Boardroom
BIO-key International

In the Boardroom With…
Mike DePasquale
CEO
BIO-key International Inc.
(OTC Bulletin Board: BKYI.OB)

SecurityStockWatch.com: Thanks for joining us today, Mike. You’ve had an interesting background in engineering, marketing and senior management positions, please give us an overview of your background.

Mike DePasquale: I bring more than 25 years of successful executive and sales and marketing experience to BIO-key. Prior to joining the company as CEO in 2003 I was President and CEO of Prism eSolutions a company specializing in professional consulting services and online solutions for ISO-9001/14000 certification for customers in manufacturing, healthcare and government markets. I have also served as Group Vice President for WRC Media, Vice President of Sales and Marketing with McGraw-Hill; and as Director of Marketing and as Sales Group Manager with Digital Equipment Corporation.

SecurityStockWatch.com: We understand that BIO-key now provides solutions to over 2,500 police, fire and emergency services departments in North America. Please give us an overview of this important market segment for the company.

Mike DePasquale: Our early vision for the company was to deliver intelligence to first responders anywhere, anyplace and anytime, to do it securely and to identify individuals at the point of contact. This means delivering information to mobile devices such as a Smart Phone, Blackberry, PDA or tablet computer and to do it with the highest level of confidence that it will NOT be compromised. Every day, First Responders rely on our mobile wireless solutions to protect their community and themselves. In addition, we have introduced additional solutions, leveraging on our expertise in fingerprint biometrics into our existing base as well as new public safety agencies.

We also offer the most robust, widely installed Fire records management solution in the industry, with installed accounts ranging from FDNY, Toronto, Calgary, Orange County, San Francisco and 1800 other small and medium fires service and EMS departments throughout North America. This business at the time of and two years prior to our acquisition of the Aether Mobile Government Group was stagnant with NO new named account sales in nearly 3 years!! We have made incredible strides in product development and are seeing a significant increase in sales for our Fire/RMS solutions and our newly announced Fire/Mobile offering. Over the past 3 quarters the Fire vertical has added 17 new accounts to its growing Public Safety customer base representing $1.3M in sales.

This segment has the potential for tremendous upside as we have strategically positioned ourselves as a leading integrated product supplier for both Fire Safety and EMS which emerging as a mandated requirement for government as well as commercial insurance reporting.

SecurityStockWatch.com: What are the product solutions BIO-key offers this Public Safety market and BIO-key’s unique selling proposition?

Mike DePasquale: Our MobileCop, PocketCOP and MobileFIre products continue to gain wide acceptance by first responders. Equally important to our expertise in delivering critical information anytime and anywhere is our ability to quickly and accurately identify individuals with our patented fingerprint biometric technology. We are the only mobile wireless solution provider to the Public Safety market space that has expertise in developing and bringing to market patented fingerprint biometric solutions.. Recently we have added biometric identification modules into our existing products as well as launching IdentityMatch, our solution for the local law enforcement agency to quickly capture and manage their fingerprint data.

MobileCop is a complete wireless query and messaging application that puts the power of mobile data and wireless technology to work for the officer in a patrol car. Our PocketCOP handheld mobile and wireless applications provide the same capability- but in a totally portable form factor. They are beginning to sell in volume through public carriers such as AT&T/Cingular and Sprint/Nextel and our pipeline of opportunities is continuing to grow.

One of our newest product offerings for law enforcement; IdentityMatch is a powerful tool that offers LE agencies the ability to positively identify offenders at all points within the criminal justice system. It provides a means for local and regional agencies to efficiently manage and control their fingerprint data. This fingerprint data was traditionally gathered solely to be forwarded to a state AFIS system, but with IdentityMatch these same fingerprint images are now stored and analyzed locally, and provide the source for a wealth of information in solving crime at the local level faster and without the bureaucracy of the past. This fits in to our overall strategy of integrating our biometric products, WEB-key and VST into our public safety offerings.

SecurityStockWatch.com: Congratulations on your recent “wins” in Virginia to supply mobile data connectivity for law enforcement and in Ohio to provide BIO-key’s FireRMS Mobile product to local Fire Departments. How many states are you in now? Are the deals getting larger?

