BIO-key International (NASDAQ:BKYI) Q1 2021 Earnings Call

0:00 Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Bio-key International's first quarter 2021 conference call. During management's prepared remarks today, 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, Friday, May 14, 2021. I would now like to turn the call over to Kimberly Johnson, BioKeys Vice President of Product. Please begin.

0:35 Thank you, and thank you for joining us this morning. With me on today's call are BioKeys Chairman and CEO Mike DePasquale, Chief Revenue Officer Fred Corcentino, and CFO CeCe Welch. I'd like to 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. Words such as estimate, project, expect, anticipate, believe, think, plan, may, or will, or similar words typically identify and express forward-looking statements.

1:20 Such forward-looking statements are made based on management's beliefs and assumptions. made using information currently available, 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 Risk Factors in the company's annual report filed on Form 10-K and in other filings 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 such forward-looking statements to reflect events or circumstances that may occur after today.

2:09 Now, I will turn the call over to Mike DePasquale.

2:14 Thank you, Kim, and good morning, and thank you all for joining our call today. Let me first congratulate Kim on her being named by CRN, formerly known as Computer Reseller News, to their Woman of the IT Channel Power 100 list. The list recognizes the strengths, vision, and achievement of female leaders from vendors, distributors, and solution providers in the IT channel. So we are proud that Kim's leadership is being acknowledged in our industry and grateful for the contribution she is making to BioKey's success. Kim will say a few words about our marketing progress momentarily. On our last call, I said that we had never been more enthusiastic and opportunistic about BioKey's future. And our Q1 results demonstrate the momentum we are gaining across the business, the foundations of which we began laying last year. To date in 2021, We continue to see customer dialogues and business activity gradually moving towards more normalized levels following COVID-related disruptions.

3:25 The silver lining of the pandemic, however, was its impact on rapidly moving enterprises of all types into a remote work-from-home model around the globe. We believe the work-from-anywhere or remote and hybrid work and study trends are largely here to stay. The rapid increase in demand for off-premises access to mission-critical data and applications outside the firewall has created unprecedented IT security and administration challenges. Bio-key helps enterprises meet these challenges with attractively priced identity and access management solutions that support over 16 different multi-factor authentication options including our patented industry-leading biometric capabilities.

4:17 Biometrics are our core strength and a differentiator for Bio-key in the marketplace and we continue to believe that biometric factors provide the highest levels of authentication security and access reporting and will increasingly be utilized to defend against network intruders. We are also differentiated by our central biometric management system capabilities which are scalable to any size platform such as those required in mobile communication networks, large bank networks, and even on a national level such as for civil ID programs. As business activity gradually normalizes, we are ramping our sales and marketing initiatives and engaging with a growing list of customer prospects that can benefit from our solutions both directly and through our growing network of channel alliance partners.

5:14 Reflecting the progress we are making in expanding and strengthening our business, our Q1 revenue rose more than 260% over Q1 last year and 78% sequentially over the fourth quarter. Part of that growth resulted from the initial launch of our African contracts, but even excluding these revenues, Our core business grew 13% sequentially over Q4 2020. We saw improving demand really across the business in the first quarter, including for our PortalGuard solution and particularly for our new cloud-hosted version, PortalGuard IDaaS, or Identity as a Service, that we launched in Q4.

6:00 PortalGuard IDaaS is an ideal solution for today's where enterprises and institutions are increasingly moving their IT infrastructure to the cloud to benefit from less resource and asset-intensive model. Remote access challenges complicate cybersecurity for companies of various sizes across all industries. While multi-factor authentication is an essential part of any identity and access management strategy, organizations such as NIST, the National Institutes for Standards and Technology as well as the FBI have made very clear statements that traditional methods such as passwords and phone-based messages such as SMS codes and one-time password generators are very vulnerable to hackers and cyber attacks.

6:54 These vulnerabilities increase the likelihood of losing control over access to mission-critical data as end users can share a credential or enroll additional users into their phones, for example, without the relying party's consent. Further, tokens have lifestyle costs, can be lost, and present other challenges. According to the 2020 Verizon Data Breach Investigation Report, 81% of hacking-related breaches leverage stolen or weak passwords. These findings support the adoption of passwordless workflows using phone apps secured with user-controlled device-based biometrics or other factors.

