Mail Stop 4561
September 16, 2005
Mr. Yorgen H. Edholm
President and Chief Executive Officer
I-Many, Inc.
399 Thornall Street
12th Floor
Edison, New Jersey 08837
Re: I-Many, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2004
Form 10-Q for the Fiscal Quarter Ended March 31, 2005
Form 10-Q for the Fiscal Quarter Ended June 30, 2005
File No. 000-30883
Dear Mr. Edholm:
We have reviewed the above referenced filing and have
the
following comments. Please note that we have limited our review
to
the matters addressed in the comments below. We may ask you to
provide us with supplemental information so we may better
understand
your disclosure. Please be as detailed as necessary in your
explanation. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2004
Consolidated Statements of Operations, page 31
1. Explain why you do not separately present cost of revenues for
your products and services on your consolidated statement of
operations. We refer you to Rule 5-03(b)(2) of Regulation S-X
which
requires cost of tangible goods sold and services to be stated
separately.
Note (1) Operations and Significant Accounting Policies
(c) Revenue Recognition
2. We note that you recognize software license fees upon delivery
of
the software, in part, provided there are no significant post-
delivery obligations. Explain all post-delivery obligations that
cause you to defer recognition of your software licenses fees.
Further, provide your revenue recognition accounting policy for
your
arrangements that include post-delivery obligations.
Specifically,
explain how you determine that the post-delivery obligations have
been satisfied and the software license fees have been earned.
For
your multiple element arrangements that include post-delivery
obligations, explain how the post-delivery obligations impact the
revenue recognition of the other elements in the arrangement.
3. We note that your multiple-element arrangements contain an
element
for professional services. Please address the following as it
relates to your professional services:
* Tell us the specific services that you characterize as
professional
services and how you consider paragraphs 63 through 71 of SOP 97-2
when determining your accounting policy for each type of
professional
service. In this regard, we note that you offer customization
services and that you have `large software implementations` which
suggest that your services may require significant production,
modifications or customization of software. Also see paragraph 7
of
SOP 97-2.
* If the service element does not qualify for separate element
accounting, clarify whether you have accounted for the entire
arrangement using contract accounting. Refer to paragraphs 7 and
64
of SOP 97-2. If so, provide the disclosures required by SOP 81-1.
* If you meet the criteria in paragraph 65 of SOP 97-2 and account
for the services separately, clarify the pattern of performance
you
use to recognize the service revenue. Refer to paragraph 66 of
SOP
97-2.
* Further clarify your revenue recognition policy for your `fixed
fee
professional service contracts` and compare and contrast this
policy
to your service arrangements that are not a fixed fee. Clarify
whether the fixed fee professional service contracts are part of a
multiple element arrangement or simply stand-alone services. If
you
are applying contract accounting to these fixed fee service
contracts, tell us how you considered footnote 1 to paragraph 11
of
SOP 81-1.
* Tell us more about the arrangements that result in the unbilled
receivables referred to on page 38. Tell us how you have
considered
the collectibility criteria and/or the fixed or determinable
criteria
within paragraph 8 of SOP 97-2 when recognizing revenue. Tell us
when they typically become billable and address the extent to
which
you have successfully billed and collected these amounts
subsequent
to the balance sheet date.
4. We note from your disclosure on page 6 that you offer a hosted
version of your software license, which is supported by third
party
providers. Explain whether the application of EITF 00-3 to your
hosting arrangements requires you to recognize hosting revenue
pursuant to SOP 97-2 or SAB Topic 13. Specifically tell us
whether
or not your customers have the contractual right to take
possession
of the software at any time during the hosting period without
significant penalty and whether it is feasible for the customer to
either run the software on its own hardware or contract with
another
party unrelated to the vendor to host the software. Further, tell
us
your consideration for disclosing your revenue recognition
accounting
policy for hosting services. In your response provide your
hosting
revenues recognized for all periods presented.
Note (2) Acquisitions
5. We note that you have allocated purchase price to acquired
technology in conjunction with the NetReturn, LLC, Menerva
Technologies, Inc. and Pricing Analytics, Inc. acquisitions. We
further note that you have included amortization of acquired
intangible asset expense as an operating expense on your
consolidated
statements of operations. Tell us whether this expense includes
the
amortization of acquired technology. If so, tell us how you
consider
Question 17 of the SFAS 86 Staff Implementation Guide to determine
the appropriate classification of this amortization.
6. We note that certain intangible assets relating to the Chi-Cor
Information Management, Inc. and BCL Vision Ltd. acquisitions were
impaired in fiscal year 2003 and recorded as an operating expense.
