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DATE

Friday, Aug. 14, 2026, at 10 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer-Michael W. DePasquale
• Chief Financial Officer-Cecilia C. Welch
• Investor Relations-William Jones

TAKEAWAYS

• Total Revenue -- $1.92 million, increasing 13% year over year from $1.7 million in the prior-year period.
• License Fee Revenue -- $1.2 million, representing 53% growth versus $800,000 in the second quarter of 2025 due to several new customer agreements.
• Hardware Revenue -- $460,000, decreasing 19% from $569,000 in the prior-year quarter due to a delayed shipment for a large order pushed into the second half of 2026.
• Service, Maintenance, and Other Revenue -- $231,005, a 28% decline from $322,000, reflecting lower nonrecurring service revenues from product customization and the timing of contract renewals.
• Gross Profit -- $1.7 million, increasing 36% from $1.2 million in the second quarter of 2025.
• Gross Margin -- 87%, up from 73% in the prior-year period driven by high-margin license fees and sales of previously fully reserved hardware inventory.
• Net Loss -- $577,000, or $0.56 per share, representing a 51% improvement compared to a net loss of $1.17 million, or $2.10 per share, in the prior-year quarter.
• Operating Expenses -- $2.2 million, a 5% decrease reflecting cost containment efforts in selling, general, and administrative areas.
• Cash Position -- Over $4.5 million, supported by $1.4 million on hand as of June 30 and gross proceeds of $2.5 million from a warrant transaction in August.
• Accounts Receivable -- $1.7 million, as reported at the end of the second quarter.
• Inventory -- $375,740, reflecting current holdings as of June 30.
• Six-Month Net Loss -- $782,000, or $0.75 per share, representing a 59% improvement compared to $1.9 million in the first half of 2025.
• Warrant Transaction -- $2.5 million in gross proceeds raised from the exercise of 618,334 warrants at $4.06 per share.
• Note Balance Reduction -- $350,000, representing a 51% reduction of the outstanding debt to $325,000 in exchange for 81,100 shares.
• Second Half Outlook -- Management is targeting revenue growth and profitability for the second half of 2026.
• Stockholders' Equity -- $4.3 million, as reported at the conclusion of the second quarter.
• Authentication Market Forecast -- $26 billion this year to over $114 billion by 2036, representing a 16% compounded annual growth rate according to management citations.
• Public Sector Reach -- Alabama's AOD Federal Credit Union deployed the company's biometric solution for its more than 37,500 members.
• Warrant Issuance -- 1.2 million new warrants issued at an exercise price of $4.06 per share.

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RISKS

• Michael W. DePasquale stated, "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," noting that the order delay negatively impacted quarterly results despite expectations to ship it in the second half of the year.

SUMMARY

Management reported that BIO-key International (BKYI -0.94%) achieved 13% revenue growth and a 51% improvement in net loss during the second quarter, driven by strong license fee expansion and improved gross margins. The company completed a capital raise and debt reduction following the quarter's close to strengthen its balance sheet and support a move toward profitability in the second half of 2026. The company stated its international expansion in the Europe, Middle East, and Africa region remains a primary growth driver, supported by national-scale initiatives in Jordan and Portugal. Strategic focus has expanded toward securing the artificial intelligence ecosystem, where biometrics are intended to provide accountable human oversight for autonomous system actions.

• Chairman and CEO DePasquale stated, "human oversight of Agentic operations really is a killer app opportunity for biometrics," as the company targets the security gap where AI agents currently outnumber human users 100 to 1.
• In the Middle East, the Central Bank of Jordan selected the company for a national initiative to modernize authentication across the financial sector using PortalGuard and WebKey technologies.
• The company regained compliance with NASDAQ listing rules in July after completing a 1-for-10 reverse stock split and resuming trading on the capital market.
• Management reported that the go-to-market model is scaling through partners, who now develop roughly half of domestic new business and nearly all international business.
• DePasquale noted that the transition from Swivel Secure products to higher-margin BIO-key solutions is accelerating, with partners rapidly adopting the biometric components for their customer bases.
• The company is utilizing fully reserved hardware inventory, originally purchased for projects delayed by the pandemic, which contributes 100% gross profit when sold.

