BIO-key International, Inc. (NASDAQ:BKYI) Q1 2021 Earnings Conference Call May 14, 2021 10:00 AM ET

Company Participants

Kimberly Johnson - VP, Product Marketing
Michael W. DePasquale - Chairman and CEO
Fred Corsentino - CRO
Cecilia Welch - CFO

Conference Call Participants

Jack Vander Aarde - Maxim Group
Unidentified Analyst - Private Investor

Operator

Good morning, ladies and gentlemen. Thank you for standing by and welcome to BIO-key International’s First Quarter 2021 Conference Call. During management’s prepared remarks today, all participants will be in a listen-only mode. Afterwards listeners will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded today, Friday, May 14, 2021. I would now like to turn the call over to Kimberly Johnson, BIO-key’s Vice President of Product. Please begin.

Kimberly Johnson

Thank you and thank you for joining us this morning. With me on today’s call are BIO-key’s Chairman and CEO, Mike DePasquale; Chief Revenue Officer, Fred Corsentino; and CFO, Ceci Welch. 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. Words, such as, estimate, project, expect, anticipate, believe, think, plan, may, or will or similar words typically identify and express forward-looking statements. Such forward-looking statements are made based on management’s beliefs and assumptions made using information currently available, pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

For a complete description of these and other risk factors that may affect the future performance of BIO-key, please see Risk Factors in the company’s annual report filed on Form 10-K and in other filings with the Securities and Exchange Commission. Listeners are cautioned not to place undue reliance on forward-looking statements, which speak only as of today’s date. The company undertakes no obligations to revise or disclose revisions to such forward-looking statements to reflect events or circumstances that may occur after today. Now, I will turn the call over to Mike DePasquale.

Michael W. DePasquale

Thank you Kim and good morning and thank you all for joining our call today. Let me first congratulate Kim on her being named by CRN, formally known as Computer Reseller News to their Woman of the IP Channel Power 100 list. The list recognizes the strength, vision, and achievement of female leaders from vendors, distributors, and solution providers in the IT channel. So we are proud that Kim's leadership is being acknowledged in our industry and grateful for the contribution she is making to BIO-key’s success. Kim will say a few words about our marketing progress momentarily.

On our last call I said that we had never been more enthusiastic and opportunistic about BIO-key’s future and our Q1 results demonstrate the momentum we are gaining across the business, the foundations of which we began laying last year. To date in 2021, we continue to see customer dialogues and business activity gradually moving towards more normalized levels following COVID related disruptions. The silver lining of the pandemic however was its impact on rapidly moving enterprises of all types into a remote work from home model around the globe. We believe the work from anywhere or remote and hybrid work and study trends are largely here to stay. The rapid increase in demand for off premises access to mission critical data and applications outside the firewall has created unprecedented IT security and administration challenges. BIO-key helps enterprises meet these challenges with attractively priced identity and access management solutions that support over 16 different multifactor authentication options including our patented industry leading biometric capabilities.

Biometrics are core strength and a differentiator for BIO-key in the marketplace and we continue to believe that biometric factors provide the highest levels of authentication security and access reporting and will increasingly be utilized to defend against network intruders. We are also differentiated by our central biometric management system capabilities which are scalable to any sized platform such as those required in mobile communication networks, large bank networks, and even on a national level such as for civil ID programs. As business activity gradually normalizes, we are ramping our sales and marketing initiatives and engaging with a growing list of customer prospects that could benefit from our solutions both directly and through our growing network of channel alliance partners.

Reflecting on the progress we are making in expanding and strengthening our business, our Q1 revenue rose more than 260% over Q1 last year and 78% sequentially over the fourth quarter. Part of that growth resulted from the initial launch of our African contracts but even excluding these revenues our core business grew 13% sequentially over Q4 2020. We saw improving demand really across the business in the first quarter, including from our PortalGuard solution and particularly for our new cloud hosted version PortalGuard IDaaS or identity as a service that we launched in Q4.

