Gus Okwu – Managing Director, DRG&E – IR Tom Colatosti – Chairman Mike DePasquale – President and CEO Francis Cusick – CFO

Dan Chemis [ph] Joe Osgood [ph] Gary Seronian [ph] Ron Glance [ph] – Glance and Glance [ph] Michael Hamblet [ph] Matt Chambers [ph] Richard Pew – Richard Pew Investment Counsel

Good morning, ladies and gentlemen, and thank you for standing by. Welcome BIO-key Second Quarter 2008 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator instructions) This conference is being recorded today, Monday, July 28, 2008. I would now like to turn the conference over to Gus Okwu of DRG&E. Please go ahead, sir.

Thanks a lot. Good morning, everyone. Thank you for joining us for BIO-key International, Inc.’s second quarter 2008 conference call. Joining me today on the call are Mike DePasquale, BIO-key’s CEO, and the Company’s CFO Francis Cusick as well as Tom Colatosti, the Company’s Chairman of the Board. The agenda today will be as follows; Tom will offer some insight into the evolving market for security solutions and significant advances that BIO-key has achieved over the last few quarters. Mike will then offer some comments on general industry trends and developments within the Company’s businesses. Frank will then provide you with some detail on BIO-key’s financial and operating results. And finally, Mike will follow up with a closing statement and then open the call up to questions. Today’s conference call may contain make 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 estimate, project, intends, expects, believes, and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are made based on management’s beliefs as well as assumptions made by and information currently available to management pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of these and other risk factors that may affect the future performance of BIO-key International, Inc., please see ‘Risk Factors’ in the Company’s Annual Report on Form 10-KSB and its other filings with the SEC. Readers 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 or to reflect the occurrence of unanticipated events. BIO-key issued a press release earlier today providing details of the Company’s quarterly financial and operating results. This document is available in the Press Release of the Company’s webpage at www.bio-key.com. A replay of today’s call will be available beginning one hour after the completion of this call until 11.59 PM Eastern Time on August 4. The replay maybe accessed by dialing 303-590-3000. The access code for the replay is 11117487#. Please note that information reported on this call speaks only as of today, July 28, 2008, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that could be accessed in the Company’s webpage at www.bio-key.com. Now, I would like to turn the call over to Tom Colatosti.

Thank you, Gus. Good morning, ladies and gentlemen. Welcome to our second quarter 2008 earnings call. Thank you for joining us. This morning we announced the best financial performance in the Company’s history. A lot of hard work by Mike DePasquale and his team have gone into getting us to what may be an important turning point in the Company’s history. So, I appreciate his leadership, tenacity, and commitment to the Company as well as the dedication of all of the extraordinary and dedicated people we have at BIO-key. Perhaps no industry has been so long on promise and so little on performance as the biometric industry. All of us in the industry and many investors believe that the tragic events of 9/11 were so traumatic and so profound that Washington would do something that Washington never did before. That is to be bi-partisan, act decisively, and execute with confidence and speed. That expectation has not been realized. However, we are not at the beginning of an early implementation effect of the legislation that in many cases was passed more than six years ago. Finally, we are beginning to see project that were in beta and pilots. Projects such as US-VISIT, REAL ID, the Common Access Card, Transportation Workers Card, the Next Generation Identification, et cetera, all beginning to gain traction and to move to large-scale adoption. After years of imminent expectation we are at last beginning to see biometrics going mainstream. A recent announcement with the Indiana Blood Bank is a terrific example of a practical, everyday, commercial application that was unimaginable three years ago. We are seeing Washington is now providing the air cover of credibility that is starting to fuel a large commercial market where biometrics, especially fingerprint will become the ubiquitous method of personnel identification. We knew we had a great biometric technology, but the market just wasn’t developing at the pace we had anticipated. But we continue to believe in the potential and we continue to invest in the technology and in the market. From our internal testing of fingerprint performance resulted – continue to result in performance that confirm to us that we had the best technology in the industry. Last year’s NIST test affirmed the competitiveness of our technology. However, the recent benchmarks run by a large multinational and multi-billion dollar company gave us great customer validation of the superiority of our technology. And that led us to the signing of an important partnership agreement with that company. So, while we feel good about the progress we have made during the past quarter in achieving profitability and strong revenue growth, our real enthusiasm is for the future. We see our patented, robust, accurate, fast, and scalable VST and WEB-key products are now being recognized for its leadership capability just as the market for biometrics is beginning to gain real traction. We believe the time horizon for solid business success is no longer measured in years but is now counted in quarters. Consequently, we are moving forward with a new level of enthusiasm and with confidence. I will now turn the call over to Mike DePasquale, the Company’s CEO.

