On Friday, BIO-key International (NASDAQ:BKYI) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
BIO-key International reported a 51% improvement in net loss driven by a 13% increase in revenue for Q2 2026, with expectations for continued growth and profitability in the second half due to a delayed hardware order.
Strategic initiatives include expanding partnerships and deploying authentication solutions across EMEA, notably with Muktabi Tech in the Middle East and Visualiforma in Portugal, alongside a significant initiative with the Central Bank of Jordan.
Gross margin improved to 87%, aided by a higher concentration of license fee revenue and sales of previously reserved inventory, while operating expenses decreased by 5% due to cost containment efforts.
The company completed a reverse stock split and regained NASDAQ compliance, raising $2.5 million through a warrant transaction to support growth initiatives.
Management expressed optimism regarding the role of biometric authentication in AI ecosystems and noted potential significant revenue opportunities in the EMEA region, particularly in government and defense sectors.
Full Transcript
Chloe, Operator
Good morning everyone. Thank you for standing by and welcome to BIO-key International's second quarter 2026 conference call. During management's prepared remarks, all participants will be in listen-only mode. Afterwards, listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Friday, Aug. 14, 2026. I will now turn the call over to Bill Jones of Investor Relations. Please go ahead.
Bill Jones, Investor Relations
Thank you, Chloe. Hosting today are BIO-key's chairman and CEO Mike DePasquale and its CFO Cece Welsh. As a reminder, today's call and webcast, as well as answers to investor questions, include forward-looking statements. These are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words such as anticipate, believe, expect, plan or project, and similar words, identify and express forward-looking statements.
These statements are made based on beliefs, assumptions, and information currently available to management pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. For a more complete description of these risks and uncertainties that affect future performance, please see Risk Factors in the Company's Annual Report on Form 10-K and the current Form 10-Q filed with the SEC. Listeners are cautioned not to place undue reliance on forward-looking statements made as of today, and the Company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after this call. Now I'll turn the call over to Mike to begin.
Mike DePasquale, Chairman and CEO
Thanks Bill, and thank you all for joining us this morning. After my remarks, Cece will review the financials and then we will take investor questions. Let me start with the headline: our second quarter bottom line improved 51% on 13% revenue growth, and for the first half of the year our net loss improved almost 60% on 23% growth in revenues. To be clear, these results didn't meet our proposed expectations, not because of any softness in demand, but due to a delayed shipment for a hardware order that we had anticipated in Q2.
The order was delayed and we expect to ship it in the second half of the year. Considering that shift, combined with the opportunities already in our pipeline, we expect continued growth and are targeting profitability for the second half of 2026. So let me spend some time talking about what's driving our outlook. It's really about the broader momentum we are building, particularly across Europe, the Middle East and Africa, or EMEA, which is really starting to bear fruit.
We're closing deals, adding productive channel partners, and developing new project discussions at an accelerated pace, all of which fundamentally underlie our business momentum. Our revenue gains are also supported by strong secular backdrops. According to Future Market Insights, the global market for authentication solutions is projected to grow rapidly over the next 10 years, from roughly 26 billion this year to over 114 billion by 2036. This represents a 16% compounded annual growth rate as organizations of all kinds and all sizes take action to defend against increasingly sophisticated cyber threats.
In the area of passwordless authentication, where BIO-key delivers industry-leading solutions, a recent FIDO Alliance report found that 68% of organizations are actively deploying or piloting passkeys for employee sign-in. In addition to our biometric and passkey passwordless solutions, our flexible authentication platform PortalGuard supports 16 different authentication factors and doesn't depend on any single device. This provides us with a unique ability to support complex authentication environments, because when it comes to enterprise and government authentication needs, one size simply doesn't fit all.
To put that in context, let me walk through several recent wins and partnerships, most of which were announced just in the past few weeks. In the Middle East, we partnered with Muktabi Tech to bring PortalGuard, including passwordless authentication and Identity-Bound Biometrics, to educational institutions in Saudi Arabia supporting their Vision 2030 digital transformation agenda as well as to Jordan and the UAE. Separately, the Central Bank of Jordan is working with us on a national initiative to modernize authentication across the country's financial sector using our PortalGuard and WEB-key technologies to move away from passwords and tokens entirely. We believe growing examples of national-scale mandates, including sovereign ID, represent the future of authentication in the region, a future where we intend to play a substantial role. Turning to Europe, a national security agency in Portugal selected BIO-key and our in-country partner Visualiforma to deploy PortalGuard and WEB-key with our FBI-certified EcoID 3 fingerprint scanners. This follows our earlier nationwide public sector rollout and a digital identity contract we secured with Visualiforma for deployment in a major Portuguese tourist city.