PortalGuard IDaaS is an ideal solution for today's IT environment where enterprises and institutions are increasingly moving their IT infrastructure to the cloud to benefit from less resource and asset intensive model. Remote access challenges complicate cyber security for companies of various sizes across all industries while multi factor authentication is an essential part of any identity and access management strategy. Organizations such as NIST, the National Institute for Standards and Technology as well as the FBI had made very clear statements that traditional methods such as passwords and phone based message such as SMS codes and one-time password generators are very vulnerable to hackers and cyberattacks. These vulnerabilities increase the likelihood of losing control over access to mission critical data as end users can share a credential or enroll additional users into their phones. For example, without the relying party's consent.

Further tokens have lifestyle costs can be lost and present other challenges. According to the 2020 Verizon Data Breach Investigation Report, 81% of hacking related breaches leverage stolen or weak passwords. These findings support the adoption of password less workflows using phone apps secured with user controlled device based biometrics or other factors. While more secure than passwords, account sharing, unauthorized delegation, and SIM swapping have innate challenges that make it unsuitable for robust enterprise level security. With that, I'd like to turn it over to Fred. Oh, excuse me, I have a couple more paragraphs that I want to go through.

To advance the breadth of our biometric capabilities, earlier this week we launched MobileAuth with PalmPositive. We made that announcement on Monday. That's a mobile app that brings seamless biometric authentication to iOS and Android mobile devices. MobileAuth is an easy to use app that requires no special hardware as it leverages the device camera to capture biometric data for authentication into cloud hosted assets. We are very excited about this innovative new technology as it expands our support into mainstream portable devices and enables true cloud based authentication of the individuals seeking access versus device level authentication based on factors that are not known to the network.

Also, the start-up of our African projects in Q1 contributed to our strong first quarter performance with revenue of $680,000 related to initial fingerprint hardware shipments to support biometric enrolment in Nigeria. We expect increasing activities from these contracts throughout 2021 and at the same time we work to develop other opportunities in neighboring countries and across Africa. Importantly, we are very well funded to execute on our growth strategies and fully tap the sales potential of our expanded team, enhanced product portfolio and growing partner relationships. Our financial strengths allows us to make prudent investments in our business, including potential partnerships, tuck in acquisitions, new product development, as well as to fund additional sales and marketing resources and initiatives. Fred will discuss some of our growth plans and Ceci will review our Q1 financials.

We expect the positive trends experienced in Q1 to build over the balance of 2021, supported by our contract backlog and growing pipeline of opportunities, our growing base of recurring revenue, and the improving outlook for IP security solutions, particularly in North America, Africa, and Asia. We continue to anticipate revenues of $8 million to $12 million for full fiscal 2021 with potential upside mainly related to our African business as well as some other opportunities. The midpoint of this range would represent growth of over 250% versus fiscal 2020, and depending on the mix of hardware and software revenue would likely position us for profitability for the full year. Now, I will turn the call over to Fred to highlight a few key developments and revenue opportunities that we see in our business. Fred?

Fred Corsentino

Thank you, Mike. As Mike mentioned, we demonstrated significant revenue momentum in Q1, not just versus last year, but also relative to Q4. We've been talking about building a sustainable, high margin, recurring revenue model the seed of which had been laid in the past year. We started to see a glimpse of this in late 2020, but believe Q1 provided confirmation. Now, I will walk you through a few reasons that support our optimism for the balance of 2021 and beyond. First off, we completed development and launched the software as a service model for our PortalGuard solution in Q4. Called PortalGuard IDaaS, the platform is hosted within an AWS cloud infrastructure that easily integrates with our customers other cloud hosted data and software systems. Further PortalGuard IDaaS is a scalable solution with significantly lower upfront cost for the customer than the hosted version.

For BIO-key it provides a far more stable and predictable recurring software revenue stream versus the volatility of one-time license sales with potential maintenance. IDaaS is really what more and more customers are demanding and our team continues to build transaction to cloud solutions from both new and existing customers. The transition to the cloud has been accelerated by the pandemic and associated work and study from anywhere trends. Now, we do not see this going away as the economy reopens, creating a favorable demand potential. On our last call, I mentioned the growth potential offered by mobile ID and to tackle that opportunity, we developed and recently launched BIO-key MobileAuth with PalmPositive. This creates a new paradigm for Identity-Bound-Biometrics, which are very well suited for everyday use cases including remote workforces, third party access, customer identity access management, or CIAM, and password less workflows.

