Jay Meier - Vice President-Corporate Development Mike DePasquale - Chairman and Chief Executive Officer Ceci Welch - Chief Financial Officer.

Frank Waffles - Private Investor John English - Private Investor Dan Kamis - Private Investor Jeremy Hellmen - Avenue T Fund Gary Sironi - Private Investor.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the BIO-key International 2015 Second Quarter Conference Call. After the speakers’ remarks, you will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today August 14, 2015. .

I would now like to turn the call over to today’s host, Jay Meier, BIO-key’s Vice President-Corporate Development. Sir, you may begin..

Good morning and thank you for joining us today for our second quarter conference call. With me today are Mike DePasquale, BIO-key’s Chairman and CEO; and Ceci Welch, BIO-key’s Chief Financial Officer who will review our results and milestones before opening up the call to questions.

Before we begin I must remind everyone that today's conference call and webcast may contain forward-looking statements that are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected on the basis of these statements.

The words, estimate, project, intends, expects, believes, and similar expressions are intended to identify forward-looking statements.

Such forward-looking statements are made based on management’s beliefs as well as assumptions made by and information currently available to management pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

For a more complete description of these and other risk factors please review Risk Factors in our Annual Report on Form 10-K and other SEC filings. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date.

BIO-key undertakes no obligations to revision any forward-looking statements to reflect future events or circumstances. And I'll now turn the call over to Mike..

Thank you, Jay. And welcome and thank you for joining us today on our second quarter earnings call. BIO-key achieved record revenue and net income in Q2, 2015, and importantly that business activity will yield substantial cash in flows to the company.

Our performance in Q2 and to date supports our view that the market for secure biometric technologies which can accurately identify individuals in a broad range of mission critical electronic transactions continues to build momentum on a global basis.

Our performance in the quarter was powered by a significant follow on license order to use our fingerprint biometric solutions to expand the program for a larger international customer. This order is important on a number of fronts as it underscores the strong cumulative add on opportunity in our existing install base.

Clearly the challenges faced by this customer are present around the world and across many different industries and applications. BIO-key and its partners are working to help leverage our success to develop more such type opportunities.

A fundamental challenge posed by our connected economy is ensuring that the person, the individual that is being granted access to network resources data for the ability to transact is actually the person they claimed to be.

This claim is validated by a live scan of the fingerprint that is accurately compared to either a database or a fingerprint temp which stored on their device. The simple but powerful action provides enormous benefits to strengthening the security infrastructure that we see breaking down regularly on the evening news.

Drilling down a bit beyond healthcare which we have often address a significant area of growth for biometrics is also the financial sector. Where recently released research indicated that nearly one third of the largest US banks plan to make biometrics available to their mobile banking customers by the end of this year.

Providence based Citizens Financial Group incorporated fingerprint identification in its mobile banking app for iPhone users last month. Fidelity Investment incorporated fingerprint identification for their customers to log into their trading accounts and pay bills.

These financial institutions actions are the result of market demand for more secured identification and the convenience and replacement of traditional passwords.

Yet many of the early consumer biometric deployments mostly on mobile phones had sacrificed security features and functionality in an effort to deliver ease of use and convenience to the consumer. One recent example was the news of an android phone fingerprint reader that could be easily hacked and have stored fingerprints lifted of the user's phone.

We believe BIO-key is a very well positioned to offer its robust, accuracy, security and biometric transport solutions within an environment as experienced the wow factor but wants to make sure the solution is sufficiently robust for enterprise and consumer security. I'd like to follow up on a couple of main topics.

Number one some discussion on management restructuring within the company. As the business continues to evolve, we took the opportunity during the second quarter to enhance the strengthen efficiency of our senior management team for the benefit of the company and its growth prospects.

Specifically, Jim Sullivan, our VP of Strategy and Business Development which recently promoted to the role of Senior Vice President of Global Sales, replacing Jim Skidmore who has left the company after a year and half. Jim Sullivan is a recognized expert in biometric authentication for consumer and mobile applications.