Thank you, Tom. Many of you have heard me speak over the past few quarters of the various strategic and operating initiatives we have deployed to strengthen our competitiveness as well as the various steps that we have to taken to strengthen our balance sheet. We believe that these efforts are finally bearing fruit and our second quarter results confirm that. I am pleased to say that BIO-key reported the first profitable quarter in its history in the second quarter of 2008, and that the period also saw the Company’s Biometric group report its best quarter ever. Both achievements are a testament to the commitment and determination of our work force, and I am extremely proud to be associated with them all. Some of the most innovative and impactful technologies that have ever been brought to market come from small focused companies that have a vision, the leadership, and of course the financing to develop that innovation. When I joined BIO-key over five years ago, I saw this potential, and is now gratifying to begin to reap the rewards associated with the investment that our shareholders have made in this Company. More importantly, as we sell our technology to and partner with some of the largest and most powerful companies in the world, I believe that growth in revenue and profit will continue for BIO-key into the future. BIO-key reported second quarter 2008 earnings of $200,000 on $3.6 million of revenue. The Company’s Biometric group accounted for $1.2 million, or 34% of the total revenue from continuing operations. Last month, we announced that we had won $2 million contract for software licenses and services from a global leader in multi-biometric solutions. We believe this order validates the accuracy, speed, scalability, and robustness of our VST technology. The contract is tied to a partnership that uses the strength of both company’s technologies to create a high performance biometric solution that will be unmatched in the industry. Additionally, we believe that combining both company’s technologies will result in software application that dramatically improve our ability to compete for future commercial and government projects. We hope to share additional information on this contract in the near term. We have a very clear and concise strategy to focus on our two most significant growth driver – our finger biometric solutions, and our handheld mobile data software for the public safety markets. Over the past few quarters, we have seen an inflection in the number and size of those opportunities and believe there is adequate potential to support continued growth and profitability for the Company. And now let me share some specifics by vertical. With respect to Public Safety, BIO-key, as we had mentioned many time before, has one of the largest installed base of accounts for mobile data access in the market. There is no doubt that we have a loyal following as evidenced by the growth in our recurring revenue stream or maintenance contract base over the past few quarter. Over 1000 law enforcement agencies rely on BIO-key everyday to provide clear, stable, and fool-proof communication between dispatch centers and vehicles on the road or to beat cops and specialty patrol agents on the street using handheld devices such as PDA’s or smartphones, allowing them to connect to all types of data and information available including DMV, warrants, wants, articles, guns, boats, as well as NCIC information. No one in the industry can operate on the broad base of communication infrastructures including private RF and mesh along with the latest public carrier networks that are offered by AT&T, Verizon Wireless, and Sprint/Nextel. And as the economy has softened and public safety budgets have tightened, our high value, low-cost PocketCop handheld software solution offers the same if not more robust functionality on a handheld device s most standard vehicle-based mobile date terminals, which require significant upfront cost, including the laptop computer, modems, and hardware mounting equipment. PocketCop offers the mobile officer the same access to critical information as they would have in the car or back at headquarters at a fraction of the cost. The communication carriers that I just mentioned are looking for ways to enhance and expand their subscription base and it is no surprise that they along with RIM, the maker of the BlackBerry smartphone product line, would look to BIO-key to provide PocketCop, the ultimate handheld mobile data access software application. We have been involved in aggressive marketing campaigns that sell our collective solutions to public safety agencies and schools around the country, including a very successful iSeminar sponsored by Sprint/Nextel and RIM that has been supported by a media blitz, including trade advertisements in major public safety publications To-date, we have also participated in 47 regional events around the country to both market our solutions to customers as well as to train the sales reps from the carriers to go out and represent our product. Switching to Biometrics, the forecast for continued growth of the biometric market remains strong. As documented in a recent report issued by VCC Research, which opines that the global market for biometrics is expected to rise to $7.1 billion by 2012, a compounded annual growth rate of 21%. This report forecast that fingerprint biometrics, the oldest form of biometrics in used today, will continue to be the main revenue contributor. This continued in the market adoption of fingerprint biometrics is driven by lower cost, the increased need for better security solutions, and the realization that current security methods are not protecting our identity or adequately securing business, government, and personal information. A report released just this month by the Identity Theft Resource Center found that the data breach count has reached an all-time high. Between January 1 and June 27, the total number of data breaches recorded by ITRC is 342, more than 69% greater than the same period in ’07. In the commercial market, several banks in India, including Citibank and PNB announced in March that they are now offering biometrically enabled ATMs. I believe that trend will continue in the coming quarters. In the government markets, there are many fingerprint biometric identification initiatives underway, including the FBI IAFIS project US-VIST and a host of international civil ID projects similar to the project in Bangladesh for voter registration that I’ve spoken about on previous calls, and will update you on shortly. Clearly, wider adoption of biometrics serve as a catalyst for continued growth for BIO-key as well as our expanding list of OEMs and partners, and will result in the continued expansion of our commercial portfolio of installed accounts. As the old saying goes, success breeds success, and this particularly true for us. We have closed a number of major customers in the health care retail as well as general and financial services markets that have yet to be announced, but have contributed to our business performance this past quarter. Many of these opportunities are with very large companies that are incorporating our technology as a differentiator or competitive advantage for them, and we will be discussing these opportunities as they are rolled out and delivered in the future. The number of proposals for large global, civil ID opportunities is expanding in correspondence with the growth of our base of integration partners that are bidding on these deals. As always, these opportunities are very competitive. However, our biometric technology is now widely accepted and attracting significant attention as evidenced by the $2 million contract we closed in the second quarter. Our advanced VST technology, which is highly scalable with unprecedented accuracy, can accelerate the performance of most any finger biometric software application for government, civil, or commercial use. And we are focused on expanding the sales of our technology through partnerships on a global basis. Further proof of our capabilities for large scale ID programs is our recent success with the voter registration program in Bangladesh. If you go to our website, you will see posted a news article published a few days ago that declared the project one of the most successful, organized biometric initiatives in the world. We along with our partner in Bangladesh, Tiger IT, have enrolled 80.5 million voters for Bangladesh’s upcoming regional and general elections, ensuring ‘one citizen one vote’ as they move towards a democratic government in the coming months. With that said, let me turn the call over to Frank for additional detail on our quarterly numbers.