7:39 While more secure than passwords, account sharing, unauthorized delegation, and SIM swapping have innate challenges that make it unsuitable for robust enterprise-level security. With that, I'd like to turn it over to Fred. Oh, excuse me. I have a couple more paragraphs that I want to go through. To advance the breadth of our biometric capabilities, earlier this week, we launched MobileAuth with Palm Positive. We made that announcement on Monday. That's a mobile app that brings seamless biometric authentication to iOS and Android mobile devices. MobileAuth is an easy-to-use app that requires no special hardware.

8:27 as it leverages the device camera to capture biometric data for authentication into cloud-hosted assets. We are very excited about this innovative new technology as it expands our support into mainstream portable devices and enables true cloud-based authentication of the individual seeking access versus device-level authentication based on factors that are not known to the network. Also, the startup of our African projects in Q1 contributed to our strong first quarter performance, with revenue of $680,000 related to initial fingerprint hardware shipments to support biometric enrollment in Nigeria.

9:13 We expect increasing activities from these contracts throughout 2021, and at the same time, we work to develop other opportunities in neighboring countries and across Africa. Importantly, we are very well-funded to execute on our growth strategies and fully tap the sales potential of our expanded team, enhance product portfolio, and growing partner relationships. Our financial strength allows us to make prudent investments in our business, including potential partnerships, tuck-in acquisitions, new product development, as well as to fund additional sales and marketing resources and initiatives. Fred will discuss some of our growth plans, and CeCe will review our Q1 financials.

10:00 We expect the positive trends experienced in Q1 to build over the balance of 2021, supported by our contract backlog and growing pipeline of opportunities, our growing base of recurring revenue, and the improving outlook for IP security solutions, particularly in North America, Africa, and Asia. We continue to anticipate revenues of $8 to $12 million for full fiscal 2021, with potential upside mainly related to our African business, as well as some other opportunities. The midpoint of this range would represent growth of over 250% versus fiscal 2020, and depending on the mix of hardware and software revenue, would likely position us for profitability for the full year.

10:50 Now, I will turn the call over to Fred to highlight a few key developments and revenue opportunities that we see in our business. Fred?

10:58 Thank you, Mike. As Mike mentioned, we demonstrated significant revenue momentum in Q1, not just versus last year, but also relative to Q4. We've been talking about building a sustainable, high-margin, recurring revenue model, the seeds of which have been laid in the past year. We started to see a glimpse of this in late 2020, but believe Q1 provided confirmation. Now I will walk you through a few reasons that support our optimism for the balance of 2021 and beyond. First off, we completed development and launched the software as a service model for our PortalGuard solution in Q4. Called PortalGuard iDAS, the platform is hosted within an AWS cloud infrastructure that easily integrates with our customers' other cloud-hosted data and software systems.

11:49 Further, PortalGuard iDAS is a scalable solution with significantly lower upfront costs for the customer than the hosted version. For Bio-key, it provides a far more stable and predictable recurring software revenue stream versus the volatility of one-time license sales with potential maintenance. IDAS is really what more and more customers are demanding, and our team continues to build transaction cloud solutions from both new and existing customers. The transition to the cloud has been accelerated by the pandemic and associated work and study from anywhere trends, and we do not see this going away as the economy reopens, creating a favorable demand potential.

12:35 On our last call, I mentioned the growth potential offered by MobileID, and to tackle that opportunity, we developed and recently launched BioKey MobileAuth with Palm Positive. This creates a new paradigm for identity-bound biometrics, which are very well suited for everyday use cases, including remote workforces, third-party access, customer identity access management, or CIAM, and passwordless workflows. MobileAuth Palm Positive requires no special hardware as it uses the existing phone camera to capture biometric data and validate it against a cloud-hosted database. Palm Positive is up to 400 times more accurate than common user-controlled mobile biometric authentication options that are already widely available on cell phones. Further, Palm Positive integrates the biometric matching process with a centralized, secured user database, whereas all other mobile biometric authentication is done on the device and the authentication data is not shared outside the device. Touchless palm authentication brings up to 16 the number of authentication factors supported by the PortalGuard platform.

