BIO-key International, Inc. (BKYI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to BIO-key International's Second Quarter 2020 Conference Call. [Operator Instructions] 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 Mahnken, BIO-key's Vice President of Marketing. Please begin, sir.

Thank you for joining us this morning. With me today are BIO-key's Chairman and CEO Mike DePasquale; Fred Corsentino, our Chief Revenue Officer; and Ceci 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. 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-K 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. 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 and the -- over the past several months, I do want to thank my colleagues at BIO-key and our new subsidiary, PistolStar, 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 and 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 PistolStar, the developer of the PortalGuard multifactor identity and access management solution, just after the close of the second quarter. 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 BIO-key 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, our customers or prospects. After repaying short-term note financings, funding our PistolStar acquisition and addressing other working capital needs, BIO-key now sits with a cash position of approximately $18 million. This financial strength allows us to make prudent investments in our business, such as building out our BIO-key Africa subsidiary and enhancing our sales and marketing efforts around our expanded solutions 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 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 BIO-key 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 press to find effective and efficient solutions to their authentication and data and network security needs. 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 Ceci 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 rebounded business over the balance of the year. Our enthusiasm is rooted in 2 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 a range of other verticals, including financial services and state and local government. With PortalGuard, we are 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, we also see substantial cross-selling opportunities between our 2 companies as we're able to bring enhanced biometric multifactor authentication solutions to their existing customers, and we can offer their more robust multifactor 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 2 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. 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. The 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 fundings from the entities such as the World Bank. Finally, with respect to our financial outlook for the current fiscal year, I'm understandingly 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 BIO-key for growth via PistolStar 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 Corsentino to review a few specific developments in our business. Fred?

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 a 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 2 large initial contracts that were previously announced. We also saw progress in the area of providing election security with the announcements that BIO-key'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 state-wide engagement. We continue to build out our footprint in this area, including seeing the expansion of existing users in 8 Florida counties and interest from other geographies as well. We also believe that the PistolStar 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 BIO-key customers, such as selling biometrics to PortalGuard customers and additional MFA solutions to BIO-key customers. During Q2, we did a major outreach campaign to our existing installed base and prospects and partners, and we will continue to keep in close contact with these existing and potential customers. Although it's still too early to declare the all-clear, we are beginning to see a fair share of promising movement in our sales path now. We've had several new PortalGuard 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 call to Ceci for the financial review.

Thank you. Thank you, Fred. BIO-key's Q2 '20 revenues declined to $307,000 versus $728,000 in Q2 '19, 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 6-month period and June 30, revenues declined to $830,000 from $1.28 million 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. 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 noncash amortization methods of software rights. Q2 '20 operating expenses increased to $1.5 million from $1.4 million, with the increase primarily attributable to a onetime noncash 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 '19 related to convertible notes. 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 6 months of 2020, BIO-key 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, BIO-key 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 $0.5 million in accounts payable, BIO-key has approximately $18 million in cash with $0.5 million of debt related to the acquisition of PistolStar. With that overview, I'd like to now turn the call back to the operator for the investor questions.

[Operator Instructions] The first question today comes from Jack Vander Aarde of Maxim Group.

Congrats on the PistolStar acquisition and the recent capital raise. Just a couple of questions from me. So Michael, first question is on the PistolStar acquisition. In your view just on the integration process so far, and any comments around expected financial contributions going forward. The press release highlighted that PortalGuard multifactor solutions have been deployed recently by multiple educational institutions, other enterprises. And I see a ton of press releases that shows that, that business is really moving along quite well. Just wondering if you can provide any color there.

Yes. Thank you, Jack. Good question. For sure, the integration of the 2 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. So we're seeing a lot of demand and a lot of potential and opportunity. Also in the enterprise side and 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 PortalGuard offering, we are very bullish on the potential to grow that business significantly in the coming quarters and in the coming years.

Got it. 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 PortalGuard and PistolStar as a whole presents. Maybe any comments on time line 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.

Yes. 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 on the BIO-key side. 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?