Mike DePasquale: We have public safety customers in 49 states plus the District of Columbia! One of our key strengths is our ability to provide solutions that communicate to the various state infrastructures. In the past, this was not as important a factor when a local law enforcement department was selecting a mobile wireless solution, since they were not interested in the capability to connect to the next town, across a state line or even to easily communicate to their local fire department. The requirement for public safety agencies to address homeland security and regional data sharing initiatives has changed this and our ability to support 55 Law Enforcement State Communication Interfaces sets us apart from much of the competition when law enforcement and fire agencies nationwide evaluate our solutions.  Our existing customers find that they can easily expand their regional data sharing capabilities as a result of having chosen BIO-key as their mobile data communications solution provider.

As far as the question “Are the deals getting larger”: yes and no. We continue to participate in bidding and winning large deals such as our recent $825,000 award to provide regional data sharing capability across two counties and thirteen agencies in Minnesota, but the backbone of our business remains or ability to supply any public safety agency, large or small with the solutions they need and although the smaller deals are not as newsworthy, they are a source of steady, predictable revenue that also feeds our large and growing annuity maintenance base.

SecurityStockWatch.com: Five years after 911, it seems like many agencies and municipalities still can’t get these available technologies in place to help First Responders get the information they need when they need it. What’s your perspective on these delays. Will 2006 or 2007 be the year that the RFP’s and purchase orders start flowing?

Mike DePasquale: Part of the reason for the delay you refer to regarding addressing the deficiencies identified in the 911 commission report was local agencies needed to work together to build suitable plans and this took time. Consortium & regional groups of public safety agencies are now banding together to access grant monies for data sharing. In addition, state agencies are realizing the benefits of tying together homeland security emergency management and State & local LE infrastructures to assemble unparalleled communications & data sharing. As a result we have spent the last 3 quarters transforming the company to offer standard application products that address these requirements. We are now achieving higher margins, faster turns and easier installs on these new products which can be shared by multiple agencies in wider geographies. BIO-key provide solutions across every scale, on both public and private networks that make it easy for any agency or consortium to deploy the solution that matches their specific requirements.

And don’t forget since 9/11, biometrics has become an integral part of all Federal identification programs that have already been deployed, are out for tender, or are in planning. Moreover, fingerprint technology is the predominant biometric mode of choice and is specified in programs being deployed to meet HSPD12, including the FRAC program (First Responder Authentication Credential). And BIO-key is again uniquely positioned as a trusted supplier to the First Responder Agencies. We are working with multiple partners to provide the needed solutions to meet these new requirements.

SecurityStockWatch.com: Let’s turn to the biometrics market. The War On Terror, cyber crime, and identity theft are here to stay. What’s your perspective on the market drivers’ for biometrics at this time?

Mike DePasquale: There are three core drivers which are important. The first and most widely publicized is the need to accurately identify people. The ability to positively identify individuals before granting access to facilities, valuable corporate resources, web portals or applications is just not possible with traditional ID methods such as Passwords, PINs or identity cards/tokens. We are all too familiar with the multitude of identity theft stories that the press reports on daily and the need for a more secure method of establishing ones identity is well understood. The traditional ID card or password is just too easily compromised.

The second factor, very often not realized is convenience. Biometrics represent another opportunity for a technology to make our life safer and simpler. With just a touch of your finger you can now enter a building, log onto your PC or open up a web application, abandoning the need to remember and reset passwords or carry ID cards and tokens which can easily be lost, stolen or borrowed. The average business person manages more than 15 combinations of usernames and passwords to gain access to facilities, his personal computer, bank accounts, databases and business applications. It’s a nightmare to manage these passwords without making them so simple that they barely represent a deterrent to the average hacker or criminal.

The last piece to this puzzle is coming up with a solution that is cost justifiable. As in any new technology, deployment costs steeply decline as the hardware is produced in volume. It’s the simple economy of scale principle. And this is where it gets really exciting. Anyone who visits a retail store or a web site to purchase a laptop will find that approximately half of all laptop models shipped today include an embedded fingerprint reader. Wide scale deployment of fingerprint readers embedded in laptops makes them very affordable for every consumer and office employee. Multiple companies have recently announced USB versions of fingerprint readers that they will sell for less than $40 (quantity one)! Just last week, Autehntec, one of our partners placed a ¼ page add in the Wall Street Journal announcing the milestone that they had shipped over ten million fingerprint sensors! Fingerprint reading technology is now readily available to the common consumer and every web portal can take advantage of this by replacing the cumbersome and insecure password methodology with secure, convenient fingerprint access.

