BIO-key International (NASDAQ:BKYI) Q3 2022 Earnings Call

0:00 Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Bio-key International second quarter conference call. During management's prepared remarks, all participants will be in a listening mode. Afterwards, listeners will be invited to participate in a question and answer session. As a reminder, this conference is being recorded today, Tuesday, November 15, 2022. I would now like to turn the call over to Kimberly Biddings, Vice President of Product Marketing. Please proceed.

0:32 Thank you and thank you for joining our call. Joining me today are BioKey's Chairman and CEO, Mike DePasquale, as well as Alex Rocha, Managing Director of BioKey EMEA, and BioKey's CFO, CeCe Welch. I will remind everyone that today's conference call and webcast and answers to questions include forward-looking statements which are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected. Words such as anticipate, believe, estimate, expect, and plan, and similar words typically identify and express forward-looking statements. Such forward-looking statements are made based on management's beliefs and assumptions using information available currently pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

1:26 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 with the Securities and Exchange Commission. Listeners are cautioned not to place undue reliance on forward-looking statements which speak only as of today's date. The company undertakes no obligation to revise or disclose revisions to forward-looking statements to reflect future events or circumstances after today. With that, I will turn the call over to Mike.

2:01 Thanks, Kim. Good morning and thank you for joining our call today. After my brief remarks, I want to leave plenty of time for Alex to review our efforts in Europe and the Middle East and for Kim to discuss our sales and marketing initiatives. Cici then will provide financial highlights and will open the call for investor questions. BioKey has become a global company with a global brand. We have over 80 employees, including 36 in Europe, Middle East, Africa, or EMEA region. And Q3 was our second full quarter that included operating results from our swivel secure acquisition that closed in March. The business and its integration into BioKey is proceeding according to plan.

2:49 though our third quarter was affected by the normal European seasonal slowdown due to the summer holidays. We also saw continued customer delays in our large ID projects in Africa, and we did see some slippage of projects in our domestic business from Q3 to Q4, but mostly with county governments that must go through the RFP process. Despite these factors, we grew Q3 revenues by 6% and year-to-date revenues rose 26% to $5.3 million, which is higher than our full fiscal 2021 revenue. At BioKey, our success owes largely to our focus on innovation, which is core to our mission to expand passwordless and mobile IAM options.

3:40 In Q3, we launched our updated mobile authenticator app, which we call MobileAuth. and we upgraded the user interface for our cloud-hosted portal guard as a service or IDAS, which Kim will discuss in a few minutes. Regarding Africa, in Q2, we secured our, in Q3 I should say, we secured our application programming interface or API key access from the Nigerian National Identity Management Commission for verification of all national identity numbers. Unfortunately, NIMC has had both technical and financial issues that led to delays in enrolling significant numbers of citizens. But we expect the situation to be resolved in the next few months.

4:26 In addition to national ID programs, there is a substantial need for mobile security solutions across Africa. After two years of effort, we believe our African subsidiary is well positioned with the right technology and relationships to monetize those significant opportunities that exist across the continent. Along with Gartner and Forrester, we believe the multi-factor authentication segment of cybersecurity is one of the most attractive growth opportunities in the global software market today, as so much of the market is still mired in legacy solutions that have been compromised repeatedly. Also, cyber insurance is becoming a mandate across public companies as well as small and medium sized businesses that house consumer data.

5:16 Insurance underwriters will not issue a policy to companies that do not have multi-factor authentication in place. And despite the geopolitical and economic headwinds that almost every global business is experiencing, we believe MFA solutions will remain in high demand and the opportunity for BioKey to move up the value chain to larger opportunities is now presenting itself. Strong device and server-based biometrics is our unique competitive advantage and it is getting greater visibility in the markets over the past two quarters. Again, Kim will speak to that shortly. To enhance the awareness and reach of our solutions, we've invested in an expanded team of direct and partner sales resources to complement our growing channel.