He has been with BIO-key for over 12 years and his prior experience was working with Identity Management Solutions and Computer Associates Platinum Technology and MAMCO software.

During this tenure with BIO-key, Jim has worked directly with many of our customers including AT&T, LexisNexis, MCR and McKesson Aesynt on large scale biometric centered identity management projects. We came to recognize that the skills and expertise Jim has exhibited would be best applied in the global sales arena.

So recently move to elevate him to this role. We are very, very confident he will prove extremely successful. On the partnership front, our partnerships with major OEMs integrators and solution providers remain a critical component of our go-to-market strategy.

As they bring us into provide best of breed user authentication technology to solve their clients' security needs. We've recently signed an agreement with Avnet the application specific licensing agreement we executed continues to accelerate opportunities from various vertical markets.

Our pipeline accommodates the potential revenue from our IBM middleware software integration relationship. We have a partnership with Aventura recently executed.

That relationship continues to ensure that they provide a compliant computing solution that needs federal requirements by protecting sensitive electronic health records and optimizing clinicians work flow.

As we've previously mentioned, the vast majority of our opportunities are within highly regulated industry such as healthcare that is mandating to factor authentication methodologies to protect patient data.

Fingerprint biometric technology ideally addresses these requirements as it is the only broadly deployed method that can directly attested to identify of an individual for prescribing purposes.

At the recent HIMSS event BIO-key was well represented and at the conference as Hin [ph] of our partners in healthcare IT showcased our authentication solutions at the conference.

The conference provides an unprecedented exposure for our solutions in an industry that has been driven by regulations as I previously stated to adopt stronger authentication solutions. We also executed an MOU with Worldwide Touch Technology and so I wanted to briefly mention our discussions with the Hong Kong based partner Worldwide Touch continue.

During Q2, we executed the memorandum of understanding to make for them to make a significant strategic investment in BIO-key that would strengthen our financial position and better support the expansion of our business. Also we would jointly develop and market products based on our respective biometric technologies.

The discussions just still at the early stage and so it is premature to comment further. I can say that we view such partnerships as important to building BIO-key's reach and strength in the market. In all such dialogues BIO-key's goal is to secure terms that we believe would be embraced by our shareholders.

A broad glance at the global biometric industry shows that Asia represents some of the earliest and fastest growing adopters of biometric technology. The large population numbers and the move by Asian governments to enhance national security with secure biometric technologies strengthen the outlook on growing expenditures in biometrics in the region.

Our partnership with Worldwide Touch Technology should help us expand our global reach particularly in the Asia Pacific markets. Today, we reiterated our confidence in achieving our revenue guidance of $5 million to $7 million for the full fiscal year.

Through the first six months of the year, we are tracking at the midpoint of our full year revenue guidance.

Looking now over the second half of 2015, we anticipate stronger sales activity in the fourth quarter than the third and provide an initial Q3 revenue guidance range of $700,000 to $1.5 million, first to see year ago Q3 revenue of $1.3 million.

So with that overview, I'd like to Ceci to provide some additional comments on our Q2 financial performance and then Jay will review our Q3 and 2015 sales outlook.

Ceci?.

Thank you, Mike. Beyond the results presented in our news release this morning, I'd like to add just a few additional comments.

Service revenues decreased slightly to $255,000 in the second quarter of 2015 from $282,000 in the second quarter of 2014, principally marking reduction in the elevated 2014 service revenue levels related to our fingerprint sensor partnership with IDEX.

In the second quarter of 2015, gross margin increased to 94% from 60% in the second quarter of 2014principally due to the substantial increase in high margin software license revenue. In Q2, highly regulated industry represented approximately 83% of total sales with OEM representing roughly 80% of total sales.

Our second quarter operating expenses of $1.4 million are roughly in line with the levels we expect to continue for the balance of the year. However, we do plan to scale our sales and marketing and R&D expenditures as the business performance allows, which we will anticipate will accelerate our growth trajectory.

