BIO-key (BKYI) Q3 2026 Earnings Call Transcript

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DATE

Fri, Nov. 13, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Mike DePasquale
• Chief Financial Officer - Ceci Welch
• Investor Relations - David Collins

TAKEAWAYS

• License Fee Revenue -- $1.3 million, increasing 39% due to several new customer deployments and representing 86% of total revenue.
• Total Revenue -- $1.48 million, declining 4% as growth in software licenses was offset by lower hardware sales.
• Gross Margin -- 90%, rising from 77% last year as high-margin recurring software revenue became a larger portion of the revenue mix.
• Hardware Revenue -- $12,404, decreasing from $363,642 in the prior year due to the delay of a large international order.
• Operating Loss -- $820,000, improving by 8% reflecting higher gross profit despite a 4% increase in operating expenses.
• EMESA Revenue -- $924,760, growing 39% driven by license fees in the region more than doubling to $903,249.
• Net Loss Available to Common Stockholders -- $5.9 million, or $4.01 per share, primarily reflecting a $4.5 million non-cash deemed dividend related to a warrant inducement.
• Central Bank of Jordan Deal -- national biometric initiative, intended to serve approximately 11.6 million people across the financial sector.
• Middle East Customer Expansion -- eight new customers, added in the last seven months within highly regulated sectors such as government and banking.
• Debt Status -- effectively debt-free, following the retirement of the company's remaining note payable during the third quarter.
• Working Capital -- $3.1 million, increasing from $800,000 in June 2026 following a $2.5 million warrant inducement transaction.
• Q1 2027 Renewal Guidance -- $1.2 million, representing the expected volume of annual license fee renewals in the first quarter of 2027.
• U.S. Casino Contract -- three-year agreement, marking the company's entry into the gaming and hospitality industry to secure workforce access.
• Passkey:YOU Certification -- FIDO Alliance certification, achieved in September to support biometric authentication for AI agent actions and phone-restricted environments.
• Accounts Receivable -- $2.4 million, rising from $960,000 a year ago due to the timing of new business closures in the Middle East.
• SG&A Expenses -- $1.5 million, increasing 9% reflecting higher administrative personnel costs and annual meeting expenses.
• R&D Expenses -- $635,038, declining 7% for the first nine months of 2026 due to lower personnel costs.
• Cash and Cash Equivalents -- $2.2 million, providing liquidity to fund operations alongside a total current asset base of $5.3 million.
• Nine-Month Revenue -- $5.55 million, representing a 14% increase driven by a 37% rise in total license fee revenue.
• Reverse Stock Split -- 1-for-10, effective April 30, 2026, and impacting the calculation of weighted average common shares and per-share results.
• MENA Security Spending -- $4 billion forecast, representing the expected end-user information security spending in the region for 2026.
• UAE Regulatory Shift -- mandated phase-out of one-time passwords, creating a tailwind for the company's biometric solutions in the Middle East.
• Saudi Arabia Subsidiary -- new entity establishment, intended to support growing government business in the region with local staffing.
• Insider Share Ownership -- potential increase, as CEO DePasquale indicated that insider buying is expected following the opening of the trading window.
• Operating Expense Trend -- $6.29 million for the nine-month period, representing a 1% decrease from the prior year.

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RISKS

• Mike DePasquale stated, "That larger hardware order has been pushed, and that is the nature of these large kind of civil ID government programs," noting the delay's impact on quarterly revenue.

SUMMARY

BIO-key International, Inc. (NASDAQ:BKYI) reported a 39% increase in software license revenue for the third quarter, driven by expanded adoption in the Middle East and Europe. Management reported that the company eliminated its remaining note debt during the period and achieved a 90% gross margin as high-margin recurring software revenue reached 86% of the total mix. The company is currently focusing on international government and financial sector deployments while targeting profitability and positive cash flow as it nears the first quarter of 2027. Strategic priorities include the launch of its FIDO-certified Passkey:YOU solution and the application of Identity-Bound Biometrics to address security challenges involving AI agents.