6:08 These investments are enabling us to build a growing base of recurring software-as-a-service revenue with strong customer references. We're also building our pipeline of customer and project opportunities, some of which has progressed more slowly than anticipated over the past several months, which we largely attribute to macroeconomic factors. Nonetheless, we do expect a strong close to the year as some customers seek to put their IT budgets to work before it's over. Given our results through Q3, we now expect full-year revenue of $7 million to $9 million in 2022, representing growth of approximately 37% to 76% over 2021 revenue.

6:54 Our outlook anticipates growth in recovering software license to roughly 70% of our total or software license revenue, supported by hardware and services revenue, which are typically in support of specific software projects. Although there's a possibility we will see our African hardware deployments begin this quarter, we are not forecasting that to begin until Q1 2023. With that, I will now turn the call to Alex Rocha to discuss our European and Middle East business.

7:35 We've all secured Europe business into Bio-key International as on track and we are achieving our goals. In continuation with the previous quarters, I want to say that we met the target and we continue to be a profit business unity. To expand our sales team, we incorporate Alfonso Fernandez, a senior enterprise sales account for Spain and Latin America, and Mercedes Benzal, a channel manager well known of the market with more than 10 years of experience. This team will be responsible for generate opportunities and win opportunities with the channel in Spain and Latin America. Our channel strategy involved and Bio-key University that we speak previous.

8:25 And we are the new partner program where the reseller have access to daily tools to help him position Bio-key product offer and identify opportunities, which has been built in the easy to use platform for sales and marketing teams inside our resellers. We are selecting our ad and others. We have already 20 partners that cover 25 different countries, and we expect to achieve 100 in the next year. Portugal, iDash in Europe is already full deployed, and the next project going to be the same for Asia, where allow us to start offering our product in that region, where exist a large demand for cybersecurity products.

9:31 New customers, I'm glad to announce that we have one of the large European supermarket chains at Saudi City Council, the large European bus company, and another Spanish city as a reference. We have more, but that seems the ones that we want to highlight. Also, working closely with our partners and with our customers, we received a huge upgrade for our customer, a healthcare company, and another one for an insurance company. We are also working in large opportunities, one of them for a large retail chain in Iberia, where the project is to secure 120,000 employees. We're going to represent more than 1 million euros revenue for the global project. Related to relevant opportunities, we are also working right now with the Central Bank in Asia and the National Bank in Angola. and another in Ethiopia. In this case, the RFP is for five years with a projection revenue of more than $5 million, plus six opportunities in government, telco and private sector in Nigeria.

10:57 Also, we have been achieved that we are already a strategic partner for ForgeRock and Beyond Trust, and we continue conversations about extending that to SailPoint, OMADA and ACP. BioKey has been in one of the most relevant identity and access management events in London last week, where we attempt with our biometric solution and identify that several customers want to fill the needs of their projects. Not only the ones that they are as the new ones, but the ones that they have the challenge they have right now that legacy solutions cannot feed. For example, shared computers, kiosks, and when the company don't deploy corporate mobile devices to the employees.

11:58 and that is a very simple way for we show and explain what is a good return of investment. For this event, we bring 11 opportunities to fold and has been impressive for the quality of that leads. And we are being the only biometric vendor represented there. Not related to the technology itself, but more with the business-oriented, we have studied a strategy approach to a cyber insurance company to offer a bundle for SME in the OAM sales model. We continue to work hard in our PortalGuard MSP product, which, as you know, going to be the baseline for PortalGuard CIM.

12:46 We innovated We expect to announce again that we achieve our revenue target in the next call, and with that, I want to turn the call back to Kim.