Yes. So from the BIO-key perspective, there's certainly a lot of added functionality that PortalGuard 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 midterm, long term as people put things and place things in budget for additional expenses that may or may not have been accounted for at the outset of the year. So we're excited about it though.

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 is still uncertain, challenging and there's little visibility, but -- and you're also not providing explicit guidance, but if we just exclude the 2 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?

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 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? Yes, for sure, we feel comfortable with that. Drop in the PistolStar revenue, right? 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 the African contracts and look at the BIO-key base business, we certainly do see an uptick in the second half, for sure.

Okay. Fantastic. That's helpful to know. And I appreciate the color there. And then I do want to touch upon, obviously, the 2 Africa contracts. I know you provided a lot of commentary in your prepared remarks and a little bit in a press release. But I guess what I want to focus -- I know there's limited knowledge or things you could say about the deployment time line. 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 2 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?

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 Chams 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 people have to be able to move around to begin with in order to go and enroll. So that has been, what I call -- what I would call the choke point at this stage. We are moving forward as aggressively as we can. In fact, this -- 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 infrastructure and support resource mechanisms and systems there on the ground. And I'm -- really in a way, I'm glad that we didn't rush into things immediately when we first closed these contracts because we fundamentally would have been shut down for nearly 4-or-so months anyway. So we're diligently looking at and reviewing the start-up process and making sure that we don't put the cash before the revenue. And so that's important for us. So that's part and parcel of the process. So in context of what happens here to going forward? 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. 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 -- at least as the markets relate to the economy has been relatively strong. In countries like Nigeria and Kenya and other countries around the world, in the third world, in particular, they really struggled because people live hand to mouth. So we're encouraged that we're going to get going. But for us to say it's going to be Monday morning or it's going to be October 1 until we get all those processes in place and still we can see free flow of movement in the country is very difficult to predict. So we're going to keep everybody up-to-date and informed. And as soon as we can report anything that's material, we will certainly do that.

Understood. That's helpful. And yes, I mean, this is an incredible opportunity or catalyst as well. So I look forward to hearing more updates as we move along in time. That's it for me. I appreciate the time and congrats on the recent raise, and hope the momentum continues.

Thank you, Jack.

The next question today is from [ Dan Chemis ], a retail investor.

What do you expect would be your breakeven number going forward? Or at least for the third and fourth quarter?

Dan, we have -- our breakeven as a biometric company prior to PistolStar was in the $7 million to $8 million range on an annualized basis, right, in that range. PistolStar, as you know, is an accretive -- was an accretive acquisition. So it was profitable out of the gate and into the company. So again, it's -- 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 BIO-key expenses run in the $1.2 million to $1.4 million range, depending upon -- and a lot of this is administrative, right? We've done a lot of work on the capital raise side, financings with the notes and so forth. So spent quite a bit of money in the G&A area. But I would I would say, again, PistolStar did $1.5 million in revenue, and it was profitable. So breakeven is probably going to be in the in the same area.

And that includes PistolStar?

Yes, I think so.

So if I could just speak. So you will see in the queue later on, we've assessed the expenses there and put the run rate for the expenses of around [ $680,000 ] per month. But as Mike said, PistolStar is one that is always covering their expenses. So we're not worried about any additional loss due to the business there.

Do you mean like around $2.7 million, but that isn't just -- that includes any noncash expenses or you're saying $680,000.

Yes, it does include some noncash expenses, but it does not include all of the -- as we say, the fluctuations for the cost of goods sold. And that -- if the hardware goes up, it goes up, but it should be covered.

Yes. I 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?

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. They -- 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. Ceci, 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.

Okay. Are you utilizing the PistolStar founder at this point? Or just trying to get a feel for how much is being spent there.

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 1-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.

I mean, so he's been working 20 hours a week, 10 hours a week, any kind of average number or.

In that range. In that range. In the 20-hour a week range. Yes. It's certainly not been full time. That's obviously why you sold the business, he wanted to retire. So he's not working full time.

Okay. I haven't noted any indication of biometric sales in any PortalGuard released so far. Can I assume that no client has actually early adopted that technology yet?

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 even related prior to the close of the acquisition. So you'll see more of that as we evolve forward.