The second quarter net income of $753,000 or $0.01 per diluted share count of 66 million share reflecting our February 2015 2 for 1 reverse split. Now turning to our balance sheet. BIO- key had total current assets of $2.4 million including cash and cash equivalents of $282,000 at June 30, 2015.

We anticipate our liquidity position to be enhanced during the third quarter by receipt of the cash from the large $2 million license order that we completed late in the second quarter of 2015. And with that overview, I'll hand the call back over to Jay Meier to review our financial guidance and sales outlook.

Jay?.

Thanks, Ceci. As we've discussed previously BIO-key has put in place a disciplined process to track our customer revenue potential both direct and a through partners for the next rolling 12 month period, which we call our pipeline of opportunities.

And then we implemented a methodology to translate that data into a full year and quarterly revenue guidance.

Because the opportunities are typically -- we've typically pursue can often exceed several hundred thousand dollars and their timing is depended on a range of customer and partner factors, that are often outside of our control, our quarterly performance is difficult to forecast and will likely vary from quarter-to-quarter.

As a result, to truly evaluate our progress investors need to assess our performance over a period of a year or more. However, we expect this variability to smooth over time as our business grows and matures.

As reported in today's press release, our opportunity pipeline decreased to $25 million as of today's call from $30 million as of the first quarter conference call.

The decrease reflects the impact of sales and bookings we reported during Q2 as well as the impact of normal seasonal slowness in procurement activity that occurs each year as a result of many fiscal years that end September 30.

In other words our prospects capital expenditures progress through the year and our budget it is starting after about September and that impacts our pipeline growth. Moving into the fourth quarter is where we would again expect to gain visibility on new procurement activity to possibly support continued growth of the pipeline.

Highly regulated industries those that are most actively mandating to factor and other improve security of authentication measures and is therefore key area of opportunity for us represents roughly 85% of our 12 month opportunity pipeline. In the hardware OEM and other channels represents approximately 75% of our 12 month opportunity pipeline.

Focusing on just potential orders, we believe we could close in a third quarter we have roughly 31 opportunities that totaled approximately $3.5 million in sales potential during Q3. Within the Q3 measure, approximately 58% is within highly regulated industry and 75% comes from the hardware OEM and channels.

Based on our opportunity pipeline analysis and the results to date, we continue to expect fiscal 2015 sales to be between $5 million and $7 million with gross margin of 75% to 80%. Our current annual breakeven revenue run rate is approximately $6.5 million.

And for the third quarter of 2015, we expect revenue in a range of $700,000 to $1.5 million which could keep us tracking -- should keep us tracking comfortably within our full year revenue guidance range.

Headcount currently stands at 18 employees and 4 contractors with 4 in administration, 7 in sales and marketing, 8 in research and development and 3 in support. We expect a hire in sales, support and R&D throughout the remainder of the year. And with that operator, let's open the call to questions. Thank you. .

[Operator Instructions] And our first question comes from Frank Waffles, Private Investor. Please go ahead. .

Hi, guys.

So fingerprint card and Synaptics has made quite a few large sales, I have been reading about electro last year and I know you guys have relationship with IDEX and NEXT Biometrics so I just kind of wondered if you can explain or possibly explain why do you think IDEX and NEXT Biometrics technology is better than fingerprint cards and Synaptics, if you were to believe that and if not, why have those guys not come to you guys to partner with as well.

Thank you..

Okay. Frank, that's a good question. This is Mike. Fingerprint card certainly has at least in the recent term and probably into the near term has dominated the market for fingerprint sensors that are being embedded in smartphones especially in China.

So they have done very, very well, their volumes are growing and clearly they have a really nice footprint now of installed accounts and OEMs. IDEX is just coming to market with their technology and they will begin shipping in volume at the end of this year.

And so I think they will become a very strong alternative for OEMs that are looking to embed fingerprint sensors in not only smartphones and portable mobile devices but also in cards. So I think they will be in the market, they will in the market in the next three to six months. And I think they will get their share of OEM wins.