13:03 Great. Thanks, Alex. In terms of our customer deployment, we completed the migration of the University of Arkansas at Fort Smith and California's Santa Rosa Junior College from on-premise solutions to our cloud-hosted PortalGuard Identity as a Service or IDaaS platform in Q3. By deploying our solution, our higher education customers are able to accomplish much more with their IT budgets by eliminating the resources and costs of on-premise infrastructure and maintenance. Further, the large increase in remote access outside an institution's firewall is better suited to our IDAS solution than legacy on-prem architectures. Also in Q3, the Long Beach Community College District in California purchased Bio-key branded hardware tokens to support multi-factor authentication for a portion of their student user base.

14:00 Outside of higher education, we also expanded our global enterprise franchise, adding a Dutch-based multinational conglomerate and a leading Saudi Arabia healthcare procurement provider. In October, a large southwestern U.S. auto group selected PortalGuard IDAS to safeguard consumer financial data. This and other customers are now seeking enhanced IAM solutions to support FTC compliance requirements for data protection by strengthening active security with multi-factor authentication. The FTC's updated safeguards rule requires even non-banking financial institutions, such as mortgage brokers, Motor Vehicle Dealers, and Payday Lenders to develop, implement, and maintain a comprehensive security system to keep their customers' information safe. Our PortalGuard iDAS platform enables companies to provide comprehensive IAM capabilities and robust MFA methods, not only to strengthen their overall security posture, but also ensure compliance with government regulations.

15:06 Six county governments in Kansas, Virginia, New Mexico, Florida, South Dakota, and New York selected Portal Guard IDAS for improved data security as well as regulatory and insurance compliance. County governments are facing a cascade of ransomware attacks targeting the public sector, threats that require enhanced IAM solutions like ours. We continue to partner with counties to improve their IAM strategies. showcasing Portal Guard at the National Association of Counties, or NACO, annual conference in Q3, where I participated in a panel about communicating about cybersecurity across your county and co-hosting a webinar in September alongside NACO's CIO in Audurain County, Missouri, a BioKey customer, on how counties can right-size their cybersecurity programs.

15:58 As demonstrated by customer deployments, We continue to advance our core identity and access management business, both through inside sales efforts and our growing Channel Alliance Partner, or CAP, program. We believe the CAP program's global reach will be the source for 50% or more of sales going forward. For example, in Q3 we announced that Dark Steel Technologies, a managed security service provider, or MSSP, in Florida, selected PortalGuard iDAS to provide its customers with an enterprise-grade IAM solution. DarkSeal delivers cybersecurity solutions to small to medium-sized enterprises. MSPs and MSSPs selected PortalGuard iDAS for its unmatched variety of options for workforce and customer multi-factor authentication with exclusive identity-bound biometric options, as well as single sign-on, and Self Service Password Reset to support their customer cybersecurity strategies.

16:59 Also in Q2, we announced a distribution partnership with Israeli-based Multipoint Group for Southern and Central Europe and the Middle East. Multipoint offers not only distribution, but also pre-sales analysis, training and full support to resellers and customers of security and identity solutions in 15 countries. Adding quality partners like Dark Steel and MultiPoint expands the reach of our solutions in important segments and regions of the marketplace. In terms of product development, Mike mentioned that we launched important updates and enhancements to our MobileAuth solution in Q3. MobileAuth is currently the only multi-factor authentication mobile app that integrates the power of identity-bound biometrics with other authentication modalities.

17:48 allowing customers to build a more complete and secure access management strategy. MobileOps supports POM scanning with our POM positive solution and facial recognition with our face positive solution and now also supports Apple Face ID, Touch ID, and Android biometrics as well as push token authentication which can all be used as factors as part of PortalGuard's MFA. These enhancements make MobileOps much more powerful and more convenient for customers to use when looking to exceed their increasing security requirements. We rolled out these upgrades at the Gartner IAM Summit in Las Vegas in August. The Gartner Summit gathers some of the most influential industry leaders and enterprise organizations in the IAM industry.

