BIO-key International (NASDAQ:BKYI) Q2 2020 Earnings Call

0:01 Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Bio-key International's second quarter 2020 conference call. During the presentation, all participants will be in listen-only mode. After the speaker's remarks, you will be invited to participate in a question and answer session. As a reminder, ladies and gentlemen, this conference call is being recorded today, Friday, August 14, 2020. I would now like to turn the conference over to Scott Menken, Biokeys Vice President of Marketing. Please begin, sir.

0:35 Thank you for joining us this morning. With me today are Biokeys Chairman and CEO, Mike DePasquale, Fred Corsentino, our Chief Revenue Officer, and CeCe Welch, Chief Financial Officer. 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. The words estimate, project, intend, expect, anticipate, believe, plan, may, or will, and similar expressions generally identify forward-looking statements. Such forward-looking statements are made based on management's beliefs as well as assumptions made and information currently available to management pursuant to the Safe Harbor's provisions of the Private Securities Litigation Reform Act of 1995.

1:34 For a complete description of these and other risk factors that may affect the future performance of Bio-key International, see risk factors in the company's annual report on Form 10-A and its other filings with the SEC. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date made. The company also undertakes no obligation to disclose Any revision to these forward-looking statements to reflect events or circumstances after the date made? At this time, I'd like to turn the call over to Mike DePasquale.

2:09 Mike? Thank you, Scott, and good morning, everyone. Thank you for joining the call today. While we've all been dealing with the effects of coronavirus over the past several months, I do want to thank my colleagues at BioKey and our new subsidiary, Pistol Star, and our partners and customers for their continued support and dedication during this very challenging time. While our Q2 results were substantially impacted by business shutdowns related to coronavirus, we've been able to take significant steps in advancing our strategic vision for the company during the second quarter and to date in Q3. These initiatives include the execution and closing of our acquisition of Pistol Star, the developer of the Portal Guard multi-factor identity and access management solution, just after the close of the second quarter.

3:06 Additionally, we have successfully recapitalized our company by raising $24 million in gross proceeds from a public offering of common stock and equivalents plus warrants. This funding has put BioKey on a very sound financial footing for the first time in many years. Importantly, it allows us to focus our full attention on growth initiatives while also removing the risk to our company from possible business disruptions due to COVID or other economic or political impacts on our customer or customers or prospects. After repaying short-term note financings, funding our Pistol Star acquisition and addressing other working capital needs, BioKey now sits with a cash position of approximately $18 million.

3:57 This financial strength allows us to make prudent investments in our business, such as building out our BioKey Africa subsidiary and enhancing our sales and marketing efforts around our expanded solution suite, while also providing a very clear and strong financial footing to support our company for many years. It will also help us demonstrate our long-term viability to larger customers who want to be assured that we will be around to serve their needs as they utilize our mission-critical solutions. We do recognize this is required meaningful dilution of our existing shareholders. However, after enduring several substantial previous challenges, it became clear to the board and management that we had no choice but to pursue the opportunity we had identified to put BioP on sound financial footing, to ensure that we're able to endure current business delays and be well-positioned to execute on our contract backlog of almost $75 million, and to fully tap the future sales potential of our expanded base of solutions, talent, and customer relationships in a market increasingly pressed to find effective and efficient solutions to their authentication and data and network security needs.

5:19 Despite the impact of COVID-19 on the near-term visibility for our business and that of our customers, we believe the long-term sales outlook for our solutions in North America, Africa, Asia, and around the world has never been more promising. And the opportunity is being reflected in our rapidly growing base of channel alliance partners. I'll let CeCe review our Q2 results, which as anticipated, were clearly curtailed by the eye of COVID-19 storm and customer procurement activity ground to nearly a standstill for a couple of months. Fortunately, we are starting to see things beginning to open up and remain very optimistic regarding a substantial rebound in business over the balance of the year.

6:11 Our enthusiasm is rooted in two main areas. One being the benefit of our PortalGuard acquisition, which closed on the first day of our third quarter, the quarter we're in now. As you have seen through our marketing announcements, we have seen very strong demand for their solutions over the past few months, with particular strength in their core market of higher education, as well as the range of other verticals, including financial services and state and local government. With PortalGuard, we're now able to offer a broader base of solutions that provide us relevance with a much larger base of customers, while we benefit from their engineering, product development, and sales and marketing personnel that expand our capabilities and customer reach.