Our strategy has been to focus on developing the most advanced finger biometric technology on the planet…….a bold statement as there are a number of suppliers that have components of a solution or are focused solely on forensics. It will take more than an algorithm and rapid, accurate matching for finger biometrics to become commercially viable. The system must be scalable, it must offer FULL IDENTIFICATION or 1:N capability to vette the enrolled database, it must also operate on industry standard hardware, not special high cost black boxes and it must support virtually every sensor device that the consumer may use including those that are being deployed by every computer hardware manufacturer as a component to their offerings. The system must also comply with all of the latest standards that the government and commercial markets will require as well as be usable by the masses; so failure to enroll must be below 1%.......today we are operating in a commercial environment at approx 0.2%.

BIO-key has the solution with one of the most robust algorithms (VST) and the most advanced (co-developed with Oracle) indexing capability for large scale commercially viable identification. We have made major strides in expanding our business over the past few quarters and have pilot systems that have now moved to the deployment stages in virtually every industry in our economy. Our joint venture IdentiPHI continues to sell full and complete security solutions including our advanced finger biometric technology. We offer three software different development kits (VST, WEB-key and our BSP) to aid application and web portal developers in the seamless integration of fingerprint biometrics into their application.

SecurityStockWatch.com: Is BIO-key involved in some of the of the high profile Government initiatives such as HSPD 12, TWIC, and the Temporary Worker Card?

Mike DePasquale:
HSPD12 represents one of the most significant opportunities for fingerprint technology vendors across every market segment including large scale ID, logical and physical access control. This is the Presidential directive that I spoke of earlier to establish a unique identity for every Federal employee and contractor through the use of smart cards and fingerprint biometrics. There are 4 million federal employees and twice that number of federal contractors who will be issued this new standard Identification.

This program will begin in earnest in October of this year and BIO-key is ahead of the curve by delivering core fingerprint technology for the largest federation of contractors delivering HSPD-12 solutions called FiXs (www.fixs.org), which includes some key federal integrators like Northrop Grumman, EDS and SRA International. These solutions will be delivered in both a managed service and a capital expenditure model starting in September.

The first major customer for FiXs is the Department of Defense, through a strong relationship with DMDC, the credentialing center for the DoD. All DoD contractors are likely to be enrolled in FiXs over the next several years.

Besides the central enrollment system, licensing of BIO-key’s algorithm by technology partners for such applications as Network Logon, Single Sign On, Physical Access, Visitor Access, etc. will enable BIO-key’s software to be in use at various points of identity verification within a given Federal agency and Federal contractors.

TWIC
In a similar fashion, the Transportation Worker Identification Card, or TWIC program has become center-stage once again since the prevention of Dubai Ports from securing US seaports. The next phase of the program, Phase IV, which covers the first 850,000 people, is out for tender and BIO-key is securing our position on several teams.

A total of 12 million individuals work in the transportation industry and all will likely be required to enroll in TWIC over time.

Local transportation companies and facilities can implement their own biometric technologies, but fingerprint biometrics is mandatory for enrollment on the TWIC smart card. Again, all of these transportation facilities and corporations will consider implementing biometric security for access to buildings, secure perimeters and computer networks throughout the transportation infrastructure.

Temporary Worker Card
The last initiative you asked about was the Temporary Worker Card announced last year by the President. Awaiting final guidance through passing of a comprehensive immigration reform bill, the Temporary Worker Card program will use biometric technology according to public statements made by the President. It is likely that fingerprints will be once again preferred because of the direct applicability to criminal history checks in this country and around the world.

Some even have suggested that corporations would be able to verify the individual’s Temporary Worker Card using biometrics when applying for a job. This means companies large and small may purchase simple biometric verification workstations or devices for their HR offices.

This is clearly sometime in the future and markets are as yet undetermined. BIO-key is constantly looking at scenarios like this ensuring that we are well positioned today and in the future.

SecurityStockWatch.com: Any success stories in the Finance or Healthcare verticals you’d like to discuss?