MobileAuth PalmPositive requires no special hardware as it uses the existing phone camera to capture biometric data and validate it against the cloud hosted database. PalmPositive is up to 400 times more accurate than common, user controlled mobile biometric authentication options that are already widely available on cell phones. Further PalmPositive integrates the biometric matching process with a centralized secured user database, whereas all other mobile biometric authentication is done on the device and the authentication data is not shared outside the device. Touchless palm authentication brings up to 16, the number of authentication factors supported by the PortalGuard platform. Stay tuned as we plan to add other touchless Identity-Bound-Biometric factors such as voice and face identification to the MobileAuth app in coming quarters. We are very optimistic for this product as we feel enterprises need to address deficiencies in traditional authentication methods. Further, we expect MobileAuth will extend PortalGuard’s leadership and reputation for strong multifactor authentication support with the highest levels of integrity, security, accuracy, and availability across devices.

I'm pleased to report that our Channel Alliance Partner or CAP program continues to build and remains a key component of long-term growth strategy. The CAP program leverages our partner’s market presence to expand the reach of our solutions and to new customers. We added more than two dozen new partners in Q1 bringing us now to over 75 channel partners on a global basis. We are working to double the size of the program in coming quarters, having expanded the program to include managed service providers, managed security service providers in addition to system integrators and value added resellers. We continued to target partners in key verticals such as finance, government, and higher education where our solutions and value proposition are well established. As we increasingly become a channel centric company, we expect our partner generated revenue to grow significantly, both in absolute terms as well as a percentage of overall revenue.

As for ongoing investments to maintain our technology leadership, we recently completed an upgrade to BIO-key’s core biometric solution Vector Segment Technology or VST, which add an intelligent, cloud based device driver management. Further, the new release of our WEB-key platform version 4.1 leverages VST for managed software installation and updates, providing better performance and an enhanced user experience. Finally, we released PortalGuard 6.5 in the first quarter, adding a range of new cloud and mobile capabilities. For example, it supports Microsoft as your active directory, as a primary real-time directory in the cloud, thereby eliminating the need for an on premise active directory and providing a stronger cloud only option. At this time, I'd like to turn the call back to Kim Johnson to discuss some recent wins and marketing updates. Kim?

Kimberly Johnson

Thank you, Fred. And in Q1, we had numerous highlights. For customer announcements, we continued with expansions of BIO-key WEB-key and biometrics with multiple customers, including the announcement of the expansion of WEB-key with an international defense agency, resulting in the total revenue growth of $1.4 million after an additional $275,000 investment they made in Q1. In addition, a Western state expanded their biometric deployment with an additional investment in secure access to their centralized voter registration database. We are seeing more demand from our existing customers to migrate to the cloud and our PortalGuard IDaaS platform with a total of 20 customers moving to the solution, including Southeastern Illinois College.

Beyond customer announcements, one of the key investments we've made in our brand awareness efforts has been the hiring of a cyber-focused public relations firm who is focused on building BIO-key’s brand recognition and credibility in the market. In Q1 we are pleased to announce that PortalGuard IDaaS has been selected as a finalist for the 2021 SC Media Trust Award in the best authentication technology category. This positions PortalGuard as a leader amongst some of the most well-known IAM brands in the market. This award, as well as additional awards, including the CRN, Women of the Channel Award Mike mentioned earlier and media coverage and publications such as HealthNet Securities, Hacker Noon, Toolbox, IP Security Wire, and CRN TV is the result of hiring the PR firm in Q1 as a key marketing and brand awareness investment.

In addition to the PR agency, we continue to make investments in our marketing efforts and team. Q1 demonstrated the power of our marketing engine as we successfully launched multiple campaigns to drive thousands of leads and qualified opportunity, participate in two virtual events, create powerful content including the launch of our IAM channel, and continue to nurture the relationships with our existing customers. After launching our new website in Q4 of last year, we have continued to invest in our website and search engine optimization or SEO, which has increased our traffic and our volume of inbound leads, such as demo requests and free trials by 73%. With a mature, defined process in place that measures every stage of the buying cycle, we are constantly optimizing the ROI of all our marketing efforts with defined quarterly goals that keep us focused on driving new business, customer retention, and brand awareness. Through these and other initiatives mentioned today, we are making solid progress on positioning BIO-key for future success. And now I will turn the call over to Ceci for a review of Q1 financials. Ceci?