6:59 We also see substantial cross-selling opportunities between our two companies, as we're able to bring enhanced biometric multi-factor authentication solutions to their existing customers and we can offer their more robust multi-factor identity and access management and single sign-on capabilities to existing and prospective Bio-key customers. It really is a win-win combination that is off to a strong start and should become an increasingly important contributor to our future results. Secondly, we expect to commence work during the second half on two very large initial contracts totaling $75 million in software consulting services and hardware revenue over the expected duration of 24 months. The contracts are with a major telecommunications provider in Nigeria and with a division of the Nigerian government.

7:56 As you might imagine, the COVID-19 shutdown of business in the country, as well as social distancing practices, are delaying efforts to initiate these contracts. As of today, we now expect these contracts to be launched in the second half of this year, possibly by the end of the third quarter, but into the fourth. And Fred will touch on our staffing efforts to prepare for this work to begin. And we'll learn more about the scope of timing on these deals over the coming weeks, and we'll certainly update investors as things solidify. Longer term, we believe these projects are just the beginning of a very substantial opportunity to team with local partners to deliver biometric security solutions for large-scale ID authentication needs in areas like mobile communications and payments, immigration and border security, and for social welfare programs, many of which are attracting external funding from entities such as the World Bank.

8:56 Finally, with respect to our financial outlook for the current fiscal year, I'm understandably reluctant to provide any sort of guidance. And frankly, there remain too many variables regarding timing, schedules, and the path to a more normal business interactions to provide a reliable outlook. However, I can say that we have taken steps to improve our bottom line performance at the same time we have positioned BioKey for growth via Pistol Star and our large contract backlog. We also remain actively engaged in business development efforts in the U.S., Asia, and Africa. Let me now turn the call over to Fred Corcentino to review a few specific developments in our business. Fred?

9:42 Thank you, Mike. I want to reiterate that Q2 was a challenging sales quarter for the reasons Mike mentioned. Many prospective sales dialogues were postponed and may represent opportunities for later in the year and into 2021. We have made progress in several areas. For example, our Channel Alliance program now includes 40 partners, including 10 projects with the total revenue potential of $350,000 in the pipeline today. The CAP program is important for positioning Bio-key to participate in a broader base of opportunities, and we continue to build out our African team where we see opportunity beyond the two large initial contracts that were previously announced. We also saw progress in the area of providing election security, with the announcement that BioKey's biometric solution was selected to secure access to voter registration data statewide across 36 counties of a West Coast state. The significance here is that it was our first statewide engagement. We continue to build out our footprint in this area, including seeing the expansion of existing uses in eight Florida counties and interest from other geographies as well.

10:56 We also believe that the Pistol Star acquisition and its PortalGuard platform is a game changer for us. Not only does it provide another software solution to our portfolio, but the addition of PortalGuard's team and client base expands our addressable market in several key verticals, especially in higher education. We see significant synergies in the form of cross-selling opportunities, of complementary offerings between existing PortalGuard and BioKey customers, such as selling biometrics to PortalGuard customers and additional MFA solutions to BioKey customers. During Q2, we did a major outreach campaign to our existing install base and prospects and partners, and we will continue to keep in close contact with these existing and potential customers.

11:47 Although it's still too early to declare the all clearer, We are beginning to see a fair share of promising movement in our sales process. We've had several new portal guard announcements in recent weeks, including with multiple university clients, an aerospace defense client, the municipality of Durham, North Carolina, and a credit card processor, and we hope to build on this momentum as things continue to open up in general economic activity. With that, I'll pass the ball to CeCe for the financial review. Thank you.

12:20 Thank you, Fred. Bio-key's Q220 revenues declined to 307,000 versus 728,000 in Q219, mainly due to lower hardware revenue. The decrease in hardware was due to 375,000 reduction in shipments of fingerprint readers due to smaller deployments in the 2020 compared to our 2019, our exit of the retail lock business, and the effects of COVID-19. For the six-month period and in June 30th, revenues declined to $830,000 from $1,280,000 during the first half of 2019, also primarily due to lower hardware sales, which were down 80%, due to the exit of the lock business and smaller new customer deployments and the effects of COVID-19.

13:11 Gross margin improved to 52% in Q2 20 versus 7% in Q2 19, reflecting a decrease in software license expense largely due to the change in non-cash amortization methods of software rights. Q220 operating expenses increased to $1.5 million from $1.4 million with the increase primarily attributable to a one-time non-cash warrant expense of approximately $95,000 as payment for professional services and personnel restructuring charges for operations in China. Bio-key's Q2 results reflect the benefit of a $341,000 payment for the Paycheck Protection Program funding, offset by $542,000 of net interest expense for amortization costs associated with the company's funding efforts, compared to a net interest expense of $115,000 in Q2 2019 related to convertible notes.