Okay. And on that line, I'm noticing in 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 we get a feel for at least when the revenue was recognized or will be?

Yes. So everything that you've seen announced was closed and the revenue flows, when the deal was closed, we sell subscriptions and kind of a hybrid model of a subscription PistolStar's and PortalGuard have sold, I'll call it, a hybrid subscription model. And so the revenue is taken, especially for the first year, is taken upfront. 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. And we're not going to telegraph that to the market for sure.

I understand that. Are you -- 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?

That's a great question. The answer is yes to all. So yes, we've had access to -- China was closed down 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 PortalGuard solution. And so we're going to begin to -- we're already in process, but begin to arrange our partner network in -- 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 PistolStar and PortalGuard there as well.

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. Has -- can you say if the warrants have been getting exercised at all or will be or in that process at all?

Yes. So I can't comment on the shorting the 30% because I don't see that. And I don't -- first of all, I don't -- I'm not sure if it's accurate or not. But in the context of warrants, we have had warrants exercise over the past couple of weeks. So the answer is yes.

Can you give an estimate as to how many are left or...

I can't. I can't. I really can't.

All right. If you don't mind, I'd like to switch to Africa here. I got a question on -- I noticed that in 2 press releases, you named 2 different managing directors. I think Mr. Uwazie was the first one that he was apparently replaced. Can you give a reason why that happened? Or...

Actually, they're working together. But Tunde, who is our current and named and is an employee of BIO-key, is the person who is responsible for 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.

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

I -- 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, the -- our initial bulkhead in Africa is in Nigeria, but we have opportunities across Africa in other countries like Ghana and Kenya, in fact, working in very large potential opportunity there now. So we may need resource in different places across Africa, right? Just because travel is not as easy as it may seem, and it's even gotten harder. But all that will be determined based on the revenue flow and the contract flow.

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 upfront?

It's going to be -- I would say, majority of this is going to happen when the revenue flows. And we have a -- 1 of our Board members, Manny Alia, is also the CEO of TTI, which is our main strategic partner on these contracts. And so he's a very astute businessman, a Cornell graduate, JPMorgan 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.

Okay. On the telecom contract, I think there's 4 major telecoms in Nigeria. One is Nigerian-owned, in 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?

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

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

I guess competition, right? 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.

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

It could be all of the above. If you go to their website, you'll see that they're in 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.

The next question comes from [ Zagar Khaled ], a private investor.

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, has -- is there a direction towards looking at national elections and the opportunities there to kind of engage at that level, 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?

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. So there are no sanitary issues in that context. Although you can have multiple people enrolled, fundamentally, their personal devices. And as our 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, they're 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 Go system, right? Global entry, when you come in, you have to put your fingerprints down on the 4-2 (sic) [ 4-4-2 ] scanner to validate yourself, obviously, those scanners need to be disinfected and wiped down. And so they have glass platins. So there's no issue with that. 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, everything that you touch, wherever you touch, for example, getting into an Uber or a lift. That's just part and parcel of our lives. But the majority and bulk of our sales are really our personal devices. The second question is elections. So as you know, Fred described that we won our first state-wide 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 -- they're not using our technology to vote -- individuals, they're 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. 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.

That makes sense. 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?

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, PistolStar'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 local government isn't necessarily considered enterprise, but they're using it the same way enterprises are, right? The city of Durham that we announced is using the PortalGuard solution, similar in nature to the way any company would use it for secure access to information. So that's about the best breakdown that I could give you right now.

The next question comes from Richard Arnold, a Private investor.

My question has to do with the -- 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 5x per year that $8 million breakeven that you mentioned before?

Yes. So those are great questions. So let's take them one at a time. So the context of time frame, 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 time frame because we just start now seeing people move around the country to be able to get enrolled. So I think that's number 1. Number 2, I think contracts in the third world are always discounted, and they're discounted because of, again, reliability. These are valid contracts, they're viable contracts. I mentioned before, we have a Board member who is very closely connected. Actually, he 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, we will ultimately determine the gross margin and then the net profit. But these are going to be profitable contracts for sure.

