SecProbe.io

CORRESP
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filename1.htm

October 20,
2009

VIA
EDGAR AND OVERNIGHT MAIL

Securities
and Exchange Commission

Division
of Corporation Finance

100
F Street, N.E.

Washington,
D.C. 20549-0309

Attn.:  Michael F. Johnson, Staff Attorney

  RE:

  BIO-key
  International, Inc.

  Amendment
  No. 1 to Preliminary Proxy Statement on Schedule 14A

  Filed on
  September 28, 2009 (File No. 001-13463)

Ladies and Gentlemen:

On behalf of our client, BIO-key International, Inc. (the “Company”),
we are responding to the comments of the Staff (the “Staff”) of the
Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”)
set forth in your letter dated October 13, 2009 (the “Comment Letter”)
to Mr. Michael W. DePasquale, Chief Executive Officer of the Company, with
respect to the Company’s Amendment No. 1 to Preliminary Proxy Statement on Schedule 14A (File No. 001-13463), which was filed with the
Commission on September 28,
2009 (the “Proxy Statement”).

The
responses set forth below have been organized in the same manner in which the
Staff’s comments were organized in the Comment Letter.  For ease of reference, the Staff’s comments
are set forth below in bold, followed by the Company’s responses.

Effects
of the Asset Sale, page

1.                                      We
refer to your response to prior comment 5.
Although we note your response that Lockheed Martin has requested you to
provide its fingerprint technology for the FBI’s Next Generation Identification
system, your response does not address the concern that you provide a clear
description of your business going forward.
The description of your business following the assets sale, if approved,
should make clear what assets the company will retain and discuss other key
aspects of your business such as your business plan, staff size, physical location
and facilities and management’s views regarding future prospects for the
company, including

Two
International Place | Boston MA
02110 |  t 617-248-5000 |  f 617-248-4000 | choate.com

whether management is considering other alternatives with respect to
the retained business activities.  In
addition, please note that a discussion of how management plans to conduct
business following the asset sale should be briefly addressed in the summary
section and discussed more fully in the main body of the proxy statement.

In response to this comment,
the Company will revise its disclosure on pages 4 and 30 of the Proxy
Statement, as set forth on Exhibit A attached hereto.

Questions and Answers About the
Asset Sale and the Special Meeting

Why am I receiving this proxy
statement? page 7

2.                                      Revise
your filing to clarify the dollar amount or range of the sale proceeds you
intend to use to redeem all outstanding shares of your Series B and C
Convertible Preferred Stock.

The Company will describe the
amount of sale proceeds to be used for that purpose on pages 3, 7 and 33
of the Proxy Statement, as set forth on Exhibit B attached hereto.

Proposal
One — The Asset Sale Proposal

Consideration
to be Received, page 32

3.                                      We
refer to your response to prior comment 6 and note your statement that the
company’s stockholders will not “directly” receive any of the proceeds of the
asset sale.  Revise your filings to
clarify, if true, that your shareholders will not receive any of the proceeds
of the asset sale unless they are either Series B or Series C
shareholders.  A statement to this effect
should also be included in the summary section.
In this regard, consider adding a section titled “Consideration to be
Received by Shareholders” or the like.

In response to this comment,
the Company will clarify on pages 3 and 33 of the Proxy Statement, as set
forth on Exhibit B attached hereto, that, except for Longview
Special Finance, Inc., Longview Fund, L.P. and any shareholder having his,
her or its Series B or Series C preferred shares redeemed as
described, none of the Company’s shareholders will receive any of the proceeds
of the Asset Sale.

Unaudited
Financial Statements of the Law Enforcement Business of BIO-key International  Incorporated,
page 77

2

4.                                      We note
that you have revised your filing to include the unaudited financial statements
of the Law Enforcement Business and that you have indicated the unaudited
financial statements should be read in conjunction with the audited historical
consolidated financial statements of the company, including the notes thereto.
It is unclear how you determined you are not required to include notes to the
unaudited financial statements of the Law Enforcement Business.  In this regard, we note your statements on pages 78
through 80 that the “accompanying notes are an integral part of these
statements.”  Please advise or revise
your filing to include the notes to the unaudited financial statements of the
Law Enforcement Business.

Beginning on page 81 of
the Proxy Statement, the Company will include notes to the unaudited financial
statements of the Law Enforcement Business as set forth on Exhibit C
attached hereto.