18:37 This year's theme focused on the adoption of new IAM approaches amidst a great digital transformation and Reliance on Remote Business, being experienced by organizations of all sizes. It was a great opportunity for us to build brand awareness for mobile ops and our IBB solution and resulted in six new enterprise opportunities that we are now working to advance. We continue to build our client relationship with Gartner, meeting with the leading IAM and market analysts during numerous inquiries and vendor briefings held in Q3. We executed a focused, identity-bound biometrics marketing campaign in Q3, which streamlined our messaging and content, including an anthem video, updated website content, and cohesive design. Leveraging this campaign, we placed ads to IT B2B buyers on streaming TV and reached over 100,000 viewers and produced over 2,000 website visits.

19:36 Internationally, we hired the Spanish PR firm Finzel. which has already booked five interviews in Spain for Alex with major TV and radio stations and had a byline placed in Chief Security Officer or CSO magazine. In Q4, we expect to continue our Gartner relationship and to work with influencers outside of BioKey to evangelize the IBB messaging. We have seven events planned, including our first international event, as Alex mentioned, IDM UK, which happened just last week in London. Our current marketing initiative is a passwordless campaign where we are again streamlining content and messaging around the elimination of passwords using BioKey identity-bound biometrics as a phoneless, tokenless, passwordless option.

20:26 Our channel's focus is on our new partner portal and content that will help partners learn about our products and position them effectively to their customers. We are also revisiting our sales tools and continuing to meet with customers to capture more of their success stories and explore the value they experience when using BioKey solutions. Lastly, in October, PortalGuard received the Access Management Solution of the Year Award in the 2022 Cybersecurity Breakthrough Awards conducted by Cybersecurity Breakthrough. This is the second consecutive year PortalGuard has earned this honor. Computer Security Magazine in Britain also selected PortalGuard for their computer security 2022 award in the Innovation category, which is a well-recognized global award, especially in European markets. And with that, I'll pass the call over to our CFO, Cece Welch.

21:21 Thank you, Kim. I'll briefly review BioKey's financial highlights for the third quarter. BioKey's Q3 2022 revenue rose 6% to $1.4 million versus $1.3 million in Q3 2021. Year-to-date revenues grew 26% to $5.3 million versus $4.2 million through the first nine months of 2021. Both Q3 and year-to-date period of 2022, higher software and licensed services were partially offset by lower hardware revenue. Also, the 2022 periods included the results of Civil Secure following its acquisition in March. Annual recurring revenue for the software licenses increased 5.5% to $918,000 versus $870,000 in Q3-21, reflecting an increase from the addition of Swivl and addition to the new PortalGuard customers.

22:20 Service revenue improved 17% to $372,000 in Q3-22, with the majority, or 81%, representing recurring maintenance and support. Non-recurring services decreased 8% to 68,000 in Q3 2022 versus 74,000 in Q3 2021 due to fewer upgrades from on-prem to cloud deployments versus the prior year core. Hardware sales declined to 83,000 in Q3 2022 from 110,000 in Q3 2021 due to other MFA options offered with PortalGuard. Despite higher revenue, gross profit was flat at $1 million in Q3-22 versus Q3-21 due to higher costs for license fees related to the civil secure software license.

23:10 The realized gross margin declined to 71% from Q3-22 from 77% in Q3-21 also related to third-party license fees. Operating expenses increased to $3.3 million in Q3-22 from $2 million in Q3-21 reflecting a $1.1 million increase in SG&A expenses, as well as higher research, development, and engineering expenses in SG&A. Increases included costs related to the integration of civil secure operations, increased trade show expenses, amortized expenses for swivel, share-based compensation, travel, and wages, and benefits for new employees. Higher R&D related to higher personnel costs and product development, including the Q3 launch of significant enhancements and updates to our mobile app. Bio-key reported a Q3 22 operating loss of 2.4 million versus an operating loss of 1 million in Q3 21 due to operating costs increasing more than revenue and gross profit.

