SecProbe.io

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Room 4561
						September 2, 2005

Mark Cresswell
President and Chief Operating Officer
Neon Systems, Inc.
14100 Southwest Freeway, Suite 500
Sugar Land , TX 77478

Re:	Form 10-K for Fiscal Year Ended March 31, 2005
	Filed June 29, 2005
	From 10-Q for Fiscal Quarter Ended June 30, 2005
	Filed August 15, 2005

Dear Mr. Cresswell:

      We have reviewed the above referenced filings and have the
following comments.  Please note that we have limited our review
to
only your financial statements and related disclosures and do not
intend to expand our review to other portions of your document.
Where
indicated, we think you should revise your document in response to
these comments.  If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation.  In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure.  After
reviewing this information, we may or may not raise additional
comments.

Form 10-K for the Fiscal Year Ended March 31, 2005

Other - ObjectStar
1. We note that on July 30, 2004 the Company signed a letter of
intent to acquire all of the outstanding capital stock of
ObjectStar
for $17,200,000 in cash and shares of common stock having an
aggregate value of $3.2 million.  Was this transaction ever
consummated?  If so, tell us when the Company filed the financial
statements of Objectstar as previously proposed.  Also tell us
what
consideration you gave to including a discussion of this
acquisition
in your financial statement footnotes pursuant to paragraphs 51 -
52
of SFAS 141.  If this transaction was terminated, then tell us how
you considered the disclosure requirements of Item 1.02 of Form 8-
K.

Note 4 - Related Party Transactions

Neon Enterprise Software, Inc. (NESI), page 41

2. We note that you held a non-interesting bearing promissory note
of
$3.6 million and a non-interest bearing convertible note of $3.0
million with NESI at March 31, 2004, which you determined had a
net
present value of $4.3 million.  With regards to these notes,
please
address the following:

* Tell us how you determined the aggregate value of $4.3 million
in
August 2002 and tell us how you determined the loss on disposal of
$687,000 given the notes original aggregate balance of $6.6
million.

* You indicate that both NESI notes were sold to Mr. John Moores,
a
sole shareholder of NESI on April 15, 2005 in exchange for $4.35
million in cash and a note receivable of $2.2 million, for which
you
expect to record a gain on sale beginning the first quarter of
fiscal
year 2006.  Considering the relationship between Mr. Moores and
both
NESI and NEON, tell us how you determined that gain recognition is
appropriate.  Tell us how you determined this is not, in
substance, a
capital transaction and provide the specific guidance you are
relying
upon for your accounting treatment of this transaction.

* Tell us how you considered FIN 46(R) in determining whether the
Company`s the investment in NESI, including related party
interests,
should be consolidated.  It appears from your disclosures in Note
7
that you determined NESI to be a variable interest entity.  Tell
us
in detail how you determined that the Company is not the primary
beneficiary in this entity.  Provide us your analysis under FIN 46
that supports your conclusions and include your analysis.  Clarify
the manner in which you assessed materiality.

Scalable Software, Inc., page 41
3. We note that the Company sold the note receivable from Scalable
Software to JMI Services for $4.75 million in cash and recognized
a
gain of $1.2 million in the fiscal 2005.  Tell us how you
considered
the relationships amongst Mr. Moores, JMI Services, Scalable
Software
and the Company in determining that gain recognition is
appropriate.
Tell us how you determined this is not, in substance, a capital
transaction and provide the specific guidance you are relying upon
for your accounting treatment of this transaction.

4. Tell us how you considered FIN 46(R) in determining whether the
Company`s the investment in Scalable Software, including related
party interests, should be consolidated.  It appears from your
disclosures in Note 7 that you determined Scalable to be a
variable
interest entity.  Tell us in detail how you determined that the
Company is not the primary beneficiary in this entity.  Provide us
your analysis under FIN 46 that supports your conclusions and
include
your analysis.  Clarify the manner in which you assessed
materiality.

Note 11 - Business Combinations, page 45
5. We note that you refer to an independent valuation expert to
determine the valuation of intangibles assets acquired from
InnerAccess Technologies, Inc. and fair value of the warrants
issued
to acquire ClientSoft, Inc.  We further note that you are planning
to
file Form S-3 to register the shares of common stocks underlying
the
warrants.  Please be advised that when you refer to an independent
valuation specialist in the registration statements, you need to
disclose the name of expert and include the expert`s consent with
the
filing or alternatively, you may remove this reference.  Refer to
Section 436(b) of Regulation C.

	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 comments 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 reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed 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 Kari Jin, Staff Accountant, at (202) 551-3481 or
me
at (202) 551-3499 if you have questions regarding these comments.

Sincerely,

      Kathleen Collins
      Accounting Branch Chief
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Mr. Mark Cresswell
Neon Systems, Inc.
September 2, 2005
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