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CORRESP
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      SEC Response Letter

    August
      19, 2005

    Mr.
      Brad
      Skinner, Accounting Branch Chief

    Ms.
      Christine Davis, Staff Accountant

    United
      States Securities and Exchange Commission

    Washington,
      D.C. 20549

    Sent
      via
      EDGAR

    Dear
      Mr.
      Skinner:

    We
      submit
      this letter in response to comments from the staff of the Securities and
      Exchange Commission (the “Staff”), received by letter dated August 5, 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 July 7, 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 of IMSI are
      committed to fulfilling our obligations to the public.

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

    ITEM
      1.

    Comment:
      Your
      response to prior comment number 4 indicates that you did not have any
      investments classified as available-for-sale as of June 30, 2004 and 2003.
      However, you disclose that “we classify all of our marketable securities as
      available-for-sale” on page 39 of your Form 10-KSB. Please explain this
      inconsistency to us. In addition, explain to us how you considered the guidance
      in paragraph 118 of SFAS 115 that requires cash flows related to trading
      securities to be classified as operating within your statements of cash
      flows.

    Answer: Paragraph
      12.a. of FAS 115 provides a definition of trading
      securities,
      as
      follows -

              ·

              “Securities
                that are bought and held principally for the purpose of selling them
                in
                the near term (thus held for only a short period of time) shall be
                classified as trading securities. Trading generally reflects active
                and
                frequent buying and selling, and trading securities are generally
                used
                with the objective of generating profits on short-term differences
                in
                price.”

    In
      our
      response to your prior comment 4, we stated that all of our investments in
      securities met the definition of trading securities. However, on page 39 of
      our
      Form 10-KSB, we stated the following -

              ·

              “We
                classify all of our marketable securities as available-for-sale and
                carry
                such securities at fair value.

    Based
      on
      our analysis, it is clear that we used erroneous terminology in describing
      the
      classification of our marketable securities. We will correct this error in
      all
      of our future filings and describe our securities investments that are analogous
      to the securities that we held as of June 30, 2004 as
      trading securities.

        1

    Paragraph
      118 of FAS 115 provides guidance on the financial statement presentation and
      disclosure of trading securities, as follows -

              ·

              “Because
                trading securities are bought and held principally for the purpose
                of
                selling them in the near term, the cash flows from purchases and
                sales of
                trading securities should be classified as cash flows from operating
                activities.”

    The
      following is a recap of the activity pertaining to our investment in marketable
      securities for the period of July 1, 2003 through June 30, 2004 -

              Balance
                as of 07/01/03

              $997,500

              Unrealized
                Gains on Marketable Securities

              1,982,400

              Gains
                on Marketable Securities

              585,000

              Expenses
                Pertaining to the Marketable Securities Account

              (2,600)

              Cash
                Transfers into the Investment Account

              475,600

              Cash
                Transfers from the Investment Account

              (115,900)

              Balance
                as of 06/30/04

              $3,922,000.00

    This
      information was presented in the statements of cash flows for the year ended
      June 30, 2004, as follows -

              ·

              The
                unrealized gains on marketable securities of $1,982,400 were included
                in
                “Cash flows from operating activities - Adjustments to reconcile net
                income to net cash used by operating
                activities”.

              ·

              The
                gains on marketable securities and the expenses pertaining to the
                marketable securities brokerage account were netted to $583,000 and
                included in “Cash flows from operating activities - Changes in assets and
                liabilities”.

              ·

              The
                cash transfers into the investment account of $475,600 were included
                in
                “Cash flows from investing
                activities”.

              ·

              The
                cash transfers from the investment account of $115,900 were included
                in
                “Cash flows from investing
                activities”.

    All
      investments in securities are bought and sold through a registered broker.
      We do
      add stock acquired as consideration in a transaction to our brokerage account.
      We do not directly trade securities and typically do not have a cash balance
      with the registered broker. For these reasons, we considered the cash
      transferred into and out of the brokerage account to be investment activities.
      Cash related to actual purchases and sales of securities is included in “Cash
      flows from operating activities - Changes in assets and liabilities” as a change
      in the balance of the marketable security account.

        2

    ITEM
      2.

    Comment:
      Your
      response to prior comment number 4 also indicates that you classified the shares
      of Jupitermedia held in escrow from the sale of ArtToday as trading securities.
      Please explain to us how these escrow securities were used with the objective
      of
      generating profits on short-term differences in price and further explain why
      you believe these securities have all of the characteristics of trading
      securities..

    Answer:
      On June
      30, 2003, we sold our subsidiary, ArtToday, Inc. to Jupitermedia for
      consideration comprised of both cash and 250,000 shares of Jupitermedia common
      stock with a value of approximately $1,000,000 at the time of the sale. These
      shares were held in escrow in accordance with the ArtToday Stock Purchase
      Agreement dated June 24, 2003. We had the option to exchange cash for all
      securities held in escrow based on the value of the securities at the time
      they
      were placed in escrow per Section 1.(d) 0f the Escrow Agreement, as follows
      -

    “The
      Seller may at any time and from time to time replace any shares constituting
      the
      initial Stock Escrow Deposit with cash . . . equal to the closing market value
      of the Replaced Shares as of the Closing Date.”