14:16 Bio-key reported a net loss to stockholders of $1.6 million or $0.08 per share in Q2-20 compared to $1.4 million or $0.10 per share in Q2-19. For the first six months of 2020, BioKey reported a net loss available to shareholders of $5.1 million or $0.28 per share versus $3.2 million or $0.23 per share in 2019. Subsequent to the close of the second quarter, BioKey completed the sale of common stock and equivalents plus warrants for the gross proceeds of $24.8 million. Given the effect of the payment of the offering expenses, retirement of $4.2 million in convertible notes, and the payment of approximately half million in accounts payable, BioKey has approximately $18 million in cash with a half million of debt related to the acquisition of Pistol Star.

15:13 With that overview, I'd like to now turn the call back to the operator for the investor questions. Operator? Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone 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 the roster. The first question today comes from Jack Sanderard of Maxim Group. Please go ahead.

15:58 Hey, good morning, guys. Congrats on the Pistol Star acquisition and the recent capital raise. Just a couple questions from me. So, Michael, first question is on the Pistol Star acquisition. and your view just on the integration process so far and any comments around expected financial contributions going forward. You know, the press release highlighted that PortalGuard multi-factor solutions have been, you know, deployed recently by multiple educational institutions, other enterprises, and I see a ton of press releases that show that that business is really moving along quite well. Just wondering if you can provide any color there.

16:40 Yeah, thank you, Jack. Good question. For sure, the integration of the two companies is going very, very well. We are, I would say, nearly fully integrated at this point administratively from a technology perspective and from a sales and marketing perspective as well. Fred and his team are training up and are now really in the go-to-market phase with the combined solution. For sure, there's a lot of activity, especially in higher ed. No surprise, as you know, higher ed has been moving to online courses for many, many years. Obviously, there's been a steep acceleration as colleges now may, many of them may continue to be off campus and online only as we evolve through the end of this year.

17:35 So, we're seeing a lot of demand and a lot of potential and opportunity. Also in the enterprise side in financial services and state and local government, as you've seen some of our announcements, we have a robust pipeline of opportunities there as well. So we see this, as Fred mentioned it in his comments, as a game changer for the company because we now have a full and complete authentication solution that can support biometrics and other factors like tokens, cards, keys, passwords, pins, and the likes. We can also support mobile biometric authentication, and we also have single sign-on and provisioning to provide our customers a full and complete solution. So as we expand the visibility of the portal guard offering, we're very bullish on the potential to grow that business significantly in the coming quarters and in the coming years.

18:39 Scott, that's very helpful and I appreciate the color there. I'm also wondering if you can talk a bit more specifically on the cross-selling opportunity that Portal Guard and Pistol Star as a whole presents. Maybe any comments on timeline of expectations as to when you think you actually might see some noticeable revenue contribution as it relates to cross-selling initiatives and if you've already begun discussions with customers But in terms of revenue generation from that, do you expect to see that in the near term or the midterm? Any comments there?

19:15 Yeah, so there are, and I'll let Fred put a little more color on it, but for sure there are hundreds of PortalGuard customers that are using more traditional authentication options, and so many of them may be interested in the biometric option, right? So that's the first cross-selling opportunity, and there are hundreds of accounts that We can reach out to. On the biometrics side, we have a number of customers, some very large ones, in fact, a large telecommunications company as well, that has their own solution that may be interested in a commercial solution like we provide with PortalGuard. So that in and of itself presents a cross-selling opportunity on the bio-key side.

20:01 So this is going to happen short term. I think, Fred, and I'll turn it over to you. You mentioned that you've already done outreach campaigns and programs to reach the base, but any other comments?

20:14 Yes, so from the Bio-key perspective, there's certainly a lot of added functionality that PortaGuard platform offers and so we've gone back to some of our customers and are beginning a major campaign on both sides actually to introduce each other and so that's happening. We have some that are in the cycle that are budgeting for next year, especially in some banking accounts where the added capabilities are going to be very helpful. And we are extending that campaign to the PortalGuard customers as well for additional biometric needs. So we're excited about the cross-selling. Some short-term, mostly mid-term, long-term as people put things and place things in budget for additional expenditures that may or may not have been accounted for at the outset of the year. So we're excited about it, though.

