[Management View]
BIO-key reported $1.7 million in revenue for Q2 2025, up 49% YoY and 6% sequentially. Key metrics include a 40% increase in gross profit to $1.2 million, despite a decline in gross margin to 73%. Strategic priorities include expanding defense sector reach, transitioning to BIO-key branded solutions in EMEA, and reducing reserve inventory.

[Outlook]
Management expects new multi-year defense sector contracts and recurring customer follow-ons to drive revenue contributions in the coming quarters. Initiatives like the Cyber Defense Initiative in the EU aim to capitalize on increased European and NATO spending mandates. The company is moving towards an in-office model for business development, sales, and marketing.

[Financial Performance]
Revenue increased 49% YoY to $1.7 million, driven by hardware revenue growth of $458,000. License fee revenue rose 4%, and service revenue increased 11%. Operating expenses decreased by 8.5% to $2.3 million, leading to a reduced net loss of $1.2 million ($0.20 per share) from $1.7 million ($1.00 per share) YoY.

[Q&A Highlights]
Question 1: With the increased costs for the cyber defense team and R&D, should we expect the recent trend towards reduced operating expenses to reverse?
Answer: No, the expense run rate will proceed through Q3 and Q4 as started at the beginning of the year. The Q2 blip was due to restructuring in sales and timing of event payments.

Question 2: Can you give us additional color on meaningful contract activity in the first half of next year?
Answer: Contracts closed late last quarter and this quarter will be reflected in Q3 results. The defense and intelligence market is robust, and BIO-key's unique solutions are expected to grow significantly.

Question 3: Have you received income from unannounced contracts already in Q2, or are they scheduled for next year?
Answer: Both. Contracts closed at the end of last quarter and this quarter will generate revenue through the end of this year and into next year.

Question 4: Do you expect these contracts to ramp significantly in the first half of next year?
Answer: Yes, the contracts will grow iteratively, increasing in size and number of users, leading to significant growth.

Question 5: Will there be growth in Q3 despite the European summer slowdown?
Answer: Yes, defense intelligence segments are less impacted by seasonal slowdowns, and the pipeline is encouraging.

Question 6: How much reserve inventory has been sold?
Answer: Inventory is being sold every quarter, with significant sales expected by year-end.

Question 7: Do hardware sales lead or lag software sales?
Answer: They usually come together, with initial contracts including both hardware and software, followed by expansions.

Question 8: Any update on Nigeria or Africa?
Answer: Focus is on supporting core products in Africa, with significant opportunities in the commercial enterprise market.

Question 9: Do you have enough cash and equivalents to get through the end of the year?
Answer: Yes, we do.

[Sentiment Analysis]
Analysts and management maintained a positive tone, emphasizing growth opportunities and strategic initiatives. Management expressed confidence in achieving significant revenue growth and improving financial performance.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 | Change |
|-------------------------|---------------|---------------|----------------|
| Total Revenue | $1.7 million | $1.1 million | +49% |
| Gross Profit | $1.2 million | $0.9 million | +40% |
| Gross Margin | 73% | 77% | -4% |
| Operating Expenses | $2.3 million | $2.5 million | -8.5% |
| Net Loss | $1.2 million | $1.7 million | -$0.5 million |
| Shares Outstanding | 5.8 million | 17 million | -11.2 million |
| Current Assets | $4 million | $1.9 million | +$2.1 million |
| Accounts Receivable | $984,000 | $718,000 | +37% |
| Note Payable | $447,000 | $1,000,000 | -$553,000 |

[Risks and Concerns]
Potential risks include the volatility in the civil ID market in Africa and the challenge of maintaining reduced operating expenses amidst increased R&D and sales team costs. Seasonal slowdowns in Europe could impact short-term performance.

[Final Takeaway]
BIO-key's Q2 2025 performance reflects strong revenue growth driven by hardware sales and strategic initiatives in the defense and cybersecurity sectors. Management's focus on expanding market reach, reducing operating expenses, and monetizing inventory positions the company for continued growth. Investors should monitor the impact of new contracts and the company's ability to maintain financial discipline amidst increased spending.