13:57 Stay tuned as we plan to add other touchless identity-bound biometric factors such as voice and face identification to the mobile auth app in coming quarters. We are very optimistic for this product as we feel enterprises need to address deficiencies in traditional authentication methods. Further, we expect mobile auth will extend PortalGuard's leadership and reputation for strong multi-factor authentication support with the highest levels of integrity, security, accuracy, and availability across devices. I am pleased to report that our Channel Alliance Partner program continues to build and remains a key component of long-term growth strategy. The CAP program leverages our partners' market presence to expand the reach of our solutions into new customers. We added more than two dozen new partners in Q1, bringing us now to over 75 channel partners on a global basis.

14:55 We are working to double the size of the program in coming quarters. having expanded the program to include managed service providers, managed security service providers, in addition to system integrators and value-added resellers. We continue to target partners in key verticals such as finance, government, and higher education, where our solutions and value proposition are well established. As we increasingly become a channel-centric company, we expect our partner-generated revenue to grow significantly both in absolute terms as well as a percentage of overall revenue. As for ongoing investments to maintain our technology leadership, we recently completed an upgrade to BioKey's core biometric solution, Vector Segment Technology, or VST, which added intelligent cloud-based device driver management. Further, the new release of our WebKey platform version 4.1 leverages VST for managed software installation and updates providing better performance and an enhanced user experience. Finally, we released PortalGuard 6.5 in the first quarter, adding a range of new cloud and mobile capabilities.

16:06 For example, it supports Microsoft Azure Active Directory as a primary real-time directory in the cloud, thereby eliminating the need for an on-premise Active Directory and providing a stronger cloud-only option. At this time, I'd like to turn the call back to Kim Johnson to discuss some recent wins and marketing updates. Kim?

16:29 Thank you, Fred. And in Q1, we had numerous highlights. For customer announcements, we continued with expansions of Bio-key Web-key and Biometrics with multiple customers, including the announcement of the expansion of Web-key with an international defense agency, resulting in the total revenue growth of $1.4 million after an additional $275,000 investment they made in Q1. In addition, a Western state expanded their biometric deployment with an additional investment in secure access to their centralized voter registration database. We are seeing more demand from our existing customers to migrate to the cloud and our PortalGuard iDAS platform, with a total of 20 customers moving to the solution, including Southeastern Illinois College.

17:20 Beyond customer announcements, one of the key investments we've made in our brand awareness efforts has been the hiring of a cyber-focused public relations firm who is focused on building BioKey's brand recognition and credibility in the market. In Q1, we are pleased to announce that PortalGuard IDaaS had been selected as a finalist for the 2021 SC Media Trust Award in the Best Authentication Technology category. This position portal guard as a leader amongst some of the most well-known IAM brands in the market. This award, as well as additional awards, including the CRN Women of the Channel Award Mike mentioned earlier, and media coverage in publications such as Health Net Security, Hacker Noon, Toolbox, IQ Security Wire, and CRN TV, is a result of hiring the PR firm in Q1 as a key marketing and brand awareness investment.

18:19 In addition to the PR agency, we continue to make investments in our marketing efforts and team. Q1 demonstrated the power of our marketing engine as we successfully launched multiple campaigns to drive thousands of leads and qualified opportunities, participate in two virtual events, create powerful content, including the launch of our IAM channel, and continue to nurture the relationships with our existing customers. After launching our new website in Q4 of last year, we have continued to invest in our website and search engine optimization, or SEO, which has increased our traffic and our volume of inbound leads, such as demo requests and free trials, by 73%.

19:04 With a mature, defined process in place that measures every stage of the buying cycle, we are constantly optimizing the ROI of all our marketing efforts with defined quarterly goals that keep us focused on driving new business, customer retention, and brand awareness. Through these and other initiatives mentioned today, we are making solid progress on positioning Bio-key for future success. And now, I will turn the call over to Cece for a review of Q1 financials. Cece?

