BKYI

Good morning, everyone. Thank you for standing by, and welcome to the BIO-key International's first quarter 2026 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 call is being recorded today, Monday, May 18th, 2026. I would now like to turn the call over to Mr. William Jones of Investor Relations. You may proceed.

Thank you, Chuck. Hosting today are BIO-key's Chairman and Chief Executive Officer, Michael DePasquale, and its Chief Financial Officer, Cecilia Welch. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as anticipate, believe, expect, plan, and project or similar words identify and express forward-looking statements. Such 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 risks and uncertainties which affect future performance, please see risk factors in the company's annual report, Form 10-K, as 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 these statements to reflect circumstances or events occurring after this call. Now, I'll turn the call over to Michael DePasquale to begin.

Thanks, Bill, and thanks to everyone for joining us today. After my remarks, CC will review the financials, and we'll open up the call to investor questions. Our Q1 2026 results and Q2 2026 outlook reflect the benefit of our team's hard work, particularly over the last year. We're also seeing expanded appreciation for the unparalleled value that our biometric identity and access management solutions provide in securing mission-critical applications and data. Borrowing the old phrase, BIO-key has built a powerful suite of biometric solutions with the belief that customers will come. That strategy is really starting to play out for us in a meaningful way, and I will discuss that. Our Q1 2026 revenues reflect both new customer wins and growing long-term customer deployments in defense and financial services.

Last year, we launched our defense and intelligence cybersecurity initiative, targeted primarily in foreign markets for more secure identity and access management solutions. Our customer base now includes several of the world's most prominent and significant defense organizations, and our success in meeting their strategic needs is proving very valuable in supporting new opportunities. It's not just government, defense, and highly regulated industries. We're also seeing traction with enterprise customers, particularly in EMEA and the EMEA markets. Our progress in these regions is supported by an expanding base of strong regional distribution partners as well as foreign regulatory frameworks that are favorable to our strong biometric options. Outside of EMEA, we have also added new partners in India and Vietnam, where we are seeing solid opportunities in future periods as these partners ramp up their marketing and sales efforts.

To better reach public sector opportunities in the U.S., which often require working with a pre-approved vendor, we recently partnered with DLT Solutions, a division of TD SYNNEX, the world's largest IT distributor and solutions aggregator. TD SYNNEX, SYN-SYNNEX employs 23,000 people globally and offers a massive portfolio of IT hardware, software, cybersecurity, and cloud services to over 150,000 customers in more than 100 countries. While DLT is their kind of public sector arm domestically. We're integrating our PortalGuard IAM and Passkey:YOU biometric solutions into DLT's platform of offerings. The partnership provides a streamlined procurement path, enabling their extensive base of public sector customers to easily purchase and deploy our solutions, many of which face mandates to adopt zero trust digital infrastructure and implement multi-factor authentication.

With our solutions, customers can easily meet these requirements and anchor digital access to a person rather than to just a device. We're working closely with the DLT team to help them educate public sector customers on the solutions and compelling ROI that BIO-key can provide. On our year-end call, I reviewed several factors that are shaping the market for our solutions today, so I'll just provide a brief overview of those. First, the continued expansion of digital services and mobile use cases that require secure authentication is widening our market opportunity.

Second, we believe demand for the secure digital access BIO-key uniquely provides will continue to expand as organizations confront a more sophisticated and persistent cybersecurity threat landscape. Third, we expect passwordless authentication to continue to gain traction and become the standard this year and beyond as enterprises look to reduce risk from phishing, credential reuse and misuse, as well as account takeover attacks. BIO-key enables unique and highly secure passwordless solutions. Fourth, biometric authentication should see growing adoption in the highest value use cases, as we've seen in military, defense, financial services, healthcare and other highly regulated industries where security and trust are most critical. Fifth, the rise of AI-driven threats really escalates the need for more resilient identity strategies that surpass vulnerable yet widely deployed authentication methods like phones.

Finally, the market is moving towards more unified access platforms that unite workforce, partner and privileged access under a single flexible foundation. These trends play directly into BIO-key strengths, and we are starting to see them in our financial results. Today, our business is predominantly a subscription-based business with recurring revenues. Approximately 50% of our new business comes through our partnership model domestically. As I've mentioned a number of times before, 100% of our business is sold through channel partners internationally, providing a very efficient and more importantly, scalable model. I also want to mention that we launched a new website in mid-April that is designed to better support our partners and customers in understanding how BIO-key can meet their needs. We believe it's an important step to support our growth goals.

I wanna thank our team who put a lot of hard work and effort into this launch, I encourage investors to review it at www.bio-key.com. As always, we welcome any feedback that you can provide. From a financial standpoint, BIO-key is in a solid position to continue to fund our growth. We ended Q1 with a book value of $7.6 million or approximately $7 a share, including over $2 million or $2.07 per share in cash. We expect this position to continue to hold or improve as we approach the second quarter, the end of the second quarter. As we mentioned a few days ago, our shares were recently suspended from Nasdaq.

Today, we are actively working to return our shares to the Nasdaq Capital Market and have secured an appeals hearing, which will be held on June 16th, which is next month, about 4 weeks from tomorrow. In the interim, our shares continue to trade on the OTC Markets under the symbol BKYY. Although we cannot be certain of the success or timing of the panel's decision, our advisors believe there is reason for optimism regarding a return to Nasdaq trading by the summer. In summary, our business is off to a very strong start and we are confident in our first half outlook and very optimistic regarding the balance of the year and beyond.

After years of hard work, we believe BIO-key has never been better positioned for growth and improved financial performance, and we will continue to update you, all of our shareholders, on our business and listing process as we proceed forward. With that, I'll turn the call over to Cecilia Welch to review the Q1 financial results.

Thank you, Mike. We released our results this morning via press release. We plan to file our 2025 Form 10-K this week, after which we will file the Form 10-Q and be up to date on our filings. Let me provide a brief overview of our Q1 results. Keep in mind that the review of our financial statements has not yet been completed by the independent public accounting firm. Results are therefore subject to adjustment. In Q1 2026, our revenues increased 34% to $2.1 million versus $1.6 million in Q1 2025. With the current year benefiting from expanded one-year software license renewal from a long-time banking customer who's serving over 30 million clients with our biometric identity solution. Overall, the license fee revenues increased 24% to $1.4 million.

Our hardware revenue increased more than 100% to approximately $531,000, due to increased purchase from biometrics hardware solutions, including hardware sales related to a foreign defense ministry defense expansion, as well as the sales from our previously fully reserved inventory. In line with revenue, our Q1 gross profit grew 33% versus the Q1 2025 $1.8 million, and we maintained a strong gross margin of 82% in both periods. This compares to the first year gross margin of 77.5% in 2025 and 81% in 2024. Gross margin benefited both in high margin license fee revenue and the sales of the fully reserved inventory. Our operating expenses were approximately $2 million in Q1 2025 and Q1 2026, as higher R&D was offset by lower SG&A expenses in Q1 2026.

Higher revenue and gross profit combined with relatively flat operating expenses led to a net loss improvement of $165,036, or $0.15 per share. In Q1 2026 versus the net loss of $736,545, or $1.57 per share in Q1 2025. Per share amounts and weighted average shares outstanding reflect the impact of the company's April thirtieth 1-for-10 reverse split, warrant exercises and other financing activities. Share counts are provided in today's press release. Turning to our financial position at 3/31/2026, our book value was $7.6 million or $7.04 per share, compared with $7.7 million or $7.07 per share at year-end.

IoT had approximately $4.5 million of current assets, including $2.2 million of cash and cash equivalents, and $1.6 million of accounts receivable. This compares to December 31, 2025, when IoT had current assets of $4.5 million, including $2.7 million of cash and $1.2 million of accounts receivable. As Michael DePasquale mentioned, we expect to be profitable and cash flow positive in Q2. Operator, we may now proceed with the questions and answers.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one 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 two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Jack Van Der Rohe. Please go ahead.

Hey, good morning, guys. Good morning, Mike, Cece. Congrats on the strong results and strong fundamental outlook. Obviously, there's been a noise here, and it's unfortunate with the Nasdaq delisting, but it sounds like things are on track. It sounds like you feel good about it. I guess there's maybe some housekeeping questions, Mike, just quickly. The Nasdaq appeal meeting's coming up, I think next month, you said. That puts you on track to get relisted. Just to revisit those comments quick. The ten-K sounds pretty confident that that's gonna be filed by next week. Can I just get a confirmation on that?

Yes. Thank you. By the way, good morning, Jack. Yes, our hearing was scheduled on Friday. We got notice that it was scheduled for the 16th of June. We're, you know, in the process of preparing for that. We expect that, as I mentioned in my prepared remarks, that we will get through that process and, God willing, without any bumps in the road, be fully compliant all the way around and get back on the capital markets, certainly, maybe late June or July. It depends on the timing for that panel. Everything is in motion there, and our advisors are very confident that we have, we should be optimistic about being able to do that.

You know, we traded for 9 days above $1 before we got suspended, which was a statutory scenario with the Nasdaq. It's their process. You know, that was our only issue at the time. We will get back on and we'll keep everybody posted as we proceed forward. That's for sure going to happen. As it relates to the filings, yes, we expect that we'll get everything filed. We're hoping to have both the K and the Q filed this week, so we will be fully compliant and up to date on everything out there. That's it.

Okay. No, I appreciate all that. That's very clear. These results seem to give you a good leg in that race, I would say, to get back to status. That's great to hear, Mike. Maybe just in terms of the cash and the balance sheet and given these, you know, recent results here, which it sounds like you're on track for potential profitability here. No issues with funding your existing growth initiatives, and also with just your customer discussions. There's no any implications there or distractions with the Form 10-K and the Nasdaq? Just to clarify, one more question there.

No. Quite frankly, no. I think you know, we have a very broad portfolio of customers in virtually every sector of the economy. You know, many of them have been with us for many, many years when we were an OTC company and then uplisted to the Nasdaq. It really isn't impacting anything that we do. We're on a greater solid footing from a financial perspective than we probably have been in many, many years. We have enough money to obviously operate our business and to continue to invest in the growth initiatives that we have. As I mentioned, it's all about scale for us right now. We've got a great product. We continue to improve and evolve that product as is required and is necessary.

We have built a very strong partners network, especially internationally. It's really in our hands right now just to continue to scale this business. It will scale very profitably, as you can see. You know, our gross margins have been hovering in that 75%-85% range for years. That will continue to be as we scale revenue into the $5 million-$10 million range on a quarterly basis. You can imagine what will drop to the bottom line.