It's an example of how one successful public sector deployment can help foster additional opportunities as trust and reference relationships continue to build over time. In the US, Alabama's AOD Federal Credit Union, which serves more than 37,000 members, deployed our phishing-resistant biometric-based authentication solution through our partner BlueAlly, citing our platform's flexibility versus alternatives that they evaluated as well as reduced help desk burden from eliminating frequent password resets.
As phishing and MFA fatigue attacks escalate against financial institutions, our Identity-Bound Biometrics is gaining traction as smart and powerful protection with a compelling cost of ownership. I'll also note we continue to see attractive second half opportunities building in our EMEA pipeline, as our momentum in the region is broad-based, spanning government, defense, financial services and now education. We believe this reflects rising urgency among these customers, driven both by increasing cybersecurity incidents and growing geopolitical tensions, and supported by generally more favorable regulatory frameworks that let us move from first conversation to signed contracts much more quickly. In the second quarter, we completed a 1-for-10 reverse stock split to support our continued NASDAQ listing. In July, we regained compliance with the NASDAQ listing rules and resumed trading on the NASDAQ Capital Market, which provides a visible and respected platform for our common stock. And earlier this week we enhanced our financial liquidity and balance sheet through a warrant transaction that raised gross proceeds of $2.5 million.
This new capital will continue to support our operations and, more importantly, our growth initiatives and perceived financial strength with prospective customers, while also bolstering our compliance with current and proposed listing requirements. Most importantly, we are focused on executing against the significant opportunities in front of us. Our go-to-market model continues to scale efficiently through partners. Roughly half of our new US business and virtually all of our international business is developed through our channel network.
On the domestic public sector side, we're building out our working relationship with our new partner DLT Solutions, a division of TD SYNNEX. This relationship provides a streamlined procurement path into DLT's very large base of public sector customers, most of whom must work with pre-approved vendors to meet Zero Trust and MFA mandates. On the product side, our major PortalGuard 7.0 platform upgrade is now being demonstrated to prospects and has already begun to roll out more broadly across our existing customer base.
I will now touch on an area of exciting potential, which is the role biometric authentication can play in securing the AI ecosystem, as we believe that human oversight of agentic operations really is a killer app opportunity for biometrics. Several recent high-profile AI control failures have helped to highlight the need and the potential for biometrics to play a critical role in providing non-repudiable authentication and approval for material AI agent actions.
This isn't just our internal view. In January, the first government's framework built specifically for agentic AI was released at the World Economic Forum's annual meeting, with a central pillar that humans must remain meaningfully accountable for decisions and actions taken by autonomous systems. We see biometrics as the ideal method for enabling such human control. Separately, the Cloud Security Alliance have described a governance vacuum around non-human identities as service accounts, bots and AI agents now outnumber human users inside many enterprises by more than 100 to 1, and most organizations have no reliable way to tie an agent's actions back to an accountable person, and Chief Information Security Officers rank identity assurance for an AI world as a top security priority in 2026 and 2027. We think that's exactly the gap that biometric identity-bound authentication is built to close, anchoring high-stakes approvals to a real person rather than a device or a credential that can be shared, stolen or cloned. We are actively working to develop strategies around our existing solutions such as PASS tu, and working to identify and develop strategic partners to build out AI governance connection points around this opportunity.
Before I turn the call over to Cece, I want to reiterate our excitement about the business progress so far this year and the strength of our outlook for the second half and moving forward. It's a genuinely exciting time for BIO-key as the work we put into this business over many years is increasingly being recognized and, more importantly, validated by a growing base of private and public sector customers around the world. With that, I'll turn the call over to Cece for her financial review.