What is the difference between what fingerprint card sales and what IDEX sales, clearly fingerprint card has a silicon based sensor. On the other hand IDEX, their sensor is FIDO and polymer [ph] so it is very, very inexpensive, it is very flexible and sizing can be virtually anything that they so choose.

Also IDEX has the capability as the Synaptics with their thin film palmer technology to be embedded under the glass of a device, that is really going to be in the next year maybe to two years is really going to be game changer.

Because then these fingerprint sensors don't have to be embedded on our home button as they are in the Galaxy or the iPhone today. They can be embedded anywhere in the device underneath the glass. They don’t have to be on the back. So I think that IDEX is very well positioned.

Next on the other hand has a very, very quality product we have incorporated that sensor into our EcoID dongle package USB, , fingerprint sensor package, it is again a really nice size, very inexpensive, very high quality and I think they are going to capture a fair portion of the market as well for maybe larger devices.

So if you think about the tablet market, the exiting PC market, you are going to see Next I think playing the errand, doing a really, really nice job because they have again some competitive advantages against the companies like DigitalPersona owned by Crossmatch that have again a very large silicon sensor that they sell but it is also very, very expensive.

So each of these players has some strength or some weakness in the market. But here is the beauty about where we play. We support virtually every sensor in the space.

So our customers, OEMs, healthcare companies, banks whatever, financial institutions, embedded companies, they can utilize our software platform and now that they can take advantage of the next generation or the latest generation of finger sensor that will be available in the market. .

Okay, great. And just one quick other follow up question.

I guess when those then just came out in your Eco product I believe is compatible with that and I am just wondering if this is to come out, have you guys seen any type of activity pick up in the pipeline or have you got some at least have heard some things from customers about the impact or which other spot. Thanks. .

The answer to that question is a resounding yes. Our devices are supported native on to the Windows biometric framework and can be just plugged in and used immediately right out of the box. We support the full implementation and the uptick in activity is absolutely in play. So the answer is yes..

Our next question comes from John English, Private Investor. Please go ahead..

Congratulation, can you hear me? Okay, I think there is speaker down in my computer. This telecommunication license that was a big surprise for me.

And I was wondering if you could narrow down just what area of the telecommunications business they are actually dealing here?.

I can't say any more than we announced this order that we received came from an existing and installed base customer for the expansion of a project that we have been working with them. .

Great.

I hope you are going to narrow down and the bank -- this is in the bank -- you said the bank separate from that right?.

Again, John, I really can't comment beyond that but we have a whole series of opportunities in our pipeline, we came into the second quarter with a very, very balanced with a really balanced opportunity list. And I'll call it target forecast list. And we set our guidance based on -- Jay actually is doing a lot of work here.

We set our guidance based on some science that he has been doing and evaluating the pipeline, looking at rates and so forth. And so again we are not relying on any one single opportunity but rather relying on the portfolio to deliver the guidance objectives that we need. And that's the way it turned out this quarter. .

And our next question comes from Dan Kamis, Private Investor. Please go ahead. .

Hi. Good quarter.

Got a question on -- how much do you owe on factors as of the second quarter?.

I would need to turn that question over to Ceci. I believe she may be able to answer that. .

Yes. Little under $300,000, we owe to them and they owe obviously more than that, you will see -- you see netted on the balance sheet..

Okay.

It has been a year since precise ID release I think what the industry indicators we should look for that are would tell us that our base biometric installation is emerging as a viable mission in North America?.

I am not sure what your question is, Dan?.

Well, maybe you can just tell me -- I am looking for things we should be looking for that indicates cloud based biometric is emerging as a market in North America.

I mean what would you -- what would these milestones that we would look for?.

Okay, okay. I got it; I missed the cloud statement so I apologize. Yes, absolutely right now if you were to look at the landscape, you would feel and see and believe that everything is going to be contained on a device right.

Touch ID self contained, Samsung pass follow those applications are all the matching all authentication everything is taking place on the device. And by the way Jay and I have been now speaking to many, many people over the last two years. We believe that, that's exactly what would happen.

