Earnings Call Transcript
BIO KEY INTERNATIONAL INC (BKYI)
Earnings Call Transcript - BKYI Q2 2020
Operator, Operator
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.
Scott Mahnken, Vice President of Marketing
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.
Michael W. DePasquale, CEO
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 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 were clearly curtailed by the eye of the 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.
Fred Corsentino, Chief Revenue Officer
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-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 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.
Cecilia Welch, Chief Financial Officer
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 a $375,000 reduction in shipments of fingerprint readers due to smaller deployments in 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 one-time non-cash warrant expense of approximately $95,000 as payment for professional services and personnel restructuring charges for operations in China. BIO-key’s Q2 results reflect the benefit of a $341,000 payment for the Paycheck Protection Program funding offset by $542,000 of net interest expense for amortization costs associated with the company's funding efforts compared to a net interest expense of $115,000 in Q2 2019 related to convertible notes. BIO-key reported a net loss to stockholders of $1.6 million or $0.08 per share in Q2 2020, compared to a net loss of $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 equivalents plus warrants for 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, Operator
Thank you. The first question today comes from Jack Vander Aarde of Maxim Group. Please go ahead.
Jack Vander Aarde, Analyst
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?
Michael W. DePasquale, CEO
Thank you, Jack, for your question. The integration of the two companies is progressing very well. We are nearly fully integrated administratively, technologically, and in terms of sales and marketing. Fred and his team are now in the go-to-market phase with the combined solution. There is significant activity, particularly in higher education, which has been shifting to online courses for years, and this transition has accelerated as many colleges remain off campus. We are seeing strong demand and numerous opportunities. Our pipeline is also robust in the enterprise sector, financial services, and state and local government. Fred mentioned that this is a game changer for the company because we now offer a complete authentication solution that includes biometrics and other factors such as tokens, cards, keys, passwords, and pins. We can support mobile biometric authentication, along with single sign-on and provisioning, providing our customers with a comprehensive solution. As we enhance the visibility of the PortalGuard offering, we are optimistic about the potential for significant growth in that business in the upcoming quarters and years.
Jack Vander Aarde, Analyst
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 present, maybe any comments on the 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?
Michael W. DePasquale, CEO
Yeah, so there are, and I'll let Fred put a little more color on it. But for sure, there are hundreds of PortalGuard customers that are using more traditional authentication options and so many of them may be interested in the biometric option, right. So that's the first cross-selling opportunity and there are hundreds of accounts that we can reach out to. On the biometrics side, we have a number of customers, some very large ones in fact, a large telecommunications company as well that has their own solution that may be interested in a commercial solution like we provide with PortalGuard. So that in and of itself presents a cross-selling opportunity on the BIO-key side. 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?
Frederick Corsentino, Chief Revenue Officer
Yes, so from the BIO-key perspective, there's certainly a lot of added functionality that the 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.
Jack Vander Aarde, Analyst
Thank you, Fred, for your insights. My next question is about your outlook for the rest of 2020. I recognize that the environment remains uncertain and challenging, and visibility is limited. Although you’re not providing specific guidance, if we set aside the two contracts from Africa and any potential cross-selling opportunities from PistolStar, can you share any directional comments regarding revenue for Q3 and Q4? Specifically, do you anticipate an increase in revenue compared to the Q2 results, or is there anything else you could share to help investors and me better understand near-term revenue expectations?
Michael W. DePasquale, CEO
I believe we can confidently say that the second quarter was quite challenging due to the numerous shutdowns, which caused our potential opportunities pipeline to nearly come to a halt. This was expected as everyone transitioned from working in offices to working remotely at the start of April. We are definitely optimistic about seeing an increase in business during the third and fourth quarters. As for the decrease in PistolStar revenue, which was approximately $1.6 million annually last year, excluding the African contracts, we do anticipate an increase in our BIO-key based business in the second half of the year.
Jack Vander Aarde, Analyst
That's great to know, and I appreciate the details provided. I want to discuss the two contracts in Africa. You've shared some insights in your prepared remarks and press release. While I understand there are limitations on the deployment timeline, the press release mentioned that operations are starting to resume in Africa, and you've engaged with the customers from these contracts while planning the projects. Can you share more about your recent activities and discussions with these parties related to the contracts as you prepare for the next few months?
Michael W. DePasquale, CEO
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, who 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 four 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 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.
Jack Vander Aarde, Analyst
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.
Michael W. DePasquale, CEO
Thank you, Jack.