Cecilia (Cece) Welch, CFO
Thank you, Mike. We released our results after yesterday's close via press release and also filed our Form 10-Q. Let me walk you through some of the important highlights. Total revenue for Q2 26 increased 13% to $1.92 million compared to $1.7 million in Q2 25. That growth was driven by a 53% increase in license fee revenue to $1.2 million from $800,000, reflecting several new customer license agreements signed during the quarter. Hardware revenue decreased 19% to $460,000 from $569,000, principally due to the timing of customer deployments, including the absence of a large order Mike mentioned that shifted from Q2 into our second half, compared with a large deployment for a long-term customer in the prior-year period. Service, maintenance, and other revenue decreased 28% to $231,000 from $322,000 due to lower non-recurring service revenues tied to product customization and the timing of recurring revenue service agreement renewals. The first half of the year total revenue grew 23%, also driven primarily by the license fee growth. Gross profit for the quarter increased 36% to $1.7 million from $1.2 million in Q2 25, and gross margin improved to 87%, up from 73% a year ago.
That improvement reflects growth as well as a larger concentration of high-margin license fee revenue and increased benefit from sales of hardware inventory that had previously been fully reserved. Much of the reserved inventory relates to units originally purchased for projects that were delayed indefinitely during the pandemic. We have been selling that inventory into other markets and, since it's been fully reserved, those sales carry 100% gross profit contribution.
Total operating expenses decreased 5% to $2.2 million, principally reflecting lower selling, general and administrative expense from our ongoing cost containment efforts, partially offset by higher expenses related to the reverse stock split and audit- and tax-related costs. In all, our Q2 26 net loss improved to $577,000, or $0.56 per share, compared to a net loss of $1.17 million, or $2.00 per share in Q2 25, a 51% improvement. For the first half, our net loss improved 59% to $782,000, or $0.75 per share, compared to $1.9 million, or $3.61 per share in the first half of 2025.
Weighted average common shares outstanding and per-share results reflect an impact of the 4-30-1 for 10 reverse stock split, as well as warrant exercises and other financing activities through June 30th. Turning to the balance sheet, stockholders' equity was $4.3 million as of June 30th, and we had $3.8 million of current assets at the quarter end, including $1.4 million of cash, $1.7 million of accounts receivable, and $376,000 of inventory. Following the quarter end, we reduced the outstanding balance due for our outstanding note by $350,000, or 51%, to $325,000 in exchange for the issuance of 81,100 shares, or approximately $4.32 per share.
And as Mike mentioned, we raised gross proceeds of $2.5 million earlier this week through a warrant inducement transaction involving the share sale of 681,334 shares of common stock at an exercise price of $4.06 per share and the new issuance of warrants to purchase 1.2 million shares of common stock at an exercise price also of $4.06 per share. Given the effect of the financing proceeds, the Company's current cash position is now over $4.5 million, which provides ample working capital support for our operations and growth.
As Mike outlined, we expect continued growth and we are targeting profitability for the second half of the year. Operator, we can now proceed with questions and answers.
Chloe, Operator
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Vanderarte with Maxim Group.
Please go ahead.
Jack Vanderarte, Analyst at Maxim Group
Okay, good morning. Great update, Mike. Thanks for taking my questions. So, Mike, maybe I'll start with a question on your business outlook for the back half of the year. You're expecting revenue growth and profitability, which is great to hear. Can you just maybe touch on that, I guess specifically that large hardware order that got pushed into the second half? Do you have any line of sight there, visibility how that's going to be allocated as it shipped, and is it going to be allocated across both the third and the fourth quarter?
Mike DePasquale, Chairman and CEO
It's hard for me to say right now. We'd like to see it all ship in the third quarter, but we'll see as things evolve. But more importantly, Jack, that's not the only large order, or let's say project or contract that we're working for the second half. What I didn't mention in my prepared remarks is what we're really enthused and excited about is the size of our orders and the size of our contracts are going up significantly. So as we work in the regulated industries, especially in government, defense, and in banking, the opportunities in general themselves are bigger.
The user counts and user population are larger, and so therefore so is the value of those contracts. So the reason that we're enthused and excited about continued growth in the second half and obviously getting to profitability is we need just a couple of those large ones to fall and we should easily get there. But it's that order and many others that we're working in the second half as well, in our pipeline.
Jack Vanderarte, Analyst at Maxim Group
Okay, great. No, I appreciate all that. Of course, things are—it's really growth across the board here. If I look at your license revenue as well, that did look like it picked up a bit here in the second quarter. I just want a kind of housekeeping question. Normally you have a slower third quarter sometimes on the licensing front because of EMEA. Now things have changed a little bit in your business model, but do we expect growth across, I guess, all the segments as well then in the back half, including license revenue?
