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      SEC Response Letter

    July
      18,
      2005

    Mr.
      Craig
      Wilson, Senior Assistant Chief Accountant

    Ms.
      Christine Davis, Staff Accountant

    United
      States Securities and Exchange Commission

    Washington,
      D.C. 20549

    Sent
      via
      EDGAR

    Dear
      Mr.
      Wilson:

    We
      submit
      this letter in response to comments from the staff of the Securities and
      Exchange Commission (the “Staff”), received by letter dated June 14, 2005
      relating to International Microcomputer Software, Inc.’s (the “Company”) Form
      10-KSB for the fiscal year ended June 30, 2004 filed on September 13, 2004
      and
      International Microcomputer Software, Inc.’s Form 8-K filed May 18, 2005 (File
      No. 000-15949).

    We
      appreciate your review comments to assist us in our compliance with the
      applicable disclosure requirements. Management and the Board are committed
      to
      fulfilling our obligations to the public.

    In
      connection with responding to the Commission’s comments dated June 14, 2005, the
      Company acknowledges that:

              A.

              the
                Company is responsible for the adequacy and accuracy of the disclosure
                in
                the filing,

              B.

              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

              C.

              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.

    Set
      forth
      below are the Staff’s comments followed by our responses.

    ITEM
      1.

    Comment:
      We
      note that you recognize revenue from resellers at the time of the sale and
      revenue from distributors when the product sells through to the retailer or
      end
      user. Explain to us why your revenue recognition policies differ for these
      customers that represent your indirect sales channels. Support these policies
      by
      referring to the relevant contract terms and explaining how and when each of
      the
      criteria in paragraph 8 of SOP 97-2 are met in order to recognize revenue under
      each type of arrangement.

        1

    Answer:
      We will
      first discuss resellers and then distributors and their differing revenue
      treatments. We sell our products to resellers, which are typically businesses
      that analyze the software needs of, and provide software solutions to, their
      clients. Resellers, therefore, sell only to end-users. Resellers buy our
      products in limited quantities and have a very low historical rate of return.
      The effective terms are found on the back of the IMSI invoice which provide
      for
      warranty and misshipment returns and stock balancing programs to approved
      resellers but offers no general right of return. (The full text of terms are
      on
      the back of our invoice. A copy of our standard invoice used in this period
      has
      been sent by courier to your address as illustrative materials.) Revenue from
      sales to resellers is recorded at the time of the sale, net of estimated
      returns. Estimated returns are based on a review of historical returns for
      that
      customer class. This policy is in conformity with the four revenue recognition
      requirements of paragraph 8 of SOP 97-2, as follows:

    Persuasive
      evidence of an arrangement exists.
      The
      sales arrangement between IMSI and the reseller is documented by a purchase
      order that is received from the reseller requesting shipment of a certain number
      of units of certain products at certain prices.

    Delivery
      has occurred.
      All
      products are shipped to the resellers F.O.B. Shipping Point, which indicates
      that title to the shipment passes to the buyer when the goods leave the
      shipper’s dock.

    The
      vendor’s fee is fixed or determinable.
      After
      the product has been shipped as documented by a shipping manifest, an invoice
      is
      generated that incorporates the information on both the purchase order and
      shipping manifest. The products delivered to the customer at the price indicated
      on the purchase order in the amount indicated on the shipping manifest comprise
      the fixed fee that is owed.

    Collectibility
      is probable.
      Customer accounts are monitored for timely payment. In-depth analysis is
      performed on a regular basis to determine the adequacies of accounts receivable
      reserves and adjustments are made based on this analysis.

    We
      also
      sell our products to distributors, which are businesses that sell a multitude
      of
      hardware and software products to retailers. Historical rates of returns from
      distributors have varied significantly and as a result our accounting for sales
      to distributors is designed to mitigate the risks of over-statement of revenues.
      For these reasons, revenue from sales to distributors is recognized only when
      the product sells through to retailers and end users. This policy is followed
      because of the following -

              ·

              Distributors
                will not pay invoices until they sell the products(s) to their
                customers.

              ·

              Distributors
                exercise the right to return any product purchased, if in the original
                packaging, either contractually or based on common
                practice.

    This
      “revenue on sell-through” policy is in conformity with the revenue recognition
      requirements of paragraph 8 of SOP 97-2, as follows:

    The
      vendor’s fee is fixed or determinable.
      Collectibility
      is probable.
      Insofar
      as the distributors will not pay invoices for goods that they have in their
      warehouses, the invoice itself cannot be considered as a fixed amount owing
      from
      the distributor that will probably be paid. It is not until the distributor
      ships the product(s) to their customers that we meet the criteria that the
      amount owing can be determined and that collectibility is probable.

    Recently
      some of our product shipments to distributors have been made on a consignment
      basis. Accordingly, revenue is recognized based on the reports from these
      distributors of their sales of the consigned products.

        2

    Distributors
      and resellers have different characteristics which must be analyzed and revenue
      recognized according to those facts. As a result of the above, we believe that
      our revenue recognition policies are in accordance with the revenue recognition
      guidelines and appropriate based on the facts and circumstances of those sales.

    ITEM
      2.

    Comment:
      Tell us more about your OEM contracts and your republishing arrangements.
      Describe the products and services provided and the material contract terms
      offered. Refer to the accounting literature that supports your revenue
      recognition policies for OEM contracts and republishing arrangements and explain
      to us how your policies comply with that literature.