• The company launched a technology integration with Cipher, the cybersecurity division of Prosegur, to bring biometric and identity access management tools to markets in Portugal, Spain, Brazil, and the U.S.
• Management reported that machine identities now outnumber human identities by more than 100 to 1, creating a requirement for verified human authorization of AI agent actions.
• CEO DePasquale stated that the company entered the gaming industry with a casino resort deal, noting the solution is a fit because "most of the resort's highest value employees can't carry phones on the gaming floor."
• The company expects to be consistently profitable and potentially cash flow positive as it approaches the first quarter of 2027, supported by a pipeline of seven-figure opportunities.
• Management noted the FIDO Alliance formed a working group to develop standards for trusted AI agent interactions, which aligns with the company's focus on agentic AI authentication.

INDUSTRY GLOSSARY

• IAM: Identity and Access Management; a framework of policies and technologies to ensure that the right users have the appropriate access to technology resources.
• Identity-Bound Biometrics: A security approach that ties a digital identity to a specific individual’s biometric data rather than a device or token.
• FIDO Alliance: Fast Identity Online; an open industry association focused on developing authentication standards to reduce reliance on passwords.
• Agentic AI: Artificial intelligence systems or "agents" capable of performing autonomous actions and making decisions on behalf of users.
• EMESA: A geographic segment representing Europe, the Middle East, and South America.
• Passkey: A digital credential used as a replacement for passwords, often utilizing biometric authentication or hardware security keys.
• PortalGuard: The company's identity and access management platform supporting multifactor authentication.
• IDP: Identity Provider; a service that stores and manages digital identities.
• MENA: Middle East and North Africa; a regional grouping used for economic and security market analysis.

Full Conference Call Transcript

Operator: Good morning, and welcome to BIO-key International third quarter 2026 conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will open the line for a question-and-answer session. Please note that today's call, Friday, November 13th, 2026, is being recorded. I would now like to turn the conference over to David Collins of BIO-key Investor Relations. Please go ahead.

David Collins: Thank you, operator, and good morning, everyone. Joining me today are BIO-key's Chairman and Chief Executive Officer, Mike DePasquale, and its Chief Financial Officer, Ceci Welch. Please note that 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, project, target, and similar words identify and express forward-looking statements. Such forward-looking statements are made based on the 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 the risks and uncertainties that affect future performance, please see risk factors in the company's annual report on Form 10-K as amended and latest Form 10-Q filed with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call. With that, I'll turn the call over to Mike.

Mike DePasquale: Thank you, David, and good morning, everyone. I'll start with an overview of the quarter and our business. Ceci will then take you through the financials, and we'll close by taking your questions. Our third quarter results reflect the strength of our core software business. License fee revenue grew 39% year-over-year, and that high-margin recurring revenue lifted our gross margin to 90% from 77% a year ago, and helped reduce our operating loss by 8%. Our gross margin has improved every quarter since the second quarter of last year, and license fee revenue has now grown by double digits on a year-over-year basis for the past three consecutive quarters.

Total revenue for the quarter was down 4% from last year's third quarter, as strong license growth largely offset lower hardware sales. The third quarter is typically our slowest period of the year due to summer vacation schedules, and the first quarter tends to benefit from license renewal activity. For the first nine months of 2026, total revenue rose 14%, and our net loss has improved by 42%, a solid step in the right direction. I want to spend a moment on why we're seeing growing new business wins and how they relate to our core biometric expertise built over decades, which is gaining recognition as a real differentiator where identity assurance matters most.

Areas such as government, defense, and financial services, the regulated industries, these customers know how, with uncertainty, that a person, the actual individual accessing a critical system, is who they claim to be. That's what our Identity-Bound Biometrics deliver, tying access to the individual rather than to a device, a phone, a token, or a password that can be shared, stolen, or phished. Regulators are increasingly pushing in this direction. In response to growing incidents of systems compromise, in the UAE, for example, the central bank directed banks and other licensed financial institutions to phase out SMS and email one-time passwords earlier this year in favor of stronger methods, including biometrics and passkeys.

Policies like these are important tailwinds for the value our solutions provide. That backdrop is showing up in who's choosing BIO-key and in the size of the opportunities. Our international team is increasingly winning larger, high-profile deals in highly regulated sectors, as I mentioned before, such as government and banking. In the third quarter, the Central Bank of Jordan selected BIO-key for a national biometric authentication initiative to modernize how clients access digital services across the financial sector, which serves roughly 11.6 million people. We're working closely with the central bank as the initiative moves towards development deployment.