Mike DePasquale, Chairman and CEO
Yeah. Well, first of all, license revenue is growing, and that's really what we're after, right? I mean that's what drives our gross margin and maintaining a high gross margin, because most of our customers who buy our identity-bound biometric solutions buy both hardware and software. But for sure, the third quarter, given again EMEA—right now virtually everyone is off in August, so things don't pick up until first or so, first, second week of September.
But I still feel like we have enough in the pipeline to have growth in the third quarter and absolutely, certainly significant growth in the fourth quarter as we close out the year. So yeah, I think we're going to continue to see growth across the board, and license is what we're after, right? That's the business here: recurring revenue, signing customers up, getting more contracts in play, and building a recurring revenue base. That and, you know, maintaining our expense levels.
We had a little bit of a blip in the second quarter with one-time expenses, but that was a one-time event. Our expenses have been very stable, if not declining. So we need to hold in that realm, and we need to build that license revenue. With gross margins in the 85% range, most of what we sell drops to the bottom line.
Jack Vanderarte, Analyst at Maxim Group
Yep, no, definitely. This actually might be a historical record quarter on the gross margin front looking back at my model here. But no, that was great to see. And then plus you got this cash that came in with these warrant inducements. I think you're over $4 million of cash now kind of pro forma wise as you look forward, and you're going to be profitable. I mean, is this cash—what are the specific use cases for cash, or is this just good working capital on hand to have, and no further dilution expected?
Mike DePasquale, Chairman and CEO
Well, there's no further dilution expected, that's for sure. At this point, we have adequate cash resources to not only operate our business but to continue to invest in the areas, as I mentioned, around agentic AI and securing that whole ecosystem. Right now is really a wonderful opportunity for biometrics, and no one does it better than us. I mean, it's pretty clear, and we've been validating this, as I mentioned in my prepared remarks, with many prospect customers and, in particular, partners—that we have a very unique offering for roaming users and use cases where phones and tokens just don't work because, again, users cannot have, for example, a phone in their hand if they're in a service bay, or they don't want them with a phone in a call center where you can take photographs of customer records and that kind of thing. So, you know, we've got the perfect solution, and our Passkey offering, which is now ramping, is going to be a really big benefit for us. So, you know, we're just really optimistic about being able to take advantage of that. But yeah, we're not anticipating any additional dilution at this point.
We've got adequate cash on hand to continue to operate our business, and we'd like to keep working capital at the highest level we can. It gives us credibility with our prospects and our customers, and so that was the impetus behind doing this last raise that we did.
Jack Vanderarte, Analyst at Maxim Group
Okay, great, great to hear. And just because you mentioned it, maybe one more question is asking you—do you have like a rough sense what percentage or just, you know, roughly how much of that is a business driver for your results, I guess, in the back half to get profitable, or your revenues recently? Just kind of, what does that make up in terms of BIO-key's overall revenue mix?
Mike DePasquale, Chairman and CEO
Well, we're just scaling, so it's hard for me to, you know, to give you a percentage. But it's the kind of solution—to maybe put it in context—it's a solution that can be sold anywhere to anyone, even if they're running today a competitive offering. So let's just take a classic Okta, ForgeRock, Duo, SailPoint customer that has those use cases that I just mentioned. They have employees in the call center; they have service employees that cannot utilize a phone or a token.
They can take advantage of our solution because it can just bolt on to their existing, what we call IDP, right? So it can just bolt on and can be utilized today without changing out their infrastructure. So that's pretty powerful. We don't really know what the potential is over the next, you know, probably 12 months. But it's significant. And as we continue to—right now we're in a number of different evaluations and pilots with some large customers—and as we get more data and information on that, I think we'll be able to predict.
But at this point, we know it's large. We'll see how large. And, by the way, if we can attach this directly to those partners for them to make available to their customers that are in those fringe use cases, it can be even bigger. It could be really significant, but we have work to do.
Jack Vanderarte, Analyst at Maxim Group
Excellent. Well, great to hear, Mike. I appreciate all the time. And I'll hop back in the queue. Thanks.