Excellent. You know, Mike, just looking at your outlook, for the second quarter/the first half of this year, it's significant progress from last year, obviously, and also just historically, in recent memory. I guess, like, what's going on in your, I guess, pipeline here, your go-to market? Do you have more visibility than you've had in, you know, in the past two, three years in terms of this demand funnel? All of a sudden, you have this $5 million of revenue it looks like set up for the first half. How's the back half looking to you? Are you already thinking ahead that far?

Well, it looks very good. It looks very strong. I mentioned that in my prepared comments. There's no question we have better visibility. What's happening, Jack, is we are, first of all, we're going after larger opportunities. You know, when you have $500,000-$1 million or over $1 million transactions in the pipeline, and they're with larger partners who have, you know, very strong positions in those end user customer environments, the confidence goes up, right? It doesn't mean, again, you win every deal. We have a very strong pipeline for 2026. Full year, right? First half, certainly we're very honed in on, and we know exactly where we stand at this point.

For the rest of the year, we have a number of contracts that have already been won, but need to be you know, been awarded, but yet need to be papered, meaning we need to get orders and so forth and so on. We're feeling real good about the entirety of 2026.

Excellent. you know, maybe just if I'm looking at, I guess, the sort of it looks like hardware revenue really picked up this quarter. Is this just I know it could be lumpy, but is this a something that's, you know, a new dynamic that's being integrated in most of your deals that you're seeing now? You do have strong gross margins on the hardware side, it's just interesting to look at 'cause hardware can kind of go up and down while license revenue seems to be more steady. What are you seeing from the hardware side in terms of the deals that you are bringing to the table?

Well, I think, you know, as you close these larger license opportunities, the requirement for hardware is also significant. Many of our Ministry of Defense customers that utilize our technology have to put many touch points in place for access for all of their force members or their staff. Again, it can go hand in hand. As you mentioned, we maintain really good gross margins in our hardware. CeCe mentioned in her prepared remarks that we are selling our fully reserved inventory right now in greater volumes, and so that's going right to the bottom line. Obviously it's all cash and all margin. That's helping us certainly this year and will continue to help us as we evolve through the year.

But again, you know, hardware is part and parcel of our larger opportunities, so it's always gonna be there. Yes, it's certainly more lumpy than the software and license revenue is, but it's still a very strong part of our full and complete offering, which is what customers want. They want a full and complete offering from one vendor, and we provide that for them.

Yeah. Mike, just with all your main, your core verticals, obviously defense, has been very strong, there doesn't seem to be any shortage of development in the geopolitical world here today to keep driving that. Outside of defense, looking at education and financial services, I suppose, where do you see you're having where's the next leg up for you within those two segments? Do you feel like you're growing at Is there an opportunity in education in your business as well as financial services that you're seeing with defense?

Absolutely. We have a really good sizable base in education, as you know, and that's continuing to, you know, evolve. Yes, education is a great market for us. Does it have hyper-growth potential like financial services? No. I believe financial services has significant growth for us. We have been targeting with our partners internationally, national banks, right? The banks in countries that manage the currency. We've had a number of wins. We have a number of opportunities in our pipeline that you're gonna hear about over time as we knock them down. They have a very specific need for ultra-strong authentication. In the international venue, they have no restrictions or very few restrictions in the context of privacy and so forth that we deal with here in the U.S., right, on a daily basis.

Biometrics are a really good option for them because they can positively identify individual staff and the likes who enter their portals or their applications. I think financial services is a very strong and growing vertical for us, and you're gonna hear a lot more about that going forward.

Excellent. Mike, if I could just ask kind of one more semantic question. Just wondering if you could share any thoughts that you may have. Two of the kind of, I guess, growing industry dynamics that are these trends now, especially in the legal world. You have the Clarity Act that's coming up here seems to be moving further with just tokenization, real-world assets, and just crypto in general, given your financial services industry. Also with your cybersecurity and just protecting, you know, biometrics in general, quantum is becoming somewhat of a theme that people are focused on a bit. Just wondering if you have any thoughts on where BIO-key sees or fits in if in these themes of quantum down the road, as well as tokenization and crypto being more mainstream.

Great. Those are two great questions. You know, RWA, right? Real-world tokenization, all that stuff that everyone is hearing about and talking about is certainly evolving, but it's happening much, much slower than anyone had anticipated. I think this year you see it kind of hit the rails because there are other priorities. I kind of feel really good about where we are because we're serving the real world today, their needs and their requirements, while we're investing in things like quantum. You know, all of the latest and newest generation encryption theories around quantum proofing and so forth are all things that are on our plate right now and that we're researching. Don't get caught up in the hype is my comment on both of those scenarios.

Look at where we are today, look at the real-world issues that we have today, and look at real-world solutions that solve those problems today, but also have a perspective for where the puck is going and where we're gonna be tomorrow. Certainly, we're right in the heart of that. I mean, again, if you look at where the money's being spent today and where things are moving, it's taking much, much longer. That's why you're seeing, you know, a number of the companies that fundamentally have no current technology to address issues and problems and are only looking in the future are really struggling. Now, again, it's kinda like AI, right? There's no doubt that AI is currently impacting our lives, personal and business, and it's gonna continue to evolve.

It still has to find its footings, and the companies that are engaged in that technology are gonna come and go. We've been around a long time providing, you know, very, very basic and yet sophisticated, highly secure solutions for some of, you know, the most important applications on the globe. I think, again, you know, we're gonna continue to do that, right? We have proven that we can do that. We've been here for over 30 years.

Excellent. That's.

That's my, that's my perspective, Jack.

No, that's a great perspective, and I appreciate that rundown. It sounds like things are going very well right now for BIO-key. I appreciate the time. I'll hop back in the queue. Thanks.

Thanks, Jack.

The next question will come from Dan Kamys, Investor. Please go ahead.

Hi, guys. Yeah, very nice quarter. That's quite nice. I've got a couple housekeeping questions, I guess. Do you have a cash flow from operations number for the first quarter by any chance? I know you guys don't usually do that, but I'm just wondering.

I'd have to revert to Cecilia Welch. I think we ended the year with about $2.7 million or so in cash, and we ended the first quarter with about $2.3 million. I mean, back of the envelope.

Okay

not that sophisticated, right?

Yeah.

Probably use And timing, right, on collections, receivables, that kind of thing. I think we're pretty solid, let's put it this way. We're not hemorrhaging as we have in the past.

Right. What, Mike, your current ARR run rate, is that now improved with some of these contracts?

Similar, I guess, to answer. You know, it's episodal, right? If you have to look at our receivables, right, from quarter to quarter. I would say, yeah, as these larger projects, you know, land, obviously the receivables are pretty significant. Yeah, I think it's certainly improving as the business is improving.

Okay.

I'll just add, too. It depends on when some of the bigger shipments are, 'cause some of them come at the end of the quarter and, you know, some come at the beginning because we didn't get them the quarter before. Like Mike said, it's episodal based on timing.

Okay. CeCe, can you say how much of the hardware sales was the written-off inventory?

Yeah, it was in the financials, and I don't remember off the top of my head. Bear with me 1 second. Sorry. Too much open up here. Basically $100,000.

I see. I got it. Mike, were these inventory sales, kind of a one-off thing, or was there any software licensing associated with the sales?

There's a combination of both. You know, it's I think we're starting to see, I think it'll be reflected in our results in Q2 and beyond, more significant sales of that reserved inventory.

That's good. If you're profitable from the second quarter, would you be able to offset profits with prior losses to avoid taxes like we've been hoping for years?

You know, I assume. I mean, we have plenty of NOLs, right? Net operating losses. I'm sure our accountants and our tax accountants will help us with that. Yeah, for sure.

Okay. A couple more, conceptual questions, I guess. Is it harder to win the large U.S. contracts in the military and financial area than EMEA? If so, can you give some color on why that might be?

I think what you asked is, why are we so successful internationally on the defense side, and is it more difficult on the U.S. side to win those contracts?

Financial too.

I mean, you know, it's hard to say. I think there's a different dynamic internationally. There's no reticence at all to using biometrics, right? I mentioned in my comments the privacy and, you know, concerns about all the regulatory scenarios like BIPA in the U.S., right? They don't exist internationally. You know, we've had programs in the U.S., like for example, in Texas, where they were using biometrics to manage the food stamp program. The privacy mongers fundamentally, you know, killed that program, and their expenditure went up 4x because people were cheating. We have a different dynamic here in the U.S., and it permeates throughout not only the public sector, but also the private sector as well. That doesn't exist.

It is much less difficult on the international front to deploy these solutions. I mean, I think that's the simple answer. Now, do we have U.S. opportunities? Absolutely. Do we have U.S. customers? Absolutely. Do I believe that business is gonna grow? Absolutely. I do believe that. In particular, I am really excited about the TD SYNNEX DLT opportunity because they're a monster in that space, and they have customers in, you know, every state in the U.S. We are doing really well in state and local government. Like, we have the perfect solution for biometrics, right? For highly secure access. And with a partner that size, it just opens up a whole market for us. Working closely with those partners, that's really the force multiplier in how we're gonna scale our business.

Yeah, I do believe that there's a difference, and I do believe, though, however, there is an opportunity on both sides of the world.

Great. Well, on some of these global bank contracts or financial contracts, defense contracts, can you say who your competition is for these contracts? Again, maybe you've talked about this before, but just to reiterate, what's a differentiator in financial services for you in these global contracts?

It's clearly the full and complete authentication, biometric authentication option that we provide and the flexibility to use 16, 17 other factors. One size doesn't fit all. In banks, for example, in branch or for staff in office, biometrics may be perfect. However, they may have outsiders, meaning outside the physical infrastructure that need to access information. Because we have a full complete platform with PortalGuard, we can provide all of those different options using a phone, using a card, using a token or a key. I think that's our competitive differentiator. Bringing, again, that very strong option with biometrics really separates us from everybody else in this space.

You know, there are large biometric players like IDEMIA, for example, or NEC. They're going after airports and, you know, border control and all that other stuff. They don't have the authentication, you know, SSO, single sign-on, network logon. They don't have all of that software. That's the front end of companies and enterprises or a public sector agencies, portals and applications, right? We front end all of that. That's our competitive differentiator.

I see. Who when you go after these contracts, who do you see competitive-wise going for these contracts too?

Well, you know, if they're looking at and seriously considering biometric for everybody or even for just a piece, guess what? It's not Okta. It's not, you know, SailPoint. It's not ForgeRock. It's not them because they don't have that. They can partner with us. In fact, SailPoint is becoming a very big partner for us internationally, where they're providing all of the privileged access and, you know, all of the higher level authentication management, and we're providing the actual authentication technology, as I just mentioned, the 16 factors, including the biometric. It really is, I always think it's, everyone has a competitor, right? There's no such thing as, you know, one company that dominates a space without competition.