Thanks, Mike. Earlier today we released our results for the 2008 second quarter ended June 30, 2008. Second quarter 2008 total revenue from continuing operations was $3.6 million, representing an increase of 40.9% from the $2.5 million reported for the previous quarter. The revenue increase was primarily attributable to record quarterly revenues of $1.2 million generated in the second quarter by the Company’s Biometric group compared to $0.4 million generated in the previous quarter. Biometric revenues during the second quarter featured the first license payment from a global leader in multi-biometric solutions under an award we announced in June. Additional payments under this contract will be received in the third quarter of 2008. Revenues from the Company’s Law Enforcement group increased 7.8% in the second quarter of 2008 to $2.4 million compared to $2.2 million in the previous quarter. Our gross margin for the second quarter of 2008 increased to 88.2% from 82.6% in the previous quarter. The improvement in gross margins was primarily attributable to an increase in the Biometric revenues reflecting the software license nature of the Biometric business model. Gross profit increased by 50.5% to $3.1 million in the second quarter compared to $2.1 million in the previous quarter. Operating expenses from continuing operations for the second quarter of 2008 decreased by 5.8% to $2.9 million compared to the previous quarter ended March 31, 2008. Consequently BIO-key reported operating profitability for the first time in its history with $0.3 million of operating profit for the second quarter of 2008 compared to an operating loss of $0.9 million in the previous quarter. In line with those results, BIO-key’s income from continuing operations for the second quarter of 2008 increased by $1.1 million to $0.2 million from a loss of $0.9 million reported in the previous quarter. I am pleased to say the Company’s reported net income for the second quarter of 2008 of $0.2 million compared to a net loss or $0.9 million for the previous quarter. Our second quarter 2008 earnings per share were zero compared to a net loss per share of $0.02 for the previous quarter. Total revenue from continuing operations for the six months ended June 30, 2008 increased 18.2% to $6.1 million from $5.2 million in the corresponding period in 2007. The revenue increase during this six-month period also featured record revenues of $1.6 million generated by our Biometrics group. Gross margin for the six months ended June 30, 2008 increased to 85.9% compared to 81.9% for the corresponding period in 2007. Gross profit increased by 24.1% to $5.3 million compared to $4.2 million in the corresponding period in 2007. Operating expenses from continuing operations for the six months ended June 30, 2008, decreased 20.8% to $5.9 million. BIO-key’s operating loss from continuing operations for the six months ended June 30, 2008, improved by $3 million to $0.7 million from a loss of $3.7 million in the corresponding period in 2007. The net loss for the six months ended June 30, 2008 was $0.7 million compared to net income of $0.8 million for the corresponding period in 2007. Note the net income in 2007 included a gain of $4.1 million from the sale of BIO-key’s Fire/EMS Services division to ZOLL Data Systems. As Mike alluded to earlier, the results we have reported over the last few quarters are directly tied to marketing and partnership initiatives that were deployed over a year ago. These efforts coupled with NIST’s, which is the National Institute of Standard and Technology validation in 2007 of our technology’s superior performance have efficiently provided us – effectively provided us with a stronger and higher profile platform to market our products. As a result, our roster of partners in biometrics and law enforcement continue to grow on a daily basis. In addition, trends appear to be working in favor of the biometrics side. During the second quarter, we closed on several large law enforcement contracts including a MobileCop license deal with the City of Erlanger, Kentucky, Police Department, a MobileOffice license deal with Kettering, Ohio Police Department, and our largest law deal of the quarter, a $335,000 order with the Baltimore Police Department, an existing customer for additional MobileCop software. On the Biometrics side of the business, as I mentioned earlier, we closed on our largest biometric deal ever, a $2 million contract with a large multi-biometric solutions provider that operates worldwide. Under terms of the license agreement BIO-key will also receive recurring maintenance fees that will allow for additional licensing of BIO-key software for projects on a global basis. Turning to the balance sheet, as of June 30, 2008, we had consolidated cash and cash equivalents of approximately $624,000 representing the same level as we reported last quarter. With that, I will turn the call back to Mike for additional comments and Q&A.

Thanks, Frank. In summary, we had an excellent second quarter highlighted by achieving profitability for the first time in the Company’s history and a record performance by our Biometrics group. We remain very excited about the prospects of each of our businesses and believe that we are better positioned than ever before for further growth and profitability. Additionally, we remain focused on fully evaluating all non-dilutive strategies that will enable us to strengthen the Company’s balance sheet and competitive position. We look forward to updating you on our third quarter results in a few months. Thanks for listening. And we’ll now open the call to Q&A.

Thank you, sir. We will now begin the question-and-answer session. (Operator instructions) And our first question comes from Dan Chemis [ph]. Go ahead, please.