Mike DePasquale, Chairman and CEO
Thank you.
Chloe, Operator
Again, if you have a question, please press star then 1. The next question comes from Dan Camhis, private investor. Please go ahead.
Dan Camhis, Private Investor
Good morning. The Bank of Jordan—the release said it was that the central bank was developing an initiative. Does that mean that they're studying what they want to do, or are you contracted and actually receiving revenues, like in the second quarter or expect in the third quarter?
Mike DePasquale, Chairman and CEO
Yes, we are. And we're expecting it to be much more significant going forward. So in the second half and then obviously into the first part of 2027, as we described in that press release, it's a significant initiative that could impact their entire, you know, user population. So if you think about our South African bank customer, where, you know, we're generating well over a million dollars in ARR, it certainly has that potential and capability, but we'll crescendo to that over the next probably two to three quarters.
Dan Camhis, Private Investor
I see. Will you be selling hardware?
Mike DePasquale, Chairman and CEO
Both hardware and software. But obviously our focus is on the software. Right. The user counts. That's always driving. Well, again, our blended gross margins are really, really good, 75% plus-plus. But obviously software is a higher gross margin.
Dan Camhis, Private Investor
I see. So what has to happen for you to actually ramp up and make some of these bigger sales? Is there some.
Mike DePasquale, Chairman and CEO
We're really in the deployment planning stage right now. It's how we go from point A to point B. And you know, there's a lot of work when you're doing a deployment this large. Right. There's not only there's logistics, there's everything. Right. Provisioning, logistics, all that kind of stuff. So we're in the planning stages with them right now.
Dan Camhis, Private Investor
I see. But my question is, is this like a pilot where they'll then decide whether they want to continue to ramp?
Mike DePasquale, Chairman and CEO
No, no, no, no, no, no. We're well beyond that. So we've been selected. I think the press release was clear on that, as was the quote from the senior cyber resource who's been working with us.
Dan Camhis, Private Investor
I see. And was that a competitive bid?
Mike DePasquale, Chairman and CEO
Believe it or not, it was a competitive situation and we were selected sole source.
Dan Camhis, Private Investor
Okay. All right, let's switch to the Portugal release. How do we estimate the value of the rollout of BIO-key's IAM and biometric authentication technologies to Portugal's public sector ecosystem? Is your margin. And what is your margin, considering you're partnering with VisualPharma?
Mike DePasquale, Chairman and CEO
The margins are the same. You know, typically a partner. It could be Visualiforma or, you know, it could be DLT, could be any one of our partners, domestic or international. Typically they get a 25%, anywhere from 20 to 30% on the high end discount off the software. But again, the gross margin to us because it's software is the same. So it's 85% of a lower number, but it's 85%. So typically again Dan, that's the classic partner discount that these partners get.
And so generally they get a discount on the software and then they're providing services to the customer. Right. And that's where they really make most of their money. Right. They get, obviously they get a, they get a margin on selling the product, but their real business is providing the services and you know, all of the support to the end customers. And in EMEA, 100%. It doesn't matter how large the enterprise is or how small they are, they're generally buying through an MSP, MSSP or reseller or distributor.
So that's the way that model works and it really is a force multiplier. And you know, we bought the Swivel Secure Europe business when we bought it four, five, almost five years ago now. We bought that to get the distribution channel and the resources that we have there now in EMEA to sell through our products. Right. And we were always planning on a transition from selling the Swivel product to BIO-key product. Right. The Swivel product had a 50% gross margin.
Our BIO-key products have margins that are significantly higher than that. What's astounding to me, especially over the last year, given that we jettisoned the SSE product and decided not to renew that contract, it's amazing how these partners have very, very rapidly picked up on the BIO-key solutions and the biometric component and the BIO-key solutions that they're now selling through to all these customers. It really is amazing. And that's why we have such a significant pipeline there.
Dan Camhis, Private Investor
Okay. And the first part of that question was how do we value the rollout to the public sector?
Mike DePasquale, Chairman and CEO
You're talking about a country, you're talking about a public sector component in, I call it state and local. Right. We did sell a large municipality a solution that now can be replicated into 50 or 100 types of scenarios like that. And then you have what we announced last week or the week before was a federal government agency that secured our product for a very high profile defense related initiative. So that was federal, we sold about four to six months ago a municipal type scenario. And now, you know, connect the dots, you got references. What is that potential? It's certainly, it's certainly in the millions of ARR over the next quarters. But again, that business will be developed in combination with that partner and other partners as well that are selling in that space.