21:05 Okay, great. And Fred, I appreciate your input as well. And then I guess my next question is just on the remainder of 2020 on your outlook. I understand the environment's still uncertain, challenging, and there's little visibility, and you're also not providing explicit guidance. But if we just exclude the two Africa contracts and any cross-selling opportunities from Pistol, Are there any comments you can provide, at least maybe directionally, from a revenue stance for Q3 and Q4? Like, do you think revenue will uptick going forward from the Q2 result, or just anything you can provide maybe from a directional sense to help investors and myself think about the forward near-term revenues?

21:55 Well, I think one thing that we can say for sure is that the second quarter was I'll call it the dredge of the dredge right just because of all the shutdowns and you know our pipeline almost came our pipeline of prospect opportunities almost came to a screeching halt which is understandable as everybody shifted the beginning of April from working in offices to working remotely so for sure Do we feel comfortable that there'll be an uptick in business in the third and fourth quarter? Yeah, for sure we feel comfortable with that. Drop in the Pistol Star revenue, which on a run rate basis last year, 2019, as you know, we've disclosed, was about $1.6 or so million on an annual basis. So from that perspective, if you were to exclude We certainly do see an uptick in the second half, for sure.

22:59 Okay, fantastic. That's helpful to know, and I appreciate the color there. And then, you know, I do want to touch upon, obviously, the two Africa contracts. I know you provide a lot of commentary in your prepared remarks and a little bit in the press release. but I guess what I want to focus, I know there's limited knowledge or things you could say about the deployment timeline but as far as the press release where you highlight that things are beginning to reopen over there in Africa and you've been engaged with both customers from the two contracts and planning of these projects, can you provide just any additional color regarding your recent activities and discussions or what that really entails? What have you been doing with these parties associated with these contracts as you prepare for the upcoming months?

23:50 Okay, so let's start with the state of affairs on the ground. So both of our contracts, one which is in partnership with a company called Shams, is for ultimately the end user is a large telecom company. So that contract, think about shutdown, people not being able to move around, Part and parcel of our programs is enrolling individuals, right? First thing you do is enroll them, get them in the system, and then beyond that, you can utilize that enrollment for authentication or access control for different applications and venues. So, you know, people have to be able to move around to begin with in order to go and enroll. So, you know, that has been what I would call the choke point at this stage.

24:42 We are moving forward as aggressively as we can. In fact, just this week, we brought on our managing director in Africa is now a full-time Bio-key employee. So he is now on board and we will begin to build out our office and infrastructure and support resource mechanisms and systems there on the ground. And I'm really, in a way, I'm glad that we Thank you for joining us. Well, it really depends on the state of affairs there, as I described. As people move around and we're starting to see that, no country, including our own, can afford to stay closed forever.

25:56 And in the third world in particular, they're far more sensitive to shutdown than we are here in the U.S. I mean, you can look at our, despite the number of people we've had out of work here, the economy is still Thank you very much. Thank you. Thank you.

27:10 That's it for me. I appreciate the time and congrats on the recent raise and hope the momentum continues. Thank you.

27:19 Thank you, Jack. The next question today is from Dan Comis, a retail investor. Please go ahead.

27:30 Hey, what do you expect would be your break-even number going forward, or at least for the third and fourth quarter?

27:41 You know, Dan, we have our break-even as a biometric company prior to Pistol Star was in the $7 million to $8 million range on an annualized basis, right, in that range. Pistol Star, as you know, was an accretive acquisition, so it was profitable out of the gate and into the company. So Again, we're not providing guidance in the context of revenue, so it's very difficult for me to kind of spout out that number. But look at our expenses. Our FIO-key expenses run in the $1.2 to $1.4 million range, depending upon – and a lot of this is administrative, right?

28:31 We've done a lot of work on the capital raise side previously. and financings with the notes and so forth. So, you know, spent quite a bit of money in the G&A area. But I would say, again, Pistol Star did a million and a half in revenue, and it was profitable. So, you know, break-even is probably going to be in the same area, in the same area.

29:00 And that includes Pistol Star?

29:02 Yeah, I think so.

29:05 If I could just speak. So you'll see in the queue later on we've assessed the expenses there and put the run rate for the expenses up around $680 per month. But as Mike said, Pistol Star is one that is always covering their expenses, so we're not worried about any additional loss due to the business there. $680? They certainly don't pay for their own.

29:34 Do you mean like around 2.7, but that isn't just, that includes any non-cash expenses? Or you're saying 680?