We just really don't see any of those players able to do the same things that we do for a customer. It's pretty unique. There are, you know, probably a bunch of regional or smaller players that we may compete against, or an MSP that's trying to pull together pieces of a solution to do what we do, but no one big player that actually matches exactly what we do for what we do, which is strictly authentication.

That's actually amazing. I got just a couple more. Outside of cash, I think the market is assigning the value of your business at about $ two and a half million. If you start generating cash, could you see the company buying back shares or declaring a dividend or something like that?

We'd love to do that. I don't think we're in a position to do that today. I don't think it would be prudent, right? Obviously, we wanna be able to reinvest in the things that are gonna help us scale, right, our partner network, you know, again, ensuring our technology is leading edge, right, not bleeding edge, as Jack had asked questions about, you know, what's the future, right? I call that bleeding edge. We wanna be on the leading edge, not the bleeding edge. Yeah, we'd love to be able to do that. Over time, I'm hoping we will be able to do that. We only have 1.1 million shares outstanding right now, anything we can do in that realm would be just incredible.

We are grossly undervalued, especially with the Nasdaq suspension. That certainly devalued us probably about 20%, below where we were when we were on the Nasdaq, and we were still undervalued at that time. I mean, if you think about our first half revenues projected to be about $5 million, we'd be trading, you know, 1.5x year's revenue. It's obscene. Again, bumps in the road with the Nasdaq suspension and the timing of that. It wasn't a, again, an issue with us from an operational perspective. It was strictly a miscalculation of the very specific date requirements for the Nasdaq, right? 10-day notice, 10 days trading above $1. That devalued us for sure, but I think that's recoverable, right? You know, all ships rise with the tide.

If the business continues to perform, right, we're gonna achieve the level of value that we should achieve. There aren't many. Look around the industry. There aren't many profitable companies, public companies that, you know, smaller companies like BIO-key and Security that are profitable, if any. I can name a couple. Trust Stamp.

Yeah.

Aware, you know. They're not profitable. I think we're gonna grow into that valuation, if we continue to perform.

Okay, last question. The associated hearing, I believe that has legal advisor fees, to get back on the Nasdaq. Will that be expensed against your revenue in the second quarter?

We don't believe so. We don't believe so. We have some help with that, we're not concerned at this stage. Yes, we do have advisors that we've hired who have deep experience in the process. We wanna put our best foot forward, all that'll be covered.

Okay, that's all I got. Thank you very much. Great quarter.

Thank you.

Again, if you have a question, please press star then 1. This will conclude our question and answer session. I would like to turn the conference back over to Mr. Michael DePasquale for any closing remarks. Please go ahead.

Thank you again for joining today's call. We genuinely appreciate your interest in BIO-key, and I look forward to updating investors on our progress on our next call. As always, we will update investors via press release of 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. Have a great day.

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

Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's 2025 year-end 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, Tuesday, March 31st, 2026. I will now turn the call over to Bill Jones, Investor Relations. You may proceed.

Thank you, Gary. 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 that are subject to risks and uncertainties, which may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect and project or similar words identify and express forward-looking statements. These statements are made based on beliefs, assumptions and information currently available to management as of today and pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. For a more complete description of the risks and uncertainties that affect future performance, please see Risk Factors in the company's annual report Form 10-K with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements made as of today.

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.

Thanks, Bill, and thank you all for joining us today. After my remarks and Ceci's financial overview, we will open the call to investor questions. As highlighted in today's press release, we had a broad base of achievements in 2025 that positioned BIO-key for improved top-line and bottom-line performance in 2026 and future periods. Kicking off the year, we now anticipate Q1 2026 revenue of approximately $2.2 million, representing a 37% increase over Q1 2025 and a larger sequential improvement over Q4 2025 as well. We also expect a substantial improvement in our Q1 2026 bottom-line performance exceeding each of our fiscal 2025 quarters.

Although we were disappointed by our 2025 revenue performance, we are now seeing much more urgency and focus from our customers and prospects to take action in better securing access to mission-critical systems, particularly in the military and defense, financial services, and regulated industries. Our 2025 revenue comparison versus 2024 was also impacted by two significant factors totaling roughly $2 million. The first related to a $1.5 million two-year license renewal with a foreign national bank, the bulk of which was recorded in 2024. This caused roughly an $800,000 decrease in recognized revenue related to this customer in 2025 versus 2024. Despite revenue recognition timing related to this customer, the relationship continues to grow nicely.

Earlier this month, they executed an expanded one-year license renewal of over $1 million for 2026, which represents an approximately 30% increase in revenue over the previous contract. Our year-over-year revenue comparison also reflected the completion in 2025 of our strategic transition to selling only BIO-key branded solutions in the EMEA region. As anticipated, this transition is beginning to benefit our gross margin and growth prospects as we rebuild our EMEA pipeline with BIO-key-only solutions and sales opportunities that carry substantially higher net margins. While these factors led to lower year-over-year software license, both hardware and services revenues grew in 2025 due to the expansion of our customer base and licensed endpoints. Turning to our outlook. Let me review key trends in the enterprise authentication market that support our optimism for 2026.

First is the increasing need for secure access to digital platforms and protection against growing cybersecurity threats, which is driving rapid growth in the authentication solutions market. Global sales are estimated to be $23 billion in 2025 and projected to reach almost $100 billion by 2035, representing a compound annual growth of almost 16%. As cybercrime becomes more sophisticated, we expect businesses and governments to increasingly embrace advanced authentication technologies, such as those that BIO-key provides, to safeguard sensitive information and maintain customer trust. This surge in demand for enhanced authentication solutions is being driven by the widespread adoption of digital services, e-commerce, online banking, and the growing use of mobile devices.

Authentication solutions, including biometrics, MFA, digital certificates, are all crucial to ensure that only authorized individuals gain access to private information or systems. A key gap we fill is that mainstream MFA solutions offer only device-assisted authentication. Whereas our PortalGuard platform is a complete MFA offering with phoneless and tokenless authentication that leverages biometrics. Our Passkey:YOU solution provides web key secured, hosted FIDO2 passkey authentication for tokenless, phoneless, and passwordless authentication with biometric efficiency. By year-end 2026, passwordless authentication will be the default for workforce access across almost every enterprise. The shift is being driven by the increased vulnerability of passwords to phishing, credential reuse, and account takeover attacks. More than 70% are already moving towards passwordless adoption, and about 3/4 of enterprises expect to invest in passkeys or passwordless tools this year.

Biometric authentication adoption is expected to continue to grow, particularly in the most sensitive and high-value use cases in the regulated spaces such as military and defense, financial services, and healthcare, where we all have already seen growing adoption. The traction we see is also aided by more supportive regulatory frameworks in many, many foreign jurisdictions as well as by escalating geopolitical risks, which we're all aware of. AI-driven threats are forcing security leaders to rethink how access decisions are made, emphasizing the need for much more resilient identity strategies where biometrics can play a pivotal role as opposed to conventional methods that are most vulnerable to AI-powered attacks. Authentication technologies are converging towards unified access for workforce, partner, and privileged access under single strategic foundations.

Our PortalGuard Passkey and biometric solutions provide infinite flexibility in deploying to any component of a company's employee population despite infrastructure and job function. Phones and tokens are no longer necessary, and with 16 types of auth factors, one size no longer fits all. These significant shifts in how enterprises approach authentication with a focus on security, convenience, compliance, and evolving regulations play directly to our strengths. In 2025, we launched our Defense and Intelligence Cybersecurity Initiative, which is discussed in today's press release. We also highlight several recent contract wins and momentum we are seeing in the defense and financial sectors, as well as significant new partnerships both domestically and internationally. Since that's in the press release, I won't repeat it here, but we can certainly address any questions regarding any of those areas in the Q&A session.

In terms of our continuing investment in R&D and new product development, in Q4, BIO-key formally introduced the new FBI FAP 20 certified EcoID III fingerprint scanner. EcoID III is our most advanced reader, which pairs encrypted device-to-host communication with liveness detection for faster, more secure authentication. EcoID III is primarily for highly regulated industries and the most sensitive Zero Trust environments such as defense and banking. We're also finishing up work on our most significant update ever for our PortalGuard identity platform, version 7.0. This includes a major platform monetization, significant new configurability and flexibility, and improved lower-cost deployment capabilities. It is currently undergoing comprehensive third-party security testing for an expected release during the second quarter. Our updated product offerings and unique biometric capabilities give us a sustainable competitive advantage, particularly as I discussed in the regulated industries, due to those strict compliance standards.

Our defense and banking niches, in particular, have significant global upside in 2026 and beyond. Today, our business is predominantly subscription-based, and we continue to utilize a partner-centric model in which roughly 50% of our new U.S. business and nearly 100% of our international business is sold through a network of sales channel partners, including Amazon and TD SYNNEX, which we have built relationships with over the last few years. Turning to overhead and cost, in 2025, we were able to reduce our total SG&A expense by almost $800,000 or 11% and total operating expenses by 7%. This mission continues, and we are optimistic about the potential benefits of AI adoption in our processes to drive even further operational efficiency, productivity, and lower cost.

These initiatives play an important role, along with our growth efforts, to progress the company toward our goal of reaching breakeven and profitability in 2026. Finally, we also made great strides in strengthening our financial position in 2025, ending the year with $2.7 million in cash. Up more than $2 million from 2024 and increasing our book value to $7.6 million versus $3.8 million at the end of 2024. Our current cash position and expected cash receipts provide a solid working capital base to support our growth plans for 2026. We're off to a strong start this year with building momentum in several key verticals. We expect top-line expansion combined with expense management to meaningfully advance our goal of reaching our target again of breakeven and profitability this year.

We are well-positioned in terms of financial liquidity to fund our growth plans. Given the growing adoption of BIO-key's flexible passwordless, tokenless, and phoneless authentication solutions that we are seeing, we expect 2026 to be a very exciting and productive year for our company and for our shareholders. We're entering the most exciting chapter in our company's history, one defined by innovation, strategic expansion, and relentless focus on delivering value to our customers and our shareholders. Significant growth and profitability are in sight, and with the right team, technology, and partnerships in place, we are poised to deliver long-term shareholder value. Now let me turn the call over to Cece for a review of the financials.

Thank you, Mike. We released our results this morning, so let me provide a quick review. Reflecting the factors Mike addressed earlier, the total 2025 revenues decreased 12% to $6.1 million versus $6.9 million in 2024. 2025 revenue did benefit from over 100% increase in hardware revenues to $1.3 million in 2025, largely due to increased purchases of our biometric solutions. Service revenue increased 6% to $1.2 million due to BIO-key's growing customer base and new customer deployments. In Q4 2025, license fee revenue decreased 26%, hardware revenue increased 85%, and service revenues decreased 10%, as reflecting the factors Mike discussed, as well as the timing of deployment.