Cecilia Welch

Thank you, Kim. Our results were issued in today's press release and we expect to file our 10-Q next week. In Q1 2021 our revenue grew significantly to 1.8 million from 522,000 in Q1 2020. The increase is due to more than 100% increase in license revenue, 1193% growth in our revenue, our hardware revenue, including 680,000 of the revenue related to projects in Africa versus none in Q1 2020. License and service revenue growth includes revenue from PistolStar acquisition that was closed on June 30, 2020 therefore PortalGuard revenues are not included in Q1 2020 or Q2 2020 results.

Gross profit increased 182% to 1.1 million from 400,000 in Q1 2020, reflecting higher revenues. Gross margin declined to 59.4% from 76.2% in Q1 2020 due to hardware representing 55% of revenue in Q1 2021, including fingerprint scanners for our African project versus only 15% in the prior year period. We expect higher margin software to make up for a larger portion of the revenue in future periods. Operating expenses were held to 7% increase to 1.8 million in Q1 2021 versus 1.7 million in the prior year period, despite much higher revenue growth. The increase in expenses was primarily due to higher research and development engineering costs, reflecting the addition of PortalGuard operations and continued investment in new product development and product enhancements.

BIO-key reported a net loss available to stockholders of 0.7 million or $0.09 per share in Q1 2021, compared with a net loss of 3.5 million or $1.84 per share in Q1 2020. Weighted average shares outstanding were approximately 7.8 million in Q1 2021 versus 1.9 million in Q1 2020. We ended the quarter with no debt and current assets of 18.1 million, including 13.5 million of cash and cash equivalents providing for a very sound financial base to support our growth objectives. At year-end, BIO-key had current assets of 18.9 million, including 17 million of cash equivalents. Our inventory increased by 270,000 and prepayments increased 1.5 million due to investments made to secure contractual shipments to Africa in Q1 related to our increased business volume. With that, I can now turn the call back to the operator for investor questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. Today’s first question comes from Jack Vander Aarde with Maxim Group.

Jack Vander Aarde

Great, good morning guys. Congrats on the solid results. It is very encouraging to see. Also, just want to say congrats to Kim as well. Okay, a couple of questions for me. I'll start with a question for Michael. First question on these strong first quarter revenue results, definitely exceeded my expectations even without considering contribution from the Africa contracts, revenue was definitely strong compared to my estimates, so however, you guys don't provide quarterly revenue guidance so I'm wondering if you can speak to how the first quarter revenue result compared to maybe your internal expectations?

Michael W. DePasquale

Jack, thank you by the way and good morning. You're right, we don't provide quarterly revenue guidance and as you know, we stated this a number of times before, the reason for that is we're still -- we're building our ARR model, in other words our recurring revenue model. And so we're going to get more predictable. And I think you can see over the last two in particular now, it'll be three quarters, right, that we've reported our IAM business, right, consisting of the PortalGuard and biometric components are reasonably stable and are growing. So they're moving in the right direction. Internally, we're meeting our objectives. We always would like to do more. We're extremely cautious in particular about our African business, we know the potential is significant. But, our challenges as always is ensuring we get paid. The ecosystem there is starting to really build out. The money from the World Bank is starting to flow through down now to the agencies and through the agencies through to the partners that we're working with who are going to acquire the hardware and software to grow and develop the enrollments and the identity ecosystem there in Nigeria in particular. So again, we're meeting our internal objectives, but we certainly would like to do more. We believe we're heading in the right direction and we're on the right track to achieve our annual objectives which we did flesh.

Jack Vander Aarde

Fantastic, okay, that's helpful. And maybe just a follow up then to sticking with the active contract scenario. I think it's very encouraging to see these contracts finally getting deployed after many, many months of unfortunate delays because of COVID. It is what it is, but now it's happening. This is a should re-establish confidence hopefully from the market, it does for me. Wondering if you could share a little bit more, you just mentioned the World Bank is starting to actually have those funds allocated down to the ecosystem partners. Just can you talk a little bit more about that and how that's working, is it a phased out agreement or are these funds already designated and is there a schedule of how the funds are allocated or is it really kind of uncertain?