29:44 Yes, it does include some non-cash expenses, but it does not include all of the, you know, as we say, the fluctuations for the cost of goods sold. And that, you know, if the hardware goes up, it goes up, you know, but it should be covered.

29:59 Yeah, I'll have to take a look at the numbers when they come out, I guess. Is the plan to move back into your New Jersey offices?

30:08 We're in our New Jersey offices. We are an essential business. We've been an essential business, and so we've had people coming and going. The majority of our folks are working outside the office, but we do go in. In particular, we ship fingerprint scanners, hardware readers, and so we're in and out of the office, and we've been in and out of the office since really since the beginning, and similar in nature to our Minnesota office. Really, Minnesota's not been closed down at all because we have hundreds of test systems that really need to be touched, not necessarily daily, but certainly on a weekly basis. And so Mira and her team, the development team, have been in the office through the majority of this time.

30:56 CeCe, who moved into the new Bedford, New Hampshire office, They're also wide open and operating fully. So we're functional for sure. Whether it's remote or in office, we've not really missed the beat.

31:15 Okay. Are you utilizing the Pistol Star founder at this point or just trying to get a feel for how much is being spent there?

31:27 He is engaged with us. We have a consulting agreement that is flexible and variable. So depending upon the time that he spends with us in the business, we pay. But again, that's something that is in place. It's a one-year agreement, but it is, again, variable. So it depends how much time he spends with us and supporting us. But Really good guy, great creative individual, as you know. He built a great business. And so certainly we're taking advantage of the opportunity to work with him in this, at least early in the transition.

32:09 I mean, so he's been working 20 hours a week, 10 hours a week, any kind of average number?

32:14 In that range, you know, in that range, in the 20-hour-a-week range, yeah. It's certainly not been full-time. That's obviously why he sold the business. He wanted to retire, so he's not working full-time.

32:25 Okay. I haven't noted any indication of biometric sales in any portal guy release so far. Can I assume that no client has actually early adopted that technology yet?

32:44 No. I think you'll see more of that in the near term. certainly we haven't reported any as you know in the third quarter we're in the third quarter here we closed on the business in the at the end of the second quarter so a number of the announcements that you've seen are you know even related prior to the close of the acquisition so you'll see more of that as we evolve forward.

33:08 Okay and on that line I'm noticing the press releases I understand that there's no revenue data, but there's no data as to when the revenue will be or was recognized, number of licenses, estimated users, et cetera. Can we expect to start seeing some additional information in the releases so that we get a feel for at least when the revenue is recognized or will be?

33:35 Yeah, so everything that you've seen announced was closed. and the revenue flows when the deal is closed. We sell subscriptions and kind of a hybrid model of a subscription. Pistol Star and Portal Guard have sold, I'll call it a hybrid subscription model. And so the revenue is taken, especially for the first year, is taken up front. You're not going to see, for sure, you're not going to see any dynamic in the context of Revenue to Users, because we're not going to telegraph our price in what is a very competitive market. One of the big advantages that we have is the level of functionality that we provide and the model, the way we sell our solution, especially in higher ed.

34:24 And we're not going to telegraph that to the market for sure.

34:29 I understand that. Let me switch to China here. Are you able to access... Your inventory or any cash assets in China now? And are you still planning on manufacturing your readers there?

34:43 That's a great question. The answer is yes to all. So, yes, we've had access to China was closed down for for about from a manufacturing perspective, about 60 to 90 days. But we had adequate inventory in place. So we didn't miss a beat with regard to our fingerprint sensor sales. Yes, we have some new products that we're going to be introducing. So yes, we are going to continue to design, develop, and manufacture there. And we also now have a whole new opportunity that's presenting itself in Asia. Kelvin Wong, our managing director there, is very enthused about the portal guard solution. And so we're going to begin to, we're already in process, but begin to arrange Our partner network throughout Asia, so in Korea, Japan, and also in Hong Kong, Taiwan. So throughout the whole greater Asian area, we expect that we're going to be selling Pistol Star and Portal Guard there as well.

35:56 Got it. That's good. I note about 30% of the volume each day in stock is shorted, which explains to a great degree the volumes we've been seeing. Can you say if the warrants have been getting exercised at all or will be or in that process at all?

36:17 Yeah, so I can't comment on the shorting, the 30%, because I don't see that and I don't First of all, I'm not sure if it's accurate or not. But in the context of warrants, we have had warrants exercised over the past couple of weeks. So the answer is yes.

36:41 Can you give an estimate as to how many?

36:45 I can't. I really can't.

