SecProbe.io

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corresp

August 29, 2005

Mr. Brian Cascio

Accounting Branch Chief

Securities and Exchange Commission

Mail Stop 6010

Washington. D.C. 20549

    Re:

    InPlay Technologies, Inc.

Form 10-KSB for the Year Ended December 31, 2004

Form 10-QSB for the Quarter Ended March 31, 2005

File No. 001-15069

Dear Mr. Cascio:

     Reference is made to the letter received from the staff (the “Staff”) of the Securities and
Exchange Commission (the “Commission”) dated June 29, 2005 regarding the Form 10-KSB for the year
ended December 31, 2004 and the Form 10-QSB for quarter ended March 31, 2005 of InPlay
Technologies, Inc. (the “Company”).

     Set forth below are the Company’s responses to the comments raised by the Staff. The comments
are repeated below in bold followed by the Company’s response.

Form 10-KSB for the year ended December 31, 2004

Item 6. Management’s Discussion and Analysis or Plan of Operation, page 13

Results of Operations for the Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003, page 15

Research, Development and Commercial Application Engineering Expenses, page 16

    1.

    We note that in October 2002 you announced cost-cutting initiatives that included significant
reductions in research and development personnel. To the extent these costs were incurred as
part of a formal restructuring plan accounted for pursuant to SFAS 146, please revise future
filings, if significant, to provide the MD&A disclosures required by SAB Topic 5-P as well as
the financial statement disclosures required by paragraph 20 of the Statement. The specific
charges recorded for this restructuring should be clearly disclosed in MD&A and the financial
statements.

InPlay Response: The costs incurred were not incurred as part of a formal restructuring
plan accounted for pursuant to SFAS 146. SFAS 146 was effective for exit or disposal
activities initiated after December 31, 2002. As our Company changed from a manufacturing
company to a licensing company, the need for a

large research and development department was not necessary so the R&D department was
reduced significantly. The 2002 staff reductions were announced in October 2002 and were
completed and all one-time termination benefits had been recorded as of December 31, 2002,
as prescribed under EITF 94-3, “Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).” If the Company initiates a future formal restructuring plan, the
accounting and reporting will be pursuant to SFAS 146.

Financial Statements, page 21

Note 5. Note Receivable from Active Recognition Technologies, Inc., page 29

    2.

    We note during the twelve months following the execution of the definitive agreement that you
committed to provide funding to ART, up to a maximum of $500,000. We also note that you
advanced $390,000 to ART as of December 31, 2004 and that the remaining $110,000 was advanced
as of March 31, 2005. In addition, as of December 31 you wrote-off the entire note receivable
of $500,000. Please tell us how you accounted for this transaction and why your accounting
treatment was appropriate under GAAP.

InPlay Response: On April 21, 2004 the Company and ART entered into a Stock Purchase
Agreement (the “Agreement”) whereby the Company would acquire all of the outstanding shares
of ART. The closing of the transaction was conditional on ART achieving $400,000 of net
revenue and $100,000 average earnings before interest and tax for two consecutive fiscal
quarters prior to July 31, 2005. The Agreement also stipulated that the Company provide up
to $500,000 of funding to ART via a convertible note. The Agreement included a funding
schedule as to when and how much ART could draw against the note. While ART had discretion
as to whether it would borrow funds under this note agreement, the Company was nevertheless
firmly committed to provide the funding should ART request it.

ART drew the maximum amount of the loan each month on the earliest day that the draw could
be requested. As of December 31, 2004, ART had drawn $390,000 against the note, and the
remaining $110,000 was drawn in the first quarter of 2005. As of December 31, 2004, ART had
failed to achieve either the revenue or earnings milestones which would trigger the
Company’s acquisition of ART under the terms of the Agreement. Furthermore, ART’s
financial condition had deteriorated significantly during the fourth quarter of 2004 and it
appeared that ART would never meet the revenue or earnings milestones outlined in the
Agreement.