    Answer:
      Revenue from republishing agreements will be discussed first because of its
      relative size compared to OEM. We enter into republishing agreements with
      domestic and international distributors whereby we provide master copies of
      our
      products that may be used to create copies of our software products. The
      distributors manufacture, package, sell and ship these copies that they produce.
      They then owe us a percentage of their sales as royalties. These agreements
      are
      typically for a year or longer.

    Many
      of
      these agreements obligate the distributors to pay us a minimum guaranteed
      royalty amount, typically on a monthly basis. Royalties that are owed from
      the
      sale of our products are offset against these payments. Any royalties earned
      in
      excess of the minimum amount are paid to us, usually on a quarterly or annual
      basis. We have no contractual obligation to refund any minimum amounts paid
      in
      excess of royalties earned and have never done so.

    In
      recognizing the revenue derived from these agreements that require republishers
      to make minimum guaranteed payments, we apply the criteria of paragraph .08
      of
      SOP 97-2, which states:

              ·

              Persuasive
                evidence of an arrangement exists.
                This occurs with the signing of the
                agreement.

              ·

              Delivery
                has occurred.
                Delivery consists of providing master copies of the products licensed
                to
                the republisher.

              ·

              The
                vendor’s fee is fixed or determinable.
                We
                recognize the minimum guaranteed payments stipulated by the agreement
                when
                these payments are due, typically on a monthly basis. We do not recognize
                the total of the guaranteed payments when we deliver the masters
                stipulated in the agreement for two reasons:

              1)

              We
                usually release new versions of each of our products annually and
                the
                republisher making minimum guaranteed payments is typically entitled
                to a
                master of the new product. We therefore apply the criteria of paragraphs
                .48 and .49 of SOP 97-2, which state
                -

    “.48
      As
      part of a multiple-element arrangement with a user, a vendor may agree to
      deliver software currently and to deliver unspecified additional software
      products in the future. .49 The software elements of the kind of arrangements
      discussed in paragraph .48 should be accounted for as subscriptions . . and
      all
      software product-related revenue from the arrangement should be recognized
      ratably over the term of the arrangement beginning with the delivery of the
      first product.”

        3

              2)

              At
                times, these agreements are amended, including the amounts of future
                guaranteed minimum payments. We therefore only recognize the guaranteed
                minimum payments that have become due during each
                month.

              ·

              Collectibility
                is probable.

    In
      recognizing the revenue derived from agreements that do not require republishers
      to make minimum guaranteed payments, we also apply the criteria of paragraph
      .08
      of SOP 97-2 identical to the above application, with the following exception
      -

              ·

              The
                vendor’s fee is fixed or determinable.
                The vendor’s fee is based on the agreement, which typically stipulates
                that the republisher will pay us a percentage of their sales of the
                products that have been licensed. We therefore recognize revenue
                when we
                receive the sales and royalty statements from the
                republisher.

    OEM
      Revenue treatment. We also on occasion, but not often, enter into agreements
      with original equipment manufacturers (OEM contracts), which provided under
      0.5%
      of total 2004 fiscal year revenue. Typically, these contracts allow the licensee
      to make copies of one or more of our products to be included free-of-charge
      in
      the package of a hardware product. The fee paid to us is usually a set amount
      for a certain number of copies. This fee is due at the time that we provide
      the
      master of the product to the licensee. We recognize revenue for the entire
      fee
      at the time that the fee is due. We do so in accordance with paragraph 42 of
      SOP
      97-2, which states:

    “If
      the
      arrangement is based on a price per product (not a price per copy), the portion
      of the fee allocated to a product should be recognized as revenue when the
      product is delivered... “

    If
      the
      licensee is allowed to make more copies of the product than the amount specified
      in the contract for which they have paid the fee, a per unit amount is reported
      and paid to us, and we recognize that additional revenue when we receive the
      report.

    ITEM
      3.

    Comment:
      We note that you offer your customers returns, price discounts, rebates and
      stock balancing arrangements. Describe these offerings in more detail and
      explain to us how each affects the timing of your revenue recognition. Explain
      how your accounting for these offerings complies with the relevant accounting
      literature.

    Answer:

    We
      will
      go through the different arrangements in order and refer to the appropriate
      literature as we proceed.

    Returns.
      Direct
      sales are made to endusers and indirect sales are made to resellers and
      distributors. Endusers have the right to return product within 30 days of the
      sale. Resellers have a limited right of return that varies according to the
      selling arrangements made with the resellers.

    FAS
      48
      addresses the issue of revenue recognition when the right of return exists.
      Conditions that must be met for revenue to be recognized at the time of the
      sale
      if the buyer has a right of return are listed as follows -

              ·

              The
                seller’s price to the buyer is fixed or determinable at the time of the
                sale.

        4

              ·

              The
                buyer is obligated to pay the seller and payment is not contingent
                on
                resale of the product

              ·

              The
                buyer’s obligation is not effected by the event of theft, damage or
                destruction of the product

              ·

              The
                buyer has economic substance apart from that provided by the
                seller.

              ·

              The
                seller does not have a future obligation to bring about the resale
                of the
                product.

              ·

              The
                amount of future returns can be reasonably
                estimated.

    For
      sales
      to endusers and resellers, all of the conditions for revenue recognition at
      the
      time of sale are met. The amount of future returns can be reasonably estimated
      because the factors that could impair the ability to do so, as stipulated in
      paragraph 8 of FAS 48, are not present or can be overcome, as follows
      -

              ·

              Susceptibility
                of the product to external conditions, such as obsolescence or decrease
                in
                demand.
                Products are rendered obsolete and demand declines when new versions
                are
                released. Planning for new product releases includes allowing endusers
                free upgrades and increasing returns reserves for
                resellers.

              ·

              Relatively
                long period of