19:36 Thank you, Kim. Our results were issued in today's press release, and we expect to file our 10-Q next week. In Q1-21, our revenue grew significantly to $1.8 million from $522,000 in Q1-20. The increase is due to more than 100% increase in license revenue, 1,193% growth in our revenue, our hardware revenue, including $680K of the revenue related to projects in Africa versus none in Q1-20. License and service revenue Growth includes revenue from Pistol Star acquisition that was closed on June 30, 2020. Therefore, Port-au-Garde revenues are not included in Q1-20 or Q2-20 results.

20:25 Gross profit increased 182% to $1.1 million from $400,000 in Q1-20, reflecting higher revenues. Gross margin declined to 59.4% from $70,000. and many more. We expect higher margin software to make up for a larger portion of the revenue in future periods. Operating expenses were held to 7% increase to $1.8 million versus in Q121 versus $1.7 million in the prior year period, despite much higher revenue growth. The increase in expenses was primarily due to higher research and development engineering costs, reflecting the addition of the portal guard operations and continued investment in new product development and product enhancements.

21:31 Bio-key reported a net loss available to stockholders of $0.7 million, or $0.09 per share, in Q121, compared with a net loss of $3.5 million, or $1.84 per share, in Q120. Weighted average shares outstanding were approximately $7.8 million in Q121 versus $1.9 million in Q120. We ended the quarter with no debt and current assets of $18.1 million, including $13.5 million of cash and cash equivalents, providing for a very sound financial base to the to support our growth objectives. At year end, BioKey had current assets of $18.9 million, including $17 million of cash equivalents. Our inventory increased by $270,000 and prepayments increased $1.5 million due to investments made to secure contractual shipments to Africa in Q1 related to our increased business volume.

22:34 With that, I can now turn the call back to the operator for investor questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Jack Vanderaard with Maxim Group.

23:16 Great. Good morning, guys. Congrats on the solid results. Very encouraging to see. Also, just want to say congrats to Kim as well. Okay, a couple questions from me. I'll start with a question for Michael. First question on the strong first quarter revenue results. Definitely exceeded my expectations, even without considering contribution from the Africa contracts. Revenue was definitely strong compared to my estimates. However, you guys don't provide quarterly revenue guidance, so I'm wondering if you can speak to how the first quarter revenue result compared to maybe your internal expectations.

24:01 You know, Jack, thank you, by the way, and good morning. You're right. We don't provide quarterly revenue guidance. And as you know, we've stated this a number of times before. The reason for that is, you know, we're still – we're building our ARR model, in other words, our recurring revenue model. And so we're going to get more predictable. And I think you can see over the last two – in particular now it will be three quarters, right, that we've reported our – IAN business, right, consisting of the portal guard and biometric components are reasonably stable and are growing, right? So they're moving in the right direction. You know, internally, you know, we're meeting our objectives. We always would like to do more.

24:51 We're extremely cautious in particular about our African business. We know the potential is significant. But, you know, our challenge is, as always, is ensuring we get paid, right? The ecosystem there is starting to really build out. The money from the World Bank is starting to flow through down now to the agencies and through the agencies through to the partners that we're working with who are going to acquire the hardware and software to grow and develop the enrollment and the identity ecosystem there in Nigeria in particular. So again, we're meeting our internal objectives, but we certainly would like to do more.

25:41 We believe we're heading in the right direction and we're on the right track to achieve our annual objectives, which we did flash.

25:51 Fantastic.

25:52 Okay, that's helpful. And maybe just to follow up then to Sticking with the Africa contract scenario, it's very encouraging to see these contracts finally getting deployed after many, many months of unfortunate delays because of COVID. It is what it is, but now it's happening. This should reestablish confidence, hopefully, from the market. It does for me. Wondering if you could share a little bit more. You just mentioned the World Bank is starting to... actually have those funds allocated down to the ecosystem partners. Can you talk a little bit more about that and how that's working? Is it a phased-out agreement? Are these funds already designated, and is there a schedule of how the funds are allocated, or is it really kind of uncertain?

