Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the BIO-key International Third Quarter Conference Call. During management's prepared remarks, all participants will be in a listen-only mode. Afterwards, listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Tuesday, November 15, 2022. I would now like to turn the call over to Kimberly Biddings, Vice President of Product Marketing. Please proceed.

Thank you, and thank you for joining our call. Joining me today are BIO-key's Chairman and CEO, Mike DePasquale; as well as Alex Rocha, Managing Director of BIO-key EMEA; and BIO-key's CFO, Cecilia Welch. I will remind everyone that today's conference call and webcast and answers to questions include forward-looking statements, which are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected. Words such as anticipate, believe, estimate, expect and plan and similar words typically identify and express forward-looking statements. Such forward-looking statements are made based on management's beliefs and assumptions using information available currently pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a complete description of these and other risk factors that may affect the future performance of BIO-key, please see the risk factors in the company's annual report filed on Form 10-K with the Securities and Exchange Commission. Listeners are cautioned not to place undue reliance on forward-looking statements, which speak only as of today's date. The company undertakes no obligation to revise or disclose revisions to forward-looking statements to reflect future events or circumstances after today. With that, I will turn the call over to Mike.

Thanks, Kim. Good morning and thank you for joining our call today. After my brief remarks, I want to leave plenty of time for Alex to review our efforts in Europe and the Middle East and for Kim to discuss our sales and marketing initiatives. Ceci then will provide financial highlights, and we'll open the call for investor questions. BIO-key has become a global company with a global brand. We have over 80 employees, including 36 in Europe, Middle East, Africa or EMEA region. And Q3 was our second full quarter that included operating results from our Swivel Secure acquisition that closed in March. The business and its integration into BIO-key is proceeding according to plan, though our third quarter was affected by the normal European seasonal slowdown due to the summer holidays. We also saw continued customer delays in our large IT projects in Africa, and we did see some slippage of projects in our domestic business from Q3 to Q4, but mostly with county governments that must go through the RFP process. Despite these factors, we grew Q3 revenues by 6%, and year-to-date revenues rose 26% to $5.3 million, which is higher than our full fiscal 2021 revenue. At BIO-key, our success owes largely to our focus on innovation, which is core to our mission to expand passwordless and mobile IAM options. In Q3, we launched our updated mobile authenticator app, which we call MobileAuth. And we upgraded the user interface for our cloud-hosted PortalGuard as a service or IDaaS, which Kim will discuss in a few minutes. Regarding Africa, in Q2, we secured our - in Q3, I should say, we secured our application programming interface or API key access from the Nigerian National Identity Management Commission for verification of all national identity numbers. Unfortunately, NIMC has…

[Audio Gap] Swivel Secure unit business into BIO-key International as on track, and we had been achieving our goals. In continuation with the previous quarters, I want to say that we met the target, and we continue to be a profit business unit. To expand our sales team, we incorporate [Alfonso Fernandez] as Senior Enterprise Sales Account for Spain and Latin America and Mercedes-Benz a General Manager well-known of the market with more than 10 years of experience. This team will be responsible for generating opportunities and win opportunities with the channel in Spain and Latin America. Our channel strategy involved BIO-key University that we speak previous. And we added a new partner program where the resellers have access to daily tools to help them position BIO-key product offer and identify opportunities, which has been built in the easy-to-use platform for sales and marketing teams inside our resellers. We are selecting our add value distribution partner for Spain with presence in Latin America. The shortlist is retrieve [ph] and we expect to have the final decision next month. We have already 20 partners that cover 25 different countries, and we expect to achieve 100 in the next year. PortalGuard IDaaS in Europe is already fully deployed and the next project going to be designed for Asia, will allow us to start offering our product in that region where it exists a large demand for cybersecurity products. New customers, I'm glad to announce that we have one of the large European supermarket chains, a Saudi city council, the large European bus company, and another Spanish city as a reference. We have more, but that means the ones that we want to highlight. Also closing -- working closely with our partners and with our customers, we received a huge upgrade for sales…