Michael W. DePasquale

No, no, it's allocated funds, the World Bank is actually allocated funds and has allocated funds for years to build out this ecosystem. But they've had many failed starts and stops over the years. Now they have come up with a very finite plan on how to get the masses enrolled in Nigeria. And that ecosystem is being built out on a structured level. So the way this is working, the funds are passed through as, for example, the equipment is acquired and the enrollments are counted. So banks, telecoms, independent agents all funded through this initiative, have to produce the number of enrollments in order to get reimbursement and get paid. So it's pretty structured and it's what I've seen at least having experience in Africa and Nigeria over the last 10 years. It's probably the best structure that I've ever seen.

Jack Vander Aarde

Okay, that's helpful to know. That's good to hear. And then just another question on these, just initial deployment of the fingerprint scanners, which I believe represented 100% of the initial $680,000 of revenue. What can you expect or is there anything you can provide in terms of like what the next batch of revenue is going to look like from a product mix, will it be more hardware or will it be some software and services mixed in and also the size of the next revenue deployment, is there anything you can provide there or is that something kind of you just want to be cautiously optimistic and not talk about that yet?

Michael W. DePasquale

No, I think we've mentioned before that the initial deployments will be a lot of hardware. So we've stated that over the last few quarters. So I think we can answer that question pretty clearly. We do believe that software and services will begin to become part of this as we approach the second part of the year and get to the tail end of the year, because once the hardware is now deployed the enrollments start to take place, the ecosystem can be built. And certainly there's a tremendous opportunity for example for PortalGuard Solutions to be deployed there. We have aside from the contracts that we've been focused on and talking about right now, we have a partner in Africa, in Kenya, Kristel. We made an announcement back a month or so ago. They're very enthused and excited about selling PortalGuard across the Eastern part of the continent and in Kenya. And Kenya is now becoming sort of a tech hub of Africa. So we're enthused about that. But, in terms of predicting exactly what those shipments will be on a quarter-by-quarter basis, we're just not in a position to do that at this point.

Jack Vander Aarde

Okay, fair enough. So it sounds like, yes, you have said initial deployments are definitely going to be the hardware and true to your word there and it sounds like that's going to continue to be the case likely in the near-term and then software and services gets sprinkled in definitely in the back half of the year, assuming everything continues accordingly. So that's all good to hear. Let me shift gears away from the after contract and back to maybe a question for Fred as well. But on the Channel Alliance Partner Program strength has added 29 new members this quarter. Can either of you maybe quantify or speak further to just how the Channel Alliance Program contributed to the first quarter revenue upside and how you see the channel's revenue contribution or percentage mix trending in the future quarters?

Michael W. DePasquale

Yeah, I will let Fred take that. This is Mike.

Fred Corsentino

Yes, so Jack, as you know, the program is ramping and we had some deals that contributed as it's not a significant percentage just yet that will grow though as the partner base grows, training, marketing and a lot of onboarding occurs. So you'll see an increasing impact over the course of the ensuing quarters for the year and certainly into next year. It takes time to build it. We're doing that and building the base of partners.

Jack Vander Aarde

Okay, got it. I am sorry, how many Channel Alliance Partners are you at currently and is there -- can you remind me if there's a target number that you're approaching?

Fred Corsentino

Yeah, we haven't set an official target number, right now it is officially 75 partners in the program and that will increase. As we indicated, we're looking to double that over the course of this year and look for some great things happening over the course with some new partners for the rest of the year.

Jack Vander Aarde

Okay, fantastic. And then next question maybe for Michael, can you just talk about maybe, when we are talking about the non-Africa related revenues and kind of looking forward into your revenue guidance for the full year, which is still at that 8 million to 12 million range, which is exceptional growth year-over-year regards it is at the low end, the high end or the midpoint. But as it relates to the non-Africa related revenue between maybe the BIO-key, the core BIO-key business, biometric business, and then with the PortalGuard business, I know the lines are blurred a bit now because of cross-selling. But, is there any way you can kind of talk about how those two different businesses are growing in terms of relative revenue contributions in the first quarter and then kind of throughout the year, is it similar or is it kind of too hard to tell?