36:48 All right. If you don't mind, I'd like to switch to Africa here. I noticed that in two press releases you named two different managing directors. I think Mr. Awazi was the first one. He was apparently replaced. Can you give a reason why that happened?

37:06 Actually, they're working together, but Tunde, who is our current and named and is an employee of BioKey, is the person who is responsible for are the largest segment of the contracts that we acquired there and has the connections and the experience and expertise we believe to build out the organization. Steve is a very senior person, more sales-oriented than necessarily business-oriented like Tunde. So still actively involved, but for sure, Tunde is our man, and you'll see and hear actually much more from him in the coming weeks and months.

37:56 Okay. What would you consider a fully staffed African office when these contracts keep going?

38:03 There's only one way to answer that, and it depends on the revenue flow and our support requirements and needs. For sure, that's going to determine the resource pool there. And I would assume – and by the way, you know, our – Thank you very much.

38:47 That makes sense. Are you waiting? Are you definitely not going to hire anybody until revenues start, or are you going to try and build out some degree up front?

38:57 It's going to be – I would say a majority of this is going to happen when the revenue flows. And we have a – one of our board members, Manny Aaliyah, is also the CEO of TTI, which is our main strategic partner on these contracts. And so he's a very astute businessman, Cornell graduate, J.P. Morgan background, good financial background. And so he and I are pretty well in sync about having the money, meaning the investment, flow pretty closely with the revenue. So I think that's going to be our model.

39:43 On the telecom contract, I think there's four major telecoms in Nigeria. One is Nigerian-owned, to my understanding. What are the chances that the non-Nigerian-owned telecoms will get on board with this program, and what are the market factors that might drive them to do so?

40:01 Well, we're not dealing with a Nigerian-owned, country-owned mobile, so they're commercial companies. So I don't I don't know anything about the Nigerian-owned company.

40:16 I see. What are the factors that might drive some of the other telecoms to move to bio-key software?

40:27 I guess competition, right? You know, it's all about competition. So if we're providing some strategic advantage for that telecom that the others feel they need or require, I assume they'll consider it and get on board, and we are talking to a number of them.

40:47 Okay. Chams, will Chams just be acting at the initial enrollment capacity, or will they be doing certificate or other validation functions in e-commerce structure utilizing biometric identification? I'm just trying to get a feel for what the project really involves and how Chams will be doing it.

41:08 It could be all of the above. If you go to their website, you'll see that they're in, you know, multiple businesses. And the identity and identity and access management is just one thread. They're in payments and other areas. So the answer to that question is all of the above. Thank you for your questions. The next question comes from Jack Rakovit, a private investor. Please go ahead.

41:38 Good morning. Thank you for the presentation. I just had a really two related questions. The first is, can you talk a little bit about, when you think about authentication, you think about fingerprints, and given the current environment right now around COVID, obviously there are concerns with touching things. So can you maybe relieve some of our concerns related to that? And secondly, is there a direction towards looking at national elections and The opportunities there to kind of engage at that level, at the national level, in relation to the elections. And what does that look like? Is it fingerprinting? Is it software? What does that tangibly look like, that type of engagement?

42:22 Thank you. Great. Two good questions. So let me answer the first one about fingerprints, about the concern. of using or touching anything, including the door or anything that you have to touch, right, in a public venue. So the majority of our fingerprint sales, especially as it relates to enterprise or even consumer, where, for example, you can buy our fingerprint scanners on Amazon or Jet.com, Walmart.com, Dell.com, those are personal devices. So they plug into the USB port on your computer, and you are using them to access that device and whatever information is behind it.

43:08 So there are no sanitary issues in that context, although you can have multiple people enroll, fundamentally they're personal devices. And as people are working from home, corporations, enterprises want to know that the individuals behind those devices are really who it should be. and so again their personal devices, no concern at all about the sanitary conditions in that regard. The issue with fingerprint or that sanitary scenario in a kiosk venue or for example where at the airport, if you're in the GOES system, right, global entry, when you come in you have to put your fingerprints down on the 442 scanner to validate yourself. Obviously those Scanners need to be disinfected and wiped down, and so they have glass platens, so there's no issue with that.

44:02 That's going to be part and parcel of any process. It's going to be the same thing in the context of opening doors, you know, everything that you touch, wherever you touch. For example, getting into an Uber or a Lyft. That's just part and parcel of our lives. But the majority and bulk of our sales are really our personal devices.

44:25 The second question is elections.