24:27 Bio-key reported Q3 22 net loss to common shareholders of 2.5 million or 29 cents per share as compared to 1 million or 13 cents per share in Q321. For the first nine months of 2022, Bio-key reported a net loss to common shareholders of 5.4 million or 64 cents per share versus a net loss of 3 million or 39 cents per share in the first nine months of 2021. The nine-month loss includes approximately $1.1 million of non-cash expenses, of which $217,000 was amortization of intangible assets allocated through acquisition, $294,000 of share-based compensation, in addition to depreciation, capitalized contract costs, and other non-cash expenses.

25:20 Bio-key ended the quarter with current assets of $9.9 million including $2.8 million of cash and cash equivalents, $1.8 million of accounts receivable, and $4.9 million of inventory. Networking capital excluding deferred revenue was $6.5 million, and total stockholders' equity was $11.2 million, or $1.32 per share. And now, I think we can turn the call back over 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 telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

26:05 If you would like to withdraw your question, please press star then 2. We will pause momentarily at this time to assemble our roster. Today's first question comes from Richard Arnold, a private investor.

26:29 Am I on? You are, sir. Okay. This is Richard Arnold. I'm 87, so bear with me while I remember a few things. A couple of years ago, I was told that $8 million was break-even, similar to what we've been told this year. I was told there was a signed contract for $75 million in Africa and that there were bank guarantees on the horizon. Having said that, it brings me to my question. In this last quarter, we lost $2.5 million. Back when those African contracts were on the table, $18 million was raised. Now we only have $3 million.

27:16 My question basically is, comes down to what is breakeven now, when is that expected, and is there enough cash to last through 2023? Richard Arnold, thank you.

27:29 Thank you, Richard, for your questions. So let me address, there were kind of three parts. The first piece is Africa. I mentioned in my prepared remarks that we've seen delays in the key deployment of the projects because of the core agency that's responsible for that in Africa, and so we've seen delays. We do expect those projects will deploy, and we do expect, because we have a significant chunk of inventory, Cece mentioned we have about four, we have various segments of inventory for different products, but associated with Africa, about $4 million in inventory. at costs that we expect to deploy.

28:14 So some of our cash, a portion of the cash that we raised obviously is gone for that purpose. Also a portion of our cash went to two acquisitions. We acquired two companies. One is Portal Guard Pistol Star back in 2020, and we just closed in March on a transaction to acquire Sovil Secure Europe. Both of those were accretive to our earnings. They are profitable entities. They continue to grow, and so we're doing very, very well there. And it is also putting us in a position to be a major player in the identity and access management space, in particular in multi-factor authentication. Clearly, our break-even has gone up because our expenses have gone up associated both with the acquisitions and, of course, our marketing initiatives in trying to expand our business, as Kim described in her prepared remarks. So, you know, clearly, we do expect to get to a break-even, and we expect to get there certainly at the start or early part of 2023.

29:22 The third quarter, in particular, as it relates to Europe, is the slowest quarter with the slow with summer months in Europe. And so this is our lightest quarter from a seasonally adjusted perspective. We expect, as I mentioned before, a strong close to the fourth quarter, and we expect a strong first quarter as well, which, again, is just traditionally a stronger quarter in our immediate business. So we do expect to get the break-even, and we expect to get there early in 2023.

29:54 Then, Michael, please address Is the $3 million cash that's in the till now enough to survive 2023 with the idea that you just lost $2.5 million in the last quarter?

30:11 Yes. Obviously, we have cash and we have inventory. Obviously, we have to turn that inventory into cash, but we'll continue. absolutely have the financial resources to support our business through the end of this year and well into 2023.

30:29 All right. My last question would be, is Mr. Sullivan happy with the purchases he made recently as an insider?

30:41 Well, Jim and I have been buying the stock, as you know, each quarter, and we do believe in the company. Both of us believe that the significant upside is that the identity and access management market in general presents is really one of the most significant opportunities in the investment community today. I think most companies in our space have been hit pretty hard from a valuation perspective. There's been a lot of consolidation, but one thing for sure as I've been speaking with Forrester as we're working with Gartner are the kind of core industry analysts in this space. Multi-factor authentication is a mandate across the board.