Hello.

Good morning, Dan.

Nice quarter, by the way. Nice quarter. In the findBIOMETRICS.com interview, the recent $2 million contract was discussed and it was mentioned with reference to Bangladesh that BIO-key software will be used in a similar nature on large scale deployments. Can you provide additional color on these similar deployments and in general regarding this contract and whether there is a possibility of additional revenue streams?

Well, good question, Dan. I mentioned in my discussion a few moments ago that there is a growing market for international, what we call civil ID projects similar to the project in Bangladesh. That’s for voter registration, but there are projects for passports and national ID and the like. And so, those projects are very visible. There are more and more of them popping up. Many of them, especially in the third world countries are funded by the World Bank or the U.N. And we were involved in two of them over the last year, one is Nigeria, as you know, for their general election last April, and then of course the one in Bangladesh. We never go after that business on a direct basis. So, we always do it through partners or integrators. And we do have a host of opportunities and a pipeline of deals like that with some very large partners around the globe including Smartmatic, Oburther, Unisys, and the like. So, we are going to continue to see that business grow and as I mentioned, although they are very competitive these opportunities, our technology clearly fits very nicely with these. You see we don’t need any special hardware, special black boxes, special equipment. All of our software runs on standard computers that you can literally buy anywhere around the globe. We don’t require any special or custom software short of perhaps an Oracle database. Our software runs on Microsoft products, Linux, Solaris for Sun and SPARC. So, we have a very open platform. And more importantly, we don’t care what finger scanner or device that customers want to use. We can pick and choose the appropriate device for the application. So, that’s a big differentiator for these large integrators and partners who are trying to put together full and complete solutions to address these civil ID projects.

Alright. As a follow up, regarding the same large multinational technology company, is the software integrated and being shopped around now or will the integration be complete at the end of third quarter and will there be a fusion of finger biometric technologies or is the between BIO-key’s finger technology and other types of biometric technologies.

Okay. So that’s a multi-part question. So , I will – let me address it first. First, we are in process with this large technology company of integrating the – and fusing the technologies. So, that’s in process right now. We closed that contract in the second quarter about midway through and we’ll wrap up most of the technology innovation and integration by the end of this quarter. So, that’s the timing. Yes, the technology will certainly be available to integrate into projects here in the United States as well as international programs and projects. And that will at least in the beginning use fingerprint biometric technology, not for example face with finger or iris with finger. It is clearly to advance the performance, scalability, accuracy, and speed of finger biometrics.

Okay. I will get back into queue. Thank you.

Okay. Thank you. And our next question comes from Joe Osgood [ph]. Go ahead, please.

Good morning, Mike.

Good morning, Joe.

You mentioned that your backend server runs on Windows, Linux, and Sun’s Solaris. Sun has sold large quantities of SPARC stations to the government. Is BIO-key’s relationship with Sun a simple arm’s length port of VST to Solaris or should we expect significant technological advances more in line with a development partnership with Sun?

It’s a little bit of both. It’s interesting, Sun has recently come out with a line of hardware products that are ultra, ultra, high performance. And we certainly want to integrate our high performance biometrics with their high performance platform because you could see a speed inflection that’s significant you know especially for these large scale ID projects. But on the other hand we need to maintain sort of an independent view because for example for the FBI NGI, the program may utilize Hewlett-Packard or IBM blade servers. And they may not consider Sun equipment. So, we try to keep and maintain somewhat of a neutral venue, but we do have strong working relationships with most of these major vendors, including Sun.

Okay. Second question. A little over four years ago BIO-key announced a relationship with an Israeli company called ClassiFeye. Is BIO-key still looking at applications, which build VST in the firmware? For example, CNBC discussed a biometric digital wallet called iCash. Is BIO-key involved in any such partnerships or devices or developments that use a siliconized version of VST?

Let me answer the question – first question, first, ClassiFeye. We do have an equity investment and are an investor in ClassiFeye, which is an Israeli based company. The core technology that ClassiFeye offers is the capability to read a fingerprint from a standard 2 mega pixel camera that’s housed in almost in every cell phone. Okay? So, that’s their core technology. And we have obviously a technology exchange and a working relationship with them. They are beginning to gain traction with that product, in particular in Europe right now and they have an Symbian integration. Symbian is one of the operating systems that runs on smart phones, in particular in Europe. And so, we balance that technology has some promise because it would allow cell phone or handset manufacturers the ability to add finger biometric technology without adding another device to the phone. So, quite powerful. We have not yet in any significant way moved VST to the form factor that it can be embedded in firmware. We believe that embedded opportunities certainly – they are certainly out there and they exists, but that our core strength with WEB-key is really server-based validation. And we think at the end of the day that’s going to be a mandate because even though you can validate an identity on the device, you are always going to want to validate the identity at the system or solution that you are trying to access and that’s where we fit in magnificently with WEB-key and VST. So, could we – in fact we have specd out and we’ve considered what it would it take to put VST on a chip, for example. We can do it, but we have not yet decided to take to make that move. And you also have to be really careful when you port to those types of technologies because they are very hardware driven. So, again, we want to try to really stay right now at our core strength and where our core strength is. There is an I think an incredible market opportunity three alone. And then if it makes sense for us to move to the embedded world, we will certainly do that.