Operator, Operator
Next question today is from Dan Thomas, a retail investor. Please go ahead.
Unidentified Analyst, Analyst
Okay, hey, what do you expect would be your break even number going forward or at least for the third and fourth quarter?
Michael W. DePasquale, CEO
Our breakeven as a biometric company before the PistolStar acquisition was in the annual range of $7 million to $8 million. PistolStar, as you know, has been a profitable acquisition from the start. We're not providing revenue guidance, which makes it challenging to specify a number. However, our BIO-key expenses typically fall between $1.2 million and $1.4 million, largely due to administrative costs. We've invested substantially in general and administrative expenses, particularly regarding our capital raises and financing efforts. PistolStar generated $1.5 million in revenue and was profitable, so breakeven will likely remain in a similar range.
Unidentified Analyst, Analyst
And that includes PistolStar?
Michael W. DePasquale, CEO
Yeah, I think so.
Cecilia Welch, Chief Financial Officer
If I could just speak, we will address this later in the Q&A session. We have evaluated the expenses and estimated the monthly run rate to be around $680. However, as Mike mentioned, PistolStar consistently covers their expenses, so we have no concerns about incurring additional losses from that business.
Unidentified Analyst, Analyst
You mean it's around $2.7, but that also includes any non-cash expenses, or is it $680?
Cecilia Welch, Chief Financial Officer
Yes, it includes some non-cash expenses, but it does not account for all the fluctuations in the cost of goods sold. If the high rate increases, it will rise, but it should be manageable.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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 the office, we've not really missed a beat.
Unidentified Analyst, Analyst
Okay, are you utilizing the PistolStar founder at this point or just trying to get a feel for how much is being spent there?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
So he's been working 20 hours a week, 10 hours a week, any kind of average number?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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 education. And we're not going to telegraph that to the market for sure.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
That's a great question. The answer is yes to all. China was closed down from a manufacturing perspective for about 60 to 90 days, but we had enough inventory in place, so we didn't miss a beat with our fingerprint sensor sales. Yes, we have some new products that we will be introducing, and we will continue to design, develop, and manufacture there. Additionally, a new opportunity is emerging in Asia. Kelvin Wong, our Managing Director there, is very excited about the PortalGuard solution. We are already in the process of arranging our partner network throughout Asia, including Korea, Japan, Hong Kong, and Taiwan. Overall, we expect to sell the historic PortalGuard across the greater Asian region as well.
Unidentified Analyst, Analyst
Got it. That's good. I know that roughly 30% of the daily stock volume is shorted, which largely explains the volumes we've been observing. Do you have any information on whether the warrants have been exercised or if there are plans to do so?
Michael W. DePasquale, CEO
I can't comment on the shorting at 30% because I'm unsure if that's accurate. However, we have had warrants exercised over the past couple of weeks, so the answer is yes.
Unidentified Analyst, Analyst
Can you give an estimate as to how many or…?
Michael W. DePasquale, CEO
I can't, I really can't.
Unidentified Analyst, Analyst
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…?
Michael W. DePasquale, CEO
Actually, they're working together. But Tunde, 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.
Unidentified Analyst, Analyst
Okay, well would you consider a fully staffed African office when these contracts keep going?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
A majority of this will occur when the revenue starts to come in. One of our board members, Manny Alia, who is also the CEO of TTI, our main strategic partner for these contracts, is an astute businessman with a strong financial background. He and I are aligned on ensuring that our investments align closely with revenue. I believe this will be our approach.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
I see. What are the factors that might drive some of the other telecoms to move to BIO-key software?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
Okay. Cham's, will Cham's just be acting as initial enrollment capacity or will they be doing certificate or other validation functions in the e-commerce structure utilizing biometric identification or just trying to get a feel for what the project really involves?
Michael W. DePasquale, CEO
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.
Operator, Operator
Thank you for your questions. The next question comes from Jack Carvet, a Private Investor. Please go ahead.
Unidentified Analyst, Analyst
Good morning. Thank you for the presentation. I have two related questions. First, when we think about authentication and fingerprints, especially in the current COVID environment where there are concerns about touching surfaces, could you address those concerns? Secondly, is there a direction towards engaging with national elections and the opportunities that arise from that at the national level? What might that look like in terms of engagement, such as fingerprinting or software? Thank you.