Great, thanks, Alex. In terms of our customer deployment, we completed the migration of the University of Arkansas at Fort Smith and California Santa Rosa Junior College from on-premise solutions to our cloud-hosted PortalGuard Identity-as-a-Service IDaaS platform in Q3. By deploying our solution, our higher education customers are able to accomplish much more with their IT budget by eliminating the resources and costs of on-premise infrastructure and maintenance. Further, the large increase in remote access outside an institution's firewall is better suited to our IDaaS solution than legacy on-prem architectures. Also in Q3, the Long Beach Community College District in California purchased BIO-key branded hardware tokens to support multifactor authentication for a portion of their student user base. Outside of higher education, we also expanded our global enterprise franchise, adding a Dutch-based multinational conglomerate and a leading Saudi Arabia healthcare procurement provider. In October, a large Southwestern U.S. Auto Group selected PortalGuard IDaaS to safeguard consumer financial data. This and other customers are now seeking enhanced IAM solutions to support FTC compliance requirements for data protection by strengthening active security with multifactor authentication. The SEC's updated Safeguards rule requires even nonbanking financial institutions such as mortgage brokers, motor vehicle dealers, and payday lenders to develop, implement and maintain a comprehensive security system to keep their customers' information safe. Our PortalGuard IDaaS platform enables companies to provide comprehensive IAM capabilities and robust MFA methods, not only to strengthen their overall security posture, but also to ensure compliance with government regulations. Also, six county governments in Kansas, Virginia, New Mexico, Florida, South Dakota, and New York selected PortalGuard IDaaS for improved data security as well as regulatory and insurance compliance. County government are facing a cascade of ransomware attacks targeting the public sector, threats that require enhanced IAM solutions like ours. We…

Thank you, Kim. I'll briefly review BIO-key's financial highlights for the third quarter. BIO-key's Q3 '22 revenue rose 6% to $1.4 million versus $1.3 million in Q3 '21. Year-to-date revenues grew 26% to $5.3 million versus $4.2 million through the first nine months of 2021. Both Q3 and the year-to-date period of 2022, higher software and license service fees were partially offset by lower hardware revenue. Also the 2022 period included the results of Swivel Secure following its acquisition in March. Annual recurring revenue for the software licenses increased 5.5% to $918,000 versus $870,000 in Q3 '21, reflecting an increase from the addition of Swivel and in addition to the new PortalGuard customers. Service revenue improved 17% to $372,000 in Q3 '22, with the majority, or 81%, representing recurring maintenance and support. Nonrecurring services decreased 8% to $68,000 in Q3, 2022 versus $74,000 in Q3, 2021 due to fewer upgrades from on-prem to cloud deployments versus the prior-year quarter. Hardware sales declined to $83,000 in Q3 '22 from $110,000 in Q3 '21 due to other MFA options offered with PortalGuard. Despite higher revenue, gross profit was flat at $1 million in Q3 '22 versus Q3 '21 due to higher costs for license fees related to the Swivel Secure software license. The realized gross margin declined to 71% from Q3 '22 from 77% in Q3 '21, also related to third-party license fees. Operating expenses increased to $3.3 million in Q3 '22 from $2 million in Q3 '21, reflecting a $1.1 million increase or - increase in SG&A expenses as well as higher research development and engineering expenses and SG&A. Increases included costs related to the integration of Swivel Secure operations, increased trade show expenses, amortized expenses for Swivel share-based compensation, travel and wages and benefits for new employees, higher R&D related…

[Operator Instructions] Today's first question comes from Richard Arnold, a Private Investor.

Am I on?

You are sir?

Okay, this is Richard Arnold. I'm 87, so bear with me while I remember a few things. A couple of years ago, I was told that $8 million was breakeven. And similar to what we've been told this year. I was told there was a signed contract for $75 million in Africa and that there were bank guarantees on the horizon? Having said that, it brings me to my question in this last quarter, we lost $2.5 million. Back when those African contracts were on the table, $18 million was raised. Now we only have $3 million. My question basically comes down to what is breakeven now. When is that expected and is there enough cash to last through 2023? Richard Arnold, thank you.