That on device authentication would be the first major shift and move for consumers to utilize the technology right. And not just finger biometrics but you are seeing voice and face and all the other modalities as well. The issue is that at some point given that every device that's been invented over time has been hacked.

The question is for high risk transactions will we continue to see institutions that are responsible and could have tremendous loss associated with transactions, payments in particular, will they accept an authentication of a device that they don't control and really fundamentally cannot ensure or assure that the individual behind that device is the person that it should be.

In fact, there was a recent Moby study that showed that banks prefer, would prefer and will be looking for an open finger biometric offered solution to utilize along with their backend authentication engines to consummate at least high risk transactions. And so we believe that the market thermals are going to move in that direction.

Is it going to happen over night? We didn't predicted that an over night but we believe it will. The other thing I think I would be looking for is you can see that Microsoft issuer, Amazon Web Services, all of these things are just, and they are growing in leaps and bounds. IBM is in the business in a big way and building cloud infrastructure.

At some point, there is going to be a very strong demand for protecting access to that cloud infrastructure and it is going to be a combination of device and again cloud based, server based authentication. So I think it is going to go both ways.

One size will not fit all but right now if you look at the space; you see that on device authentication is dominating the venue. .

Dan, this is Jay. I just have one more quick comment to add to that. There is this perception out there that what we are seeing deployed and this by the way goes little bit to Frank's question too. There is this perception out there that what we are seeing deployed today is older is in biometric's land.

That the only thing that matter is putting a small fingerprint sensor on a handheld device. The fact of the matter is that's really a first wave, it is really just a drop in the bucket to what's coming.

And there is going to be more fingerprint sensors coming to market over the coming years from third parties and outsourcers that are looking for independent algorithms.

There is going to be a transfer of the authentication mechanism from low risk value transaction on device to high risk value transactions at the server which implies the cloud, and the marketplace is just starting to wake up to this.

If you consider that the hack, there was just announced the couple of weeks ago a major vulnerability in android that allowed exposure of biometric data for anybody to lift. The companies that are supplying the stuff really haven't thought this through all the way yet. So we continue to think that the market is moving toward us.

And that you should see that reflected in the size of our pipeline as it starts to grow. We've always said that our business would lag the deployment of those truncate fingerprint sensors. And as people start securing higher risk profile assets our business is going to grow. And I think that's what you are seeing. .

[Operator Instructions] Our next question comes from Jeremy Hellmen from Avenue T Fund. Please go ahead with your question. .

Hi, good morning, gentlemen. I got a question kind of go into your remarks in the press release about your discussion with Worldwide Touch and as far as strategic partnership and capital infusion go.

Assuming you are able to get that over the go line, what would you think if any that -- the resulting balance sheet would mean in terms of your pipeline and maybe being able to have some deals on the table that might have -- might not presently be there as a result of your balance sheet..

That’s a great question. It goes to I think what you are asking is user proceeds. If you raise the money what are you going to do with it and ultimately how is that going to impact the growth of the business and then our revenue. Great question and absolutely spot on.

The reason that we believe this is critically important is at this point in time as Jay just described, as I have described in my comments, we believe there is the potential for explosive growth. And with that we need to have the staff and the resources in place to address that need and requirement.

That means clearly some additional resources in sales and marketing. It means additional resources in support to help our customers integrate the technology into their platforms. It also means traditional resources and potentially in R&D not in our core technology to build the better algorithm, we've already have a great algorithm.

But to be able to build the skins and the interfaces into these infrastructures that are going to be critically important like payment platform, like for example mobile device applications.

Things like that so having that level of cash infusion which we really never had in the history of the company, gives us the ability to really jump the market and we have a plan, we have very, very good leadership within the company. We have very good technical leadership.

We have fantastic sales leadership with Jim Sullivan at the helm now in Global Sales, all we need now is to build out our infrastructure to continue to do that and that will lead to a growth in the pipeline and ultimately growth in revenue and profit.