In Portugal, a national security agency selected BIO-key and our partner, Visualforma, to secure access to its administrative systems, privileged accounts, and critical applications. We are seeing incredible upside in the international markets, in particular in the Middle East and in Europe. These awards bring us to eight new Middle East region customers in roughly seven months. These are among the most security-conscious organizations anywhere, and each deployment becomes an important proof of concept and reference for the next, and that's what we're seeing now. This traction is built on strong local distribution and integration partners with strong connections and understanding of each customer's needs.

We continue to expand our partner network, such as our recent partnership with Al Majlis Group to extend our reach across the Arabian Gulf. We have also begun establishing a BIO-key subsidiary in Saudi Arabia to support our growing government business there that will also be staffed with BIO-key resources. Overall, the opportunity is very large, and Gartner forecasts end-user information security spending in the Middle East and North Africa will reach approximately $4 billion in 2026. It's starting to be reflected in our results as the third quarter revenue from our Europe, Middle East, and South America region grew 39% with license fees more than doubling.

In Europe, we recently launched a technology integration with Cipher, the cybersecurity division of global security group Prosegur, bringing our IAM, biometric, and password technologies into their portfolio, starting in Portugal with plans to explore other markets where they operate, such as in Spain, the U.S., and in Brazil. In the U.S., our focus is on PortalGuard, our flexible IAM platform supporting 16 factors of authentication, including fingerprint, face, and palm biometrics. We continue to roll out our latest version, PortalGuard 7, across our customer base. In October, we recruited cybersecurity veteran Steve Morrow as President of PortalGuard to accelerate adoption.

We are sharpening our U.S. go-to-market efforts through our DLT partnership, which is focused on the public sector, as well as with other channel partners on the commercial side. Benefits for these efforts are already taking shape. Earlier this week, we announced that a major U.S. casino resort selected PortalGuard and our Identity-Bound Biometrics to secure workforce access across its 24/7 operations, marking our entry into the gaming and hospitality industry. This enterprise-wide prepaid three-year agreement was won against much larger competitors who were unable to provide the functionality we have. Most of the resort's highest value employees can't carry phones on the gaming floor, making our efficient biometric-driven solution a natural fit.

In the realm of AI, our new internally developed Passkey:YOU authenticator received full FIDO Alliance certification this September. It is now in final testing ahead of its major launch, which will allow us to leapfrog the capabilities of our earlier outsourced solution. Our Passkey:YOU solution lets employees sign in with a fingerprint scanner or badge rather than a phone or a token, and it positions us for one of the most important emerging identity challenge, AI agents. Machine identities, including AI agents, now outnumber human identities by over 100:1. It's an amazing statistics, and that's according to industry research. This year, the FIDO Alliance formed a working group to develop standards for trusted AI agent interactions.

We believe that for the highest risk actions, the answer has to be verified human, not password or device acknowledgment. Our Identity-Bound Biometrics can tie approval of sensitive AI-driven actions to the actual person accountable. This agentic AI authentication and authorization is an important aspect of the integrated offering of our new Cipher relationship. Steve Morrow, as I mentioned, the President of our PortalGuard group, is leading the development of the product plans in this area. We see this as a meaningful new market opportunity alongside our core workforce and customer authentication business. On the financial side, we strengthened our balance sheet considerably in the third quarter.

We retired our remaining note and debt, leaving us effectively debt-free, and we currently have a solid cash and working capital position to fund our business. Looking ahead, our recent wins, growing base of recurring license revenue, and a solid pipeline of regulated industry opportunities across EMEA position us for a solid finish to 2026 and a really strong start to 2027, supported by the annual license renewal of our largest customer, which exceeds $1 million. We expect roughly $1.2 million in annual license fee renewals in the first quarter alone, and we are targeting profitability as we approach that timeframe.

Our deep biometric expertise, marquee government and financial customers, growing high-margin software revenue, streamlined cost structure, and cleaner balance sheet gives us a very strong foundation, and we believe it sets the stage for an exciting future period. I will hand the call over to Ceci to take you through the financials in more detail. Ceci?

Ceci Welch: Thanks, Mike, and good morning, everyone. We issued our third quarter results this morning via the press release, and we expect to file our Form 10-Q either later today or on Monday. I will review some of the key items. Total revenue for our Q3 2026 was $1.48 million compared to $1.55 million in Q3 2025. License fee revenue increased 39% to $1.28 million, reflecting several new customer license deployments and representing 86% of total revenue versus 59% a year ago. Hardware revenue was $12,000 compared to $364,000 in Q3 2025, as our Q3 2025 included a large hardware deployment for a long-term customer.