INDUSTRY GLOSSARY

• Agentic AI: AI systems capable of taking autonomous actions to achieve specific goals, often requiring human oversight for high-stakes decisions.
• EMEA: A regional designation encompassing Europe, the Middle East, and Africa.
• FIDO Alliance: An industry association focused on reducing reliance on passwords through open standards for secure authentication.
• IAM: Identity and Access Management, a framework for ensuring the right individuals have the appropriate access to technology resources.
• IDaaS: Identity as a Service, a cloud-based authentication and identity management platform.
• MFA: Multi-Factor Authentication, a security process requiring more than one method of authentication from independent categories of credentials.
• Passkeys: A digital credential used as a password replacement that provides faster, easier, and more secure sign-ins to websites and apps.
• PortalGuard: The company's identity and access management platform supporting multiple authentication factors.

Full Conference Call Transcript

Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's Second Quarter 26 Conference Call. During management's prepared remarks, all participants will be in a 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, 08/14/2026. I will now turn the call over to Bill Jones of Investor Relations. Please go ahead.

William Jones: Thank you, Chloe. Hosting today are BIO-key's chairman and CEO, Mike DePasquale and its CFO, Cecilia C. 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. For a more complete description of these risks, our report on Form 10 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. Now I will turn the call over to Mike to begin. Mike?

Michael W. DePasquale: Thanks, Bill, and thank you all for joining us this morning. After my remarks, C.C. will review the financials and then we will take investor questions. 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. 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 second half of the year.

Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth and are targeting profitability for the second half of 2026. So let me spend some time talking about what is driving our outlook. 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 that 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. 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 pass keys for employee sign in. In addition to our biometric and passkey passwordless solution, 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, 1 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 MaktabiTech to bring PortalGuard including passwordless authentication, and identity bound biometrics to educational institutions in Saudi Arabia. Supporting their Vision 2030 digital transformation agenda. 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 WebKey technologies to move away from passwords and tokens entirely. We believe 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. Turning to Europe, a national security agency in Portugal selected BIO-key and our in country partner, Visualforma, to deploy PortalGuard and WebKey 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 1 successful public sector deployment can help foster additional opportunities as trust and reference relationships continue to build over time in the U.S., Alabama's AOD Federal Credit Union which serves more than 37 thousand 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 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. 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. In the second quarter, we completed a 1-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. 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. 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 virtually all of our international business, is developed through our channel network. 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 operations really is a killer app. Opportunity for biometrics. 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 reputable authentication and approval for material AI agent actions. This 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 nonhuman identities as service accounts bots and AI agents now outnumber human users inside many enterprises by more than 100-to-1. And most organizations have no reliable way to tie an agent's actions back to an accountable person. And 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 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 Passkey:YOU 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 C.C., 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. it is a genuinely exciting time for BIO-key as the work we put into this business over many years is increasingly being recognized 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 C.C. for her financial review.

Cecilia C. 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 26 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 thousand reflecting several new customer license agreements signed during the quarter. Hardware revenue decreased 19% to $460 thousand from $569 thousand 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.

Compared with a large deployment for a long term customer in the prior-year period. Service, maintenance and other revenue decreased 28% to $131 thousand from $322 thousand due to lower non recurring service revenues tied to product customization and the timing of recurring revenue service agreements renewals. The first half 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 25 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 is been fully reserved, those sales carry 100% gross profit contribution. 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 26 net loss improved to $577 thousand or $0.56 per share compared to a net loss of $1.17 million or $2.10 per share in Q2 2025. A 51% improvement. For the first half, our net loss improved 59% to $782 thousand or $0.75 per share compared to $1.9 million or $2.61 per share in the first half of 2025. Weighted average common shares outstanding and per share results reflect an impact of the April 30, 1-for-10 reverse stock split as well as warrant exercises and other financing activities through June 30. 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 the quarter end. Including $1.4 million of cash and $1.7 million of accounts receivable. And $176 thousand of inventory. Following the quarter end, we reduced the outstanding balance due for our outstanding note by $350 thousand or 51%, to $325 thousand in exchange for the issuance of 81.1 thousand BIO-key shares. 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 share sale of 681 thousand 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. 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, we are targeting profitability for the second half of the year. Operator? We can now proceed with questions and answers.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, please press star then 1 on your touchtone phone. 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 2. 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.

Jack Vander Aarde: Okay. Good morning. Great update, Mike. Thanks for taking my questions.

Michael W. DePasquale: So 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, large hardware order that got pushed into the second half, Do you have any line of sight there visibility how that is going to be allocated as it ships and is it gonna be allocated across both the third and the fourth quarter? it is hard for me to say right now. We would like to see it all ship in the third quarter, but we will see as things evolve.

But more importantly, Jack, that is not the only large order or let's say project or contract that we are working on for the second half. 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. So 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 is or are the value of those contracts.