Michael W. DePasquale

Well, I think in our prepared remarks we indicated that the core business, aside from the Africa hardware revenue for the first quarter grew about 12% over Q4. So that sequentially grew about 12%. So that business is growing very nicely. And, we expect that to continue through the end of the year and more importantly, that is mostly subscription revenue and so it is growing and it is predictable and it's high margin.

Jack Vander Aarde

Got it, okay. I think that's it for me. Congrats on the strong results again and encouraging to see the outlook remains intact. Good luck, guys. Thanks.

Michael W. DePasquale

Thank you, Jack.

Operator

[Operator Instructions]. The next question comes from Dan Kemmis, an investor. Please proceed, sir.

Unidentified Analyst

Thank you. Great quarter, guys. Very good. I've got a couple of questions on PalmPositive. Is that patentable?

Michael W. DePasquale

PalmPositive is a licensed product that we've incorporated into our mobile platform and our PortalGuard platform that reads and matches Palm’s through a centralized database. So that is a product that does have a number of patents, we license it, we do not own that technology. At this point in stage we believe the world doesn't need another algorithm and in particular, for us to invest in that didn't make sense. So it's a mode of authentication that we've incorporated into our platform but the secret sauce for us are the rappers, including what we do in WEB-key and what we do in PortalGuard. So the secure transport of that data and information, the way it's used, the way the mobile app is designed, how it integrates into our back ends, and the kind of user experience and functionality that it provides. It's a product that we believe enterprises and financial institutions, educational institutions, government entities are going to be very, very interested in. Its touchless, it's personal, it's highly secure, it's highly accurate, similar in nature to the accuracy level of our core finger biometric technologies, not quite there, but close. And it will provide a positive, absolutely positive identification of someone behind a mobile device. And it also provides us an opportunity, right now, we are mostly a B2B seller.

So we're selling to as I just described, government agencies, enterprises, banks, healthcare institutions. It gives us an opportunity to extend B2C. So some of our customers may want to use this technology for their customers. Many of them may be consumers or contractors and other enterprises, but they may want to use this technology to secure access back to their portals through our PortalGuard solution. So sorry Dan, for the long winded answer, but I figured I'd get all that out there.

Unidentified Analyst

No, that's fine. Since [indiscernible] I'm just wondering if it -- that has the same limits as face or something like that, you need lighting or are the same constraints or there's something special about this?

Michael W. DePasquale

You know, it works on any Android or iOS device. It will work on your computer with your webcam. It's fundamentally universal. And, I would say the lighting challenges that are innate in capturing any image exists for this technology, as they do for others. The one thing that we're impressed with this particular technology is the algorithms and the physics behind the lighting controls are really, really good, very highly accurate.

Unidentified Analyst

Okay, another question on patents. I saw in your K that VST patents expire in, I don't know, 18 months or something and a lot of your IP will expire in the next two to four years. Should we be concerned about that at all as investors?

Michael W. DePasquale

I don't believe so. Not at all, in fact, quite frankly a number of those very, very early patent's we really haven't monetized nor have we yearly gone out looking to monetize those early patents. It's the ones that have been most recently awarded that we think could potentially have significant value, like the one that we just recently announced back about a month ago. So those are the ones that we think could have more I'll call it universal value over time.

Unidentified Analyst

Great. Fred, switch over to Africa. You, I guess, reiterated the 8 million to 12 million and last quarter you said the bulk was from your core base not Africa. Did the mix change at all in that estimate or is it still pretty much the same kind of idea in terms of how much is coming from what?

Fred Corsentino

We haven't changed our guidance, so what we stated before is still accurate.

Unidentified Analyst

Are there any other large scale projects that you can mention Africa that you're bidding on at this time?

Fred Corsentino

Nothing that we'll discuss right now.

Unidentified Analyst

Alright, you did mention Kenya, was that mostly in terms of PortalGuard or are there any projects there going on other than a PortalGuard opportunity?

Michael W. DePasquale

There are a number of different projects, but Kristel, which is what I discussed a few moments ago, is a partner that is the largest in fact, I think they have the exclusive rights to sell [indiscernible] across Africa, in particular in the East. And so they are very focused on security, cyber security, and they're going to be reselling our PortalGuard solution through their partner network and into the enterprise markets.