44:28 So as you know, Fred described that we want our first statewide election management solution for a West Coast state. So that's really important and material for us. Do I ever think we'll see a national scenario like that? I doubt it because elections are very local, county, state-based. managed process. And so keep in mind that we're not, they're not using our technology to vote. Individuals are not using it to vote. They're using our technology for the workers to manage access to that information, right? Because they want to know who accesses a voter roll when they access a voter roll to ensure the validity of the election.

45:21 But do I think we'll see a national scenario like that? I doubt it. and I doubt that we would ever see in our country a biometric-driven election system. I think it's just too political and, quite frankly, it's too fragmented for a decision like that. Other countries, in particular in the third world, have adopted that technology because they can force it on individuals. It would be very difficult in our country to do that.

45:49 That makes sense. Thank you so much. The last question I had is, What percentage, how is your business separated by percentage? What percentage is focused on, say, higher education versus the state local elections versus kind of corporate work? Do you have like a breakdown of that from a percentage standpoint?

46:12 You know, I certainly don't off the top of my head as we're now just beginning to integrate the businesses, but a fair portion of PortalGuard, Pistol Star's business, as has been described and announced and is available in the financials that we published is in higher ed. So I would say a fair portion, if not 60 plus percent, is in higher education. So that could give you kind of a perspective. The balance is really enterprise, and that cuts across financial services, retail, some local government, which The next question comes from Richard Arnold, a private investor. Please go ahead.

47:21 Yes, my question has to do with there's some time in the future, a 24-month period, when $75 million in sales from Africa is going to accrue to the company. Are there any estimates for the profit margins there? And having won the Nigerian lotto about 10 times, how reliable are these contracts? And why aren't we backing up the truck to buy stock if, indeed, this is going to be about five times per year, that $8 million break-even that you mentioned before.

47:56 Yeah, so those are great questions. So let's take them one at a time. So, you know, the context of timeframe, 24 months, that's our estimate right now. We had originally thought it might even be quicker and sooner until COVID hit. And so things have really, as we described before, I'm not going to repeat myself or bore you with that, but things have slowed. And so it's going to take time. And we don't have an exact timeframe because we just start now seeing people move around the country to be able to get enrolled. So I think that's number one. Number two, I think contracts in the third world are always discounted. And they're discounted because of, again, reliability.

48:46 These are valid contracts. They're viable contracts. I mentioned before, we have a board member who is very closely connected, actually was born in Nigeria. So we have credibility. We do have the connections and the resources to be able to fulfill that. And we do expect these contracts to be profitable. And between the mix of hardware and software, will ultimately determine the gross margin and then the net profit. But these are going to be profitable contracts for sure.

49:23 The last question. I noticed there was some insider buying by you about $10,000, which seems very meager for the promise that we see in this huge amount of sales from a company presently doing less than $2 million to jump over these next couple of years sometime. When the virus lets us do something on the order of $30 or $40 million a year.

49:51 Was that a statement or a question?

49:53 That's a question. Why isn't there more insider buying if indeed these projects are going to come along?

49:58 Yeah. So I had, just so you know, I had about a two-day window to buy stock because unfortunately the way we announce our earnings – We are blacked out two weeks before the end of any quarter until the third day after we announce our earnings. So it was a very short window, and I personally bought. I mean, again, insiders, I don't speak for the rest of the board or any of our management team. It's up to them to decide or determine if they want to buy. I felt personally it's a great investment, and I may ultimately buy more stock, but that's a personal decision. And again, it's based on the window.

50:46 So, for example, I can't go out and buy stock today. I have to wait two more days before I can do that. And then insiders and any closely related parties have to stop buying two weeks before the end of the quarter, which means the window is between now and approximately September 15th.

51:13 Do you not regard, and doesn't the company regard these contracts as kind of a tremendous windfall if it happens?

51:21 Absolutely we do.

51:23 Okay. And that's why we talk about them the way we do, and, yeah, we believe that to be the case. But, again, we also are – were cautious given the conditions. I mean, we were expecting to be rolling and generating revenue at this point based on those announcements in March when everything kind of hit in April. It just really slowed, literally slowed everything down, and it slowed our U.S. business down. So, you know, no difference here or there at this point, but Obviously, in the U.S., we have a more stable venue, and so it's more predictable.

52:06 Okay. Lastly, just a comment. I appreciate the fact that that $18 million you now have is not going to be spent in Africa unless there are equivalent revenues coming back. Thank you very much for the call.

52:18 You're welcome. The next question comes from Jeff Mintel, a private investor. Please go ahead.