So the reason that we are enthused and excited about continued growth in the second half and obviously getting to profitability is we need just a couple of those large ones to fall. And we should easily get there. But that is so it is that order and many others that we are working on in the second half as well in our pipeline.

Jack Vander Aarde: Okay, great. No, I appreciate all that. Of course, things are 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 second quarter. I just want to kind of housekeeping question. Normally, you have that a slower third quarter sometimes in the licensing front because of EMEA. And now things have changed a little bit in your business model, but is, do we expect growth across, I guess, all the segments as well then in the back half?

Michael W. DePasquale: Including license revenue? Yes. Well, first of all, revenue is growing and that is really what we are after, right? I mean that is what drives our gross margin and maintaining a high gross margin because most of our customers who buy are biometric identity bound biometric solutions. buy both hardware and software. But for sure, the third quarter given again EMEA, like right now, virtually everyone is off right in August. So things do not pick up until the first or so, first, second week of September. 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. So yes, I think I think we are going to continue to see growth across the board. And license is what we are after, right? that is the business here, recurring revenue, signing customers up, getting more contracts in play, and building a recurring revenue base. That and maintaining our expense levels, we had a little bit of a blip in second quarter with onetime expenses but that was a 1-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 that is most of what we sell drops to the bottom line.

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

Michael W. DePasquale: Well, there is no further dilution expected. that is for sure at this point. We have adequate cash resources not only to operate our business, but to continue to invest in the areas as I mentioned, around AgenTek AI and securing that whole ecosystem right now is really a wonderful opportunity for biometrics and no 1 does it better than us. I mean, it is pretty clear and we have 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 do not work.

And because, again, users cannot have, for example, a phone in their hand if they are in a service bay or they do not want them with a phone in a call center where you can take photographs of customer records and that kind of thing. So we have got the perfect solution. And our Passkey:YOU offering, which is now ramping is going to be a really big benefit for us. So we are we are just really optimistic about being able to take advantage of that. But yes, we are not anticipating any additional dilution at this point.

We have got adequate cash on hand to continue to operate our business, and we would like to keep working capital at the highest level we can. It gives us credibility with our prospects and our customers. And so that was the impetus behind doing this last race that we did.

Jack Vander Aarde: Okay. Great. Great to hear. And just because you mentioned it, maybe 1 more question is Passkey:YOU. Just do you have like 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 kind of what does that make up in terms of BIO-key's overall revenue mix?

Michael W. DePasquale: Well, we are just scaling things, but things going forward. it is hard for me to, you know, to give you a percentage, but it is the kind of solution to maybe put it in context. it is a solution that can be sold anywhere to anyone even if they are running today a competitive offering. So 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 could be utilized today. Without changing out their infrastructure. So that is pretty powerful. We do not really know what the potential is over the next probably 12 months. But it is significant. And as we continue to right now we are in a number of different evaluations and pilots with some large customers. As we get more data and information on that, I think we will be able to predict. But at this point, we know it is large, We will 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 can be even bigger. It could be really significant. But we have work to do. Excellent. Well, great to hear, Mike. I appreciate all the time, and I will hop back in the queue. Thanks.

Operator: Thank you. The next question comes from Dan Khamis Private Investor. Please go ahead.

Dan Kamhis: Good morning. Just some hi. The of Jordan? The release said there was a-- that the Central bank was developing an initiative Does that mean that they are studying what they wanna do? Or have they been-- are you contracted and actually receiving revenues? Like in the second quarter or expected in the third quarter?

Michael W. DePasquale: Yes, we are and we are expecting it to be much more significant going forward. So in the second half and then obviously into the first part of 27. As we described in the 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 ARR, it certainly has that potential and capability, but we will crescendo to that over the next probably 2 to 3 quarters.

Dan Kamhis: I see. Will you be selling hardware? Both hardware and software.

Michael W. DePasquale: But obviously, our focus is on the software, right, the user accounts. that is that is always driving well, again, our blended gross margins are really, really good. 75% plus. But obviously software is a higher gross margin.

Dan Kamhis: I see. So what has to happen for you to actually ramp up and make some of these bigger sales? Is there some There-- we are really in the-- in the deployment planning stage right now.

Michael W. DePasquale: it is how we go from point a to point b and there is a lot of work when you are doing a deployment this large, right? there is not only logistics, there is everything. Right? Provisioning, logistics, all that kind of stuff. So we are in the planning stages with them right now.

Dan Kamhis: I see. But my question is, is this like a pilot where they have they will then decide whether they want to continue to ramp?