Our 2025 gross margin was 77.5% as compared to 81.4% in 2024, primarily due to the mix of software fees, license fee revenue, and hardware revenue as a percent of total revenues. Gross margins on license fee improved 91% in 2025 from 88% in 2024, reflecting the benefit of selling branded products versus third-party products in the EMEA region. In 2025, we reduced our SG&A costs by 11% due to proactive cost management, including reorganization of sales personnel, reducing marketing show expenses, and lower audit fees, partially offset by higher professional fees related to BIO-key's financing activities. We will continue to focus on cost reduction opportunities as we move forward in 2026. Research and development engineering costs increased 4% in 2025 due to supporting the new product developments, as Mike discussed.

As a result, operating expenses decreased 7% overall in 2025. Lower operating costs helped to offset the impact of lower revenue in 2025, as BIO-key's net loss increased to $4.6 million or $0.69 per share from $4.3 million or $2.09 per share in 2024. BIO-key's Q4 2025 net loss increased to $1.7 million or $0.19 per share as compared to the $1.4 million in 2024 or $0.46 per share. Weighted average common shares outstanding, which reflect warrant exercises and other financial activities, are provided in today's press release. As of December 31, 2025, BIO-key had current assets of $4.6 million, including cash of $2.7 million, as compared to the prior year-end of $1.9 million, which included $438,000 of cash.

Accounts receivable increased 73% to $1.2 million at December 31, 2025, from $718,000 at the end of 2024. Our book value increased to $7.6 million at year-end 2025 from $3.8 million at the close of 2024. We plan to file the 10-K within the next week. With that, operator, let's please proceed to the question and answer session.

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. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jack Vander Aarde with Maxim Group. Please go ahead.

Okay, great. Good morning. Hi, Mike. Thanks for taking my questions.

Good morning, Jack.

Mike, you already addressed it pretty well. I just wanna also just kind of get a little more clarity on the 2025 revenue was a little softer than you initially expected, but obviously great to see you're targeting a strong first quarter 2026 with, you know, $2.2 million revenue. That's fantastic. Just trying to better understand the 2025 result. One of the reasons mentioned was due largely to a significant contract renewal with a foreign retail bank in 2024 that did benefit 2025. Can you just maybe speak to this a little bit further? Is this an active customer? Are they due for an expansion or renewal in 2026? Just help me better understand that particular customer.

In my comments, Jack, by the way, good morning. In my comments, I mentioned that they did renew for one year at over $1 million, so about a 30% increase in value of that contract. It was a two-year contract that we closed in 2024. We took the revenue all in 2024 for that two years. That's why, again, in 2025, obviously it wasn't repeatable. That's what I was trying to say. You're looking for a little more color on 2025. I would sum it up this way, outside of the comments that I made in the prepared session.

We went through a significant transition in our EMEA division that took a little bit longer than we expected, but quite frankly, is going to have a huge benefit for us here too in 2026 and going forward because of two things. Number one, we're selling BIO-key only solutions with and including our biometrics, which are getting very, very good visibility, especially within the regulated industries, and that's banking, defense, you know, healthcare, that kind of thing. The second piece is the reason this again took a little bit longer. The deal size in EMEA is, you know, some of the deals are seven-figure, but most of them are in the high hundreds of thousands of dollars. So they're larger deals. They're all through channel partners. They're typically with larger customers. The benefits are incredible when they close.

That took us a little bit longer to get over the chasm in 2025, and I think that's why we underperformed our expectations there. Most of it was timing, but we are very bullish and very encouraged about 2026, and we will take advantage of that benefit. That should get us to our goal and objective of break-even profitability and obviously being cash flow positive, this year.

Okay, great. No, that I really appreciate that extra color, Mike. That actually makes a lot of sense. Then just to be extra crystal clear, is this in the press release you did? You referenced all these various specific deals and highlights. Is this the customer that I'm looking at or is this a different one under the financial sector? You secured a $1.04 million one-year license renewal with a foreign bank. Is this that customer from 2024 or is this a separate entity?

No, that's that customer.

Okay, great. Okay. Thank you for just connecting the dots there.

No problem.

Mike, let's talk about the first quarter because this is definitely a point of emphasis. I just, you know, it popped out to me. You know, here we are, we're basically the last day of the first quarter as of today, so it sounds like you've a pretty good read-through on that $2.2 million target. Is this any of the, I guess, one, any of the slippage from the fourth quarter that slipped into the first quarter? Two, do you have a good sense of the mix of that revenue? Is it mostly license revenue? How do I think about that? Is it growth across all three segments?

Well, the majority will likely be license revenue, but there's also some strong hardware revenue as well, but very good margins. As you know, our blended gross margins are always, you know, never lower than the high 70s all the way up through the low 80s. Depending upon that mix, you know, you're gonna be looking at an 80%+, if not more, gross margin across the board. Whether it's hardware or software combined, that's what you can expect.

Excellent. Okay. That's helpful. You know, just maybe if we just touch on some of these large deals you're seeing in some. You know, it sounds like you're seeing more urgency, as you mentioned, from customers across. You started listing a segment here and there, and then you started basically covering all your segments it seems that. Where would you say, if you could just highlight like maybe a handful of potential maybe deals that aren't in stone yet, but things that are kind of in the background that you're working on that could really move the needle. Would you say that these opportunities are in Europe and they're in your defense, your military and defense sector, primarily the financial banking, financial services primarily, or is it really all over the board?

Where are you seeing the largest needle mover opportunities that maybe you haven't talked about explicitly yet?

Well, you know, for sure, and we've discussed this before, we've developed quite a niche in defense and in government right now that including and incorporating our biometrics is getting significant uptake. I don't have to remind you of the geopolitical scenario we're dealing with and certainly the sense of urgency around security. Within that, within our niche, we have a sub-niche which is focused on intelligence and information. That's top-priority. Our solutions not only provide the level of security that's required, but convenience and availability and scalability, and that is critical and important in those segments. We're seeing the business on a global basis, and the expansion will be on a global basis. It will be in EMEA, in Europe, and in the Middle East.

We have a couple of very large opportunities in South America right now that we're working with some very large partners, notable partners, and the relationship that we announced just a couple of weeks ago with TD SYNNEX. As you know, they're one of the largest resellers and VARs. They're global, but certainly here in the U.S., and they're very focused on the state, local, and federal business, and they are going to help us, as a force multiplier, grow our business there as well. It's across the board. I mean, we have opportunities, for example, in the gambling space, right? To secure access to information in banking, in both large national banks as well as some regional banks as well.

In healthcare, some national ministries all the way down to hospitals. As you know, we've been in that business for a long time. You know, we cut across every sector of the economy, but certainly in the regulated space, that's where I see continued growth. Let's put it this way, if you're a defense or a government contractor right now, your business is going to blossom and grow. Each of those contractors, forget about the government themselves, has to secure at the NIST level, right? They have to secure and meet the compliance hurdles that are required to do business with the government, and that's a huge opportunity for us. That's why our relationship with TD SYNNEX, I think, is going to blossom and be significant here domestically.

Fantastic. I appreciate that, Mike. That's all I have for you. I wish you the best of luck, and I'll look forward to speaking soon.

Very good. Thank you, Jack.

Again, if you have a question, please press star then one. The next question is from Dan Camus, a private investor. Please go ahead.

Hello, guys.

Hi, Dan.

Hey. Were your expenses in the first quarter about the same as the fourth quarter?

Well, we haven't reported the quarter, so I can't comment on you know the exact numbers for expense and so forth. We did and do believe, you know, our revenue is gonna be in the range that we predicted. I, you know, certainly, the first quarter, you know, should be similar to all of the other quarters. Sometimes events like, for example, when we attend a large event and we spend money perhaps there, it could be a little bit higher. We are relaunching our website right now and planning to do so early in the second quarter. You know, there might be some expense associated with that, but other than that, we're pretty stable.

Okay. We should see pretty significant improvement in cash flow in the first quarter, sounds like. Should we expect, or can you give us any clue as to what to expect for expenses in R&D in 2026?

I think I mentioned in my prepared remarks that we're about to launch one of the most significant upgrades and enhancements for our PortalGuard platform, version 7. So a lot of that money has already been spent. You know, we've been working on this for nearly a year and a half, two years. I would think our R&D expenses are gonna be relatively stable. I don't expect them to grow significantly. We're really hoping, and we have a very intensive initiative going on within the company to assess AI-related tools, and we have contracts with a number of them. We're assessing where and how we can use those, not only within all facets of the business, but within development to do two things.

Number one, become more efficient and more productive, but ultimately reduce costs and increase our time to market.

I see. Anything revolutionary about this version, or is it a marginal improvement, an upgrade in your offerings that you can talk about?

It's significant, and we'll be announcing that shortly. Especially for partners, Dan, where some of our larger partners want to be able to control, to mix and match, and to deploy because everything is subscription now. To be able to deploy licenses, pull them back if, for example, the customer, you know, decides to cancel and to utilize those licenses in other, you know, accounts and so forth. The ability to have multi-tenant management for those partners is a really big deal, and that's, you know, part and parcel of what we're doing here. Amongst many other enhancements for security, the incorporation of mobile technologies, a whole host of different options and availability. A lot of this focused on making our partners more involved in the dashboard and management of the solution set.

I see. Is there anything, I guess, in that 30% increase you mentioned in the $1 million foreign bank renewal that you're particularly excited about? Or was it just more licenses or?

I'm excited about a couple of items. Number one, obviously the growth and the increase in the user population, but also the assessment of our more advanced technologies, like one-to-many that could dramatically change the way they operate and increase the size of this contract, as we continue through this year and into next. I'm very excited about that opportunity. I think it's revolutionary because it could be one of the largest deploys of this type and this nature in the world. We're enthused about that. There's a lot of growth potential ahead for that as well.

Are you saying that you're gonna be scrubbing their database on a one-to-many basis?

No. You know, they already do that. I mean, that's parochial. I'm talking about some more advanced use of the technology.

Okay. I guess we'll be hearing about that then.

Hopefully.

You said it's a good start toward our goal of achieving break-even results in early 2026. Are you saying there's a potential for break-even in the second quarter, or are we just saying that you basically reduced your cash burn in the first quarter?

I think, you know, we're saying that our goal this year, right, is to be break-even or profitable and to be cash flow positive, and that's our objective. You know, when we get there, I can't specifically say, but we should be there in the early part of 2026. That's our goal and objective.

I mean early-

It's not that sophisticated, right? You can look at our.

All right.

Expenses in the, you know, I'm saying $2 million range, right? Give or take, right? Could be higher, could be a little bit lower. You can look at our revenue in the $2 million-$3 million range. You can look at our gross margins in the 80% range, and you can figure it out. You know, that, again, that's our goal and objective, right? To get there, to be there. I believe we have, as I mentioned and closed in my prepared comments, I believe we have the team, we have the partners, we have the product, and now we have, I'll call it a very captive market, especially again in our niche and on the regulated side, to be able to get there.