Dan Camhis, Private Investor
I see. Now, I think Portugal's got about a million people in their public sector. So are you basically looking to get that whole niche over the next couple years or something like that? Is that what we're looking at?
Mike DePasquale, Chairman and CEO
Well, you know, again, if you're thinking about state and local, that's one thing. But think about all the government related initiatives in security, in military, in intelligence. Right. These are all the things that are ramping up. Not just in Portugal. They're ramping up in every country in the region, in the full EMEA region, not just in Europe, in the Middle East. I mean, look at, look at the way the, the countries in the Middle East are ramping from a defense initiative perspective, from an intelligence perspective.
And the fact that, and this is why I think our business there has just astounding potential because we're now collaborative as a country. We are collaborating more with those Middle Eastern countries than we ever have before. And they're buying a lot from us on the defense side. Right. Not just weapons, but we're collaborating from an intelligence perspective, we're collaborating from a financial perspective. So, I mean, I just think the potential is incredible.
One other thing, Dan, and we have references, like real references. So when we find an opportunity or an opportunity comes to the doorstep through a partner, it's easy for us to refer them to someone who's already using the solution to solve a similar problem. To me, that's huge. That's 60% of what you need to continue to build and scale a business.
Dan Camhis, Private Investor
Yeah, I understand. On Saudi Arabia, I found it interesting that they were interested in your education technology for education, not necessarily for finance and defense. Is there an opportunity there?
Mike DePasquale, Chairman and CEO
Well, there is. And again, it all comes down to the partners. Right. So we signed on a partner that has a very strong base in education, and we have the references in other applications where it's being used. And so here to what I just described is a proof point that, you know, we can continue to find ourselves expanding into other sectors of the economy, and education is just one of them. We have a very large project in health care in a Middle Eastern country that we're deploying right now. A lot going on.
Dan Camhis, Private Investor
Okay, well, you said Jordan was sole source. Is that true of some of these other ones too? Or is there any competition? I'm just kind of wondering who are you competing against on these?
Mike DePasquale, Chairman and CEO
Yeah, so many of these projects come in through partners, but also come in through large technology partner companies as well. So, for example, we have been working very closely with SailPoint in the Middle East, who has, you know, multi, multi, multi million dollar contracts to provide security solutions mostly for governance and you know, not necessarily authentication. And they need an authentication partner, someone who has the flexibility and someone who provides the biometrics like we do, which is very unique.
And so that's why, you know, our business is growing. It's the relationships with the partners and the big technology companies that are driving these large contracts on these international opportunities. And that's where our group in particular in EMEA has done an incredible job and they've been doing this for 15 years. So you know, that partner network that we built there is very valuable because it takes a lot of time to build that network. It takes even more time to get real deals going with them.
And then it takes just really good relationship management to continue to grow and scale the business.
Dan Camhis, Private Investor
Let's move to the US. The US financial system seems to me like it's been quite resistant to moving toward identity bound biometrics. Is the Alabama Federal Credit Union any kind of even minor harbinger of change for that in the U.S. I think it is.
Mike DePasquale, Chairman and CEO
You know, Dan, I think that the whole first of all, the cyber attack acceleration, especially since we've been engaged with the, you know, international altercations and geopolitical stuff that we're going through, is kind of escalating. That's number one. Number two, I think the agentic AI situation has everyone on edge. And you're right, biometrics in general, right. There was this perception that biometrics infringed on privacy and the US was all about protecting your privacy, right?
Not caring necessarily about your security. Well, I shouldn't say not caring, but caring less about the security and more about your privacy. That line is moving for sure because good security protects your privacy. It doesn't impinge or impinge on your privacy. And that perception of biometrics potentially impinging on privacy is really starting to move. And I think consumers are starting to recognize that as well. And they're also recognizing the convenience of a biometric.
They're also seeing that the traditional SMS multi factor type authentication that the hard token that we've been using for years to validate accounts are going away. I mean, Microsoft announced it fundamentally that they're killing SMS authentication in Entra over the next couple of quarters and they're going to passkeys. So passkeys connote a direct, convenient biometric option, which I think is going to accelerate the use of biometrics in general across the enterprise and across consumer apps in the coming quarters.