Thank you. That’s a great answer. I will get back into queue.

Thank you.

Okay. Thank you. (Operator instructions) And our next question comes from Gary Seronian [ph]. Go ahead, please.

Good morning, guys. Congratulations on a terrific and milestone quarter here. I think this is great we have finally reached profitability. I want to offer a quick comment before I get into my question. You know as I sit here at my desk and looking at no fewer than four letters from my banks and my credit companies, all telling me that my personal data has been compromised in some way. So, whatever it takes, I hope we can finally get to a point where your technology is really adopted throughout this country to protect my personal data, because at this point my mattresses is seeming like the best place to keep my money, other than BIO-key stock. First question. You know you have talked about the FBT NGI contract. Let me open up another clear part of that question. You know the government in general favors a device platform independent and off-the-shelf software. Is this being specifically emphasized by FBI NGI procuring authority and has BIO-key developed any partnerships to pursue this type of contract?

Gary, first of all I hope you have a big mattress and at least the King-size bed. Second, to address your question regarding NGI, clearly the NGI RFI indicates COTS or standard commercial products. I don’t think they preclude any special custom infrastructures, but it’s pretty clear that the government really wants to an environment especially in technology because the advances are so significant. When you buy, for example, and HP blade server today, it’s going to compatible with what they introduce tomorrow and tomorrow that blade server maybe three times faster at half the cost. So, they want to be able to swap out and change, or upgrade without having to go through any customization. So, we think that that’s clearly part of their plan. Second, we absolutely will be participating in that project. As I mentioned many, many times before, on previous calls and even today, we are never going to go after that business directly. We are always going to do that through a partner or an integration provider that is offering a more full and complete solution. But our core technology has the capability to accelerate the performance of, as I mentioned, virtually any finger-based biometric program or project. And so, yes, we do expect to participated and we do expect to participate with a partner.

Terrific. That’s great. My next question, recently US-VISIT’s funding has been held up in congress. Also, Cogent in their last conference call responded to an analyst at that call that Accenture called for technical white papers from the industry on state-of-the-art biometric technologies. Did BIO-key submit such a white paper? And do these developments open the door for new supplier on US-VISIT?

Well, first things first. Yes, we all read that the US-VISIT program funding, even though again the program is certainly validated, it’s certainly going to move forward, has been swept really into the next year. It’s my belief, and I think the belief of most of us in this industry, that the next administration will likely make the final decisions on the magnitude of funding, and how fast that rolls out. But it is definitely going to roll out next year. Clearly again the technology components could change. Right? The project is not in what I would consider full deployment stages. So, could the prime – the integrators begin to look at different technologies that my provide again a more commercial flair, the ability to use standard equipment, not have to use again special black boxes or custom firmware that some other providers use in their full and complete solutions. So, I think the answer is yes, and I think that that certainly is an opportunity for companies like BIO-key.

That’s great. Sounds like the BIO-key solution can really save a lot of money for customers with the standardization. So that’s got to be a tremendous benefit. Great. Thanks. I’ll go back in the queue if I have some more questions. Thank you, guys.

Thank you.

Okay. Thank you. And we have a follow-up question from Dan Chemis. Go ahead, please.

Heard BIO-key’s financial docs per shareholders are due about 10 million or 11 million by first quarter 2009. Is BIO-key planning to have the capital to pay this principal off and if so from what source of funds? And if not, perhaps you can say some lie down the ramifications of not making such a payment?

Let me answer that as best as I can. I think we have indicated on previous calls and we stated it again today that we are very focused on two things. Number one, obviously getting the Company profitable. We were focused on cleaning up our balance sheet earlier last year. We did that by selling off our Fire Safety division, which really wasn’t strategic and core for us, and gave us an opportunity again to pay off our standard debt. We said the next step was to look at the cap table and come up with a solution to again what I consider carrying in essence preferred debt. We, clearly, are looking at various options, some non-dilutive strategies as well, to address that particular issue. You are right, there is approximately $10 million that has – I believe Frank can gives us the dates, but comes due early part of calendar year 2009.

That’s’ right.

And we are again continuing to look at ways to deal with that issue and clearly this is one thing I think we can all agree on and that is profitable companies always have significantly more options than those that are losing money.

Okay. And in the last conference call actually I think it was in the findBIOMETRICS.com interview again, a statement was made. It is clear that BIO-key has put all the pieces together and our patented technology is performing better than anything else in the market for finger matching. Will you briefly delineate the basis for what appears to be a pretty bold statement?