Mike DePasquale: We distribute our biometric software through leading vertical solution providers, OEMs, and integrators as well as market leading F-1000 companies. Our core business model is to provide these partners with the most cost effective, convenient, and secure biometric based authentication software that they deliver to the market in a wide variety of applications. One of BIO-key’s partners, a well recognized renowned information provider, is using BIO-key technology for a secure check cashing application in two retail chains as well as for a global deployment in 400+ locations around the world to identify individuals in a commercial testing environment. Another very large retail chain is piloting our technology for employee access. We have a number of partners that are offering solutions in the educational markets where matching small fingerprints from children ages 5-12 are a requirement. Our patented VST product and its inherent discrimination and image enhancement capability offer the best performance in the industry in this area for young prints……a huge competitive advantage as finger biometrics are deployed pervasively.

SecurityStockWatch.com:
The education market seems to be another application that is ripe for biometric solutions. We noticed your recent announcement regarding a biometric identification solution for a school in Philadelphia, PA. What solution did BIO-key provide this school and what’s your perspective on the education market for the next few years.

Mike DePasquale: We presently work with three of the leading suppliers to the education market that have hundreds of schools using our software nationwide for attendance, cafeteria, nursing and library identification applications. The particular story you are referring to was aired on CBS Channel 3 in Philadelphia, where along with our partner IdentMetrics, Visitation School, had been successfully running our biometric identification software for over a year, streamlining the attendance process, which allowed the teachers to focus on their core mission- teaching. The story gets even better, this same partner recently released their latest software version identiFi™ 1.4, based on our patented fingerprint software. It solves the long-standing challenge of using a finger biometric system to identify children as young as three or four years old. Most recently 500 kindergarten and first grade students were enrolled at the Early Childhood Center in Hammonton, NJ with this software. Why is this significant? Young children have very fine features and were previously thought to be not candidates for finger based biometric identification system. The education market alone represents a huge potential market for BIO-key and we have barely scratched the surface!

SecurityStockWatch.com:
What would you like our audience to know about BIO-key’s core biometric technology?

Mike DePasquale: Our core technology and intellectual property is patented and we are about to announce the exciting news of two additional patents that were granted in Europe and South Africa where we continue to see strong interest and have multiple projects well underway. There are three key items that separate us from other biometric software providers:

        1) We provide fast, one to many identification, not just verification, using COTS
        hardware with our scalable, secure architecture
        2) Our solution is flexible and can be adopted to “plug into”; any existing or new     
        application
        3) And we are “reader independent”,. We support virtually every fingerprint reader
       device, which can be used interchangeably.

This is a powerful combination that our business partners and customers alike appreciate.

SecurityStockWatch.com: Overall, what does the Company’s pipeline look like at this point. Revenues? Profitability?

Mike DePasquale: Over the past 12 months our pipeline has increased over 50% and a significant portion of opportunities are more qualified: meaning we are focused on the deals that have a higher probability to close. In addition to the increase in pipeline, we have seen our average deal size increase from under $100k to several deals close to or in the 7 figures range. An example of this is the $825,000 award I spoke about earlier from Washington County Minnesota.

Our channels business is also growing very nicely and our inside sales team is making a strong impact in all lines of business. They are instrumental in reaching out to our installed base of over 2.500 customers and securing maintenance renewals as well as executing several campaigns aimed at selling our growing portfolio of standard products without the assistance of our direct sales force. Our direct sales force is focused on the larger, county, state and multi agency opportunities.

In our biometric business vertical we are seeing interest and adoption rates increase. We have secured orders for a variety of applications such as membership identification check-in, large commercial banks needing secure application access, as well as continued deployments for system and network logon. We are working on a number of multi-million dollar opportunities today.

Summary
We have a very robust business with several new opportunities that are just beginning to form in the areas of commercial biometrics. Secure information access is critical to sharing especially in a mobile and wireless environment and we have a large and growing customer base that represents annuity revenue and cash flow for the company... We intend to grow our traditional revenue streams and to leverage our strengths to enhance our market share of Fire Safety and EMS applications. The company has transitioned to offering high volume, high margin products and has built a word class distribution and partner network. It is all about scale for BIO-key and we do expect to grow in the coming quarters.