*  *
*  *

The
Company hereby acknowledges that:

·                  The Company is responsible
for the adequacy and accuracy of the disclosure in the Proxy Statement;

·                  Staff comments or changes to
disclosure in response to Staff comments do not foreclose the Commission from
taking any action with respect to the Proxy Statement; and

·                  The Company may not assert Staff comments as
a defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.

If you have any questions
concerning these responses, need further supplementary information or if you
would like to discuss any of the matters covered in this letter, please contact
the undersigned at (617) 248-4020 or Brian J. Carr at (617) 248-4028.  Thank you.

  Very
  truly yours,

  /s/ Charles
  J. Johnson

  Charles J. Johnson

3

cc:                                 Maryse
Mills-Apenteng (at SEC)

Thomas
J. Colatosti

Michael
W. DePasquale

4

Exhibit A

See attached.

  Purpose of the Asset Sale

  (page       )

  The cash
  received by BIO-key from the Asset Sale will be used by BIO-key to redeem
  outstanding shares of BIO-key’s convertible preferred stock and for general
  working capital purposes.

  Effects of the Asset Sale

  (page       )

  If the Asset
  Sale and the Asset Purchase Agreement are approved by our stockholders and
  the other conditions to closing are satisfied, we will no longer conduct the
  wireless public safety operations of our Law Enforcement Division.  Instead, we will focus exclusively on the
  business currently conducted by our Biometrics Division, which provides
  advanced technology and software solutions to the finger-based biometric
  identification market.  Our objective is
  to become a leading, growing and profitable biometric company by focusing our
  resources and investments in this high growth, high-margin market.  At least in the near term, our investments
  are expected to be principally made in marketing activities.  We are open to acquiring accretive assets that
  will advance our technology and marketing efforts.  It is anticipated that our lease for our
  office in Marlborough, Massachusetts will be assigned to InterAct as part of
  the Asset Sale.  Following the closing,
  we will continue to operate out of our current offices in Wall, New Jersey
  and Eagan, Minnesota.  The number of
  our employees will be reduced from 44 to 12 following the closing of the
  Asset Sale.  Our public reporting obligations
  and the listing of our common stock on the OTC Bulletin Board will not be
  affected as a result of completing the Asset Sale.

  Transaction Documents

  (page
  and Annex A)

  Conditions
  to Obligations to Complete the Asset Sale

  (page       )

  A number of
  conditions must be satisfied before the Asset Sale can be completed. These
  include, among others:

  ·

  the approval of
  the Asset Sale by BIO-key stockholders;

  ·

  the absence of
  any law or order that makes the consummation of the Asset Sale illegal;

  ·

  the absence of
  any instituted or pending action or proceeding by any court or other
  governmental entity prohibiting, making illegal or enjoining, or threatening
  to make illegal or enjoin the consummation of the transactions contemplated
  by the Asset Purchase Agreement;

  ·

  the continued
  accuracy, in all material respects, of the representations and warranties of
  the parties;

  ·

  BIO-key
  obtaining the consents, waivers, approvals, authorizations, orders or filings
  required to be obtained or filed;

  ·

  the performance
  of compliance in all material respects of each party with all obligations
  required to be performed or complied with under the Asset Purchase Agreement
  at or prior to the closing; and

  ·

  the absence of
  material adverse changes with respect to the business, results of operations
  or financial condition of the Law Enforcement Division since August 13,
  2009, the date of the Asset Purchase Agreement.

  Each of BIO-key
  and InterAct may waive the conditions to the performance of its respective
  obligations under the Asset Purchase Agreement and complete the Asset Sale
  even though one or more of these conditions have not been met. BIO-key cannot
  give any assurance that all of the conditions to the Asset Sale will be
  either satisfied or waived or that the Asset Sale will occur.

  Standstill

  (page       )

  The Asset
  Purchase Agreement limits BIO-key’s ability to solicit or engage in
  discussions or negotiations with third parties regarding competing
  transactions involving the Asset Sale prior to the closing of the Asset Sale.
  Our board of directors may change its recommendation with respect to the
  Asset Sale or terminate the Asset Purchase Agreement to accept a superior
  proposal under the criteria and pursuant to the procedures set forth in the
  Asset Purchase Agreement and after paying InterAct a termination fee as
  described below.

  Termination; Termination Fee

  (page       )

  The Asset
  Purchase Agreement may be terminated at any time prior to completion of the
  Asset Sale by action of the board of directors of BIO-key or InterAct, as
  applicable, either before or after the requisite approval of the stockholders
  of BIO-key has been obtained under certain circumstances.