31:28 I mentioned in my prepared remarks you can't get cyber insurance. Public companies must have it. Small, medium-sized enterprises are acquiring it to protect their assets, especially if they house consumer data. So at the end of the day, I think despite the geopolitical scenario that we face, despite the economic downturns, Multi-factor authentication, the segment that we operate in, I think will remain strong.

31:56 Well, I may own more shares than James Sullivan, so I'm hoping that you're right. I thank you for answering my questions.

32:02 Thank you, Richard. As a reminder, if you do have a question, please press star, then one. The next question comes from Dan Kamhis, a private investor.

32:22 Hello. Last quarter, you know, I came in a little late on a call, so I think I missed your marks on Africa, so excuse me. But you mentioned a voter registration system in Africa requiring 2,000 units, I think. Can you tell us when the election is scheduled and how much lead time is necessary to get the hardware in place?

32:49 Yes, that's a project we're working in Swaziland, which is now at Swannini. They changed the name of the country. The election is to be held in August, and typically they need six to nine months lead time to get the product deployed. So the product will begin to get deployed early. likely at the beginning of 2023.

33:13 Would there be any reason that that could get delayed at this point? Because we're probably about nine months away from that right now, right?

33:26 You know, these are projects that are very focused. UNDP, you know, these elections get scheduled, and it's very, very important. from a democratic perspective that they take place. Anything could happen in Africa, as we've certainly experienced over the past couple of years, but that election is scheduled to happen in August. And our customer, our partner, has been awarded the contract, but obviously until the money flows, they don't go and build product. So we'll see how that evolves in the early part of 2023.

34:05 I see. I mean, is there a probability that Swaziland decides not to use biometrics or something like that?

34:13 I think every country in – you can go back and look this up, do a Google search on this. Almost every country in Africa that holds an election utilizes some form of biometric capabilities because there's just no other way to ensure one vote, one citizen, one vote.

34:35 Okay. When you said no hardware revenues from Africa in the fourth quarter, that includes this contract, right?

34:45 We're not anticipating any. We could see some happen, but we're not forecasting that into the fourth quarter.

34:54 Okay. Was there any... I think last quarter you mentioned transaction fees may begin from Nigeria. Was there anything like that in the revenue this quarter?

35:08 Not in the third quarter. We anticipate that to begin later this quarter and certainly into 2023. We're well on our way to getting all the infrastructure in place to begin to do that.

35:24 I see. Are you talking like low... or five figures or low six figures or something like that? Or what kind of revenue are you kind of looking at?

35:34 Well, I think it'll start in that range, and then it'll ramp over time. It's an agency banking project that we've been working on for quite some time, and so as the transaction volume increases, so will our revenue and obviously our margin.

35:52 I've got a couple questions on mobile auth. I think in your last call you mentioned that MobileAuth supports face ID, but you also said our face positive solution. Is that a bio-key developed face technology or licensed? I wasn't quite sure what that was.

36:15 Yeah, so it may have been a little bit confusing. I think what Kim was referencing is MobileAuth and what it supports across the board. So MobileAuth now supports palm scanning, right? So you can scan your palm. It's server and device based, so you can scan your palm with MobileAuth and positively identify yourself. We now also support facial recognition, and that is a licensed product. We did not go out and believe that we needed to go out and develop financial, I'm sorry, facial algorithms to to match faces when there's really good technology out there that can be licensed at a very fair rate. So we now support facial recognition as part of the MobileAuth app. But what she also said was, as an authenticator, as another authentication option, we support Face ID and Touch ID on the iPhone and Android biometrics. So when you look at MobileAuth or even PortalGuard in general, One of our distinct competitive advantages is the flexibility that we provide our customers. We support PINs, tokens, cards, keys, and biometrics, right? And our biometrics are a stronger option.