    When
      we
      accepted the shares from Jupitermedia as a portion of the consideration paid
      for
      ArtToday, Inc., our intention was to trade the shares with the objective of
      generating profits on short-term differences in price. We began selling the
      Jupitermedia shares on March 22, 2004 and continued selling until October 4,
      2004, when we sold all remaining shares. The total realized gain from the sale
      of the Jupitermedia shares during our fiscal years ending June 30, 2004 and
      2005
      was $2,425,000, all from stock appreciation. Our actions and the timing of
      our
      actions reflect our initial intention of generating profits on short-term
      differences in price from the sale of the Jupitermedia shares. For these
      reasons, we believe that the Jupitermedia shares had all the characteristics
      of
      trading securities, as defined in paragraph 12.a. of FAS 115.

    ITEM
      3.

    Comment:
      We
      have read your response to prior comment number 6 and note that it appears
      that
      you did not address whether you have eliminated the cash flows related to
      Keynomics as required under paragraph 42 of SFAS 144. Please explain to us
      how
      you have concluded that the cash flows have been eliminated considering the
      existence of the license agreement.

    Answer:
      In July
      2004, in an arm’s-length negotiated contract, we sold the assets and customer
      related liabilities of our wholly owned subsidiary Keynomics, Inc. to Keynomics,
      L.L.C., the acquiring entity. We eliminated the cash flows related to Keynomics
      in the financial statements for the fiscal years ended June 30, 2004 and June
      30, 2003, which were included in the Form 10-KSB. The following are the
      calculations applied in eliminating the cash flows for the year ended June
      30,
      2004 -

        3

              Cash
                Flow

              Cash
                Flow

              Including

              Excluding

              Keynomics

              Keynomics

              Keynomics

              June

              July
                03 -

              July
                03 -

              2004

              June-04

              June-04

              Cash
                flows from operating activities:

              Net
                income

              $646

              $646

              Adjustments
                to reconcile net loss to net

              cash
                provided (used) by operating activities :

              Depreciation
                and amortization

              850

              17

              833

              Unrealized
                market value (gain) loss in securities

              (1,982)

              (1,982)

              Allowance
                for bad debts

              (0)

              (0)

              Reserve
                for returns and price discounts

              407

              407

              Reserve
                for inventory obsolescence

              3

              3

              Extinguishment
                of debt

              (76)

              (76)

              Income
                from discontinued operations

              (312)

              312

              Gain
                on sale of discontinued operations

              (2,000)

              (2,000)

              Loss
                on disposal of assets

              13

              13

              Stock
                based compensation charges

              523

              523

              Gain
                on sale of Design 3D

              (59)

              (59)

              Changes
                in assets and liabilities:

              Marketable
                securities

              (583)

              (583)

              Receivables

              (1,582)

              (28)

              (1,554)

              Receivables
                - Other

              (1,000)

              (1,000)

              Inventories

              (474)

              5

              (479)

              Other
                current assets

              (168)

              7

              (175)

              Long-term
                receivable

              650

              650

              Trade
                accounts payable

              1,586

              51

              1,535

              Accrued
                and other liabilities

              (625)

              7

              (632)

              Deferred
                revenue

              (37)

              8

              (45)

              Operating
                cash provided (used) by discontinued operations

              202

              (202)

              Net
                cash provided (used) by operating activities

              (3,908)

              (43)

              (3,865)

              Cash
                flows from investing activities:

              Proceeds
                from sale of discontinued operations

              2,000

              2,000

              Acquisition
                of product lines

              (1,815)

              (1,815)

              Acquisition
                of subsidiary

              (1,982)

              (1,982)

              Purchase
                of equipment

              (433)

              (7)

              (426)

              Software
                development costs and in-process technologies

              (80)

              (80)

              Investment
                in marketable securities

              (476)

              (476)

              Purchase
                of domain names

              (2)

              (2)

              Proceeds
                from Sale of Marketable Securities

              116

              116

              Note
                to related party

              (350)

              (350)

              Cash
                used by discontinued operations in investing activities

              7

              (7)

              Net
                cash used by investing activities

              (3,022)

              (0)

              (3,022)

              Cash
                flows from financing activities:

              Proceeds
                from borrowings

              350

              350

              Repayment
                of notes

              (686)

              (63)

              (623)

              Proceeds
                from warrants and options exercised

              253

              253

              Settlement
                of note payable (Imageline)

              (160)

              (160)

              Cash
                used by discontinued operations in financing activities

              0

              63

              (63)

              Net
                cash provided by financing activities

              (243)

              0

              (243)

              Foreign
                Currency translation

              (8)

              (8)

              Net
                increase in cash and cash equivalents

              (7,181)

              (43)

              (7,138)

              Cash
                and cash equivalents at beginning of period

              10,399

              49

              10,350

              Cash
                and cash equivalents at end of the period

              $3,218

              $6

              $3,212

        4

    The
      consideration paid to us by the buyer of Keynomics, Inc. included ownership
      of
      10% of Keynomics, L.L.C. This ownership percentage of Keynomics, L.L.C. did
      not
      allow us to have any control or influence over that entity. Our view that this
      was a minority, passive investment providing additional non-cash consideration
      to facilitate the transaction is consistent with paragraph 17, APB 18 and
      matched the facts. Keynomics is managed by a Board. We do not have the voting
      power to elect a Board member. We take no active interest in