Michael W. DePasquale: No, no, no, no, no, no. We are well beyond that. So we have been selected. I think the press release was clear on that as was the quote from the senior cyber resource who is been working with us.

Dan Kamhis: I see. And was that a competitive bid? Believe it or not, it was a competitive situation and we were selected sole source. Okay. All right. Let's switch to the Portugal release. How do we estimate the value of the rollout of BIO-key's and biometric authentication technologies to the Portugal's public sector ecosystem Is your margin and what is your margin considering your partnering with Visualforma?

Michael W. DePasquale: The margins are the same. Typically, a partner, it could be Visualforma or it could be DLT, it could be any 1 of our partners domestic or international. 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 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. And so generally they get a discount on the software and then they are providing services to the customer, right? And that is where they really make most of their money, right?

They get obviously, they get a margin on selling the product, but their real business providing the services and all of the support to the end customers. And 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 distributor. So that is the way that model works. And it really is a force multiplier. And we bought the Swivel Secure Europe business when we bought it 4 or 5, almost 5 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?

And we were always planning on a transition from selling the Swivel product to BIO-key product, right? The Swivel product had a 50% gross margin. Our BIO-key products have margins that are significantly higher than that. 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, 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. Okay.

And the first part of that question was how do we value the rollout to the public sector Well, you know, you are talking about a country, you are talking about a public sector component in, what 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. And 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 4 to 6 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.

Dan Kamhis: 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? Something like that? Is what we are looking at?

Michael W. DePasquale: Well, again, if you are thinking about state and local, that is 1 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 full EMEA region, not just in Europe. In the Middle East. I mean, at look at the way the countries in The Middle East are ramping from a defense initiative perspective, from an intelligence perspective, And the fact that and this is what-- 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. And they are buying a lot from us on the defense side, right, not just weapons and but we are collaborating from an intelligence perspective. We are collaborating from a financial perspective. So I mean, I just think the potential is incredible.

Dan Kamhis: Got it. We will start with the 1 other thing, Dan. And we have references. Like real references. So 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. Yes, understand. On Saudi Arabia, I found it interesting that they were interested in your technology or your education or technology for education, not necessarily for finance and defense. Is there an opportunity there?

Michael W. DePasquale: 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. And we have the references in other applications where it is being used. And so here, too, 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 1 of them. We have a very large project in healthcare in a Middle Eastern country that we are deploying right now. You know, a lot going on.

Dan Kamhis: Okay. Well, you said Jordan was not, was sole source. Is that true of these some of these other ones too? Or are there any is there any competition? I am just kind of wondering who are you competing against on these?

Michael W. DePasquale: Yes, 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 not necessarily authentication, and they need an authentication partner, someone who has flexibility and someone who provides the biometrics like we do, which is very unique And so that is why you know, our business is growing. it is-- it is the relationships with the partners and the big technology companies that are driving these large contracts on these international opportunities.

And that is where our group in particular in EMEA, has done an incredible job. And they have 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. 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. Scale the business.

Dan Kamhis: Got it. Let's move to The U. S. The U. S. Financial system seems to me like it is 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 U. S?

Michael W. DePasquale: I think it is, Dan. I think that the whole first of all, the cyber attack acceleration, especially since we have been engaged with international altercations and geopolitical stuff that we are going through is kind of escalating. that is number 1. Number 2, I think the Agentic AI situation has everyone on edge. And you are right, biometrics in general, right, there was this perception that biometrics infringed on privacy and The U. S. Was all about protecting your privacy, not caring necessarily about your security. Well, I should not 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 does not impinge or impinge on your privacy. And that perception of biometrics potentially impinging on privacy is really starting to move. And I think consumers are starting to recognize that as well. And they are also recognizing the convenience of a biometric. They are also seeing that the traditional SMS multifactor type authentication that the hard token that we have been using for years to validate accounts are away. I mean, Microsoft announced it fundamentally that they are they are killing SMS authentication in an Entra over the next couple of quarters and they are going to pass keys.

So passkeys, 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. And it is going to happen pretty quick.

Dan Kamhis: I see. Is there an opportunity with Microsoft there to partner? Any way?

Michael W. DePasquale: I would like to say yes. But on the other hand, if you look at Google and Microsoft, Google Authenticator and Microsoft with Entre, they have kind of gone it alone, I should say. And they are trying to entrap all of their customers into utilizing everything that they make available Most of the high end more experienced CSOs are rebelling against that. Because they do not want all their eggs in 1 basket. And so 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.

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. And now you are you are already using the solution and it is very difficult to switch out. So 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 belly wick and you want to use it. that is our differentiator.