Got it. Any evidence in the first quarter? I mean, I think one bug has always been U.S. businesses adopting passwordless adoption. You're indicating there's a significant move in that direction. I'm just wondering if there's any evidence in the first quarter that U.S. businesses are willing to purchase from BIO-key rather than their usual large competitors.

Yes.

And-

Yes. No doubt. New business, no question. Yes. Again, that partnership. Look, you know, SYNNEX is a large company. They're a large public company. You can look them up. They're very enthused about offering our solutions and technology, especially in their public sector business. So, I mean, that's a very strong proof point that we can expand and them as a force multiplier, right? With the customer base they have, nevertheless, the partner network they have, you know, we should see significant growth in that business.

Well, along that line, I think recently when you've mentioned a partner announcement, there's usually been some underlying deal that supports it. Is that what's going on with TD SYNNEX?

Yeah. We have a whole series of deals going with them, and, you know, you'll hear more about it as we're able to announce them.

All right. That sounds good. Can you say anything about your ARR? Where is that running in the first quarter, or are we still between $6 million and $7 million?

Yeah, we're in that range. You know, again, other than our legacy customers, we have a handful of legacy customers. For the most part, our business is a subscription business. Even those legacy customers we're, you know, migrating them, especially now that we have new and enhanced features and products. We have a good reason to be able to migrate them. That sector of our business is definitely substantial. Multi-year deals are our total focus. Even when we're on-prem, we can be subscription, and we can be multi-year, and still fit within the confines of their requirements. That's another really big advantage that we bring to the table, and that's why I believe in the regulated industries we're doing so well, where many, especially international, clients do not want hosted solutions.

You know, everything here is kinda moving to the web, right? To AWS or Oracle or, you know, Azure, no question, here domestically. However, internationally, there's still a penchant for storing and housing customer data on-prem, and we can go both ways. We can offer our customers the opportunity to do it either way. More importantly, and this is a new feature in version 7, to be able to do both at the same time and to be able to transition seamlessly. That's a powerful differentiator for us.

Got it. A couple more, I think. Any changes in the Boomerang asset or any news on that?

No. I know they have an S-1 filed now, which I think is public information and are looking at. They've done a couple of acquisitions of, like product, and, that's really all I have at this point. I have no other information.

No change in that asset value at all.

No.

Last question is, I think probably you have about 10 business days to get the stock above one buck to forestall a reverse split. At this point, is there anything you think that could still forestall such a split?

Yeah. You know, that's a great question. I didn't even think about quite honestly, the proxy that's out there. Obviously belt and suspenders, right? We're not gonna risk the potential to lose our Nasdaq listing, right? That's not gonna happen. Obviously, the board, it was prudent for us to file the proxy. We have until early May, I think the first week of May, to have the stock trade for 10 consecutive days over a dollar. If that happened, we certainly would not do the reverse split. If we need to, we certainly will. Our shareholder meeting is scheduled late April. I'm hoping that in the next month that we're gonna be able to find our way clear to seeing the stock trade up.

As you know, this geopolitical scenario hasn't been kind to anyone. It doesn't matter who you are, what space, what industry, it's been broad-based and it's a difficult market. Who knows? We certainly are in a position to do whatever we need to do to protect ourselves, especially now as the wind is at our back and we're feeling much more optimistic about, you know, significant scale of our business going forward. I hope we don't have to do it, Dan, but if we do, we will.

Okay. Well, sounds like the first quarter was a really good job and I hope moving forward we'll have some more good news. Thank you.

Great. Thank you.

Showing no further questions, this concludes the question and answer session. I'll ask Mike DePasquale to provide any closing remarks.

Thank you again for joining today's call. We genuinely appreciate your interest in BIO-key, and I look forward to updating investors on our progress on our Q1 call in May. In the interim, we'll update investors via press release of significant developments. If you have any questions, please reach out to our IR team, whose contact information is in today's press release. With that, operator, please conclude the conference. Thank you, everyone, and have a great day.

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

Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 14, 2025. [Operator Instructions]. I will now turn the call over to Bill Jones, Investor Relations. You may proceed.

Thank you, operator. 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 which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect, plan and project and similar words identify and express forward-looking statements. These statements are made based on the beliefs, assumptions and information currently available to management as of today, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of such risks and uncertainties, which affect future performance, please see Risk Factors in the company's annual report, Form 10-K as filed with the SEC. Listeners are cautioned not to place undue reliance on such 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 today's call. And now with that, I'll turn the call over to Mike to begin.

Thanks, Bill, and thank you all for joining us today. After my remarks and CC's financial review, we will open up the call to investor questions. From a big picture standpoint, we reported revenue of approximate $1.55 million in Q3 '25, roughly in line with revenue in the first 2 quarters this year, and we reported year-to-date revenue of slightly under $5 million. The roughly $600,000 decrease in both the third quarter and year-to-date revenue in 2025 compared to last year. It is largely due to quarter-to-quarter variability resulting from the timing of some larger customer orders. We had particular strength in last year's third quarter from 2 large orders, one from a long-time banking customer, which was more of a catch-up for expanding their deployment and another one from an ongoing rollout of solutions by a long-time defense industry customer. Both customers are still very, very active. And the defense customer had a $140,000 order after the quarter closed in October that we really expected to get in the third quarter rolled over to the fourth quarter. And we continue -- and we expect continuing deployments in orders even this quarter and beyond. In addition, we expect our large banking customer to renew their contract, their subscription contract in early 2026 on their steadily expanding deployment of our solution. The customer has over 29 million users enrolled in our solution with the potential for meaningful future additions. They made a major expanded investment in our solutions in 2023 and 2024, including a $900,000 upgrade to our fingerprint only biometric customer identification technology. And this option or solution allows them to identify clients with just a single fingerprint scan eliminating the need for any other identifiers, including a card or an ID number. And that, in essence, is saving them approximately 30 seconds per transaction, which time is money, which is meaningful for them. Their current annual license fee is now over $1 million scheduled for renewal in early 2026. And whether they choose a 1- or a 2-year contract, we expect that we'll see $1 million to $3 million in business and renewal in the first quarter. Across the board, and this is general within our business, we enjoy very high renewal rates in excess of 90%, meaning our churn rate is in the single digits. The lumpiness that we see in our quarter revenues is more of a function of timing of renewals, new deployments, our large customer expansions, and there can also be true-ups for additional software licenses. Q3 is generally a seasonally slower period for us, particularly in Europe due to the summer holiday period. But we expect to close out the year very strong as we advance our channel sales efforts in the broader Europe, Middle East and Africa regions, where we are now focused solely on BIO-key branded solutions. Additionally, we're in the final stages of developing new marketing messaging for our website and our business development. This messaging and collateral should be implemented during the fourth quarter to get us well positioned for the start of the new year. To support this project, we engaged an external marketing firm earlier in the year to work with us on our new website content and targeted marketing strategies. We're finalizing a major website overhaul, focused on improving again the content, the navigation with a plan released prior to the Gartner IAM Conference, which is held mid-December. We also plan to release a significant update to our PortalGuard identity platform. PortalGuard operates as a single MFA, multifactor authentication user experience providing a broad set of 17 factors of authentication, including, of course, our identity-bound biometric options to meet virtually any use case. Version 7, which is the new version represents our most significant update ever. It features major platform modernization, enhanced configurability with improved deployment capabilities. Development is expected to conclude within the coming weeks, after which we'll undergo rigorous internal and third-party security testing. The time line for general availability is late Q1 or early Q2 in 2026. Also in Q3, we introduced our new FBI FAP 20 certified EcoID III fingerprint scanner, which is aimed primarily for the regulated industries. Although BIO-key is primarily a software company, providing a total solution, including state-of-the-art hardware is essential in supporting our annual recovering revenue software model. The EcoID III reader pairs encrypted device to host communications with liveness detection for faster, more secure authentication. We've delivered initial volume EcoID III orders for defense and government customers in Q3. We also expect government-related and highly regulated industries like financial services, higher education and health care to gravitate towards our new reader. Our PortalGuard platform, our IDaaS, Passkey:YOU solution, all pair very, very nicely with the new EcoID III fingerprint sensor. As I mentioned on our call last quarter, we launched our cyber defense initiative in response to increased global defense spending, particularly in Europe and the Middle East, and our success with some significant high-profile deployments in these markets. Incorporated in these rising defense budgets is a significant emphasis on cyber resiliency and security as a priority. Today, two of the top four largest global defense agencies by spending are using BIO-key technology to secure all of their critical information. We are well positioned to capitalize on these growing defense budgets and spending and are advancing a growing pipeline of opportunities based on the deployment of our solutions by some of the most respected military security and defense ministries and agencies. Supporting this initiative, we are adding select resources to engage with contractors who will help us expand our market reach. We expect to see a growing base of new contract activity from these efforts, building on deployments this quarter and beyond. A primary factor in defense industry deployments is our ability to support critical infrastructure and access to sensitive environments with advanced biometrics and our multifactor authentication technologies without reliance on mobile devices or hardware tokens. Biometric authentication is better suited than these engagements given its enhanced security, accuracy, convenience and ability to better prevent fraud and unauthorized access compared to traditional methods. Biometrics minimize false positives and improve the precision of access control. In addition, uniquely tying individuals to actions and access events, aids in monitoring traceability and insider threat management or improved accountability and audit trails. Streamlining access processes also reduces time spent on logins and boost productivity for defense personnel while maintaining strict security. For defense agencies managing highly sensitive data and infrastructure, we believe biometrics are growing as a preferred choice over traditional methods alone. And our references in that space gives us a unique competitive advantage. We are gaining momentum, as I just described in the defense sector as well as in banking, government, higher education as the rising incidence of security incidents highlight potential cybersecurity vulnerabilities. In addition, growing regulatory requirements and increasingly stringent cyber insurance underwriting standards requiring MFA adoption helped create opportunities for our superior biometrics and portable authentication options. We are excited about the growth prospects into next year. And though given our size, and as I just described, the variability of our business, our business may continue to fluctuate on a quarterly basis based on the timing of larger orders. But as we work to build the business, we'll continue to keep a sharp focus as well on our cost structure, seeking to reduce our breakeven levels and support our goal of positive cash flow and profitability. Ceci will walk through the numbers but let me highlight that we have been able to reduce our operating expenses by over 10% through the first 9 months of 2025, while at the same time, expanding our global reach and suite of solutions. Finally, as far as funding our runway to profitability after the close of the third quarter, we were able to raise approximately $3 million net of fees and related expenses through a warrant exercise transaction priced at $1.02 per share. This funding significantly expands our cash liquidity, puts us in a stronger position to pursue growth. And as we expect, they close a strong close to 2025, we are in a very, very good position from a financial perspective to be able to grow our business and actually overachieve our objectives coming into the new year. With that, let me turn the call over to Ceci to review the financials, and then we'll take questions.