All right. 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 this in a couple of years sometime when the virus lets us to something on the order of $30 million or $40 million a year.

Was that a statement or a question?

Well, that's a question. Why isn't there more insider buying, if indeed these projects are going to come along?

I'll -- I see. Yes. So I had -- just so you know, I had about a 2-day window to buy stock because we're -- unfortunately, the way we announced our earnings, we are blacked out 2 weeks before the end of any quarter until the third day after we announced 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. So for example, I can't buy -- go out and buy stock today. I have to wait 2 more days before I could do that. And then insiders and any closely-related parties have to stop buying 2 weeks before the end of the quarter, which means the window is between now and approximately September 15.

And do you not regard and doesn't the company regard these contracts as kind of a tremendous windfall if it happens?

Absolutely, we do. And that's why we talk about them the way we do, and yes, we believe that to be the case. But again, we also are 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 literally slowed everything down, and it slowed our U.S. business down. So 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.

Okay. Lastly, just a comment. I appreciate the fact that, that $18 million you now have is not going to be spent in Africa, and that the equivalent revenue is coming back.

Our next question comes from Jeff Mintel, a private investor.

Mike, one of the things that I think investors look at is -- with the previous big contracts we had like China, right? I believe, it was like a $10 million deal. And then we had to write that off. I think people are looking this is too good to be true. But with the past contracts that have kind of fizzled out, 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?

Yes. 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 1 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'll begin to see some stability, and you'll see growth and development in each of these contracts.

And given that, do you see delays given the climate with COVID is inevitable, but do you think there's a real risk of contracts sizzling out like the China deal did? Or are you pretty confident going forward with the backing of the IMF that whether it happens today, tomorrow or 3 months from now that these contracts are definitely going to be fulfilled?

Well, I think 2 things. Number 1, the -- in particular, in Nigeria, their economy is driven mainly by oil, right? Their oil is their largest export. 80% of the federal budget is based on oil. 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 the -- there's a recognition that in order to look people up, there has to be commercial and enterprise opportunities for jobs, not just government opportunities. So to some degree, 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 that 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. 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.

Okay. Now given what you had said in the past, you're still -- the company still expects to get money upfront before you guys really go to work on these contracts, given like the China deal. I mean you're expecting money upfront, as you said before, correct?

Well, I said it again, I think, 3 times today, the revenue is going to -- the cash is going to flow when the revenue flows, right? So that's the way we're going to do business. That's the way we do business in Africa. That's the way we have done business in Africa, and so that's the expectation.

The next question is a follow-up from Dan Canis, a retail investor.

So your release says that BIO-key will be supplying 1 million college graduates or that the contract is for 1 million college graduates. And can we assume that you're going to be supplying like 1 million readers to these guys?

Yes. 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.

Okay. So my question would be, purchase to the reader shouldn't be necessarily impacted by COVID. Would we -- could I expect or could we expect a purchase maybe prior to the company opening -- the country opening up fully?

I don't -- I guess I don't understand how it wouldn't be impacted by COVID. No one can enroll. No one can use these things if they're not able to move around. I think that's the challenge. So the goal is the goal here is to have a population, 1 million individuals, that are equipped with resources to be able to go out and to enroll and to develop an ecosystem, a biometric or a highly valid identity management ecosystem in various verticals, so in retail, in banking and health care and insurance and the like. So that's the challenge, right? The challenge is nobody is moving around. And until that happens, it's just not going to start. So that's what's starting to happen, and that's a good thing. And I -- 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.

Okay. But wouldn't they have to -- I mean, can you just pop -- if they give you an order for 1 million readers, don't you need some lead times, like a few months to build those things? Or...

Well, Dan, I just described it. It's not going to be 1 million in 1 day. It's going to come over time, it's going to ramp. So for sure, we have access to the resource to be able to deliver. And it's not unreasonable that we can deliver that kind of equipment in a 24-month period.

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.

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 LD Micro 500 Virtual Conference on September 1. I'll be presenting at 4:00 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 has now concluded. Thank you for attending today's presentation. You may now disconnect.