple of quarters, and they're going to Passkeys. Passkeys connote a direct, convenient biometric option, which I think is going to accelerate the use of biometrics in general across the enterprise, and across consumer apps in the coming quarters, and it's going to happen pretty quick.

Speaker #4: I mean, Microsoft announced fundamentally that they're killing SMS authentication entirely over the next couple of quarters, and they're going to passkeys.

Speaker #4: So, passkeys are kind of a direct, convenient biometric option, which I think is going to accelerate the use of biometrics in general across the enterprise and across consumer apps in the coming quarters.

Speaker #4: And it's going to happen pretty quickly.

Speaker #5: I see. Is there an opportunity with Microsoft there to partner in any way?

Dan Khamis: I see. Is there an opportunity with Microsoft there to partner in any way?

Mike DePasquale: I would like to say yes. But on the other hand, if you look at Google and Microsoft, Google Authenticator and Microsoft with Entra, they have kind of gone it alone, I should say. They are trying to entrap all of their customers into utilizing everything that they make available. Most of the high-end, more experienced CISOs are rebelling against that because they do not want all their eggs in one basket. There, in my opinion, is the opportunity. It is not necessarily partnering with them, it is offering an alternative which is better, faster, and cheaper than they can provide.

Speaker #4: I'd like to say yes, but on the other hand, if you look at Google and Microsoft—Google Authenticator and Microsoft with Entra—they've kind of gone it alone.

Speaker #4: I should say. And they're trying to entrap all of their customers into utilizing everything that they make available. Most of the high-end, more experienced CISOs are rebelling against that because they don't want all their eggs in one basket.

Speaker #4: And so there, in my opinion, is the opportunity. It's not necessarily partnering with them; it's offering an alternative which is better, faster, and cheaper.

Speaker #4: Then they can provide, because they may lure you in and offer you a new component for free, and then next year, when you get your renewal contract, you notice that you just got a 20% hit.

Dan Khamis: Okay.

Mike DePasquale: Because they may lure you in and offer you a new component for free. Then next year when you get your renewal contract, you notice that you just got a 20% hit. Now you are already using the solution, and it is very difficult to switch out. I think we play to that, and we play very well there. Plus, we offer the 16 factors of authentication, including the biometrics, if that is in your bailiwick and you want to use it. That is our differentiator.

Speaker #4: And now you're already using the solution, and it's very difficult to switch out. So I think we play to that, and we play very well there.

Speaker #4: Plus, we offer the 16 factors of authentication, including biometrics if that's in your bailiwick and you want to use it. That's our differentiator.

Speaker #5: I understand. Let's talk about AI a little bit. In this non-reputable authentication approval for these agent AI agents, what stops an AI agent from, say, intercepting a fingerprint and using it to authenticate later or identify later?

Dan Khamis: I understand. Let us talk about AI a little bit. In this non-reputable authenticational approval for these AI agents, what stops an AI agent from, say, intercepting a fingerprint and using it to authenticate later or identify later?

Speaker #4: Well, that's a simple one, Dan. What stops that is the ecosystem and the technology infrastructure that you have around your biometric. Because your biometric is public information.

Mike DePasquale: Well, that is a simple one, Dan. What stops that is the ecosystem and the technology infrastructure that you have around your biometric. Because your biometric is public information. When you walk into your office, or you go into a store and you put your hand on the door, you leave your fingerprint there. If somebody really wanted your fingerprint, they could lift it. Again, this is all theoretical, right? Your face is surveilled. You walk through Times Square, now it could be 500 times. I used to say 200, but it could be 500 times your face is surveilled, and if someone wanted your face, they could take a picture of your face. What makes biometrics systems secure and protect from Agentic AI scenarios is the ecosystem around the biometric. What is that? That is liveness detection, right?

Speaker #4: When you walk into your office or you go into a store and you put your hand on the door, you leave your fingerprint there.

Speaker #4: Somebody really wanted your fingerprint. They could lift it. I mean, again, this is all theoretical, right? Your face is surveilled. You walk through Times Square.

Speaker #4: It could be now. It could be 500 times. I used to say 200, but it could be 500 times. Your face is surveilled, and if someone wanted your face, they could take a picture of your face.

Speaker #4: What makes biometric systems secure and protects from agentic scenarios is the ecosystem around the biometrics. So, what is that? That's liveness detect, right? To ensure that it's real and your face is real, or your finger is real, or your palm is real, or your iris is real.