Sales, maintenance, and other revenue decreased 27% to $195,000 due to the timing of our agreement renewals as well as the impact of our partner-led sales model. Virtually all of our integrated business is sold through channel partners who typically provide implementation and sales support themselves. For the first nine months, revenue increased 14% to $5.55 million, again driven by the 37% increase in license fee revenue. Gross profit increased 12% to $1.34 million, and gross margin improved 90% from 77% in Q3 2025, reflecting a greater portion of license fee revenue as a percentage of total revenue. Gross margin has improved sequentially in each quarter this year from 83% in Q1 to 87% in Q2 and 90% in Q3.

For the first nine months, it improved 86% from 77%. Operating expenses increased 4% year-over-year, but decreased 2% sequentially from Q2. SG&A increased 9%, reflecting higher administrative and personnel costs and annual meeting costs, while research, development, and engineering expenses decreased 7% for the first nine months. Operating expense decreased 1% to $6.29 million. Our Q3 2026 operating loss improved to $820,000 from $892,000. Our net loss improved $886,000 from $965,000 in Q3 2025. Including a non-cash deemed dividend of $4.5 million related to the August warrant inducement, net loss available to common stockholders was $5.9 million, or $4 per share, compared to $965,000, or $1.44 per share in Q3 2025.

The deemed dividend is an accounting entry with no impact on our operating loss, cash, or stockholders' equity. For the first nine months, our net loss improved 42% to $1.67 million from $2.87 million. Including the deemed dividend, net loss available to common stockholders was $6.17 million, or $5.37 per share, compared to $2.87 million, or $4.87 per share. Per-share results reflect the April 30th 1-for-10 reverse split, as well as the warrant exercises and other financing activities. Turning to the balance sheet, stockholders' equity increased to $6.5 million at September 30th from $4.3 million at June 30th.

We ended the quarter with $5.3 million in current assets, including $2.2 million of cash and $2.4 million of accounts receivable, and $367,000 of net inventory. Working capital improved to $3.1 million at the close of the third quarter 2026 from $0.8 million in June 30th, 2026. During the quarter, we retired the remaining balance of our note payable, leaving us free of our note debt, and only remaining is a small euro-based loan of approximately EUR 12,000 that will be paid off by the end of the year. In August, we raised gross proceeds of $2.5 million through the warrant inducement transaction. As Mike outlined, we expect a solid finish in 2026 and a strong start to 2027.

That concludes our prepared remarks. Operator, please open the line for questions.

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

Jack Vander Aarde: Okay, great. Good morning. I appreciate the update, and thanks for taking my questions.

Mike DePasquale: Good morning.

Jack Vander Aarde: Mike, good morning, Mike. I will start with a question on the third quarter revenues. Good to see the strong license growth, and that has been consistent. I am wondering for the hardware line, sometimes you have some orders and timing of delays that get some slippage. Were we expecting a big hardware order in 3Q, or did anything get pushed into 4Q?

Mike DePasquale: Yeah. I think starting in Q2, we had a larger hardware order that we were expecting for an international customer that we have been working for quite some time. That has just been pushed, and that is the nature of these large kind of civil ID government programs. They sometimes get deployed on time, sometimes they get extended. That larger hardware order has been pushed. Again, given that happened, obviously our revenue would have been much, much higher. That is also hardware product that, as you know, we fully own and has been in our inventory for a considerable period of time. So, it is also all margin and cash and profit for us.

We are selling the hardware, but it is just happening in smaller tranches, and so it is dribbling. We expect we will continue to sell that hardware through the end of this year and certainly into the beginning of next year.

Jack Vander Aarde: Okay. I appreciate the color there. It sounds like it's not a lost opportunity, just smaller batches, and will be recognized over time. The gross margin is very strong here. It's actually, I think on a blended overall basis, one of the strongest quarters in your history. That's good to see.

Mike DePasquale: It is. It is. For sure, what we're seeing is, again, as I mentioned in my prepared remarks, we're seeing very, very strong license revenue. There's hardware as well in this. Sometimes it happens before, sometimes it happens after the sale in our EMEA group in the regulated space.

Jack Vander Aarde: As a follow-up to that, Mike, you're clearly having some great success in the Middle East. It's really ramping up. I think you mentioned eight new material customers out there. I imagine this plays a role in shaping 2027. Do you feel like you're going to be entering 2027 and even 4Q 2026 on the licensing front? How do these new customer wins, I guess, if you could quantify or just directionally, how does this set you up for, I guess, entering 2027?