Well, one thing that you can always point to are the independent tests that can be run by third parties or in particular are run by NIST. And we submit our technology to them and they put it through their validation test and they come up with numbers, or performance numbers. They don’t stack, rank the vendors, but they come out with raw numbers. Every few months, three months, four months, five months, you can re-submit your technology. And any of the advances that you may incorporate will get tested and then you will get – you will get your numbers. We clearly are ranked in the top performing stack for domestic vendors. And we have improvements that go into our technology on a quarterly basis. So, we are going to re-submit our technology for NIST testing probably in the next 30 or so days. It takes time to get set up and so forth, and we are very, very busy now as you might imagine with some of our business opportunities. But, we can make that bold statement because we can compare ourselves against the other players in this space, and stand up and basically say what we do. More importantly, again, what differentiates us in a big way is that device independence and platform independence. Because it’s not only good enough to be accurate and to be able to scale but you got to be able to do it with the best devices that exist on the planet. You know, for some applications, for example, what we were doing in Bangladesh where we are enrolling the mass population, optical finger readers seemed to work the best in that environment. But they are a bit pricier than perhaps some of the CMOS readers that are available. We can enroll on one and we can identify on another. For the commercial market, we are starting to see – you are all aware of this, we have said this for the last year and a half – you can buy a laptop today or a desktop computer that incorporates either an attached finger reader or an embedded finger reader right in the device itself, right in the laptop itself. Well you got to be able to work with all these devices because not every one is going to have the same one. And so if we are going to really see finger biometrics expand via Internet-enabled applications, we are going to be dealing with consumers and business users that have all different kinds of laptops and all different kinds of finger readers. So, not good enough just to be fast, not good enough just to be scalable, not good enough to provide the best database and indexing capability that exists on the planet, buy you’ve got to be able to also integrate with all the hardware infrastructures that are available.

Got it. Thanks. That’s it for now.

Okay. Thank you. And our next question comes from Ron Glance [ph] with Glance and Glance [ph]. Go ahead, please. Ron Glance – Glance and Glance: Yes. In the last conference call there was a mention of the lease and the – it seems like a high lease expense and you were talking about possibly renegotiating the lease. Could you please tell us the status of that?

Hi, Ron, this is Frank Cusick. The lease for our Marlborough facility ends August 31. So we have negotiated with the landlord a new lease. It hasn’t been executed yet, but we expect that that would – will happen this week and it would significantly reduce the – both the lease expense and the cash outlay on a monthly basis. So, I would expect the cash outlay on a monthly basis to be reduced by approximately $90,000 a month. As I said, that should be executed this week, and will take effect September 1. Ron Glance – Glance and Glance: Okay. That sounds very positive. Thank you.

Okay. Thank you. And our next question comes from Michael Hamblet [ph]. Go ahead, please,

Hi, Michael, Frank, great quarter.

Thank you.

Thank you, Michael.

I was in half way through the call, so I may have missed it, and I apologize if I did. Did you provide any sort of guidance – you know it’s great to have profitability, sustained profitability is even sweeter. What’s in the pipeline at the back for us? Can you talk a little bit about that?

Michael, this is Mike DePasquale, and I will let Frank speak afterwards, but we have not provided guidance and we have a policy today not to provide guidance. I did provide, earlier in the call, some color around the opportunities, the market drivers, the conditions that we believe that exists today, even again in Tom Colatosti introduction. We see that the government is really the catalyst by establishing credibility for finger biometrics. It’s really helping us build the commercial market. So, we believe that we have a good handle on pipeline, backlog, expenses, to be able to show continued growth and profitability, but we are not providing any specific guidance.

Okay. Can Frank add to that or–?

Well, you know, certainly as Mike said, we are optimistic that we – as evidenced by the $2 million order we received this quarter that things in the biometric area are starting to take off. So, again, we will not provide any guidance but other than to say we are optimistic.

And I think one thing for sure, you have noticed that our operating expense trend has moved in the right direction for many, many quarters. And that is something we are very, very focused on. We have a very significant installed base in law enforcement. It’s growing. It’s a business that is also again very, very high margin. Our gross margins this quarter were about 88%. So, we really are a software company. And I think again with good expense management, with good growth in revenue, this business model has the ability to generate profitability in a significant way as we proceed forward.

One followup. What is the – what would you guess as the penetration rate across the United States law enforcement that you have so far?

No, I have answered that question a lot. That’s a tough question to answer. It’s a very fragmented market, but we have about a thousand agencies that utilize our software on a daily basis. Some of them direct customers of BIO-key’s or are customers of one our – you know some of our partners. Some of them are kind of consortium based where what we are seeing now is kind of regionalization of information and data sharing for law enforcement. So, smaller little towns will connect to a larger town, and then ultimately connect up through the BIO-key infrastructure. But to say we have a 10% installed base or 12% installed base is very, very difficult. We do know that if you really look across any company that operates in this space, you really have to look at how many states they sell in because there are some regional providers that may have let’s say 200 accounts in two states or three states. And we have 1000 accounts in 47 states. So, we can fundamentally operate virtually anywhere. And you didn’t answer this question, but I will follow up with it. As the market for handhelds begins to grow over time, the fact that again smartphones and PDAs are in the hands of almost every officer to begin with. Okay? And the agencies are paying for the cell phones service and the data service. As that happens, the ability to operate in 47 states is a huge competitive advantage for BIO-key because some of the smaller players, even some of the larger players that are more centrally [ph] focused, don’t have the interfaces built to do business right away in 47 states. And that’s one of our – I think our strong competitive advantages and differentiators in the public safety market.

Great. Thank you.

Okay. Thank you. And we have Joe Osgood. Go ahead, please.

Here is my first question. State and local governments are all now facing major shortfalls in their budgets beginning this July. Do you expect any impact in your law enforcement revenues over the next four quarters? Or will the trend towards mobile trump such cards and allow continued overall growth?