And it's going to happen pretty quick.
Dan Camhis, Private Investor
I see. Is there an opportunity with Microsoft there to partner in any way?
Mike DePasquale, Chairman and CEO
You know, I'd like to say yes, but on the other hand, you know, if you look at Google and Microsoft, the Google Authenticator and Microsoft with Entra, they've kind of gone it alone, I should say. And they're trying to entrap all of their customers into utilizing everything that they make available. Most of the high end, more experienced CISOs are rebelling against that because they don't want all their eggs in one basket. And so there, in my opinion, is the opportunity.
It's not necessarily partnering with them, it's offering an alternative which is better, faster and cheaper than they can provide because they may lure you in and offer you a new component for free. And then next year when you get your renewal contract, you notice that you just got a 20% hit and now you're already using the solution and it's very difficult to switch out. So, you know, I think we play to that and we play very well there. Plus we offer the 16 factors of authentication, including the biometrics.
If that's in your bailiwick and you want to use it, that's our differentiator.
Dan Camhis, Private Investor
I understand. Let's talk about AI a little bit in this non-repeatable authentication approval for these agentic AI agents. What stops an AI agent from, say, intercepting a fingerprint and using it to authenticate later or identify later?
Mike DePasquale, Chairman and CEO
Well, that's a simple one, Dan. What stops that is the ecosystem. That and the technology infrastructure that you have around your biometric. Because your biometric is public information. When you walk into your office or you go into a store and you put your hand on the door, you leave your fingerprint there. If somebody really wanted your fingerprint, they could lift it. I mean, again, this is all theoretical, right? Your face is surveilled. You walk through Times Square.
It could be. Now it could be 500 times; I used to say 200, but it could be 500 times. Your face is surveilled. And, you know, if someone wanted your face, they could take a picture of your face. What makes biometric systems secure and protects from agentic scenarios is the ecosystem around the biometrics. So what is that? That's liveness detect, right? To ensure that it's real and your face is real, or your finger is real, or your palm is real, or your, you know, your iris is real.
So that's number one. It's all the encryption around the biometric. Remember, we're never matching a fingerprint or a face or a palm. We're matching a digital representation of that. So what are we doing? We are algorithm-ing and we are encrypting. So we're encrypting the templates. Then we're encrypting the transportation, the way we move the template from one place to another, whether it's on-device or it's into a central system to match and back down for approval to, let's say, a mobile device, a phone or a tablet or a computer.
So it's that secure ecosystem that protects against that potential agentic formation. And that's where we have 30 years' experience in doing that, and why in very high-profile, very high-security venues and environments. WEB-key, our product, our full and complete encrypted ecosystem for biometrics, has been selected by some of the most sophisticated, if not the most sophisticated, security organizations in the world. Long-winded answer, but no, no, I—
Dan Camhis, Private Investor
Got it, I got it. That's good. Couple questions on the warrants and then I'll be off here. What were the net proceeds on the warrants?
Cecilia (Cece) Welch, CFO
$2.5 million.
Dan Camhis, Private Investor
Is that net or gross?
Cecilia (Cece) Welch, CFO
And, you know, there's a commission for the bankers was 5%, so I guess that's what, 2, 2.350? Somewhere in that range, 2.3 to 2.4 million.
Dan Camhis, Private Investor
Okay, so does that mean, I think there were 600,000 of them. You had 1.1. Does that mean that somebody now owns a third of the company, and if they exercise the other 1.2 million warrants, what happens then?
Cecilia (Cece) Welch, CFO
Yeah, so the way that works—and you can look at the filings, right, it's all detailed out there in the 8-K and so forth—is that the warrant holder will never own more than 10%, 9.9% of the company. There's a blocker in place. They will buy, or they bought, all the warrants and they only take ownership of 9.9% at a time of the warrants, and the rest are held in abeyance. The company gets the money up front, right, because they exercised all of the 618,000 warrants that they have.
So the answer is no, they will never own a third of the company.
Dan Camhis, Private Investor
I see. And do we know how many of the warrants have been exercised so far?
Cecilia (Cece) Welch, CFO
Well, they've all been exercised. How many of them have been taken out of abeyance? I would say nearly half, give or take.
