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 speakers' 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 Mahnken, BIO-key's Vice President of Marketing. Please begin, sir..

Thank you for joining us this morning. With me this morning 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 provision 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 have 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 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 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 customers or customers 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 that this required meaningful dilution of our existing shareholders.

However, after enduring several substantial previous challenges, it quickly 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 pressed 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 will let Ceci review our Q2 results which is 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. 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 a 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.

We also see substantial cross-selling opportunities between our two companies as we're able to bring enhanced biometric multifactor authentication solutions to their existing customers and we could offer their more robust multifactor identity in 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.

As you might imagine, the COVID-19 shut down 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 I.D.

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.

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 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 the total revenue potential of $250,000 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 BIO-keys 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 interests 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 install 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 process.

We've had several new PortalGuard announcements in recent weeks, including with multiple university clients and aerospace defense clients, 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 will pass the ball to Ceci for the financial review. Thank you..

Thank you, Fred. BIO-key’s Q2 2020 revenues declined to 307,000 versus 728,000 in Q2 2019, 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 ended June 30th, revenues declined to 830,000 from 1.280 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 of 2020 versus 7% in Q2 2019, reflecting a decrease in software license expense, largely due to the change in non-cash amortization methods of software rights.

Q2 2020 operating expenses increased to 1.5 million from 1.4 million, with the increase primarily attributable to a onetime 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.

BIO-key reported a net loss to stockholders at 1.6 million or $0.08 per share in Q2 2020, compared to 1.4 million or $0.10 per share in Q2 2019. For the first six 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 equivalent 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 a 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..

Thank you. [Operator Instructions]. The first question today comes from Jack Vander Aarde of Maxim Group. Please go ahead..

Hey, good morning guys. Congrats on the PistolStar acquisition and the recent capital raise. Just a couple of questions for 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 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 evolved 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..

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 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?.

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 we can reach out to.

On the biometrics side, we have a number of customers, some very large ones in fact, the 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.

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 mid-term, 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 are also not providing explicit guidance.

But if you -- if we just exclude the two Africa contracts and any cross-selling opportunities from PistolStar, 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 shut downs 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 will be an uptick in business, in the third and fourth quarter? Yeah, 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 million or so on an annual basis.

So, from that perspective if you were to exclude the African contracts and look at the BIO-key based 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 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?.

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 Cham's, is for ultimately the end user is a large telecom company. So that contract think about shut down, people not being able to move around. Part and parcel of our program 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 would call the choke point at this stage.

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 by 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 four so months anyway. So we're diligently looking at and reviewing the startup 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 too going forward, well, it really depends on the state of affairs there as I describe, 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 still at least as the markets relate to the economy, is relatively strong.

In countries like Nigeria and Kenya and other countries around the world, in the Third World in particular, they really struggle 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 1st until we get all those processes in place and still we can see free flow of movement in the country, it's 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..

Thank you, Jack..

Next question today is from Dan Thomas, a retail investor. Please go ahead..

Okay, hey, what do you expect would be your break even 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 revenues. 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 say again, PistolStar did $1.5 million in revenue and it was profitable. So, breakeven is probably going to be in the same area..

And that includes PistolStar?.

Yeah, I think so..

If I could just speak, so we'll see in the Q 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, PistolStar is one that is always covering their expenses. So we're not worried about any additional loss due to the business there. [Multiple Speakers]..

You mean like around 2.7, but that isn't just -- that includes any non-cash expenses or you say 680?.

Yes, it does include some non-cash expenses, but it does not include all of the -- as we say, the fluctuations for the cost of goods sold and if the high rate goes up, it goes up, but it should be covered..

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?.

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 shift fingerprint scanners, hardware readers, and so we're in and out of the office and we've been in and out of the office really since the beginning.

And similar in nature to our Minnesota office, really Minnesota's not being 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 a 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 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..

So he's been working 20 hours a week, 10 hours a week, any kind of average number?.

In that range, you know, in that range, in the 20 hour a week range. Yeah, but certainly not been full time. That’s obviously why he sold the business, he wanted to retire. So he's not working full time..

Okay. I haven't noted any indication of biometric sales, any PortalGuard release so far.