26:43 No, no, it's allocated funds. The World Bank has actually allocated funds and has allocated funds for years to build out this ecosystem, but they've had many failed starts and stops over the years. Now they have come up with a very finite plan on how to get the masses enrolled in Nigeria, and that ecosystem is being built out on a structured level. So the way this is working, the funds are passed through, as, for example, the equipment is acquired and the enrollments are counted. So banks, telecoms, independent agents, all funded through this initiative, have to produce the number of enrollments in order to get reimbursement and get paid.

27:36 So it's pretty structured, and it's what I've seen, at least having experience in and others in Africa and Nigeria over the last 10 years. It's probably the best structure that I've ever seen it.

27:51 Okay. That's helpful to know. That's good to hear. And then just another question on these Africa, this initial deployment of the fingerprint scanners, which I believe represented 100% of the initial 680 revenue, $680,000 of revenue. What can you expect or is there anything you can provide in terms of like what the next batch of revenue is going to look like from a product mix? Will it be more hardware or will there be some software and services mixed in? And also the size of the next revenue deployment. Is there anything you can provide there or is that something kind of too – you just want to be cautiously optimistic and not talk about that yet?

28:38 No, I think we've mentioned before that the initial deployments will be a lot of hardware, so we've stated that over the last few quarters, so I think we can answer that question pretty clearly. We do believe that software and services will begin to become part of this as we approach the second part of the year and get to the tail end of the year, because once the hardware is now deployed, the enrollments start to take place, the ecosystem can be built, and Certainly, there's a tremendous opportunity for, for example, for portal guard solutions to be deployed there. We have, aside from, you know, the contracts that we've been focused on and talking about right now, we have a partner in Africa, in Kenya, Christelle.

29:24 We made an announcement back a month or so ago. They're very enthused and excited about selling portal guard across the eastern part of the continent. And in Kenya, and Kenya is now becoming... sort of a tech hub of Africa. So we're enthused about that. But in terms of predicting exactly what those shipments will be on a quarter-by-quarter basis, we're just not in a position to do that at this point.

29:55 Okay. Fair enough. So it sounds like, and yes, you have said initial deployments are definitely going to be the hardware, and you're true to your word there, and Sounds like that's going to continue to be the case likely in the near term, and then software and services get sprinkled in definitely in the back half of the year, assuming everything continues accordingly. So that's all good to hear. Let me shift gears away from the AFTRA contract and back to maybe a question for Fred as well, but on the Channel Alliance partner program strength, you guys added 29 new members this quarter. Can either of you maybe quantify or speak further to just how the Channel Alliance program contributed to the first quarter revenue upside and how you see the channel's revenue contribution or percentage mix trending in the future quarters?

30:52 Yeah, I'll let Fred take that. This is Mike.

30:55 Yes. So, Jack, as you know, the program is ramping, and we had some deals that contributed. It's not a significant percentage just yet. That will grow, though, as the partner base grows, training, marketing, and a lot of onboarding occurs. So you'll see an increasing impact over the course of the ensuing quarters for the year and certainly into next year. It takes time to build it. We're doing that and building the base of partners.

31:28 Okay. Got it. I'm sorry, how many Channel Alliance partners are you at currently, and can you remind me if there's a target number that you're approaching?

31:41 Yeah, we haven't set an official target number. Right now it is officially 75 partners in the program, and that will increase as we indicated. We're looking to double that over the course of this year and look for some great things happening over the course with some new partners coming. for the rest of the year.

32:02 Okay, fantastic. And then next question made for Michael.

32:10 Can you just talk about maybe when we're talking about the non-Africa-related revenues and kind of looking forward into your revenue guidance for the full year, which is still at that $8 million to $12 million range, which is exceptional growth year-over-year regardless if it's at the low end, the high end, or the midpoint. But as it relates to the non-Africa-related revenue between maybe the bio-key, the core bio-key business, biometric business, and then with the portal guard business, I know the lines are blurred a bit now because of cross-selling. But, you know, is there any way you can kind of talk about how those two different businesses are growing in terms of relative revenue contributions in the first quarter and then kind of throughout the year? Is it similar?