Mike DePasquale: Well, it kind of sets us up, number one, to be profitable, number two, to be consistently profitable, and number three, to potentially be cash flow positive and remain cash flow positive. When you're doing high-end six-figure and seven-figure deals, the cash flow is wonderful. When it's all software, the margins are incredible. Even again, we're going to see some larger hardware orders come along with this, because typically, these larger entities, when they deploy our technology, they're deploying biometrics, and so they need not only to enroll all of their employees or customers, but they need to have the facility to be able to identify them, and so our finger scanners get pulled along.

I mean, I just think we're in an incredible position. We've never been in this position before, where we're sitting on enough cash and receivables to really fund our business for a couple of years, and with a pipeline of seven-figure opportunities that we obviously will be working in the next six months. It's just an entirely different opportunity for us today. And it's because of the dynamics that we're seeing in the world, right? We've always had a very strong business, as you know, in the defense sector, international defense sector. We have a very large customer that's deployed over 60,000 of our devices and enrolled hundreds of thousands of their folks.

This is now traveling to all of the other, right, sensitive government and financial services institutions on an international basis. I don't want to discount also our domestic business. That casino win, which again, was a Q4, that's a Q4 opportunity that was not recognized in Q3, so it'll be recognized this quarter, is really kind of a resurgence and a reinvigoration of our domestic business with partners. We are really going full bore, similar in nature to the way we operate in EMEA, partner, partner-centric. I think that's going to have a huge impact on our domestic business as well.

Jack Vander Aarde: Great. I'm glad you mentioned the casino win again. I wanted to just kind of follow up with that and just your thoughts on, I guess, the overall casino gaming hospitality space for BIO-key, bigger picture. Then also just touching on, obviously, the agentic AI update that you mentioned. How does this agentic AI space and opportunity and this new casino space, just how does this compare relative to, I guess, the upside you're seeing in EMEA, in defense, your other core verticals that are large?

Mike DePasquale: Yeah. Just a couple of questions there. Let's go and answer the gaming one first. It's interesting because in gaming, they're struggling with a very typical security issue or problem that most enterprises are, where you can't use a phone or a token, you have a very serious security issue and problem because you need multi-factor authentication in order to meet your compliance hurdles. Being able to just place your finger and automatically authenticate and not have to have a phone or a token or a card, right, which can be shared and used by anyone, we have the perfect solution. This was our first entry. We did this deal from start to finish.

This was a WEB-key, not WEB-key, it was a web lead that came into us, right? It was an inbound lead from inception to close was less than 60 days, because they have a serious issue. Also, this customer, and this is a six-figure deal, multiple number six-figure deal, a three-year contract. But this customer is also taking us to an event in the first quarter where we will have the opportunity to share what we are doing for them with other potential prospects. Gaming is a big business in this country, not just the big names like MGM and the ones that you know in Vegas.

There are an incredible number of tribal, local casinos and resorts in almost every state in the country. It is a really, really nice opportunity for us. That is the gaming question. How does that relate against the EMEA scenario? Clearly, the deals in defense and banking are, some of them are seven-figure, many of them are seven-figure deals, so they are bigger deals, right? Those are much bigger deals than even enterprise opportunities. Again, there is a balance. Do I think on the domestic side we can get to that point? I do. I think it is going to take us some time, but I think we can. As it relates to agentic AI, look, it is intuitive.

You are hearing it all over. Agents are wonderful. They are incredible in terms of the efficiency and productivity that they can provide to enterprise and government agencies. The problem is, if they operate on their own without any human intervention, there is always a danger and a risk that they go rogue or you cannot meet your compliance requirements and/or you put your customers at risk. In the real world of agentic AI, you want a human to acknowledge and to validate and authenticate that agent to do very specific tasks on behalf of you or the company.

Validating that with a biometric, ensuring that the individual who authorizes that, who says, "Yes, this agent can go out and do X, Y, Z," knowing who they are and when they validated and authenticated that process is critical and important. We see that as a really, really big opportunity because AI is dominating the space in enterprise and government, and securing AI agents is a real issue, and human intervention is not an option, it is required. I suspect with the new legislative changes past election here last week, we are going to see a lot more pressure to reel that in and ensure that we are securing and locking down agents so they do not go rogue.