That’s an excellent question and I can tell you and validate a couple of things. Absolutely, every single public safety agency – at least substantial agency is faced with very difficult budget pressures. As you know, just keeping the vehicle on the road, just from your own personal point view, you know what it’s like going and filling up your car today versus what it was like a year ago. So, the money has to come from somewhere. It’s very difficult today given the condition of the real estate market and the economy in general to go back to the public and ask for more money. So that’s not going to happen. But it’s interesting that we see two dynamics. One, it could put pressure on these agencies to restrict spending in some regard. Mobile data and communications from the dispatch center to the car or to the office around the street is absolutely critical. And that’s not going to stop. We have actually seen some agencies take vehicles and mothball them and put the officers on the beat and have them walk, especially in like both the larger tertiary cities, the larger cities around the country. So they are putting more beat cops on the street. That creates an opportunity and that opportunity clearly is to pass that mobile data and that information down to their BlackBerry or their smartphone, and that’s an up sell for BIO-key. The other opportunity is that as you know RIM is introducing a whole new line of BlackBerry handheld devices in the next couple of months. Those devices are as powerful as laptop computers that sit in vehicles right now. And there is no reason why those devices with some other infrastructure – in fact, we have some partners that we are working with, can literally be plugged into a housing in the car and can act like the mobile data computer for the agency, saving them significant money. So, we think this whole movement towards down-sizing in device power and performance and the increase in requirement to have mobile data everywhere on virtually any infrastructure is kind of an upside for BIO-key. So, we are hoping that even though there may be a slowdown and a restriction in budget, that this new innovative technology will pick up any shortfall and really quite honestly, hopefully give us growth in that market. Frank, did our Law Enforcement business grow about 7% last quarter, 7% or 8%?

That’s true, right.

Yeah, so –

With the maintenance being a good piece of that.

Yeah. So, we are hoping that the handheld and the mobile – mobile handheld technology and the device contraction will really drive growth for us.

Thank you. And our next question is a follow-up question from Gary Seronian. Go ahead, please.

Guys, in the last conference call it was mentioned that there were a lot of leads obtained from the blood bank cash flow and that additional blood bank business would be closing in the short term. Can you update us on this market status? And have you picked up any competitors in this area?

Gary, that’s a great question. We were very bullish on the blood center market because we felt it was kind of virgin territory for us. And as a result of our installation at the Indiana Blood Center, we have gotten a significant number of leads and opportunities that you will hear about in the near term that we are working, and I don’t know if you have recently seen the Red Cross has been fined again significant amount of money, almost $20 million because of management issues with the blood supply. That business just for the Red Cross is a $2.1 billion business.

Wow!

Now, that’s just the Red Cross. There are 250 independent blood centers around the country. Not only are we working and marketing, because we have again kind of a captive solution, working with the blood centers, but we are also working with the donor management software companies that provide the software for a number of those blood centers. And they are all very, very interested in the biometric solution. So, we think we are going to see a nice uptick in business as a result of our initiatives there.

Terrific! That’s great. Also, a recent article in the online Wall Street Journal indicated palm and vein scans would be used on the Graduate Management Admissions Test, the GMAT, replacing fingerprint with a global rollout by I think next May, but maybe a year out. The article quoted the Graduate Management Admissions Council President as claiming the new vein scan technology as superior to other measures, which included fingerprint. (inaudible) has had some key initial wins in the testing market. My question is two fold. How does the announcement affect the market share in the testing market going forward? And can VST be adapted for use with palm prints and vein scanning?

Well, let me answer the last question first and the answer is yes, it can be. So, our WEB-key infrastructure could clearly incorporate different mediums of technology. But let me go back and answer the first question. The first question is we are involved in the testing. We – you know that, you know that we are involved with Prometric who are – through our partner ChoicePoint that they virtually – Prometric is one of the largest testing companies on the globe. They operate in 365 different locations around the world. We also are involved with the ACT, which is the – as you know for college admission is one of the options to the SAT. So, bottom line is we have a very strong and a growing installed base in education. We believe that not only focused on education but focused on professional testing is a huge inflection opportunity because if you go to take the RN or if the RN exam or if you are physician and you take a specialty board, you go to an outside center to do that. They don’t handle that internally. And we think there is significant growth potential to spread that across the market. We – as you know, we have been doing the MCAT now for probably about a year and a half. We recently picked up the CPA exam. So, the Prometric centers are the ones that actually offered the CPA exam and they will be using BIO-key fingerprint technology for everyone who goes in and takes that exam. And the AAMC, as kind of a follow-on to the MCAT exam, purchased our technology so that they could utilize finger matching to track a student in a medical school all the way through their profession using a biometric identifier. So, whatever test they take, whatever hospital they go to do it, internship, or residency, or whatever professional credentials, they ultimately acquire beyond that will all be tracked and managed through the identification – the biometric identifier identification that’s tied to them. So, we think that’s a great market. It’s subjective to say that vein scanning is more accurate or more scalable and the likes. It’s not been tested at that level. It’s not been validated at that level. I am not going to disparage it and say that it doesn’t have great opportunity. A vein scanner is probably in the 500 to a minimum of – well, minimum of $500 to about $1000 a device. Finger scanners are as little as probably $20 up to $500 or $600 depending upon the quality. So, I think it has a long way to go. Rotation, you know is an issue, and all kinds of things like that. It will probably get worked out over time, but I think finger biometrics with the accuracy, the scalability that we can provide, are clearly far in advance ahead of any other technology today.