Thank you, Richard, for your questions. So let me address - it's kind of three parts. The first piece is Africa. I mentioned in my prepared remarks that we've seen delays in the key deployment of the projects because of the core agency that's responsible for that in Africa. And so we've seen delays. We do expect those projects will deploy, and we do expect because we have a significant chunk of inventory. Ceci mentioned, we have about four - we have various segments of inventory for different products, but associated with Africa, about $4 million in inventory that cost that we expect to deploy. So some of our cash - a portion of the cash that we raised, obviously, has gone for that purpose. Also a portion of our cash went to two acquisitions. We acquired two companies, one is PortalGuard PistolStar back in 2020, and we just closed in March on a transaction to acquire Swivel Secure Europe. Both of those were accretive to our earnings. They are profitable entities. They continue to grow. And so, we're doing very, very well there. And it is also putting us in a position to be a major player in the access management space, in particular in multifactor authentication. Clearly, our breakeven has gone up because our expenses have gone up associated both with the acquisitions and of course, our marketing initiatives and trying to expand our business, as Kim described in her prepared remarks. So clearly, we do expect to get to breakeven, and we expect to get there certainly at the start or early part of 2023. The third quarter, in particular, as it relates to Europe, is the slowest quarter with the slow - with summer months in Europe. And so this is our lightest quarter from a seasonally adjusted perspective. We expect, as I mentioned before, a strong close to the fourth quarter, and we expect a strong first quarter as well, which - again is just traditionally a stronger quarter in our EMEA business. So we do expect to get to breakeven, and we expect to get there early in 2023.

And Michael, please address is the $3 million cash that's an until now enough to survive 2023 with the idea that you just lost $2.5 million in the last quarter?

Yes, obviously, we have cash, and we have inventory. Obviously, we have to turn that inventory into cash, but we'll absolutely have the financial resources to support our business through the end of this year and well into 2023.

All right, well my last question would be, is Mr. Sullivan happy with transition - he made recently as an insider, which was?

Well, Jim and I have been buying the stock, as you know, each quarter, and we do believe in the company. Both of us believe that the significant upside that the identity and access management market in general, presents - is really one of the most significant opportunities in the investment community today. I think most companies in our space have been hit pretty hard from a valuation perspective. There's been a lot of consolidation. But one thing is for sure, as I've been speaking with Forrester, as we're working with Gartner, the kind of core industry analysts in this space multifactor authentication is a mandate across the board. I mentioned in my prepared remarks, you can't get cyber insurance. Public companies must have it small, medium-sized enterprises are acquiring it to protect their assets, especially if they house consumer data. So at the end of the day, I think despite the geopolitical scenario that we face, despite the economic downturns, multifactor authentication, the segment that we operate in I think, will remain strong.

Well I may own more shares than James Sullivan so I hoping that you're right. Thank you for answering my questions.

Thank you, Richard.

[Operator Instructions] The next question comes from [Dan Canis], a private investor.

Hello last quarter, I came in a little late on the call, so I missed your remarks on Africa. So excuse me. But you mentioned the voter registration system in Africa acquiring 2,000 units, I think. Can you tell us when the election is scheduled and how much lead time is necessary to get hardware in place?

Yes, that's a project we're working in Swaziland, which is now Eswatini, they changed the name of the country. The election is to be held in August. And typically, they need six to nine months lead time to get the product deployed. So the product will begin to get deployed likely at the beginning of 2023.

Okay. Would there be any reason that could get delayed at this point or because we're probably about nine months away from that right now, right?

These are projects that are very focused, UNDP, these elections get scheduled and it's very, very important from a Democratic perspective that they take place. Anything could happen in Africa as we've certainly experienced over the past couple of years, but that election is scheduled to happen in August. And our customer, our partner, has been awarded the contract. But obviously, until the money flows, they don't go and build product. So, we'll see how that evolves in the early part of 2023.

I see. I mean, is there a probability that Swaziland decides not to use biometrics or something like that or?

I think every country, and you can go back and look this up to a Google search on this. Almost every country in Africa that holds an election utilizes some form of biometric capabilities because there's just no other way to ensure one vote, one citizen, one vote.

Okay. When you said no hardware revenues from Africa in the fourth quarter that includes this contract, right?

We're not anticipating any - we could see some happen, but we're not forecasting that into the fourth quarter.

Okay. Was there any, I think last quarter you mentioned transaction fees may begin from Nigeria. Was there anything like that in the revenue this quarter?

Not in the third quarter. We anticipate that to begin later this quarter and certainly into 2023, and we're well on our way to getting all, the infrastructure in place to begin to do that.

I see. Are you talking like low or five figures or low six figures or something like that or what kind of revenue are you kind of looking at?

Well, I think it will start in that range, and then it will ramp over time. It's an agency banking project that we've been working on for quite some time. And so, as the transaction volume increases, so will our revenue and, obviously, our margin.

Got a couple of questions on MobileAuth, I think in your last call, you mentioned that MobileAuth supports Face ID, but you also said our face-positive solution. Is that a BIO-key developed face technology or licensed? I wasn't quite sure what that was?