37:31 They can be centrally matched. They can be matched on device. So now we're supporting a full suite of authentication options, 16-plus options that our customers can pick, select, and choose to secure their portals and their information and their front ends. and their networks. So that's what she was describing.

37:55 Okay, and so somebody can load the MobileAuth app on an iPhone and it becomes sort of a plug-and-play device manager for multi-authentication on the cell phone? Is that right?

38:07 Right now, MobileAuth is an enterprise security solution. You know we focus on the enterprise. We don't focus directly on the consumer. Our focus at BioKey is securing enterprises. And we believe that mobile auth will be an extension that gets us into what we call the CIAM space, the Customer Identity and Access Management space, where our customers, our enterprise customers, will be able to use mobile auth to authenticate their customers. So if you think about almost every large entity, on the globe deals directly with consumers in some way, shape, or form.

38:54 So, for example, it may even be just registering the warranty for a product that a consumer buys, even though they don't buy it directly from the company. They buy it through a retailer or whatever. So allowing our enterprise customers to be able to securely authenticate their customers is kind of the next extension, and we call that CIAM, or Customer Identity and Access Management. There is an app that is downloaded from the Apple Store or the Android Store that gets loaded onto the device, whatever it is, iPhone or Android phone, Samsung, doesn't really matter what brand. And then that links up to the enterprise and allows for secure access to whatever information they are securing or locking down.

39:46 Okay. On Swivel, are you still looking at a $3 million target, or do you have any kind of adjustment on that? I know he's indicating that.

39:57 We are hitting, as Alex described, we're hitting all of our objectives as it relates to Swivel, and we expect to hit our 9-month and our 12-month objectives as well. Remember that we acquired the company in March, so we grabbed a little bit of revenue in the First quarter of last year. And through the nine-month period, we've generated just about a little under $1.6 million in revenue. It represents about 30% of our overall total revenue. Pistol Star Portal Guard is about 33%. And BioKey, the core BioKey company, is about 36%. The difference between 2021 and 2022 is really the delta in Africa. Africa, we generated about $700,000 in revenue last year through nine months, and this year, as it relates to the hardware side, it's zero. So, you know, we're growing in every aspect of our business, certainly year over year, and of course, Swivel has added a million and a half dollars in revenue as well, but we're growing in every aspect of our business except for I see.

41:16 So then you expect basically in the fourth quarter from Swivel about as much as you've made in the first three quarters? Did I get that right?

41:25 We expect Swivel to continue to grow, absolutely, and to meet our objectives. We will meet our objectives that were defined and stated in our original acquisition plan.

41:42 On the hardware margins, I've been seeing, I think, anywhere from 37% to 47%. This quarter, I guess, there's a low amount of hardware. I'm not sure if the margins are a good number here to use. But what do you expect your margins at on average going forward?

42:07 I think they're pretty consistent. The hardware that we sell that goes alongside our software, right, to finger scanners that we sell to our enterprise customers, the margins are generally in the area that you just described. Depends on the product, but it's generally in the 30s, 40 range, give or take. The Africa hardware, obviously can be in that range as well. It could be a little bit lower. It could be a little bit higher. It depends on the project and the process. But those are pretty good ranges for hardware and expectation going forward.

42:49 Okay. I noticed in your 10Q a Hong Kong 500K bond and a reserve is Is that bond now at risk?

43:07 You know, it's on our balance sheet. It's money that we were paid for the work that we did there, and it's held in a bond. It's being rolled over, and our auditors wanted us to put it in reserve in case something happened there. It's in China, so the money is in China. It's not in Hong Kong. So... So we're doing what we need to.

43:35 I think the 10-Q just said that you haven't received any proceeds or interest. So was there supposed to be interest? I'm just kind of wondering what the status of that bond is.

43:45 I'll let CeCe answer the detailed question. But yeah, the bond definitely was an interest-bearing note.