  However, if such
  termination occurs, a termination fee equal to $1,000,000 will be payable
  should certain circumstances occur, including, among others, the

4

Purpose of the
Asset Sale

The cash payment
to BIO-key that is a part of the Asset Sale will be used by BIO-key to redeem
outstanding shares of the Company’s convertible preferred stock and for working
capital purposes.

Effects of the
Asset Sale

If the Asset Sale and the Asset Purchase Agreement are
approved by our stockholders and the other conditions to closing are satisfied,
we will no longer conduct the wireless public safety operations of our Law
Enforcement Division.  Instead, we will focus
exclusively on the business currently conducted by our Biometrics Division,
which provides advanced technology and software solutions to the finger-based
biometric identification market.  The
assets of the Company currently used to conduct our Biometrics business will
not be transferred to InterAct as part of the Asset Sale.  See “Information About BIO-key” beginning on page [    ]
of the Proxy Statement for a more detailed description of our Biometrics
business.

BIO-key’s board of directors believes that there is
significant potential in the biometrics market and that our relationships with
premier partners and customers like Sagem, McKesson, Radiant Systems, AT&T,
Lexis-Nexis, blood banks and international resellers makes us well positioned for
growth.  In particular, our board
believes that our leadership VST finger biometric software combined with our
technology partners’ solutions has us well-positioned to pursue large Federal
projects.  This was evidenced by the
recent selection by Lockheed Martin of our fingerprint technology for the FBI’s
Next Generation Identification system.

Our objective is to become a leading, growing and
profitable biometric company by focusing our resources and investments in the
high growth, high-margin biometrics market with a net debt-free balance sheet
after the closing of the Asset Sale.  At
least in the near term, our investments are expected to be principally made in
marketing activities.  We are open to
acquiring accretive assets that will advance our technology and marketing
efforts.   Despite our optimism, the
overall size of the biometrics market is still emergent and we will continue to
face challenges from a variety of competitors including those with greater
resources than ours.  See “Risk Factors
Relating to BIO-key” beginning on page [    ] of the
Proxy Statement.

It is anticipated that our lease for our office in
Marlborough, Massachusetts will be assigned to InterAct as part of the Asset
Sale.  Following the closing, we will
continue to operate out of our current offices in Wall, New Jersey and Eagan,
Minnesota.  The number of our employees
will be reduced from 44 to 12 following the closing of the Asset Sale.  Our public reporting obligations and the
listing of our common stock on the OTC Bulletin Board will not be affected as a
result of completing the Asset Sale.

If the Asset Sale is not approved by our stockholders
and therefore not completed, we will seek to continue to develop the Law
Enforcement Division as well as to consider and evaluate other strategic
opportunities.  There can be no
assurances that our development of the Law Enforcement Division or any
alternative strategic opportunities will result in the same or greater value to
shareholders as the proposed Asset Sale.

Relationship
between BIO-key and InterAct

BIO-key and InterAct Public Safety Systems, an
affiliate of InterAct, have collaborated on several commercial projects in the
past, including commercial arrangements in which products used in the Law
Enforcement Division (including elements of the MobileCop®, PocketCop®, MobileRescue™, MobileOffice™, and InfoServer™
product lines) have been integrated with those of InterAct Public Safety
Systems and sold to law enforcement agencies and other emergency response
customers.  Outside of those commercial
dealings, there are no material relationships among BIO-key and InterAct or any
of their respective affiliates other than in respect of the Asset Purchase
Agreement and the related ancillary agreements.

Interests of Executive
Officers and Employees of BIO-key in the Asset Sale

When considering
the recommendation of the BIO-key board of directors regarding the Asset Sale
proposal, some of BIO-key’s executive officers have interests in the Asset Sale
that are different from, or in addition to, any interest they may have as
BIO-key stockholders.

On October 4,
2008, BIO-key renewed its year-to-year employment agreement with Kenneth Souza
to serve as Executive Vice President and General Manager, Law Enforcement of
the Company.  InterAct has agreed to assume
BIO-key’s obligations to Mr. Souza under that employment agreement following
the Asset Sale and it is anticipated that Mr. Souza will become an employee of
InterAct.

As of August 1,
2009, Mr. Souza beneficially owned five hundred fifty thousand (550,000)
options of BIO-key, which are fully-vested.
Three hundred thousand (300,000) of the options are exercisable at the
price of $1.05 per share while the remaining two hundred fifty thousand (250,000)
options are exercisable at the price of $0.75 per share.  As of August 1, 2009, certain employees
of BIO-key who will be transferred to InterAct911 as part of the Asset Sale
also held an aggregate of 787,331 options of