Tell us whether the intangible assets impaired related to acquired
technology. If so, tell us tell us your consideration for
classifying the impairment as cost of revenues.
7. We note your references to independent appraiser(s). Please
note
that when you refer to independent appraiser(s), you should
identify
the appraiser(s) and included the expert`s consent when the
reference
in included in a filing in the 1933 Act environment. We believe
reference to such expert in a registration statement requires a
consent following Section 436(b) of Regulation C. Alternatively,
you
may delete such reference. Please note for future reference.
Note (4) Strategic Relationship Agreements, page 47
8. We note you entered into a strategic relationship agreement
with
The Procter & Gamble Company. Tell us how you accounted for the
multiple elements in this arrangement and how much revenue you
have
recognized for the fiscal years ended December 31, 2002, 2003 and
2004. Address EITF 01-9, regarding the classification of the
value
of the warrant you granted to Procter & Gamble. Further, tell us
how
you considered the related party disclosure requirements of SFAS
57,
paragraph 2.
Note (9) Segment Disclosure, page 53
9. We note that you have not allocated the goodwill and acquired
intangible assets relating to the acquisitions of Provato and
Menerva
and the technology purchased from Ozro, Inc. to your reporting
units.
Clarify why you have not allocated goodwill to your reporting
units
as required by paragraphs 34, 35 and 54 SFAS 142. Paragraph 54 of
SFAS 142 requires that all goodwill recognized in an entity`s
balance
sheet at the date SFAS 142 is initially applied must be assigned
to
one or more reporting units. Please tell us how you considered
this
guidance and explain why you have not made the required
allocations
of goodwill to your reporting units. Tell us how this allocation
would impact the transitional goodwill impairment test as of
January
1, 2002 and your subsequent annual impairment tests.
Form 10-Q for Fiscal Quarter Ended March 31, 2005
Note 3. Reclassifications, page 11
10. We note that you have made significant changes to your
previously
reported consolidated balance sheets and statements of cash flows
related to reclassifications of auction rate securities from cash
equivalents to short-term investments. Explain how you determined
that prospective disclosure of these changes was appropriate and
tell
us what consideration you gave to characterizing these changes as
restatements and amending previously filed Exchange Act reports,
specifically your December 31, 2004 From 10-K. In addition, tell
us
how you considered this change in concluding that your disclosure
controls and procedures were effective as of December 31, 2004 and
March 31, 2005.
Form 8-Ks dated February 1, 2005, April 26, 2005 and July 27, 2005
11. We note your use of non-GAAP measures under Item 2.02 of the
Form
8-Ks noted above. Please note the following observations
regarding
your Non-GAAP measures:
* We note that you refer to "pro forma" when discussing your non-
GAAP
financial measures. When you use non-GAAP measures, ensure that
you
refer to it using a title that is different than "pro forma". Pro
forma has different meaning as defined by generally accepted
accounting principles and SEC rules that is significantly
different
than your presentation. Refer to Regulation S-K, Item
10(e)(ii)(E).
* We note that your non-GAAP financial measure includes a
discussion
of non-GAAP earnings (loss) per share. When you use non-GAAP
earnings per share measures, ensure that you reconcile the non-
GAAP
earnings per share to earnings per share as calculated and
presented
in accordance with GAAP. Refer to Regulation S-K, Item
10(e)(i)(B).
* We note that the non-GAAP measure you have presented excludes a
number of recurring items. Demonstrate the usefulness of the Non-
GAAP measure in assessing performance when these recurring items
are
a result of your operations and have contributed to your
performance.
Refer to Question 8, Frequently Asked Questions Regarding the Use
of
Non-GAAP Financial Measures. Ensure that you adequately disclose
why
each of the recurring items excluded are not material to the
ongoing
performance of your business.
* If you are able to overcome the burden of demonstrating its
usefulness, ensure future uses of non-GAAP measures include all of
the disclosures identified in Regulation G, Item 10 of Regulation
S-K
and the guidance set forth in Question 8, Frequently Asked
Questions
Regarding the Use of Non-GAAP Financial Measures.
*****
As appropriate, please amend your filing and respond to these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comment and provides any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; 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.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Christopher White, Staff Accountant, at (202)
551-3461, Lisa Mitrovich, Assistant Chief Accountant, at (202)
551-
3453 or me at (202) 551-3730 if you have any questions regarding
our
comments on the financial statements and related matters.
Sincerely,
Stephen Krikorian
Accounting Branch Chief
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Mr. Yorgen H. Edholm
I-Many, Inc.
September 16, 2005
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