Jack Vander Aarde: Got it. I appreciate all the color there. I know that was a loaded question. But no, that's encouraging to hear, Mike. My last question, then I'll hop in the queue, is just on the outlook and kind of relative to last quarter's outlook. I think you were targeting profitability in the back half of this year. Now, that's probably not quite on track now, but third quarter was close to break-even operating income. Wondering if you could just share more of an update on your, I guess, more of a precise update on your outlook for 2027.

Mike DePasquale: Yeah.

Jack Vander Aarde: Has anything changed? Are you expecting growth and profitability? Just any other color would be helpful. Thanks, Mike.

Mike DePasquale: Yeah. I'm really expecting significant growth, and I still think even in the fourth quarter here, we're going to see very strong finish. I'd like, obviously, we're targeting profitability and we're targeting to be cash flow positive. But certainly, as we go into the strongest quarter for our company, the first quarter, with the kind of pipeline we have and the opportunities that we're working right now, I'm highly encouraged we're going to see significant growth. We're certainly going to be profitable growth. Again, we're not in the market from a cash perspective to have to raise capital or to do anything from a financial perspective to support the company.

We have enough resource right now to be able to do that.

Jack Vander Aarde: Okay, great. I appreciate the color, Mike. Thank you.

Mike DePasquale: Thanks, Jack.

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

Dan Kamhis: Hi, guys.

Mike DePasquale: Morning, Dan.

Dan Kamhis: Morning. Along with the gross margins, your account receivables have been on a significant upward trend, now up to $2.35 million from $0.96 million a year ago. That is about 245%, while your payables and accrued expenses have been fine in the same period. It is also interesting that in the weak third quarter, the AR was up significantly. I am wondering if that increase is fairly distributed, or did it come from one or two customers, such as that bank renewal you mentioned?

Mike DePasquale: Well, it did not come from a bank renewal, it came from new customers. I think in my prepared remarks, I mentioned that we were kind of on a tear, right, in terms of closing new business, especially in the Middle East. A couple of those deals are pretty large. It is a balance, but it is definitely a reflection of the opportunities that we the new business opportunities that we closed in Q3.

Dan Kamhis: Okay. With that kind of collectible, I mean, couldn't that result in a break-even cash flow by itself in the fourth quarter?

Mike DePasquale: Yeah, we hope it will. It is timing of collections, right? Keep in mind, all this business comes through partners, and so, we are always cautious about collections and staying on top of things. But yeah, it certainly can.

Dan Kamhis: What about this trend in AR? Do you consider that I mean, it sounds like you consider it's either going to continue, or do you think it's peaked? Will it stay at this level? Just color on what you see in AR.

Mike DePasquale: I think it can continue if we close larger deals, right? I mean, it depends on how much business we close. I think we're very encouraged by what we have in front of us for Q4 and Q1, and we have insight into Q2. So, that trend should continue. Look, I would be happy if it dipped a little bit and we collected more, and so the receivables were down, but our cash collections were up. That's a dynamic that we'll see how that unfolds.

Dan Kamhis: Solid fourth quarter. I looked at some of your past results on the fourth quarter. They've been, I don't know, they average about one I think last year was $1.24 million. By solid, do you mean comparable to the results of the last quarters, or these last fourth quarters, or? It sounds like you think solid might be even.

Mike DePasquale: Well, okay, first of all, I don't have in my head last year's fourth quarter revenue number. Ceci, I don't know if you have that available, because I don't have a mark to measure against.

Dan Kamhis: Yeah.

Ceci Welch: Yeah, let me look real quick.

Mike DePasquale: Okay. Dan, once Ceci comes back with the number, I will be able to articulate, do I think it is going to be significantly over that or whatever. I do not want to fly, just throw numbers out. But, yeah, we are.

Ceci Welch: Yeah. Last year was $1.188 million. The year before that was $1.286 million. The year before that was $1.593 million.

Mike DePasquale: Got it. And that was fourth quarter, correct? Fourth quarter numbers.

Ceci Welch: Correct. These are fourth quarter numbers. Yeah.

Mike DePasquale: Yeah. We'll have significant growth over that in this fourth quarter. Yes. And it will be significant.

Dan Kamhis: That's great. The agentic AI authentication market, could that be a killer app for you that actually opens up the U.S. market?