Yes, so it may have been a little bit confusing. I think what Kim was referencing is MobileAuth and what it supports across the board. So MobileAuth now supports palm scanning, right? So you can scan your palm. It's server and device based. So you can scan your palm with MobileAuth and positively identify yourself. We now also support facial recognition, and that is a licensed product. We did not go out and believe that we needed to go out and develop financial - I'm sorry, facial algorithms to match faces when there's really good technology out there that can be licensed at a very fair rate. So we now support facial recognition as part of the MobileAuth app, but what she also said was as an authenticator, as another authentication option, we support Face ID and Touch ID on the iPhone and Android biometrics. So when you look at the MobileAuth, even PortalGuard in general, one of our distinct competitive advantages is the flexibility that we provide our customers. We support PINs, tokens cards, keys, and biometrics, right? And our biometrics are a stronger option. They can be centrally matched. They can be matched on the device. So now we're supporting a full suite of authentication options, 16-plus options that our customers can pick, select and choose to secure their portals and their information and their front ends and their networks. So that's what she was describing.

Okay. And so somebody can load the MobileAuth app on an iPhone, and it becomes sort of a plug-and-play device manager for multi-authentication on a cell phone is that right?

It's - right now, MobileAuth is an enterprise security solution. We focus on the enterprise. We don't focus directly on the consumer. Our focus at BIO-key is securing enterprises. And we believe that MobileAuth will be an extension that gets us into what we call the CIAM space, the customer identity and access management space, where our customers, our enterprise customers will be able to use MobileAuth to authenticate their customers. So if you think about almost every large entity on the globe deals directly with consumers in some way, shape, or form. So for example, it may even be just registering the warranty for a product that a consumer buys even though they don't buy it directly from the company, they buy it through a retailer or whatever. So allowing our enterprise customers to be able to securely authenticate their customers is kind of the next extension, and we call that CIAM, or customer identity and access management. There is an app that is downloaded from the Apple Store or the Android Store that gets loaded onto the device, whatever it is, iPhone or Android phone. Samsung doesn't really matter what brand. And then that links up to the enterprise and allows for secure access to whatever information they are securing or locking down.

Okay. On Swivel, are you still looking at a $3 million target or do you have any kind of adjustment on that? I know he's indicating that...?

We are hitting, as Alex described, we're hitting all of our objectives as it relates to Swivel, and we expect to hit our nine-month and our 12-month objectives as well. Remember that we acquired the company in March. So we grabbed a little bit of revenue in the first quarter of last year. And through the nine-month period, we've generated just about one - a little under $1.6 million in revenue, represents about 30% of our overall total revenue. PistolStar, PortalGuard is about 33%. And BIO-key the core BIO-key company is about 36%. The difference between 2021 and 2022 is really the delta in Africa. Africa, we generated about $700,000 in revenue last year through nine months and this year as it relates to the hardware side its zero. So we're growing in every aspect of our business, certainly year-over-year, except - and of course, Swivel has added $1.5 million in revenue as well, but we're growing in every aspect of our business, except for Africa right now.

I see. So then you expect basically in the fourth quarter from Swivel about as much as you've made in the first three quarters. Did I get that right?

We expect Swivel to continue to grow absolutely. And to meet our objectives, we will meet our objectives that were defined and stated in our original acquisition plan.

On the hardware margins, I've been seeing, I think, anywhere from 37% to 47%. This quarter, I guess, there's a low amount of hardware. I'm not sure if the margins are good number here to use, but what do you expect your margins at on average going forward gross margin?

I think they're pretty consistent. The hardware that we sell that goes alongside our software, right, to finger scanners that we sell to our enterprise customers, the margins are generally in the area that you just described depends on the product, but it's generally in the 30s, 40% range, give or take. The Africa hardware, obviously, can be in that range as well. It could be a little bit lower. It could be a little bit higher depends on the project and the process. But those are pretty good ranges for hardware and expectation going forward.

Okay. I noticed in your 10-Q, Hong Kong 500,000 bond and a reserve. Is that bond now at risk?

It's on our balance sheet. Its money that we were paid for the work that we did there, and it's held in a bond. It's being rolled over, and our auditors wanted us to put it in reserve in case something happened there. It's in China. So the money is in China. It's not in Hong Kong. So we're doing what we need to.

I think the 10-Q just said that you haven't received any proceeds or interest. So was there supposed to be interest or I'm wondering what the status of that bond is?

I'll let Ceci answer the detailed question. But yes, the bond definitely had - it was an interest-bearing note.