Thank you, Mike. We released our results this morning, and we plan to file our 10-Q later today. Let me walk through some of our highlights. Our Q3 '25 revenue was $1.5 million versus $2.1 million in Q3, down approximately $595,000 year-over-year, principally due to the large orders Mike referenced in Q3 2024 that we did not have in this quarter. Those orders accounted for approximately $665,000 of year-over-year difference, offset by some new orders. As a result, our license fee revenue was $918,000 in Q3 '25 versus $1.4 million in Q3 '24. Service revenue increased slightly to $268,000 in Q3 '25 versus $267,000 in Q3 '24 as growth of recurring service revenue more than offset the decline in customer service revenue, supporting large customer upgrades in Q3 '24. . Hardware sales declined to approximately $364,000 in Q3 '25 from $436,000 in Q3 '24 due to the timing hardware shipments in support of ongoing customer rollouts. Partially offsetting the timing difference was the sale of fully reserved inventory in Q3 '25. And now we have approximately $2.8 million remaining in fully reserved inventory for which we have several potential customers. Q3 '25 gross margin remained strong at 77% compared to 78% in Q3 '24 as the absence of third-party license software offset a lower portion of our license revenue. BIO-key may further inroads in trimming operating expenses, which decreased 8% to $2.1 million in Q3 '25 versus $2.3 million in Q3 '24. This reflects a 13% or $208,000 decrease in SG&A expense, offset by a 5% or $31,000 increase in research, development and engineering expenses required to support the generation product introduction, including the EcoID III and our forthcoming PortalGuard upgrade. Reflecting lower revenues tempered by lower operating expenses, BIO-key Q3 '25 net loss was $965,000 or $0.15 per share as compared to $739,000 or $0.39 per share in Q3 '24. For the first 9 months of 2025, our net loss was $2.9 million or $0.50 per share as compared to a net loss of $2.9 million or $1.69 per share a year ago. Per share amounts were based on 6.6 million and 1.9 million weighted average shares outstanding in Q3 '25 and Q3 '24, respectively, and 5.8 million and 1.7 million for the first 9 months of 2025, respectively. Reflecting shares issued for warrant exercises and other finance-related activities. As of September 30, BIO-key had current assets of $3.7 million, including $2 million in cash compared with 2024 year-end current assets of $1.9 million and $438,000 in cash. Accounts receivable and different factor increased 21% to $959,000 at September 30, 2025 from $792,000 at year-end 2024. BIO-key also secured gross proceeds of $1 million for working capital and to support ongoing operations with the September 30 issuance of a senior secured promissory note. As Mike mentioned, subsequent to the close of the third quarter, we generated net proceeds of $2.9 million from the exercise of warrant agreements to purchase BIO-key shares at an exercise price of $1.02. Accordingly, the cash proceeds of the financing were not reflected in our Q3 balance sheet, '25. And with that, all of you, operator, let's proceed with the question-and-answer session.

[Operator Instructions] And your first question comes from [ Dan Khamis ], a private investor.

Well, it's been about 10 months, I think, since you announced the Bank of Egypt win, was that a recurring revenue deal? Or were the permanent licenses? And are you expecting similar revenue from that client customer in 2026? .

Absolutely. Yes, the answer to that question is that was an initial deployment that we announced just about a year, give or take, 10 months ago. And we are expecting an expanded deployment and that may even happen here in the fourth quarter. So the answer to that question is, yes, that is a growing. deployment. .

I see. And a follow-up on that is, since you partnered, I think, with Raya on that, does that mean your margins are lower on that project? .

Not at all. Our gross margins on software are 90-plus percent, and so they remain 90-plus percent from a gross perspective. I'll make a comment about partners just as kind of an aside. You may have noticed over the last month or so, we've made a number of announcements with partner companies that are bringing us into local markets throughout the Middle East, in Africa and in Europe, and you're going to see even more coming in the near term. That's a force multiplier. These are very significant. If you read these press releases that we've made, these are significant players who have significant resource in the local markets and have influence in particular industries, some in government, some in banking, health care and so forth. And what you get there is you get local cultural support, you can influence, and given that 90-plus percent of business in EMEA, in general, that's Europe, Middle East, Africa comes through partners. This growing base in our -- what we call our CAP Program, right, Channel Alliance Program is going to pay significant dividends for us as we proceed forward. And every one of these partners that we've signed like Raya comes with a deal, right, historically, right? Partners get signed and then you go out kind of license to hunt, try to find an opportunity. What's happening here, particularly again in EMEA, is that we're signing these partners because they have a deal. We've already been working with them and they want to go out and represent what they perceive to be the most unique and capable identity and access management, biometrically enabled platform that's available. And you can see, again, based on all those announcements that we're getting, we're making very, very good progress.

Yes, that's helpful. Just on the Bank of Egypt still, the first step was to handle the NBE employees, right, and then move on to B2B and B2C. Are we looking at non-employee expansion as a, say, 2027 target?

Well, I think 2 things. Number one, the initial deployment was I believe, in the range of 20-or-so thousand users, and that was not the full employee base. So there is still an expansion in the existing enterprise employee base. And the answer to the second question, which you see what we call CIAM, Customer Identity and Access Management, the answer to that is, yes, there is definitely an opportunity to take this to customers. Similar in nature to what we do with Capitec Bank in South Africa, where they're utilizing our biometric technology not only internally for employee and employee access, but for customer access. .

Okay. So -- but is that 2027? Is that by any chance next year?

I think all of this is on the table for some -- again, the employee expansion is on the table for this year. And I believe in 2026, they'll begin looking at the CIAM deployment.

On the defense side, I think in the second quarter CC, you mentioned iterating to multimillion dollars with your largest defense ministry. Last week, you announced one of the largest Middle East sector deployments in the region. With another unnamed defense organization. Is this contract on the same scale as this longer-term defense ministry?

It's even bigger. It has bigger potential. So the answer is yes, they're very large. Most of these defense ministry opportunities, depending upon the size of the country are large opportunities. And they have a really good expansion potential because usually, you're starting with a base population so that they can get going and then they're expanding out to additional users and enrolling additional users. So these are large deals, and they have a really long tail, and they're very sticky, meaning once you get involved, they do a lot of betting they look at a lot of different options. But once you get involved, you're there for a significant period of time.

Sounds really good. With all these bank and defense wins, do you have any kind of feel for what your current ARR is, the recurring revenue?

Our ARR is growing. I would say we certainly are in the because you have to back out when you look at our total number includes hardware and software. But I think our ARR base, including renewals on our traditional contracts, right, the traditional PortalGuard business that we purchased probably are in the $6 million to $7 million range right now. And our churn, as I mentioned in my prepared remarks, is in the single-digit range as well. So I would say that's a good number. .

Yes, that's a remarkable churn. Your Echo III ID or EcoID III release said the price point, high-quality scanners was significantly reduced. Is the price lowered relative to EcoID II? Or does this third version compete with a different quality of scanner?

Definitely competes with a higher-quality device. We sell to, what I call, FBI-certified PIV-certified readers. One is called the PIVPro, which we've been selling for many, many years. That's a very high-quality optical device, glass platinum. The EcoID III competes with that device at a lower price point. So it's $49.99, list price quantity 1 versus the PivPro, which is in the high 60s, low 70s. That's number one. Number two, the new EcoID III is much higher quality and carries liveness detection and full encryption on device. The EcoID II did not have that capability. So the EcoID II was priced a little bit lower at $44.99, but it didn't have encryption and it did not have liveness detection innate in the device like the EcoID III does. We sold, I guess, initial order is about 7,500, a little under 10,000 units to one of our defense customers out of the gate as soon as we were able to deliver the product in Q3.

Okay. It's been a year about since you received the boomerang stock. I assume the 9-month put period is over and you didn't return the stock. Is there any update on the value of that asset now?

I think we'll be looking at that as we do our audit for calendar 2025, fiscal 2025. But I know they've made a number of small acquisitions and I know they're involved in some strategic scenarios, nothing that I can speak to, but it appears that, that value is certainly intact. .

One more question, I guess, for this round here. I think your -- have you done any research into -- well, I mean the stock is trading anywhere from 1x to 100x the flow for the last 3 weeks, any research you've done to figure out what's driving that kind of action? .

It's a tough question to answer. First, I think announcements typically drive volume, right? And so we've seen significant volume in the stock on some of the announcements we've made. Why our stock would trade 450 million shares on 1 single day and turn $400 million in trade value is it's almost cereal, and I don't have a particular answer for that. I think there's a lot of interest in our space. There's an awful lot of interest in security. And in particular, we have a very unique offering in a very strong niche in defense and banking, and we have great references. So if you look at where we are today from a market capitalization perspective, if you look at the numbers, we're very undervalued. . And so perhaps there's interest in investing and taking a position in a potential company that has a lot of upside. But those are only theories and I can't really say and understand at any level why we see those days with that kind of volume.

Okay. Is there anybody else in the queue right now?

Operator?

Yes. We do have another questioner in.

Okay. I'll get off then.

And your next question comes from Jack Vander Aarde are with Maxim Group. .

Mike, I'm juggling a few conference calls this morning, so I had to join this call a little late. So I apologize if I'm being redundant, the guidance, this is something new that popped up. And so I just want to know what kind of led to your decision process to feel confident enough to install a formal guidance parameters. And then can we expect formal guidance framework for 2026 on the next earnings call? .

Thanks, Jack. First of all, I appreciate you're pretty busy today. Yes, we're pretty confident in our position right now. I think, again, you've seen the announcements. You've seen that we're starting to see the results of the investments we've made, in particular, in this, I described partner network that we've been building. So we have more confidence because typically, these deals are RFP or they're very large opportunities that are being worked and their competitive. And you'll know a couple 3 months before you get the contract signed that you actually won the order and won the business. So the pipeline now is pretty solid, and we feel good about that. So that's the reason behind that. . I'd love to be able to give guidance and as we get more predictable, we'll do that. But look at this quarter, look at the third quarter. Quite frankly, we expected at least $200,000, $250,000 more in business that didn't materialize not because the business went away, but just because of the timing, one of our customers, one of our defense customers had to change budgets. And so it caused 1.5 weeks delay in processing the order. That's an order we expected in the third quarter, wound up falling to the early part of October. Nothing to do with the business or the efficacy of that contract just timing. So that's what makes it difficult for us, Jack. And I hope that we'll be more predictable in the beginning part of the year, we'll be able to do that. .