Dan Camhis, Private Investor
Oh, I see, I see. Okay.
Cecilia (Cece) Welch, CFO
So quite a few, quite a large number, 275,300. In that range, 300,000, give or take, have already been taken out of abeyance, so about half in the last four days.
Dan Camhis, Private Investor
I mean, that by itself I guess could explain some of the price drop in the stock. But
Mike DePasquale, Chairman and CEO
There's no question, I mean, that is one. But again, it's also the general market. I've been watching—it's an interesting point you bring up—I've been watching a series of companies. They're not necessarily peers to us in the context of what they offer, but they're size-wise, small public NASDAQ companies. And there seems to be a mantra in the market this past couple of weeks, and it's on the news. I've seen really good earnings announcements, I've seen good contract announcements, and I've seen these stocks trade down, you know, 15, 20%.
So I don't think you can look at the stock price and say, well, it happened because of this or it happened because of that. I think it's just a series of things. And it's a fact that the low end of the market has been experiencing this kind of volatility right now. And, you know, it is what it is. But, you know, look, we clearly were disappointed in our anticipated revenue for the second quarter. You know, again, that hardware order would put us, you know, way well over the top and obviously would have been a profitability.
So that's one thing. But again, our business is still growing. So for sure that's a factor. The second thing, though, on the other side is, you know, our balance sheet is very, very strong right now. Our equity position is very, very strong right now. Having a few more shares outstanding strengthens our, you know, compliance requirements and so forth. That's very positive. So you look at the pipeline and the things that I described over the last 45 minutes—all very, very positive.
So I think there are more positives than negatives out there right now. And we'll catch up; we'll catch back up. I'm sure because we're so undervalued by any metric that all ships rise with the tide and at some point we will get our due fair value.
Dan Camhis, Private Investor
Well, your cash is—I think just based on your cash, that's 2.50 a share. I think if I'm computing this right, assuming you have about 1.8 million shares outstanding. One question on the cash: I think you had 1.4 at the end of the last quarter, the second quarter, and you got 2.3, but somehow you have 4.5. Now that's not the 800k in hardware. You pulled in some of the receivables or something in this quarter, or something like that happened. How did you get that extra cash?
Cecilia (Cece) Welch, CFO
I'm a little confused. I think—your question. Yes, yes, we have, we have collected. We have collected receivables from the June close through July. And added more.
Dan Camhis, Private Investor
Okay, that's good. All right, last question. In your 10-K 2025—10-K—I saw the line: We expect that the growth in revenue will alleviate our going concern within the next 12 months. I'm not sure. Does that line remain in the recent Q?
Mike DePasquale, Chairman and CEO
I'll let Cece handle it.
Cecilia (Cece) Welch, CFO
No, that did not remain, but normally the end of the year is where it matters the most. And, you know, that's where we're headed.
Dan Camhis, Private Investor
I see. So you guys, is that still something that you feel is valid? I mean, what has to happen? What are the auditors or what do the SEC regulations say about allowing you to say something like that? Because I don't think I've ever seen that in any of your 10-Ks.
Mike DePasquale, Chairman and CEO
Well, the auditors approved us saying that. So I think, Dan, it's pretty straightforward. Right? It's, you know, you're on the right path, meaning that you're crossing the line between using cash and being cash neutral. You have enough cash on the balance sheet to operate the business for a couple of years, even with the burn that you have. And so that gives you comfort to say, listen, this is not a going concern scenario because if there's a blip or a downturn, the company has enough cash to continue to operate.
I mean, it's not that complex.
Dan Camhis, Private Investor
Okay. Hey, I appreciate all the time you guys gave me. Thank you.
Mike DePasquale, Chairman and CEO
You're welcome.
Chloe, Operator
Showing no further questions. This concludes today's Q and A session. I'll ask Mike DePasquale to provide closing remarks.
Mike DePasquale, Chairman and CEO
Thank you again for joining today's call. We genuinely appreciate your continued interest in BIO-key International, and I look forward to updating investors on our progress on our next call. We will be participating in the H.C. Wainwright Conference in mid-September and, as always, we'll continue to update investors via press release on significant developments in the interim. If you have any additional questions, please reach out to our IR team whose contact information is provided in today's press release.
Thank you, everyone, and have a terrific weekend.
Chloe, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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