Mike DePasquale: Absolutely. In fact, it's funny, internally we're calling it a killer app. I don't like to use it in our. But we're calling it a killer app because we do believe it's something that, first of all, including our passkey, it can attach anywhere. It doesn't matter what IDP, in other words, what maybe security infrastructure you're using. For example, even if you're using Okta or you're using Ping or SailPoint, whatever you're using, you can attach our biometric agentic solution, right, on top of that, without having to load tremendous amounts of software and infrastructure. We do see that as a killer app, and we'll be deploying that to customers this quarter.

Into 2027, we think this is going to be a really, really big partner-centric, right, solution, where these partners have existing customers. They can take this as an upsell and an add-on, which they love, right, because they always want to add services and support and technologies for their existing base. That is how they make money. We think it is a killer app.

Dan Kamhis: You are talking about the U.S. market, right?

Mike DePasquale: U.S. and international. I do not think there is much of a differentiation in the context of where that can apply.

Dan Kamhis: You open up the U.S. market, that is.

Mike DePasquale: Yeah. Look, our U.S. business has been basically flat. We haven't seen as many exciting opportunities as we've seen internationally. Now I'm starting to see that resurgence, first in the new leadership that we brought on board, but secondly, with the partner network. When you bring someone like DLT on board, and they have a huge presence in public sector, they have a huge presence in enterprise, once that starts going, it's the gift that keeps giving, right? They continue to bring you to their customer base. We got to close the first handful, and we got to hold their hand through it, and we do that.

But at some point, when they get productive, it's going to be very powerful. The products that we're developing, we're developing for partners to be able to go out, manage, demo, manage, and sell on their own without our intervention. That's what these partners want. They want something that's really simple, straightforward. They can demo it. They have a dashboard to be able to market the licenses and sell it, and then sell any hardware if that's required beyond that.

Dan Kamhis: Got it. Should we expect increasing R&D expenditures in this area then over the next 12 months?

Mike DePasquale: I think we're solid here. I think Ceci mentioned that our R&D expenses were pretty stable, if not declining. We think we have the resources to be able to do most of what we need. You may see some additional resource and support as sales climb, right, just to support our existing base, but we're pretty stable at this point.

Dan Kamhis: Great. Mentioned a multiple six-figure deal on the casino. Was that for a single resort or is it a whole chain?

Mike DePasquale: No, no. It is for a single entity. Yeah. It is for a single entity.

Dan Kamhis: Okay.

Mike DePasquale: The opportunity there is pretty significant, right? If you think about, as I mentioned, these local, tribal, regional, state-based institutions. Some are just gaming, some are resort and gaming. There is a pretty big opportunity.

Dan Kamhis: Yeah. Are you seeing other interest, or interest from other casinos based on this?

Mike DePasquale: We are, and as I mentioned, we are attending an event that is sponsored with our existing installed customer here, and they are going to be helping us referencing a new opportunity. It is pretty powerful for us. That event is early Q1. I want to say it is in January.

Dan Kamhis: On some of these other deals in the Middle East and Portugal, so that I have a feel for the actual size or potential.

Mike DePasquale: Well, they are—

Dan Kamhis: I am just wondering.

Mike DePasquale: Yeah. They range from $500,000 to millions. They are larger deals. Yeah. The Middle East banking and government deals specifically.

Dan Kamhis: On Portugal, have you had enough time to see whether it is spreading through the public sector and municipal sector the way you thought it would, or is it too early?

Mike DePasquale: Yes. Yes. We are very happy with what we are seeing there. Again, when it happens in Spain, it happens in Portugal, and happens in other countries. Our focus right now, because we have an office in Madrid and we have an office in Lisbon, has been really those two countries. I am not sure that the public really understands the opportunity with Prosegur. I do not know if you know anything about Prosegur, but they are a very, very large physical security company. So, they own Brink's-like companies that pick up cash. They provide security guards, armed and otherwise, and they have a cybersecurity division. They are a multi, multi-billion dollar company. They happen to be headquartered in Spain.

That cybersecurity division is a global entity. The majority of their business is in Europe and South America, so that is where the bulk of it is, but they operate here in the U.S. as well. Bringing our solutions into their portfolio is really powerful. That has tremendous opportunity and upside for us, because they are big.

Dan Kamhis: Wow. That is great. Just to clarify on the hardware sale, you said it is pushed. Does that mean it is basically on hold or not happening the next couple quarters?