Okay. Thank you. And our next question comes from Matt Chambers [ph]. Go ahead, please.

Congratulations, guys. Nice quarter.

Thank you, Matt.

In the previous conference call there was a discussion of a large retailer rollout. How many stores of their – of that have been completed and could we expect incremental revenues as stores are included in the rollout or was this all paid upfront?

No, we can expect additional revenues as the system gets rolled out. The initial deployment with this customer, we have not announced it yet, but the initial deployment was for a select group of what I would call pilot stores.

Okay.

That’s expanded over the last quarter.

Okay.

And we expect that to continue to expand through the end of the year and into next year and it will be a significant deployment as we approach 2009, probably the early part of 2009.

Okay. So, so you are 20% through it or I guess you could–?

We are in the early stages. It’s certainly probably less than 10%.

Okay. Also, in the last CC you mentioned that a rollout with McKesson application system would lead to substantial revenues. Have such revenues materialized and can you give us some color on that?

I can. You know we mentioned that we have the approval for them to mention it. You will see a more formal announcement from them shortly. But we are working with them to what we have already incorporated our finger biometric technology into a product line that they are using – that they sell to hospitals and clinics around the globe. And, yes, we believe that has significant upside for us as we approach not only the end of this year, but into 2009 and well beyond. Because as you know they are the largest healthcare company, I believe, on the globe.

Okay. And jumping over to Bangladesh, you guys have finished that project. Is there going to be any maintenance revenues with that project from here on now?

Well, we finished what is kind of the first phase of the project, right?

Okay.

Phase of the project was to enroll the voters and to ensure that there were no duplicates and the likes. And so we are pass that phase. Once they get through the general election, it will be interesting to see they will require and e-passport solution. They will likely morph that into a national ID project or program. So there will be upside for us and plenty of other uses for the enrollments and the technology that exists on the ground there today.

Okay. Thank you. And our last question comes from Richard Pew with Richard Pew Investment Counsel. Go ahead, please. Richard Pew – Richard Pew Investment Counsel: Good morning, gentleman.

Good morning, Richard.

Good morning. Richard Pew – Richard Pew Investment Counsel: I believe you indicated in the past that these national registration projects such as Bangladesh weren’t really – I don’t want to use the word profitable, but you aren’t getting much revenue out of them, and you thought in the future that would improve. Could you elaborate on that?

Absolutely. When – I think we even mentioned this on previous calls, when we had the opportunity to get involved in the Bangladesh contract, we really didn’t have what I would call the qualifications and the proof points that we had done a project of $20 million or $30 million, nevertheless $80 million to $100 million. So, we made a conscious decision to get involved in this project and to do it probably at a rate that we certainly thought was below market. But quite honestly and consequently we have generated revenue from that project and will continue to generate revenue from the project, but we have now established ourselves as a provider who can scale to the largest potential opportunities that may exist. You know, if you look at the FBI IAFIS system that will probably start with $150 million and go to $300 million over time. So, having that validation and that proof point and establishing ourselves with the United Nations who is funding the majority of these international civil ID projects, will certainly pay back significantly for us in the future. Richard Pew – Richard Pew Investment Counsel: Good. Thank you. And I am most intrigued about the – India banks adopting ATMs with fingerprint readers. Do you see any interest in that in the United States?

Absolutely. On our last call I mentioned that Diebold, which is the largest – if they are not the largest, they may one or two manufacturers of ATMs, was incorporating a finger scanner now in their new product line. So, I would venture to say it will become widespread in the United States in the next couple of years. Richard Pew – Richard Pew Investment Counsel: Okay. You haven’t had any enquiries yet?

Absolutely. We have been involved in that space for quite some time. Richard Pew – Richard Pew Investment Counsel: No, I meant by individual banks. You haven’t had any individual banks talking to you about the possibility of installing your software?

The first thing they have to do is get the facility. Right? So they have to find the ATMs with the finger scanners in them. So, that’s the first step. And then from there, they take a look at the software, the infrastructure, how they are going to do it? How they are going to enroll? All of that kind of comes after the hardware. So, working with the partners, working with the hardware manufacturers, with the companies that are going to be deploying these things is probably the strategy that we will deploy. Richard Pew – Richard Pew Investment Counsel: Alright. Thank you.

You are welcome.

Okay. Thank you. And ladies and gentlemen this concludes the question-and-answer session. And I would like to turn it back over to Mr. DePasquale for any closing statements. Go ahead, sir.

Thank you. And again thank you all for participating in today’s call. We hope you will join us again for our next conference call to discuss our third quarter results. Please enjoy your day and enjoy the rest of the summer. Thank you.

Thank you for participating in BIO-key International, Inc.’s 2008 second quarter earnings conference call. As a reminder, this call will be available for replay beginning an hour after the call has ended and may be accessed until 11.59 AM Eastern Time on August 4. Dialing 1-303-590-3000, can access the replay. The access code for the replay is 11117487#. Thanks.

Ladies and gentlemen, thank you for your participation. And you may now disconnect.