Unidentified Analyst

Okay, let me ask this then, do you -- where do you expect to see greater PortalGuard growth in the U.S. or in Africa?

Michael W. DePasquale

I believe North America. We're starting to see some opportunities evolve in Asia, and I don't mean China, I mean, Singapore, Taiwan, Korea, Japan. So we think there's very good opportunity there. And we also see areas of opportunity in Europe as well and so, we think there will be significant growth in the already established markets, not only what may evolve and be significant potential in the emerging markets like in Africa.

Unidentified Analyst

Great, I'll get back in the queue for right now.

Michael W. DePasquale

Thank you.

Operator

[Operator Instructions]. Our next question comes from Dan Kemmis with a follow-up. Please proceed, sir.

Unidentified Analyst

Okay, got a few more here. Can you give us the split between what you would consider, I mean, I assume that the 680 -- 1.8 million so that leaves about 1.12 million from your core business. Was it 50:50 with PortalGuard and the Pure Biometrics or can you give us any idea on that?

Michael W. DePasquale

It was…

Cecilia Welch

It was, this is Ceci, it was just a little bit higher on the PistolStar side because as we've stated before we're selling through our channels too but that was a little bit higher this time.

Unidentified Analyst

Great. And Ceci, what -- can you tell me what the deferred revenue was and the change over the prior quarter?

Cecilia Welch

The deferred revenue, you mean, what the total number was?

Unidentified Analyst

Yeah.

Cecilia Welch

So deferred -- the total number of deferred revenue was approximately 350,000.

Unidentified Analyst

And last quarter?

Cecilia Welch

It's a little more than that. We had from our purchase of PistolStar we got -- we purchased a bunch of things that were classified as maintenance or deferred revenue. And so there was a bigger chunk last quarter of that. Next quarter will be the last quarter that part of the deferred revenue will be recognized. So we expect that to go down a little bit and then ramp back up again.

Unidentified Analyst

Great, I'm trying to understand the cash use. So 1.8 million in OPEX, 700,000 loss and you paid off 5 million or, excuse me, 500,000 for PortalGuard. Am I reading that right and is that like a run rate of about 2.5 million now for breaking that?

Cecilia Welch

Well, so a couple of things, the run rate depends on what's sold, so if there are a lot of hardware that's going to go up and if there's not it goes down. Secondly, we invested I believe it is at, in some material that we expect to ship and then recognize revenue on. So there's a timing difference there. And we also increased our inventory to have some stuff available for the first quarter that we're shipping.

Unidentified Analyst

I had a question on, in the K there was a 1.7 million non-current accounts receivable, is that the old Nigerian contract, that 1.7 million?

Cecilia Welch

Yes, that was the old one.

Unidentified Analyst

Mike, I got one more question on do your old Chinese investors and Board Members still have significant amount of shares or are they out now?

Michael W. DePasquale

No, actually they hold the majority, in fact, if not all of the shares that they held for Kelvin Wong, who is on our Board, still remains our largest single shareholder. And Kelvin hasn't sold any of his shares and the other Chinese investor or investors there were two or three also still have their holdings.

Unidentified Analyst

Great, great. Oh, you know Ceci, at the end of your statement you were talking about a 1.5 million cash payment. I didn't quite get what that was about?

Cecilia Welch

Oh, that was for investment in inventory, so it's bumped up our prepaid. You see a break out of it in the Q.

Unidentified Analyst

So you guys spent 1.5 million in cash on inventory, is that it?

Cecilia Welch

It's a deposit for some of the items that we need to order. There are long lead items, so we wanted to make sure we put an investment in to secure those.

Unidentified Analyst

Yeah, okay, alright. Well, that'll come out in the Q and the K. Okay, great quarter guys. Nice job. I'm looking forward to seeing what happens in the rest of the year. Thank you.

Michael W. DePasquale

Thank you, Dan.

Operator

And at this time, there are no further questions in the queue. And this concludes our question-and-answer session. At this time, I would like to turn the conference back over to Mike DePasquale for any closing remarks.

Michael W. DePasquale

Thank you. I just want to thank everyone for participating in today's call. We look forward to updating you on our second quarter call, which will likely be in late July or early August. In the meantime, we'll continue to provide interim news and updates. Thank you and have a great day and a great weekend.

Operator

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.