43:55 Yes, it was a bond that had The interest bearing, the first bond we received the interest in was rolled over to the second bond, and we have not received that interest yet.

44:09 And how long has that been going on for? Is that a couple years or something? Or I'm a little confused.

44:17 The funds were due June of last year.

44:20 So does that mean this bond is now at risk?

44:28 It could be. It could be. It could be, Dan, which is why we have a reserve for it. We're working with our Chinese partners, but it could be. Clearly, as money owed Bio-key, it's been that bond. The initial bond was purchased in, I want to say, 2019.

44:58 Yes, it was 19 to 20 and 20 to 21, yes. Okay.

45:05 Is that 500K included in the cash still?

45:11 It is not. It is separate on the balance sheet. Okay.

45:15 All right. On the – when does the 500K in debt to BBVA have to be paid off?

45:27 That's similar to a PPP loan. That's something that we acquired with Swivel. It is a very low-interest loan. They had it basically interest-free for the first year, and it's being repaid now at about $11,000 per month. And like I said, you'll see the interest expense is very low. on the income statement. We've paid like $3,600 so far this year, I believe.

46:04 I've got a couple more questions. I know I've taken a long time here. The SG&A and the R&D, the spending seems like it's doubled in the last year. Do you expect R&D and SG&A to remain at these levels? I know you guys are doing... Great R&D and the marketing I've been noticing has been excellent, but I'm just wondering if this is where you think you're going to have to be.

46:37 Great question. No, we believe that R&D will certainly go down on the biometric side for our mobile product, and we expect the PortalGuard R&D Thank you very much. I would say 90% of our customers that we onboard, onboard to our cloud solution, which is hosted on AWS. So on-prem sales are really declining. It's only certain customers, there are certain banks, county, state and local governments that want on-prem solutions, but the majority of our customers are going to the cloud. We invested very heavily there.

47:47 And we still have investment to make in that area. So I think that will be flat. as we proceed forward. On the mobile arts side, we did the majority of that development through contract vehicles, and so we had contractors working on that project, and so that will begin to decline this quarter and beyond. So I think our R&D expenses will actually go down in total.

48:14 For the fourth quarter, you mean?

48:17 Yeah, fourth quarter and beyond.

48:20 So does that mean that some of these apps have been completed and have been successful? Is that kind of what that means?

48:30 Yes, we're completing things right now and deploying them, so obviously they're deployable. But yeah, the answer to that question is yes.

48:38 Okay. Then the last question I think is, assuming you make the low end of your guidance of 1.7, that might mean You lose, I don't know, it could be, let's say your OPEX is the same, you could lose $1.5 million or so. So you could be down to $1.3 million, say, by the end of the fourth quarter. And if things slow in the first quarter, I'm just wondering, are there contingency plans to raise capital in the first quarter?

49:20 We'll do whatever we need to do. I don't think we want to raise capital right now at these rates. We'd likely look at some sort of a debt instrument or another vehicle should we need the cash, but I don't anticipate actually raising equity capital in this market. I think we have other options. And we also have a significant chunk of inventory, Dan, as we described, and a number of projects in the works that will generate cash for the company. All of that inventory is paid for.

49:52 Yeah, no, I understand that you have the inventory. The problem has been...

49:56 But we always have, I can say this, we always have plan A and plan B, and so we always have contingencies to ensure that we can run this business. We have a very, very viable, vibrant business, especially, again, you look at our software revenues are growing. We've got a great footprint now in EMEA to expand from. We've got a great channel... Thank you. Thank you. Once again, if you do have a question, please press star, then one.

50:55 At this time, we are showing no further questioners in the queue, and this concludes our question and answer session. I would now like to turn the call back over to Mike DePasquale for closing remarks.

51:07 Thanks to everyone for joining the call today. We look forward to updating you on our Q4 and full fiscal 2022 call early next year. As usual, we will continue to provide regular news updates via press release as significant developments happen within the business. Once again, thank you for your time this morning and have a great day. The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.