And as you can see, this model scales and works very, very well as a revenue scales are, net come is going to scale dramatically as well. .

Okay and then is it proper for me to read through and thinking that the fact that you note this in the press release would peg the probably of nailing this down greater than 50%?.

I can't give percentages and probabilities. We announced the MOU, we are continuing our discussions. Worldwide Touch has been a partner of BIO-key for well over a year, year and half. So this is not a new relationship. So we've been working together for quite some time.

The other part that's critically important to understand here is that it is almost from a strategic perspective, forget about the investment, we really are a very good match because they have really good capability in building hardware truncate devices embedding sensors in ILT type things, they have great, great capability there and we have great, great capability in the software side of things.

And so we really are a very good combination working together I think we are going to create new and innovative opportunities and work in new markets that we couldn't-- wouldn't have even been able to touch today on our own. The other critical and really the third biggest opportunity here is access to the specification market.

I mean the market there is growing in leaps and bound, I answered the question about fingerprint card; they are dominating the space right now for embedded fingerprint sensors. Most of those devices that they are delivering are going to the Asia market, that the population is huge.

The internet of things again a core key type thing, whether you believe it or not putting a secured device on your toaster or your refrigerator some of its crazy, but at the end of the day there is a very, very good market for connected devices and that also our relationship with them also put us in a very good position to address those particular opportunities.

.

This is Jay. One additional quick comment worth noting the Worldwide Touch just close a substantial capital raise in China. That is really what led to the disclosure about the MOU they had to list what they were looking to do with the money.

They raised almost $0.5 billion and they listed us as an area of interest of investment for them because they said it publicly we also had to follow on with the disclosure about that. And it is -- so we think there is motivation there.

We think that they have great distribution mechanism for our products should we integrate but it's -- in discussions to start putting percentages on it. I mean that would be responsible for us to do that at this point. .

And our next question comes from Gary Sironi, Private Investor. Please go ahead. .

Good morning. And thanks for taking my call. I'd like to touch base and get a little more information on the arrangement with Avnet. I think Avnet is a great addition to the sales channel for BIO-key but my question really is what steps will BIO-key be taking to support that business and to grow through the distribution network.

Specifically as much held a courier and electronic distribution in that industry. I find that they need a tremendous amount of hand holding to get them to do anything.

And so how do you plan to get a sense of mindshare with them when they got hundreds of thousands of products for sale in the industry? And will be putting on reps I mean what will you do?.

Well, that's a great question. And that goes Gary-- that goes along with virtually any of the large partner arrangements we have.

IBM, CA Oracle, If you don't invest in those relationships right, you are not going to get very much of a return and even getting mindshare, even when you do invest in those relationships, getting mindshare is very difficult and our thought process has shifted on this over the last -- really over the last six months to nine months.

We feel that we have to do two things. We have to invest in those relationships obviously we have to manage them and we have to work and create mindshare with the reps and we do that as best as we can at regional events or webinar. So we have very tactical things that we do to reach out to them.

But we also believe we have to catalyze the market as well. We know that there are some -- each of those players including Avnet service very, very big customers. And we can -- I'll call it nurture the market by maybe marketing a little bit directly to some of those larger customers to get them to ask the question about biometric right.

Because Avnet may not go in with the portfolio of products they have and ask the question. But if the customer ask the question of Avnet then it is a win-win right. A win for the customer, win for Avnet, win for us. So it is got to go both ways. But with the limited resources we have. We do -- I think we do the best we can.

Given that we are considering a strategic infusion of cash and capital you can bet that that will be one of the areas that we expand significantly going forward. .

[Operator Instructions] And ladies and gentlemen, at this time the Q&A session has now ended.

Are there any closing remarks?.

Yes. Thank you again for joining us today. We are confident in the demand transit of support of our growth over the past year and half. And expect this trend to continue. We believe we are well positioned in the marketplace both with industry leading technology and solutions as well as very strong base of partners, resellers and long-term customers.

I'd like to personally thank our shareholders and friends for their support and patience. We look forward to updating you again in November. .

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