Yes, it was a bond that had interest-bearing. The first bond, we received the interest bearing was rolled over to the second bond, and we have not received that interest yet.

And how long has that been going on for? Is that couple of years or something or I'm a little confused?

The funds were due on June of last year.

So does that mean this bond is now at risk?

It could be, Dan, which is why we have a reserve for it. We're working with our Chinese partners, but it could be. Clearly, as money owed BIO-key, it's been that bond, the initial bond was purchased in, I want to say, 2019 or '18.

Yes it was 2019 to 2020 and 2020 to 2021 yes.

Okay. Is that $500,000 included in the cash sale?

It is not. It is separate on the balance sheet.

Okay get it. All right on the - when is the $500,000 in debt to BBVA have to be paid off?

That's similar to a PPP loan that's something that we acquired with Swivel. It is a very low-interest loan. They had basically interest-free for the first year, and it's being repaid now at about $11,000 per month. And like I said, the interest, you'll see the interest expense is very low on yes income statement. It's like we paid like $3,600 so far this year, I believe.

I got a couple more questions. I know I've taken a long time here. The SG&A and the R&D, the spending seems like it's doubled from last year. Do you expect R&D and SG&A to remain at these levels? I know you guys are doing great R&D, and the marketing is I have been noticing has been excellent. But I'm just wondering if this is where you think you're going to have to be?

It's a great question. No, we believe that R&D will certainly go down on the biometric side for our MobileAuth product, and we expect the PortalGuard R&D expenses to be flat, maybe somewhat negative, but we invested in two areas over the last 12 to 18 months. One is bringing the IDaaS, which is the cloud version of PortalGuard to market. So that was a significant investment for us. When we bought the company, they had just begun to define the IDaaS or the cloud solution. We invested to actually bring it to market. And right now, I would say 90% of our customers that we onboard, onboard to our cloud solution, which is hosted on AWS. So on-prem sales are really declining. It's only certain customers, there are certain banks, county, state, and local governments that want on-prem solutions, but the majority of our customers are going to the cloud. We invested very heavily there. And we still have investment to make in that area. So I think that will be flat as we proceed forward. On the MobileAuth side, we did the majority of that development through contract vehicles. And so, we had contractors working on that project. And so that will begin to decline this quarter and beyond. So I think our R&D expenses will actually go down in total.

For the fourth quarter, do you mean?

Yes, the fourth quarter and beyond.

Does that mean that your - some of these apps have been completed and have been successful? Is that kind of what that means?

Yes, we're completing things right now, and we'll be deploying them. So obviously, they're deployable. But yes, the answer to that question is yes.

Okay. Then the last question, I think, is assuming you make the low end of your guidance of $1.7 million that might mean you lose. I don't know. It could be - let's say, your CapEx is the same it could lose $1.5 million or so. So you could be down to $1.3 million, say, by the end of the fourth quarter and if things slow in the first quarter I'm just wondering. You must - are there contingency plans to raise capital in the first quarter?

We'll do whatever we need to do. I don't think we want to raise capital right now at these rates. We'd likely look at some sort of a debt instrument or another vehicle should we need the cash. But I don't anticipate actually raising equity capital in this market. I think we have other options. And we also have a significant chunk of inventory, Dan, as we described in a number of projects in the works that will generate cash for the company all of that inventory is paid for.

Yes, no, I understand that you have the inventory. The problem has been...?

We always have - I can say this, we always have plan A and Plan B, and so we always have contingencies to ensure that we can run this business. We have a very, very viable, vibrant business, especially, again, if you look at our software revenues are growing. We've got a great footprint now in EMEA to expand from. We've got a great channel partner network in Europe. We're building out our channel partner network here in the U.S. It's kind of a force multiplier, right, can't have enough direct salespeople to cover the market the way you want to. You've got to really extend yourself through these partners and channels. And we're doing that. We've invested very heavily in those areas, and that's beginning to bear fruit for us.

Okay. Well, let's hope you meet the high end of your guidance then next quarter? All right, that's all I got, thank you.

Thank you.

[Operator Instructions] At this time, we are showing no further questioners in the queue. And this concludes our question-and-answer session. I would now like to turn the call back over to Mike DePasquale for closing remarks.

Thanks to everyone for joining the call today. We look forward to updating you on our Q4 and full fiscal 2022 call early next year. As usual, we will continue to provide regular news updates via press release as significant developments that happened within the business. Once again, thank you for your time this morning, and have a great day.

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