Can I assume that no client is 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 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, 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, a number of licenses, estimated users, etcetera.

Can we expect to start seeing some additional information in the releases so that we get a feel for at least when the revenue was recognized or will be?.

Yeah, 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 and PortalGuard has 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.

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 this historic PortalGuard there as well..

Got it. That's good. I know about 30% of the volume each day in stock is shorted, which explains to great degree, the volumes we've been seeing.

As -- do you see if the warrants have been getting exercised at all or will be or in that process at all?.

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 don't -- 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..

Can you give an estimate as to how many or…?.

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

Alright, if you don't mind, I'd like to switch to Africa here. I got a question on it, I noticed that in two press releases you named two different Managing Directors, I think Mr.

Uwazie was the first one, he was apparently replaced, can you give a reason why that happened or…?.

Actually, they're working together. But Tunde [ph], who is our current and named and is an employee of BIO-key, is the person who was 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, 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, well would you consider a fully staffed African office when these contracts keep going?.

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, our initial bulkhead in Africa is in Nigeria, but we have opportunities across Africa, in other countries like Ghana and Kenya.

In fact, working a very large potential opportunity there now. So we may need resources 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 up front?.

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 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, 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..

Okay, 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?.

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.

Cham's, will Cham's just be acting as initial enrollment capacity or will they be doing certificate or other validation functions in e-commerce structure utilizing biometric identification or just trying to get a feel for what the project really involves?.

And yeah, 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 are in payments in other areas. So the answer to that question is all of the above..

Thank you for your questions. The next question comes from Jack Carvet [ph], a Private Investor. Please go ahead..

Good morning. Thank you for the presentation. I just had a -- two related questions. The first is, can you talk a little bit about when you think of 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, have -- 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? Thank you..

Great. Two good questions. So let me answer the first one about fingerprints, about the concern of using or touching, 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, bell.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 enroll 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, 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, we are 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 42 scanner to validate yourself. Obviously, those scanners need to be disinfected and wiped down. And so they have glass patterns.

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 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 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.

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. 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?.

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 PistolStar’s business as it's 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, 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 solutions, 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..

Great, thank you so much. Appreciate it..

You're welcome..

The next question comes from Richard Arnold, a Private Investor. Please go ahead..

Yes, my question has to do with the sometime 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 are we backing up the truck to buy stock if indeed this is going to be about five times per year, that 8 million breakeven that you mentioned before?.

Yeah, 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 -- 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 one. Number two, 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 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..

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?.

That's a question, why isn't there more insider buying, if you think these projects are going to come along?.

Yeah, so I had just so you know, I had about a two day window to buy stock because we're -- 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 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 two more days before I could 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..

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

Absolutely we do..

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 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, 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 $18 million you now have is not going to be spent in Africa and that's equivalent revenues coming back. Thank you very much for the call..

You're welcome..

The next question comes from Jeff Mintel, a Private Investor. Please go ahead..

Hello, good morning..

Good morning, Jeff..

Mike, one of the things that I think investors look at is with the previous big contracts we had, like China, which I believe was like a $10 million deal, and then we had to write that off. I think people are looking this as 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 no exits 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..

Then, 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 you are pretty confident going forward with the backing of the IMF that whether it happens today, tomorrow, or three months from now that these contracts are definitely going to be fulfilled?.

Well, I think two things. Number one, in particular in Nigeria, their economy is driven mainly by oil, right. 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 there's a recognition that in order to lift 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, 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.

Are 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. And this project in particular happens to be 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 are still -- the company still expects to get money up front before you guys really go to work on these contracts, given like the China deal.

I mean, you're expecting money up front as you said before, correct?.

Well, I said it again, I think three times today the revenue is going -- 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..

Thank you for your question. The next question is a follow-up from Dan Thomas, a Retail Investor. Please go ahead..

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 a million readers to these guys?.

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..

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

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.

So the goal here is to have a population of a 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 and banking and healthcare and insurance and the like. So that's the challenge, right.

The challenge is nobody's 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 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 one 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..

Thank you. At this time, the Q&A session has now ended. I would like to turn the call back to you 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 LB Micro 500 Virtual Conference on September 1st. 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 is now concluded. Thank you for attending today's presentation. You may now disconnect..