Okay. Great. Two more questions there, Mike. I guess the first one was, I recall, a large renewal that was coming up, I think, in 1Q, '26. Is this still on track? And is that the case? .

Yes. .

Okay. Great. And then just, obviously, there's -- we just had the longest government -- U.S. government shutdown in history, had that -- does that have any impact on your business in the fourth quarter? Or just any of the growth initiatives or just anything operationally did that have an impact? .

Not at all. Not at all. We didn't see any impact at all. Typically, we're flying way above that in the context of security. And so it's kind of a mandate. And we've never really seen any of that impact anything that we do. Just doesn't......

And then can you just touch on maybe as you look at 2026 outside of the large renewal in 1Q '26. Are there any other major upcoming renewals throughout the year that I should be aware of? And then also any expansion opportunities that you see coming up throughout the year?

Well, I think there's a lot of that on all sites. In particular, again, our pipeline of new deals, new opportunities that are spawning as a result of our footprint growing in both defense and banking, in health care. So you're going to see a lot more happen over the coming over the coming months and coming quarters. You're going to see renewals from, again, that large banking and finance contract that we've had, we've had for years and continues to grow and expand. And you're going to see expansions like we discussed in the last question period with customers like the National Bank of Egypt and others that are continuing to expand their existing deployments, right? Not only for employees or internal use, but also ultimately out to customers. So I think there's an awful lot of that on the horizon. And I go back to the point that I was trying to make with Dan, and that is the expanding partner network is a force multiplier for our company. That is going to have a huge impact in our ability to double and triple our business in the coming quarters and the coming years.

Great. Maybe just one more follow-up. Speaking to your channel partners, can you just give us an update on all the various channel programs you do have. The Channel Alliance Program, I recall, was a major growth area, a couple of years ago, and I just haven't gotten a clear update on that. What's the status of the Channel Alliance Program and some of your other partnerships? .

Yes. Well, again, in Channel Alliance Program, you've seen a number of announcements we've made just recently. I won't repeat that. But those are all partners that are part of the Channel Alliance Program that we have. We have distributors. We have MSPs, what we call, managed service providers. We have MSSPs, managed service security providers, right, or managed security service providers. We have resellers. So there's various components within the CAP Program for different types of partners that service end user customers. And that is just continuing to grow. But more importantly, it's not quantity, it's quality. What you want are significant players who have a cultural and a local expertise who deliver services to large companies, mostly large companies and do it over a period of time where they have credibility. And when they come in and recommend the solution, the customer takes a look at it. So that's what we're driving. We're not trying to drive quantity anymore. We're trying to drive quality.

Yes. No, I'm happy you said that. And I think just another part of that though is, are they -- are any of your channel -- are your Channel Alliance Partners, or is there a portion of them that are exclusively reselling and pushing BIO-key? Are they also servicing other or providing other vendors support as well. How does that kind of, I guess, break out within the Channel Alliance Program? .

Yes, that's a great question. We do have some partners that exclusively sell the BIO-key IAM solution. But most of these players sell all the core broad software like Microsoft and Oracle, and you name it, and all of the network security, Cisco and so forth. They typically provide all of that to an end-user customer and the security piece is one component of their overall solution or service for that client. So it really depends. But as it relates to security, we have some that exclusively sell BIO-key and some that sell other solutions as well. But remember, our unique competitive advantage, and I don't care if you look at Okta, SailPoint, Ping, ForgeRock, it doesn't really matter. We have the biometric component that they don't natively have. So that's our differentiator. So even if we're not exclusive, we tend to be exclusive because they don't have what we have.

Got it. Great. And then I guess I'll ask one more. And Ceci, maybe this is a question for you as well. Just the margins were really strong again for the licensing revenue, which is great to see. I think that's helping the breakeven case. I look at the operating expenses and you guys have done a good job of keeping those tamed. Going forward, do I expect any changes in the operating expenses? Or is this -- are there any further cost savings? Just curious because it does seem like you're tracking towards that breakeven number on maybe even a smaller base of revenue because of those strong margins.

Yes, we are just analyzing everything. So it's just something that every quarter people are looking to spend on this, that and the other thing. And we're just trying to make good decisions on those types of things. As we said in the past, we've lowered all of our rents for all of our places. We're just doing what we can. And so we will continue to do that, just keep our eyes on the prize, so to speak.

Great. And Mike, do you echo those comments, though, just in terms of do you see profitability breakeven on the horizon?

Absolutely. No question in my mind. I do see it. I think it's a combination of things. It's, again, the pipeline. It's some of the larger renewals. It's also us managing and scaling around our existing resource pool, which, again, with the CAP Program gives us the ability to do that, right? Typically level 1 and level 2 support for these customers comes from the partner, right? We're there as a backup. This business scales very, very nicely with the model that we built. And even on the hardware side, the hardware that we sell, we get really good margins. We don't do anything without a 50% plus margin, even on the hardware side. Blended, we're in that 70%,80% range, and we think we can stay there.

And your next question is a follow-up from Dan Khamis.

So it looks like your revenues are going to be flat or down year-over-year. The very good news, of course, is that the expenses have come down. But in terms of revenue, have you isolated the basic reason for flatness? Was it the loss of swivel revenue? Or what caused it to be flat, I guess, is my question.

Definitely, the transition from third-party to BIO-key product that took a little while to get productive. We're productive now. So I think you're going to see actually far better results. That's number one. And I think number two is we had an anomaly last year with our banking customer having to catch up. And so in particular, in the third quarter, we had over $0.5 million in revenue that was not recurring. It was pretty much a onetime shock. So I think that's it. I mean there is nothing here in this business other than timing that I am concerned about right now. I think we're in a really, really good position. We're lowering our breakeven point. We're growing our partner network, which again is a force multiplier to get more deals and more business. And we're operating in a market that has just insatiable demand. I mean, defense banking, huge market opportunities for advanced security. And we've got the solutions, and we've got the references and the quals to be able to solve those issues. And it goes back to what we call zero trust, but more importantly, it goes back to no phone, no token and fundamentally utilizing a passwordless solution that can be used across the enterprise because, again, our focus is enterprise right now. But we're blending and moving the CIAM. And I just think we've invested very, very heavily over the last 4 years in R&D, in sales and in marketing and expanding our footprint globally, especially now in the Middle East. You're going to see more of an expansion coming in the Asian markets. Stay tuned for that. That's going to have a huge impact on us.

Okay. Just as a final thought, I think with the $3 million in cash, you're probably still at about 1x book value. I know you and Jim have been doing some buying in the second and third quarters, maybe about $25,000 worth. I would just like to hear your take on why you think BKY is the best investment for that $25,000.

I think we're fundamentally undervalued, look at us, take any multiple, take any comp. And I think, again, we're just we've been traditionally undervalued. We've done a lot of financing. So I want to be brutally honest, right? I understand that, that created overhang, and it creates sometimes investor trepidation. There's no doubt or debate about it. But I felt, we felt, keeping the company alive with the notorious base installed base of customers we have. We're in a really good position. And I think we are we're not grabbing the value that we deserve. And I think you're going to see that unlocked in the near term in the future.

Showing no further questions. This concludes the question-and-answer session. I'll ask Mike DePasquale to provide closing remarks. .

Thank you, and thank you again for joining our call today. We greatly appreciate your interest in investment in BIO-key and look forward to updating you on our progress. If you have any questions, please reach out to our IR team via phone or e-mail, and they will be very responsive. Their contact information is in today's release -- our earnings release. With that, operator, this will conclude the call. Thank you, everyone, and have a terrific weekend.

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

Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's Second Quarter 2025 Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, August 13, 2025. I will now turn the call over to Bill Jones, Investor Relations. You may proceed.

Thank you, Betsy. 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, which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect, plan and project or any similar words identify and express forward-looking statements. These statements are made based on the beliefs, assumptions and information currently available to management as of today and are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of the risks and uncertainties that may affect future performance, please see risk factors in the company's annual report on Form 10-K as filed with the Securities and Exchange Commission. 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 such statements to reflect circumstances or events that may occur after this call. Now I will turn the call over to Mike to begin. Mike?

Thanks, Bill, and thank you all for joining us today. After my brief remarks and Ceci's financial review, we will open the call to investor questions. BIO-key had a solid Q2 performance with revenue rising 49% versus last year and 6% on a sequential basis. We also advanced our expense reduction initiatives, trimming SG&A expenses by 13.5% versus last year, more than offsetting increased investments in R&D to further enhance the capabilities of our solutions. We've also reduced our note payable to a balance of $447,000 from $1.5 million at the end of December 2024. Turning to business highlights in the quarter. BIO-key and our partner, Runlevel, secured a major identity and access management deployment with the National Bank of Mozambique. Also, in Q2, we extended our penetration of the defense intelligence market based on the capabilities and strength of our IAM and in particular, our biometric-enabled solutions. We are highly limited in what we can say about security and defense customer engagements. But what I can say is that we completed the first phase of a deployment for a new international defense agency customer and a respected Middle East police force commenced a 3-year PortalGuard deployment. In addition, we secured $600,000 of follow-on orders for a prominent foreign defense ministry that bring this ongoing project to over EUR 3 million in total revenue in defense investment over the next 4 years. Included within these efforts is the Security Action for Europe or SAFE loan mechanism, raising EUR 150 billion for defense readiness, including missile defense, drones and, of course, cybersecurity. Similarly, NATO members recently agreed to increase their defense and security spending to at least 5% of their GDP by 2035, more than doubling the previous long-standing target of 2% of GDP. Of the new 5% spending target, 1.5% is explicitly allocated to cybersecurity and security-related investments, including strengthening network defenses against cyberattacks. The EU complements these efforts through initiatives to secure 5G networks and critical infrastructures as well as a dedicated action plan for cybersecurity in vital services like hospitals and health care providers. This unprecedented increase in spending is deemed essential for deterring aggression and countering complex hybrid threats. Outside the defense sector, we are particularly encouraged about overall growth opportunities in the EMEA regions of Europe, the Middle East and Africa, where we have been seeing improved traction and a particular interest in our differentiated identity-bound biometric capabilities. We've refocused our efforts on BIO-key branded solutions in those markets following our transition away from the former licensed Swivel Secure solutions and services that we were selling in 2024 and previous to that. Though it takes time to rebuild the opportunity pipeline and channel strategy to focus solely on the BIO-key product suite, we are seeing good traction and positive year-over-year revenue comparisons as we progress through the year. From a margin perspective, our focus on BIO-key solutions provides us greater control and stronger gross margins, supporting our expectations for growth and enhanced margins from the EMEA Group in the back half of 2025. Finally, across the business, we have been developing a new marketing program to better articulate our unique capabilities and compelling value proposition. Given the complexity and competition that exists in our space, we realized it was time to bring a new voice and focus to our core value proposition to better support our channel partners and direct sales efforts. In North America, we continue to build on our strong position in higher ed, health care and other public sector segments as well as finance and insurance. Benefiting from our growing base of reference accounts and IT professionals who have experienced firsthand the competitive strengths and value that we provide, in particular with our biometrics. In addition, we are taking steps to revitalize our North American direct and channel sales efforts by recruiting new leadership and cultivating a more collaborative and competitive sales culture to drive improved results. We are also moving back to an in-office model for our sales, business development and marketing teams once again, which is identical to the way we operated before the COVID pandemic. In closing, we believe these strategic business development initiatives, coupled with our growing base of global channel partners, customers and reference accounts, put BIO-key in a strong position to deliver improved top and bottom line results in 2025 and beyond. We also continue to seek opportunities to reduce costs across the business to lower our breakeven level and support our path to positive cash flow and profitability. I'm excited about our potential over the coming quarters and appreciate the patience and support of our investors who have helped us get to this place. Now I will pass the call to Ceci Welch to review BIO-key financials.