52:27 Hello. Good morning. Mike, one of the things that I think investors look at is, you know, with the previous big contracts we had like China, I believe it was like a $10 million deal, and then we had to write that off. I think people are looking, this is, you know, too good to be true, but with the past contracts that have kind of fizzled out, you know, you had mentioned that A lot of these international contracts are backed by the IMF. Is that the case with these deals here in Africa?

53:09 Yeah. Some of the funding and financing for these contracts comes through the World Bank and the IMF. And the one contract that we have in particular, the larger one, which is the $45 million contract, is a contract with Nelex. It's with the Ministry of Labor to create One million new jobs in Nigeria, and that is heavily funded by external resources and partially funded by the government. So the answer to that question is yes, they are. But again, when you're in the condition that we're in right now, it's more about mobility and having people move around so that we can get started. Obviously, once that happens, you know, you'll begin to see Some stability, and you'll see growth and development in each of these contracts.

54:03 Ben, given that, do you see delays? Delays, given the climate with COVID, is inevitable. But do you think there's a real risk of these contracts fizzling out like the China deal did? Or are you pretty confident going forward with the backing of the IMF? Well, I think two things. Number one, in particular in Nigeria, their economy is driven mainly by oil. Oil is their largest export. Eighty percent of the federal budget is based on oil.

54:55 and the rest of the world recognizes that it is the largest populated country in Africa. Lagos, the city, is expected to be the largest city in the world over the next 20 years. So there's a recognition that in order to lift people up, there have to be commercial and enterprise opportunities for jobs, not just government opportunities. To some degree, you know, I feel that this is so important, not just to the Nigerian government and the Nigerian population. It's important to the world. And if you look around or read around investment in Nigeria, you'll see that the Chinese are investing billions and billions in Nigeria right now, helping build infrastructure and the likes. so that they can tap into what would be significant resource over time. There is oil there now, but the other resource, the fact of the population and the growth potential and opportunity, right, in everything, in all kinds of consumer goods and the likes. So I do believe that this is real, and I do believe that this is critically important if the country is going to move up and ultimately be self-sustaining.

56:25 And this project in particular happens to be a, I'll call it a pet project of Buhari, who is the current president, who is in his last term and only has a couple of years to go.

56:39 Now, given what you had said in the past, the company still expects to get money up front. Mark Cochran, Mira LaCous, James David Sullivan, Michael DePasquale, Cecilia Welch, Alex Rocha, Kwok Fong Wong, Akintunde Carlton Jeje

57:18 and so that's the expectation. Thank you for your question. The next question is a follow-up from Dan Kamis, a retail investor. Please go ahead.

57:31 Oh, so your release says that BioKey will be supplying one million college graduates or that the contract is for one million college graduates and can we assume that You're going to be supplying like a million readers to these guys?

57:53 Yeah, so the answer to that question is we're going to be supplying equipment, and there are different configurations of equipment as well as software services, support, training. We have partners that are going to provide the infrastructure around that, but the answer is yes.

58:12 Okay, so my question would be purchase the readers shouldn't be – necessarily impacted by COVID, could we expect a purchase maybe prior to the country opening up fully?

58:32 I guess I don't understand how it wouldn't be impacted by COVID. No one can enroll. No one could use these things if they're not able to move around. I think that's the challenge. The goal here is to have Thank you very much. Until that happens, it's just not going to start.

59:17 So that's what's starting to happen, and that's a good thing. And as I mentioned, I think the revenue will flow as the individuals come on board, and that was always planned to be a scaled scenario with volume ramping over time. That's the plan.

59:35 Okay, but wouldn't they have to – I mean, can you just – If they give you an order for one million readers, don't you need some lead times, like a few months to build those things?

59:45 Well, Dan, I just described it. It's not going to be one million in one day. It's going to come over time. It's going to ramp. So, you know, for sure, we have access to the resource to be able to deliver. And, you know, it's not unreasonable that we can deliver that kind of equipment in a 24-month period. Thank you. At this time, the Q&A session has now ended. I would like to turn the call back to Mike DePasquale for any closing remarks.

1:00:18 Thank you. And once again, I want to thank everyone for participating in today's call. Please note that we will be participating in the LV Micro 500 virtual conference on September 1st. I'll be presenting at 4 p.m. Eastern Time. We look forward to updating you on our next quarterly call, and as always, we'll continue to provide interim news updates via press release as things evolve. Thank you, everyone. The conference is now concluded. Thank you for attending today's presentation, and I'll disconnect.