Mike DePasquale: To ensure that it is real, and your face is real, or your finger is real, or your palm is real, or your iris is real. So that is number one. It is all the encryption around the biometric. Remember, we are never matching a fingerprint or a face or a palm. We are matching a digital representation of that. What are we doing? We are algorizing, and we are encrypting. So we are encrypting the templates that we. Then we are encrypting the transportation, the way we move the template from one place to another, whether it is on device or it is into a central system to match and back down for approval to, let us say, a mobile device, a phone, or a tablet, or a computer. So it is that secure ecosystem that protects against that potential Agentic AI formation. And that is where we have 30 years' experience in doing that.

Speaker #4: So that's number one: it's all the encryption around the biometric. Remember, we're never matching a fingerprint or a face or a palm; we're matching a digital representation of that.

Speaker #4: So what are we doing? We are algorithmizing and we are encrypting. So we're encrypting the templates, and then we're encrypting the transportation—the way we move the template from one place to another, whether it's on-device or into a central system to match and back down for approval to, let's say, a mobile device, a phone, a tablet, or a computer.

Speaker #4: So it's that secure ecosystem that protects against that agentic potential, agentic formation. And that's where we have 30 years' experience in doing that. And why?

Mike DePasquale: And why in very high-profile, high-secure venues and environments, WEB-key, our product, our full and complete encrypted ecosystem for biometrics, has been selected by some of the most sophisticated, if not the most sophisticated security organizations in the world. Long-winded answer, but.

Speaker #4: In very high-profile, very high-profile, highly secure venues and environments, WebKey, our product, our full and complete encrypted ecosystem for biometrics, has been selected.

Speaker #4: By some of the most sophisticated, if not the most sophisticated, security organizations in the world. Long-winded answer, but...

Speaker #5: No, no. I got it, I got it. That was good. A couple of questions on the warrants and then I'll be off here. What were the net proceeds on the warrants?

Dan Khamis: No, I got it. That was good. Couple questions on the warrants, and then I will be off here. What were the net proceeds on the warrants?

Speaker #4: $2.5 million.

Mike DePasquale: USD 2.5 million.

Dan Khamis: Is that net or gross?

Speaker #5: Is that net or gross?

Speaker #4: And there's a commission for the bankers; it was 5%. So I guess that's, what, $2.35 million, somewhere in that range—$2.3 to $2.4 million.

Mike DePasquale: There is a commission for the bankers was 5%, so I guess that is what, USD 2.350? Somewhere in that range.

Dan Khamis: I see.

Mike DePasquale: 2.3 to 2.4 million.

Speaker #5: Okay, so does that mean—I think there were 600,000 of them, you had 1.1. Does that mean that somebody now owns a third of the company?

Dan Khamis: Okay. Does that mean, I think there were 600,000 of them. You had 1.1. Does that mean that somebody now owns a third of the company, and if they exercise the other 1.2 million warrants, what happens then?

Speaker #5: And if they exercise the other 1.2 million warrants, what happens then?

Speaker #4: Yeah. So, the way that works—and you can look at the filings, right? It's all detailed out there in the 8-K and so forth—is that the warrant holder will never own more than 10%, 9.9%, of the company.

Mike DePasquale: Yeah. The way that works, and you can look at the filings. It is all detailed out there in the 8-K and so forth, is that the warrant holder will never own more than 10%, 9.9% of the company. There is a blocker in place. They bought all the warrants, and they only take ownership of 9.9% at a time of the warrants. The rest are held in abeyance. The company gets the money upfront because they exercised all of the 618,000 warrants that they had. The answer is no, they will never own a third of the company.

Speaker #4: There's a blocker in place, so they will buy, or they bought, all the warrants and they only take ownership of 9.9% at a time.

Speaker #4: Of the warrants, and the rest are held in abeyance. The company gets the money upfront, right? Because they exercised all of the 618,000 warrants that they have.

Speaker #4: So the answer is no. They will never own a third of the company.

Speaker #5: I see. And do we know how many of the warrants have been exercised so far?

Dan Khamis: I see. Do we know how many of the warrants have been exercised so far?

Speaker #4: Well, they've all been exercised. How many of them have been taken out of abeyance? I would say nearly half, give or take.

Mike DePasquale: Well, they've all been exercised. How many of them have been taken out of abeyance? I would say nearly half, give or take.

Speaker #5: Oh, I see. I see. Okay.

Dan Khamis: Oh, I see. Okay.

Speaker #4: So quite a few. Quite a large number—275,300, in that range—300,000, give or take, have already been taken out of abeyance. So, about half in the last four days.