Dan Kamhis: 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? Identify later.

Michael W. DePasquale: Well, that is that is a simple 1, Dan. What stops that is the ecosystem that 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. Somebody really wanted your fingerprint, they could lift it. I mean, again, this is all theoretical. Right? Your face is surveilled. You walk through James Square, it could be now, it could be 500x. I used to say 200. It could be 500x. Your bases surveilled in you know, if someone wanted your face, they could take a picture of your face.

What makes biometrics systems secure and protect from agentic scenarios is the ecosystem around the biometrics. So what is that? that is live ness detect, right, to ensure that it is real and your face is real or your finger is real or your palm is real. Or your you know, your iris is real. So that is number 1. 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. So what are we doing?

We are algorithmizing 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 1 place to another, whether it is on device or it is into a central system to match and back down for approval, to let's say, a mobile device, a phone or a tablet or a computer. So it is that secure ecosystem that protects against that agentic-- potential agentic formation. And that is where we have 30 years experience in doing that. And why? In very high profile, very high profile, high secure venues and environments, WebKey, our product, are 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 No, no, that was good.

Dan Kamhis: I got it. 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? $2.5 million Is that net or gross?

Michael W. DePasquale: there is a commission for the bankers was 5%. So I guess $2.2 million, $2.350 million, somewhere in that range, 2.3 million to 2.4 million Okay.

Dan Kamhis: So does that mean I think there were 600 thousand of them, you had 1.1 million 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?

Michael W. DePasquale: Yes. So the way that works, and you can look at the filings, right, it is all detailed out there in the ks 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. So they will buy or they bought all the warrants and they only take ownership of 9.9% at a time. Of the warrants and the rest are held in a band. The company gets the money upfront, right, because we they exercised all of the 1.18 million warrants that they have. So the answer is no, they will never own a third of the company. I see.

Dan Kamhis: And do we know how many of the warrants have been exercised so far? Well, they have all been exercised.

Michael W. DePasquale: How many of them have been taken out of the bands? I would say nearly half. Give or take.

Dan Kamhis: I see. Okay. So quite a few. Quite a large number. 275 thousand 300 thousand in that range, 300 thousand give or take have already been taken out of abeyance. So about half in the last 4 days. I mean that by itself, I guess, could explain some of the price drop.

Michael W. DePasquale: In the stock. But still, why you just Yes, there is no question. I mean that is 1 thing. But again, it is also the general market. I have been watching 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. And there seems to be a mantra in the market this past couple of weeks and it is so 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%.

So I do not think you can look at the stock price 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 you know, it is what it is. But, you know, look, we have we clearly were disappointed in our anticipated revenue for the second quarter again, that hardware order would put us way well over the top and obviously would have been a profitability. So that is 1 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, very strong right now. Our equity position is very, very strong right now. Having a few more shares outstanding strengthens our compliance requirements and so forth. that is very positive. 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, and we will catch up. We will catch back up. I am sure. 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.

Dan Kamhis: Well, cash is I think you are just based on your cash, that is $2.50 a share. Think, if I am computing this right, assuming you have about 1.8 million shares outstanding, 1 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. But something I you have $4.5 million now, not the $800 thousand in hardware. You just you pulled in some of the receivables something or in this quarter or something like that happened? How did you get that extra cash? I am a little confused. I think, Stacy, I understand your question.

Michael W. DePasquale: Yes. Yes, we have we have collected we have collected receivables from the June close to through July. Okay. And added more. Okay.

Dan Kamhis: that is good. All right, last question. In your 10 ks, the 30 ks, I saw the line, we expect the growth in revenue will alleviate our going concern within next 12 months. I am not sure. Has that line remained the recent queue?

Cecilia C. Welch: Oh, it is CC that yeah. No. That did not remain. But, that normally, the end of the year is where it matters the most. So and, you know, that is that is where we are headed. So I see.

Dan Kamhis: So you guys is that still something that you feel is valid? I mean, has to happen What are the what are the auditors or what are the SEC regulations say about allowing you to say something like that? Because I do not think I have ever seen that in any of your 10 k's.

Michael W. DePasquale: Well, the auditors approved us saying that. So I think 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. And 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 cash to continue to operate. I mean, it is not that complex.

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

Operator: You are welcome. Showing no further questions, this concludes today's Q and A session. I will ask Mike DePesquale to provide closing remarks.

Michael W. 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 And as always, we will continue to update 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.

Operator: The conference has now concluded. Thank you for attending today's presentation. May now disconnect.