Mike DePasquale: No, I think it will happen. We are just getting small. We shipped 60 units a couple weeks ago. We are shipping 100 here, 100 there. So we are going to get to the ultimate volume. It is just taking more time. And we are charging more for the lower quantity units as well, so it is good for us.

Dan Kamhis: You mean to this customer that was going to buy the big amount or?

Mike DePasquale: Correct. They are our partners, so they have multiple contracts, right? So it is not one end user customer, it is multiple customers of theirs.

Dan Kamhis: Okay. Got a couple questions on the balance sheet, if that's okay. The Boumarang asset was, I think, written down in the 10-K. What's the probability there's going to be additional write-downs on that?

Mike DePasquale: None at this point.

Dan Kamhis: None?

Mike DePasquale: Nothing that we're aware of.

Ceci Welch: Yeah. We have been following their public filings, and now they have one of the big reasons for the write-down last year was because they were not getting revenue yet, and they now have a contract where they're getting revenue. Some improvement there along with the next one. So, yeah. It's in their published filing.

Dan Kamhis: Okay. Great. That's good news then. Maybe you'll have to write it up. On the warrants, I noticed the shareholders approved the $4 warrants. I guess you're kind of indicating there's no real chance that you'll need to sell additional shares and create even additional warrants to reduce the price of those warrants at this point? Clarify that, I guess, one more time.

Mike DePasquale: No reason at all. On the other hand, if it hangs in the $5, $6, $7 range, maybe they won't. But we have no intention of doing anything in the context of another inducement, or we don't really need the cash, and we don't have the need to do that right now. I don't see that. But if they do exercise, it brings cash into the company. They're priced at $4.02 or $4.10, Ceci? I forget which.

Ceci Welch: It's $4.06, yeah.

Mike DePasquale: $4.06.

Ceci Welch: $4.06.

Mike DePasquale: Yeah. $4.06. We'll see what happens.

Dan Kamhis: Yeah. Speaking of stock price, I noticed the short interest was at 10,000 shares during the summer, and it shot up to 1 million shares on the 30th, about half the share count. Actually, it is down to maybe 270,000. I am wondering if this increase in the short interest, whether you consider it has anything to do with these days where we trade 10, 40, 80 times the float?

Mike DePasquale: Yeah, it is hard to say, Dan. We do not really understand that dynamic. Look, I have been dealing with this now for two years, and I talk to a lot of people, advisors, so forth and so on, and it is hard to say, right? We know it is bots, we know it is machine trading, it is algorithmic trading. Unfortunately, in fact, our IR guys were saying this morning, the volatility is creating big upside for traders, right? They love volatility because you make it on the upside and you make it on the downside.

So, when we have an announcement and the stock runs and we trade 100 million shares or 200 million shares, it is just people, not people, it is institutions, entities, whatever, making money in and out, right? 200 and something thousand shares short is about 10% of the outstanding, right? We have 2,035,000 shares outstanding, so if there is 200-something thousand shares shorted, it is 10%, not out of the realm of reality. You can borrow the shares in certain Schwab, and Fidelity will loan shares, but there just are not that many to loan. So, I think we have to deal with that. But 200,000 shares on 2,035,000 outstanding is not what I would consider material.

Dan Kamhis: Yeah. No, not when you are trading 100 million shares. Okay, last question. If we take the cash and the AR minus the payables and accrued liabilities, that is about $3 million. Price of $2.20 right now, times one. Well, your float or your stated share count, I think, in your current document is 1.35 million. That is about $3 million also. So, it seems to me your company is currently trading essentially for cash. Considering your buying window opens in a couple days for a month, should we expect to see insider buying in the near future?

Mike DePasquale: Yeah, I think you will.

Dan Kamhis: Okay. That is the answer I like to hear. Okay, I appreciate all the time, and hopefully the coming quarters will be good. Thank you.

Mike DePasquale: Great. Thanks, Dan.

Operator: There are no further questions at this time. I would like to turn the conference back over to Mike DePasquale for any closing remarks.

Mike DePasquale: Thank you all for joining us today and for your continued support of BIO-key. We look forward to sharing our progress with you on our next call in Q1. In January, we will be presenting and holding one-on-one meetings at the DealFlow Discovery Conference in Atlantic City on January 27th and 28th, and we hope to see some of you there. In the meantime, we will continue to update investors via press releases on significant developments. If you have any questions, please reach out to our IR team, whose contact information is in today's press release. Thank you, and have a great weekend.

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

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