Mike DePasquale: Quite a few. Quite a large number.

Dan Khamis: Yeah.

Mike DePasquale: 275,000, in that range, 300,000, give or take, have already been taken out of abeyance. About half in the last four days.

Speaker #5: I mean, that by itself, I guess, could explain some of the price drop in the stock. But...

Dan Khamis: That by itself, I guess, could explain some of the price drop in the stock.

Speaker #4: Oh, no question. There's no question. I mean, that is one. But again, it's also the general market. I've been watching—it's an interesting point you bring up.

Mike DePasquale: There is no question. That is one. But again, it is also the general market. It is an interesting point you bring up. I have been watching a series of companies. They are not necessarily peers to us in the context of what they offer, but they are size-wise small public Nasdaq companies. There seems to be a mantra in the market this past couple of weeks, and it is sell on the news. I have seen really good earnings announcements, I have seen good contract announcements, and I have seen these stocks trade down 15%, 20%. I do not think you can look at the stock price and say, well, it happened because of this or it happened because of that. I think it is just a series of things, and it is a fact that the low end of the market has been experiencing this kind of volatility right now, and it is what it is.

Speaker #4: I've been watching a series of companies. They're not necessarily peers to us in the context of what they offer, but they're, size-wise, small public NASDAQ companies.

Speaker #4: And there seems to be a mantra in the market these past couple of weeks, and it's 'sell on the news.' I've seen really good earnings announcements.

Speaker #4: I've seen good contract announcements, and I've seen these stocks trade down 15, 20 percent. So I don't think you can look at the stock price and say, "Well, it happened because of this," or, "It happened because of that." I think it's just a series of things.

Speaker #4: And it's a fact that the low end of the market has been experiencing this kind of volatility right now, and it is what it is.

Speaker #4: But look, we clearly were disappointed in our anticipated revenue for the second quarter. Again, that hardware order would have put us way well over the top and obviously would have been a profitability.

Dan Khamis: Yeah.

Mike DePasquale: Look, we clearly were disappointed in our anticipated revenue for Q2. Again, that hardware order would have put us well over the top and obviously would have been a profitability. That is one thing. But again, our business is still growing. So for sure, that is a factor. The second thing, though, on the other side is, our balance sheet is very strong right now. Our equity position is very strong right now. Having a few more shares outstanding strengthens our compliance requirements and so forth. That is very positive. You look at the pipeline and the things that I described over the last 45 minutes, all very positive. I think there are more positives than negatives out there right now, and we will catch up. We will catch back up, I am sure.

Speaker #4: So that's one thing. But again, our business is still growing, so for sure, that's a factor. The second thing, though, on the other side, is our balance sheet is very, very strong right now.

Speaker #4: Our equity position is very, very strong right now. Having a few more shares outstanding strengthens our compliance requirements and so forth. That's very positive.

Speaker #4: So, you look at the pipeline and the things that I described over the last 45 minutes—all very, very positive. So, I think there are more positives than negatives out there right now.

Speaker #4: And we'll catch up. We'll catch back up, I'm sure, because we're so undervalued by any metric that all ships rise with the tide. At some point, we will get our due fair value.

Dan Khamis: Yeah.

Mike DePasquale: Because we are so undervalued by any metric that all ships rise with the tide, and at some point we will get our due fair value.

Speaker #5: Well, your cash is—I think, just based on your cash, that's $2.50 a share, I think, if I'm computing this right. Assuming you have about 1.8 million shares.

Dan Khamis: Well, just based on your cash, that is $2.50 a share, I think, if I am computing this right, assuming you have about 1.8 million shares outstanding. One question on the cash. I think you had 1.4 at the end of the last quarter, the Q2, and you got 2.3, but suddenly you have 4.5 now. That is not the 800K in hardware. You pulled in some of the receivables or something in this quarter, or something like that happen? How did you get that extra cash?

Speaker #5: Outstanding. One question on the cash. I think you had $1.4 million at the end of the last quarter, the second quarter, and you got $2.3 million.

Speaker #5: But something—you have $4.5 million now. That's not the $800,000 in hardware. You just pulled in some of the receivables? Or something? In this quarter, or something like that happened?

Speaker #5: How did you get that extra cash?

Speaker #4: I'm a little confused. I think CC didn't understand your question.

Mike DePasquale: I am a little confused.

Dan Khamis: Well, so.

Mike DePasquale: I think, CC, I do not understand your question.