32:58 or is it kind of too hard to tell?

33:00 Well, I think in our prepared remarks, we indicated that the core business, aside from the Africa hardware revenue for the first quarter, grew about 12% over Q4. So that's sequentially grew about 12%. So that business is growing very nicely. And, you know, we expect that to continue through and more importantly, that is mostly subscription revenue and so it is growing and it is predictable and it's high margin.

33:42 Got it. Okay. I think that's it for me. Congrats on the strong results again and encouraging to see the outlook remains intact. Good luck, guys. Thanks.

33:53 Thank you, Jack. As a reminder, if you do have a question, please press star then 1 on your touch-tone phone. The next question comes from Dan Kamis, an investor. Please proceed, sir.

34:11 Thank you. Great quarter, guys. Very good. I've got a couple questions on positive. Is that patentable?

34:26 Yes. POM Positive is a licensed product that we've incorporated into our mobile platform and our portal guard platform that reads and matches POMs through a centralized database. So that is a product that does have a number of patents. We license it. We do not own that technology. At this point and stage, we believe the world doesn't need another algorithm. And in particular, for us to invest in that didn't make sense. So it's a mode of authentication that we've incorporated into our platform.

35:13 But the secret sauce for us are the wrappers, including what we do in WebKey and what we do in PortalGuard. So the secure transport of that data and information The way it's used, the way the mobile app is designed, how it integrates into our back ends, and the kind of user experience and functionality that it provides. It's a product that we believe enterprises and financial institutions, educational institutions, government entities are going to be very, very interested in. It's touchless.

35:58 It's personal. It's highly secure. It's highly accurate. Similar in nature to the accuracy level of our core finger biometric technologies. Not quite there, but close. And it will provide a positive, absolutely positive identification of someone behind a mobile device. And it also provides us an opportunity. Right now, we are mostly a B2B seller, right? So we're selling to, as I just described, government agencies, enterprises, banks, healthcare institutions. It gives us an opportunity to extend B2C. So some of our customers may want to use this technology for their customers. Many of them may be consumers.

36:54 or contractors and other enterprises, but they may want to use this technology to secure access back to their portals through our portal guard solution. So sorry, Dan, for the long-winded answer, but I figured I'd get all that out there.

37:11 No, that's fine. Since he uses a camera, I'm just wondering if it – It has the same limits as Face or something like that. You need lighting. Are there the same constraints or is there something special about this?

37:29 You know, it works on any Android or iOS device. It will work on your computer with your webcam. It's fundamentally universal. And, you know, I would say... The lighting challenges that are innate in capturing any image exist for this technology as they do for others. The one thing that we're impressed with with this particular technology is the algorithms and the physics behind the lighting controls are really, really good. Very highly accurate.

38:07 Okay. Another question on patents. I saw in your K that... VST patents expire in, I don't know, 18 months or something, and a lot of your IP will expire in the next two to four years. Should we be concerned about that at all as investors?

38:29 I don't believe so. Not at all. In fact, quite frankly, a number of those very, very early patents, we really haven't monetized, nor have we You've really gone out looking to monetize those early patents. It's the ones that have been most recently awarded that we think could potentially have significant value, like the one that we just recently announced back about a month ago. So those are the ones that we think could have more, I'll call it, universal value over time.

39:14 Great, great. Let me switch you over to Africa. You, I guess, reiterated the 8 to 12 million. In the last quarter, you said the bulk was from your core base, not Africa. Did the mix change at all in that estimate, or is it still pretty much the same kind of idea in terms of how much is coming from what?

39:38 We haven't changed our guidance, so what we stated before is still accurate.

39:46 Are there any other large-scale projects that you can mention in Africa that you're bidding on at this time?

39:54 Nothing that we'll discuss right now.

39:56 All right. You did mention Kenya. Was that mostly in terms of PortalGuard, or are there any projects there going on other than a PortalGuard opportunity?