Thank you, Mike. Our results were released this morning via press release, and I will now talk about some of the highlights. Our Q2 '25 revenue increased 49% to $1.7 million versus $1.1 million in Q2 '24 with improvements in each segment. The most significant contributor was $458,000 increase in hardware revenue, principally due to additional deployments of finger biometric scanners for a large long-time customer. License fee revenue increased 4% in Q2 '25, reflecting our growing base of -- subscription contracts. Our service revenue increased 11%, largely to the benefit of customer service for a large customer upgrade. Q2 ' 25 gross profit increased by $354,000 or 40% to $1.2 million from $0.9 million in Q2 '24 due to the increase in total revenue, offset by a modest decline in gross margin to 73% in Q2 '25 versus 77% in Q2 '24. The year-over-year margin decrease was the result of a large increase in hardware revenue as a percentage of sales in the current year period as it carries a lower margin than license fees and services. BIO-key reduced $5 million in Q2 '24 due to a 13.5% reduction in SG&A expenses resulting from reductions in administrative sales personnel costs and professional service fees. As Mike mentioned, the SG&A improvement was partially offset by higher research and development. costs in support of development of next-generation products such as our PortalGuard upgrade and the exploration of new products and new product lines reflecting higher '25 compared to $1.7 million in Q2 '24 principally related to the share issuances from the warrant exercise and other financing-related activities. As of June 30, 2025, BIO-key had current assets of $4 million, including $2.3 million in cash, up from the current -- from the year-end current assets of $1.9 million, which included $438,000 of cash. Accounts receivable also increased 37% -- '24. And now operator, at this time, please prepare for Q&A session.

[Operator Instructions] The first question today comes from Dan Thomas, who is a private investor.

With the increased cost for this, I guess, sales and support team on the cyber defense and increased R&D, should we expect the recent trend towards reduced operating expenses to reverse?

No. Well, again, I want to answer that question the right way, Dan. So no. The answer to that question is we had a, I'll call it, a blip in the second quarter due to a few things. Number one, sounds right -- for those events is one element. And I think we believe that the expense run rate that we started the year at from -- will pretty much be the way we proceed through the third and fourth quarter. So again, it was about a $300,000 blip in Q2.

Okay. Can you give us any at all additional color on what meaningful contract activity in the first half of next year means -- cybersecurity in Europe?

Yes, it's pretty significant. I think our challenge, in fact, we have contracts that we've closed already this quarter and late last quarter and this quarter that we really just can't discuss. We provide not only an MFA, but an identity and access management platform with PortalGuard. And we're pretty much the only vendor that has a solid, proven biometric attachment to ratchet up the level of security for access management for these defense contractors and ultimately, the end-use defense agencies. And so because of our powerful references, that business is going to grow for us. And so, we announced the formal initiative. I mean, we've been working this for the past year, but we announced the formal initiative this morning to go after that business in a bigger way, and we'll be doing some marketing and some other things to ensure that all of the contractors and the end-use agencies know about BIO-key because many of these large contracts are hosted and managed by large primes, right? And on an international basis, we know who all of them are. We have very good partner relationships already in EMEA. And this is just making it more significant for us. It's no secret, right, that the U.S. has forced the EU and the Middle East to step up and spend more to defend themselves and to also acquire product, missiles, weapons, all kinds of drones and other technology from the U.S. as well. So, there's no doubt that the money is there. There's no doubt that the need is there. And with our references, in particular, with some very high-level agencies that we haven't even discussed or announced and we can't yet. We think we're in a really good position to capture that. And that's again on the government side, but we also have a very robust enterprise business. I mean, look at our business in banking and in health care, in education, we have well over 100 customers that represent millions and millions of users every day that use our technology. So, I don't want anyone to think that we're moving away in any way, shape or form from the enterprise business. But I think what we're trying to say here is we're going to take advantage of the thermals that exists now because of this increase in the defense and intelligence markets that's recently evolved.

Okay. When you say you have contracts that you can't mention or -- I'm just wondering, have you received the income from those contracts already in the second quarter? Or are those contracts scheduled to come in, in the first half of next year or something? I'm just trying to get a feel for how...

No, both. I was very clear. I mentioned we have already contracts that we've, again, closed at the end of last quarter -- this quarter in Q3, and they'll be reflected in the Q3 results, right? I mean, unfortunately, again, we can't really announce the names or any of that at this point. At some point, perhaps we will be able to do that. But at this point, we can't. And so I think even in Q2, the -- certainly, at least I look at the stock price, and I don't think it's reflective of our performance today. And I think that the market just yet at this point doesn't realize, again, our opportunity. And unfortunately, it's going to happen -- it's going to be shown in the results because a lot of the things that we are involved in right now are just not announceable. It's just the way it is. And I don't think we're the only company in this position, but certainly for us right now, that's our situation.

Okay. But you're saying that these things you haven't announced that they'll be providing income in the next year, and that's some of what you're basing this idea of meaningful contract activity? Or are you just expecting that because of the increased market in Europe and EMEA? That's what I'm saying.

No, no, no. This isn't a pipe dream. There will be results this quarter from some of these contracts in Q3. This is Q3. We're in Q3 and Q4 and obviously beyond. But these are real contracts that have generated revenue already and will continue to generate revenue through the end of this year and into next year. and beyond, right? Obviously, these are -- this spending initiatives that are, in particular, in the EU and in the Middle East are multiyear, right? These are not just onetime kind of blips. These are investments that are going to go on for 5-plus years, maybe even longer.

Okay. Do you expect these to ramp, I guess? I guess I'm trying to understand will -- I mean, we've lost $1 million, I think, in this quarter. So, these have to ramp for you to get to breakeven. So, are you expecting like a growth -- significant growth from these in the first half? Is that what's going on?

Absolutely. There's no question. I mean, again, it's iterative, right? These things will grow. The quantity of opportunities, customers will grow as well the size. And typically, these things start and then they iterate. If you look at that our first, our largest defense ministry, right, we've iterated to multimillion dollar to multiple millions of dollars in sales, both hardware and software with them over the last few years. And so, these are the things that continue, right? There -- they start and then they iterate. They get bigger. More users get added, more touch points get added, i.e., that represents hardware. But one other point that I want to make, our blended gross margins still are 70-plus percent, which is very, very strong. They float, right, between 70% and 80%. But at the end of the day, those are very, very strong and powerful gross margins. And I think a testament to the quality and the nature of our solution set. Customers want one throat to choke, they want to be able to buy everything from us and know that we're there to support everything. So again, that's also very powerful for us.

Okay. You mentioned some of this has happened in the third quarter. I think last call, you mentioned that during the summer, I guess, Europe shuts down in August and whatnot. Do we have a feel at all for whether we'll get growth in the third quarter or whether we might see a little bit of a slowdown before a ramp back up in the fourth quarter, anything like that?

Yes. Well, we don't provide guidance. So I'm not going there, but there's no question that Europe right now, right? We're in the dead portion of the summer in Europe, and that will continue through the end of the month but in September, things will wake back up again. So, we're encouraged by our pipeline and the number of opportunities we have. And in the context of also on this kind of defense intelligence segment, it's typically a priority. So it's less impacted by the, I'll call it, the malaise that you see typically in the European summer because these things are mission-critical, right? So, they may obviously have less staff or a diminished focus, but the focus doesn't go away as it will -- sometimes you'll see that in the enterprise or commercial markets in Europe. But you'll see less of that in the defense and intelligence sectors.

Okay. That's helpful. How much of the reserve inventory did you sell? Can you give us that?

Yes. We're selling it basically every quarter. We sold a bunch already this quarter in Q3. We continue to move that inventory. And our goal and objective is to, again, by the end of the year to have moved the bulk of it. So I keep mentioning, and I've mentioned this on a number of calls that we have a few larger opportunities to move higher volumes of those units, and that's starting to come to pass for us. So you'll see that reflected in the numbers as we evolve forward. And of course, as you know, they've all been written down. So it's all -- it's revenue and it's also all cash. So it's good for us and all margin.

Right. But can you tell us how much you have left?

No.

Do these hardware sales lead or lag software sales? I know a big increase

They usually come together. So typically, the initial contract or sale will include software and the hardware to get the solution up going, users registered, deployed. And then the expansion will typically include software and maybe some hardware. So there might be less, there might be more. In the context of our large defense ministry customer, they've deployed, I believe, 40,000 touch points, meaning they've deployed 40,000 finger scanners in different locations throughout their infrastructure and they continue now to add users, right? More and more larger portions of their population are now getting enrolled because they have a wide distribution of touch points, and they fundamentally have mandated that anyone who accesses anything that has to do with their intelligence infrastructure must utilize the BIO-key solution. And every one of those touch points has a BIO-key logo on it, just FYI.

Can you give us any update on Nigeria or Africa? That's still...

We still operate there, and we're -- we really have turned our focus to supporting our core products right now. We have a number of partners that we've signed up through our EMEA group in Africa that will be representing us, but more for our core technology and core products. The volatility on the other side of the market, I'll call it the civil ID market is just we closed 2 deals in -- 2 banking deals in Africa in the first half, right? The Bank of Mozambique and Egypt. We have another one in the pipeline that we hope will close this quarter or next. So going after the commercial enterprise market, in particular, with our biometric solutions seems like a very powerful opportunity. So that's our focus right now in Greater Africa. Yes, we do.

[Operator Instructions] There are no further questions at this time. I'd like to turn the call back

To today's release with any follow-up questions. Also, we expect to participate in a number of conferences as we evolve forward through the end of the year and stay tuned for those announcements. We certainly will keep you posted. With that, have a great day, a great rest of the week and a great rest of the summer. We look forward to updating you on our call after -- in the late fall, in the mid- fall in October. Have a great day.

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