Speaker #5: Yeah. Yes, we have collected receivables from the June close through July, okay, and added more. Okay, that's good. All right, last question.

Cecilia Welch: Yes, we have collected receivables from the June close through July.

Ceci Welch: Yes, we have collected receivables from the June close through July.

Dan Khamis: Okay.

Cecilia Welch: added more.

Ceci Welch: added more.

Dan Khamis: Okay, that is good. All right, last question. In your 2025 10-K, I saw the line, "We expect that the growth in revenue will alleviate our going concern within the next 12 months." I am not sure. Has that line remained in the recent Q?

Speaker #5: In your 2025 10-K, I saw the line, "We expect the growth in revenue will alleviate our going concern within the next 12 months."

Speaker #5: I'm not sure. Did that line remain in the recent Q?

Speaker #4: Well, it's CC handled that.

Mike DePasquale: Oh, Cece handled that.

Mike DePasquale: Oh, Ceci handled that.

Speaker #5: Oh, no. Yeah. No, that did not remain. But normally, the end of the year is where it matters the most. So, and that's where we're headed, so.

Cecilia Welch: No, that did not remain, but that's normally the end of the year is where it matters the most, and that's where we're headed.

Ceci Welch: No, that did not remain, but that's normally the end of the year is where it matters the most, and that's where we're headed.

Speaker #5: I see. So, you guys—is that still something that you feel is valid? I mean, what has to happen? What do the auditors or SEC regulations say about allowing you to say something like that?

Dan Khamis: I see. So you guys, is that still something that you feel is valid?

Cecilia Welch: Yes, absolutely.

Ceci Welch: Yes, absolutely.

Dan Khamis: What has to happen? What do the auditors or what does the SEC regulations say about allowing you to say something like that? Because I don't think I've ever seen that in any of your 10-Ks.

Speaker #5: Because I don't think I've ever seen that in any of your 10-Ks. Well, the auditors approved us saying that, so.

Cecilia Welch: Well, the auditors approved us saying that.

Ceci Welch: Well, the auditors approved us saying that.

Speaker #4: I think, Dan, it's pretty straightforward, right? You're on the right path, meaning that you're crossing the line between using cash and being cash-neutral.

Mike DePasquale: I think, Dan, it is pretty straightforward, right? It is you are on the right path, meaning that you are crossing the line between using cash and being cash neutral. You have enough cash on the balance sheet to operate the business for a couple of years, even with the burn that you have. So that gives you comfort to say, "Listen, this is not a going concern scenario, because if there is a blip or a downturn, the company has enough of cash to continue to operate." It is not that complex.

Speaker #4: You have enough cash on the balance sheet to operate the business for a couple of years, even with the burn that you have. And so that gives you comfort to say, "Listen, this is not a going concern scenario, because if there's a blip or a downturn, the company has enough cash to continue to operate." I mean, it's not that complex.

Speaker #5: Okay, okay. Hey, I appreciate all the time you guys gave me. Thank you.

Dan Khamis: Okay.

Mike DePasquale: That is it.

Dan Khamis: Okay.

Mike DePasquale: That is it.

Dan Khamis: Okay. Hey, I appreciate all the time you guys gave me. Thank you.

Speaker #4: You're welcome.

Mike DePasquale: You are welcome.

Speaker #3: Seeing no further questions, this concludes today's Q&A session. I'll ask Mike DePasquale to provide closing remarks.

Operator 2: Showing no further questions, this concludes today's Q&A session. I will ask Mike DePasquale to provide closing remarks.

Operator: Showing no further questions, this concludes today's Q&A session. I will ask Mike DePasquale to provide closing remarks.

Speaker #4: Thank you again for joining today's call. We genuinely appreciate your continued interest in BIO-Key, and I look forward to updating investors on our progress during our next call.

Mike DePasquale: Thank you again for joining today's call. We genuinely appreciate your continued interest in BIO-key, and I look forward to updating investors on our progress on our next call. We will be participating in the H.C. Wainwright Conference in mid-September. As always, we will continue to update investors via press release on significant developments in the interim. If you have any additional questions, please reach out to our IR team, whose contact information is provided in today's press release. Thank you everyone, and have a terrific weekend.

Speaker #4: We will be participating in the HC Wainwright Conference in mid-September. As always, we'll continue to update investors via press releases on significant developments in the interim.

Speaker #4: If you have any additional questions, please reach out to our IR team, whose contact information is provided in today's press release. Thank you, everyone, and have a terrific weekend.

Operator 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.