40:09 There are a number of different projects, but Christel, which is what I discussed a few moments ago, is a partner that is the largest. In fact, I think they have the exclusive right to sell Bitdefender across Africa, in particular in the East. And so they are very focused on security, cybersecurity, and they're going to be reselling our PortalGuard solution to and through their partner network and into the enterprise markets.

40:41 Let me ask this then. Where do you expect to see greater portal guard growth, in the U.S. or in Africa?

40:51 I believe North America. We're starting to see some opportunities evolve in Asia. And I don't mean China. I mean Singapore, Taiwan, Korea, Japan. So we think there's very good opportunity there. And we also see areas of opportunity in Europe as well. And so we think there'll be significant growth in the already established markets, not only what may evolve and be significant potential in the emerging markets like in Africa.

41:30 Great. I'll get back in the queue for right now.

41:32 Thank you. Again, if you do have a question, please press star then 1 on your touch-tone phone. Our next question comes from Dan Kamis with a follow-up. Please proceed, sir.

42:00 Okay. Got a few more here. Can you give us the split – between what you would consider. I mean, I assume that 680, 1.8 million, so that leaves about 1.12 million from your core business. Was it 50-50 with Portal Garden and the Pure Biometrics, or can you give us any idea on that?

42:25 It was just a little bit higher on the Pistol Star side because we are, as was stated before, we're selling through our channels too, but that was A little bit higher this time.

42:39 Great. And Cece, can you tell me what the deferred revenue was and the change over the prior quarter?

42:47 The deferred revenue? You mean what the total number was? Yeah. So the total number of deferred revenue was approximately $350,000. Okay.

42:58 And last quarter?

43:03 It was a little... a little more than that. We had, from our purchase of Pistol Star, we purchased a bunch of things that were classified as maintenance or deferred revenue, and so there was a bigger chunk last quarter of that. Next quarter will be the last quarter that that part of the deferred revenue will be recognized, so we expect that to go down a little bit and then ramp back up again.

43:28 Okay. I'm trying to understand the cash use. So $1.8 million in OpEx, $700K loss, and you paid off $500,000 for PortalGuard. Am I reading that right? And is that like a run rate of about $2.5 million now for break-even?

43:55 Well, so a couple of things. The run rate depends on what's sold. So if there's a lot of hardware that's going to go up, and if there's not, it goes down. Secondly, we invested, I believe I said, in some material that we expect to ship and then recognize revenue on. So there's a timing difference there. And we also increased our inventory to have some stuff available for this quarter that we're shipping.

44:26 I had a question on, in the K, there was a 1.7 million non-current accounts receivable. Is that The old Nigerian contract? That's $1.7 million.

44:39 Yes, that was the old one.

44:44 Mike, I got one more question. Do your old Chinese investors and board members still have a significant amount of shares, or are they out now?

44:55 No. Actually, they hold the majority, in fact, if not all of the shares that they held before. Kelvin Wong, who was on our board, still remains our largest single shareholder, and Kelvin hasn't sold any of his shares. And the other Chinese investor or investors, there were two or three, also still have their holdings.

45:24 Great, great. Oh, you know, C.C., at the end of your statement, you were talking about a $1.5 million cash payment. I didn't quite get what that was about.

45:35 Oh, that was for investment in inventory. So it's bumped up our prepaid. You'll see a breakout of it in the queue.

45:44 So you guys spent $1.5 million in cash on inventory? Is that it?

45:50 It's a deposit for some of the items that we need to order. They're long lead items. So we wanted to make sure we put an investment in to secure those.

46:09 Thank you, Dan. And at this time, there are no further questions in the queue, and this concludes our question and answer session. At this time, I would like to turn the conference back over to Mike DePasquale for any closing remarks.

46:32 Thank you. I just want to thank everyone for participating in today's call. We look forward to updating you on our second quarter call, which will likely be in late July or early August. In the meantime, we'll continue to provide interim news and updates. Thank you, and have a great day and a great weekend. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect. Thank you.