As of December 31, 2004, the Company evaluated whether (1) the $390,000 note receivable
from ART was impaired and (2) a liability existed for the Company’s commitment to fund the
remaining $110,000 under the note agreement.

Paragraph 8 of FAS 114 Accounting by Creditors for Impairment of a Loan states, in part, “A
loan is impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the contractual terms of
the loan agreement.” While the Company has the right to all of the assets of ART if the
note is not repaid, we do not believe that those assets will result in the recovery of the
note due to the uncertainty of the valuation of ART’s assets and other potential claims
against ART. Based on ART’s cash flow projections and recent financial performance as of
December 31, 2004, the Company had serious doubts regarding ART’s ability to continue as a
going concern. As a result of the Company’s potential lack of ability to realize any value
from ART’s assets, the Company concluded that the note was impaired and recognized an
impairment charge of $390,000 for the entire amount outstanding under the note agreement.

The Company next considered whether a liability existed at December 31, 2004 related to the
remaining, non-discretionary funding commitment of $110,000 payable under the note
agreement. For the reasons described above, as of December 31, 2004 the Company determined
that no future economic benefit would be received from our agreement with ART. However, in
accordance with the terms of the Agreement we continued to have an obligation to provide
additional funding to ART up to $110,000. The Company considered, by analogy, the guidance
in paragraph 16 of FAS 146 Accounting for Costs Associated with Exit or Disposal Activities
as well as the guidance in paragraphs 251-253 of CON 6 Elements of Financial Statements.

Paragraph 16 of SFAS 146 states, “A liability for costs that will continue to be incurred
under a contract for its remaining term without economic benefit to the entity shall be
recognized and measured at its fair value when the entity ceases using the right conveyed
by the contract, for example, the right to use a leased property or to receive future goods
and services (hereinafter referred to as the cease-use date).” Paragraph 253 of CON 6
states, “As long as the commitment transaction remains unrecorded, however, the only way to
recognize the loss on the commitment is to do as is done in current practice—to recognize
the valuation account for estimated loss on purchase commitments and include it among the
assets or liabilities. Although it can be deducted from assets in some way, even though
the asset to which it applies is not recorded, it is now sometimes shown among the
liabilities.” Accordingly, the Company recognized a liability for the remaining $110,000
commitment under the note agreement.

Furthermore, the Company notes that the remaining $110,000 of required funding was paid to
ART prior to filing the 10-KSB. As discussed above, the Company believes that a liability
existed for costs incurred under a contract for which no future economic benefit would be
realized. The Company considers the actual funding during the first quarter of 2005 to be
a Type 1 subsequent event providing additional evidence with respect to the conditions that
existed as of December 31, 2004, specifically, that a liability of $110,000 existed as of
that date. Thus, as of

December 31, 2004, the Company had no discretion except to incur an additional $110,000
with no future benefit and therefore recorded the liability and related loss at that date.

Form 8-K filed on March 17, 2005

    3.

    In future filings, please provide the disclosures required by Item 10(e)(1)(i) of Regulation
S-B for the non-GAAP financial measures included in the last page of the Form 8-K filed on
March 17, 2005, including the purpose of this information and the reasons why management
believes this provides useful information to investors. In addition, we note that you refer
to your non-GAAP information as “pro forma” results. The pro forma terminology has very
specific meaning in accounting literature, as indicated by Article 11 of Regulation S-X. In
future filings, please revise to omit the pro forma terminology when referring to your
non-GAAP information.

InPlay Response: In future filings, we will provide the disclosures required by Item
10(e)(1)(i) of Regulation S-B for non-GAAP financial measures and will omit the pro forma
terminology when referring to our non-GAAP information

I acknowledge 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.

If you have any further questions, please do not hesitate to contact me.

Very truly yours,

\s\Robert J. Brilon

Robert J. Brilon

Chief Executive Officer and

Chief Financial Officer

InPlay Technologies, Inc.