Michael W. DePasquale, CEO
Great. Two important questions. I’ll start with the first one about concerns regarding touching surfaces like doors in public spaces. Most of our fingerprint sales are related to personal devices, such as fingerprint scanners available on sites like Amazon and Walmart. These devices connect to a computer's USB port, allowing users to access their devices and the information stored on them. In this context, there are no sanitation issues, even though multiple people can register their fingerprints on personal devices. As more people work from home, companies want to ensure that the individuals using these devices are authorized. Therefore, there’s no concern regarding sanitation in that context. However, in scenarios like kiosks at airports, users must place their fingerprints on scanners to verify their identity. It’s essential that these scanners are regularly disinfected. This applies to other surfaces we commonly touch, like getting into an Uber. However, the bulk of our sales are mainly personal devices. Regarding elections, as Fred mentioned, we secured our first statewide election management solution for a West Coast state, which is significant for us. I doubt we will see a national adoption of our technology for elections since they are primarily managed at local or state levels. Our technology is not used by individuals to vote; rather, it helps election workers manage access to voter information. This is crucial for ensuring the validity of the election process. I don't anticipate a national biometric election system in our country due to its political complexity and fragmentation. Some developing nations have adopted such technology, but implementing it here would be quite challenging.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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 education. 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.
Unidentified Analyst, Analyst
Great, thank you so much. Appreciate it.
Michael W. DePasquale, CEO
You're welcome.
Operator, Operator
The next question comes from Richard Arnold, a Private Investor. Please go ahead.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
Those are great questions. Let's address them one by one. Regarding the 24-month time frame, that's our current estimate. Initially, we thought it could happen even sooner, but COVID impacted that. As we've previously mentioned, things have slowed down, and it's going to take time. We don't have a precise timeline yet because we're just beginning to see movement across the country for enrollment. Secondly, contracts in developing countries tend to be discounted due to concerns about reliability. However, these are legitimate and viable contracts. I mentioned that we have a board member with strong connections, who was born in Nigeria, which adds to our credibility. We have the necessary connections and resources to fulfill these contracts, and we anticipate they will be profitable. The mixture of hardware and software will ultimately determine the gross margin and net profit, but we are confident these contracts will be profitable.
Unidentified Analyst, Analyst
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 do something on the order of $30 million or $40 million a year?
Michael W. DePasquale, CEO
Was that a statement or a question?
Unidentified Analyst, Analyst
That's a question, why isn't there more insider buying, if you think these projects are going to come along?
Michael W. DePasquale, CEO
I had a brief opportunity to purchase stock because, due to our earnings announcement schedule, I can't trade for two weeks before the end of each quarter and for three days after we announce our earnings. It was a limited timeframe for me. I personally decided to buy some shares, but I cannot speak for the other members of the Board or management regarding their decisions. I believe it's a solid investment and may consider buying more stock in the future, but that depends on the circumstances. For instance, I can't make any purchases today; I have to wait another two days to do so. Insiders and closely related parties must stop buying two weeks before the end of the quarter, which means there's an opportunity to buy until about September 15th.
Unidentified Analyst, Analyst
Do you not regard it, doesn't the company regard these contracts as kind of a tremendous windfall if it happens?
Michael W. DePasquale, CEO
Absolutely we do.
Unidentified Analyst, Analyst
Okay.
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
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.
Michael W. DePasquale, CEO
You're welcome.
Operator, Operator
The next question comes from Jeff Mintel, a Private Investor. Please go ahead.
Unidentified Analyst, Analyst
Hello, good morning.
Michael W. DePasquale, CEO
Good morning, Jeff.
Unidentified Analyst, Analyst
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 at 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?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
Okay, based on your previous statements, the company still expects to receive money upfront before you begin working on these contracts, such as the deal in China. You're anticipating upfront payments as you mentioned before, correct?
Michael W. DePasquale, CEO
Well, I mentioned it several times today, revenue will lead to cash flow. That's how we will conduct business. This has been our approach in Africa, and that's the expectation moving forward.
Operator, Operator
Thank you. The next question comes from Dan Thomas, a Retail Investor. Please go ahead.
Unidentified Analyst, Analyst
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?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
Okay, so my question is regarding the purchase; the reader shouldn't be necessarily affected by COVID. Can I expect a purchase maybe before the company or the country fully reopens?
Michael W. DePasquale, CEO
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.
Unidentified Analyst, Analyst
Okay, but wouldn't they have to, I mean, can you just pop in an order for 1 million readers? Don't you need some lead time, like a few months to build those things?
Michael W. DePasquale, CEO
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.
Operator, Operator
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.
Michael W. DePasquale, CEO
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.
Operator, Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.