Mail Stop 4561
January 13, 2006
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 Fiscal Year Ended December 31, 2004
Form 10-Q for Fiscal Quarter Ended March 31, 2005
Form 10-Q for Fiscal Quarter Ended June 30, 2005
Form 10-Q for Fiscal Quarter Ended September 30, 2005
File No. 000-30883
Dear Mr. Edholm:
We have reviewed the above referenced filings and your
response letter dated November 10, 2005 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
Prior Comment Number 1
1. We note your response which indicates that you do not deem it
is
necessary to separately present cost of revenues for your products
and services based on the insignificance of cost of product
revenues.
However, Rule 5-03(b) of Regulation S-X requires cost of sales and
expenses to be combined and presented in the same manner as
income.
Therefore, since you have separately presented product and service
revenue, we believe you must separately present the corresponding
cost of sales. Please tell us how you plan to comply with this
guidance.
Note (1) Operations and Significant Accounting Policies
(c) Revenue Recognition
Prior Comment Number 2
2. Your response states that in the third quarter 2003 you entered
into a license arrangement that contained a `change of control
warranty` provision. Please clarify the following with respect to
your accounting for this provision.
* Explain why you determined this provision required you to defer
recognition of your software license fees. Address whether you
assed
the probability associated with you being acquired and that you
would
discontinue support after the acquisition. Clarify the
authoritative
literature you relied on when making this determination.
* Clarify why you determined the modification to change the
provision
to only entitle the customer to source code allowed you to
recognize
revenue in the first quarter 2004.
* Tell us how you accounted for the free professional services
provided in exchange for the modification and your consideration
for
paragraph 11 of SOP 97-2 and TPA 5100.50 and 51.
3. Your response states that in the forth quarter 2004 you
deferred
the recognition of license revenue `because of certain promised
additional functionality that was scheduled to be made available
in
our next version release of the product.` Tell us whether you
determined this additional functionality was a specified upgrade
right or additional software product. If you determined the
obligation was a specified upgrade right tell us how the
application
of paragraphs 37 and 38 of SOP 97-2 required you to defer the
recognition of the delivered license fee. Similarly, if you
determined the obligation was a specified additional software
product, tell us how the application of paragraphs 39 through 42
of
SOP 97-2 required you to defer the recognition of the delivered
license fee.
Prior Comment Number 3
4. We note that you have a price list for professional services
which
you believe complies with the requirements of SOP 97-2 to
establish
VSOE of fair values of such services. However, a price list, in
and
of itself, does not qualify as VSOE of fair value. Therefore,
tell
us whether you have a history of separate sales of your
professional
services at list price. Further, tell us how you considered
whether
the premium received for the fixed price services impacts your
ability to establish VSOE of such services.
Note (2) Acquisitions
Prior Comment Number 5
5. We note your response which indicates that you believe that
your
classification of all of the amortization of your acquired
intangible
assets as operating expense is appropriate based on the guidance
of
paragraph 42 of SFAS 142. However, this guidance requires
classification of such amortization expense as deemed appropriate
for
each entity. Therefore it would be appropriate for you to apply
the
guidance of SFAS 86, including Question 17 of the SFAS 86 Staff
Implementation Guide for the amortization of acquired technology.
Tell us how you plan to comply with this guidance. Further, tell
us
the amount of amortization expense you included in operating
expense
related to acquired technology in the fiscal years ended December
31,
2004, 2003 and 2002 and the nine-months ended September 31, 2005.
Prior Comment Number 6
6. We note that you classified impairment charges related to
acquired
intangible assets as operating expense in the absence of any
language
in the relevant literature indicating impairment costs are
required
to be classified as cost of sales. We believe impairment of a
capitalized software product that is marketed to others should be
charged to cost of sales based on the analogous guidance of EITF
96-
9. Tell us how you plan to comply with this guidance.
Prior Comment Number 10
7. We note that you believe your prior classification of auction
rate
securities as cash equivalents was in error and your conclusion
that
your misclassification of auction rate securities does not warrant
restating and amending your previously filed 2004 Form 10-K. You
support this conclusion, in part, by stating the impact on your
Balance Sheets is isolated to cash and marketable securities and
the
impact on your Statement of Cash Flows is largely offsetting.
Clarify how you considered the materiality of the error on cash
balances reported in your Balance Sheets, investing cash flows and
increase (decrease) in cash balances reported in your Statement of
Cash Flows in your 2004 Form 10-K. If you determine that the
amounts
are material to reported cash balances and cash flows, restate and
amend your 2004 Form 10-K within your Consolidated Balances Sheets
and Consolidated Statements of Cash Flows. In addition, revise
your
Short-term Investments Footnote and discussion of liquidity in
Management`s Discussion and Analysis and Selected Financial Data,
as
needed.
*****
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.
January 13, 2006
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