Room 4561
February 23, 2006
John Birbeck
President and Chief Executive Officer
CTI Group (Holdings), Inc.
333 North Alabama Street, Suite 240
Indianapolis, IN 46204
Re: CTI Group (Holdings), Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
File No. 0-10560
Dear Mr. Birbeck:
We have reviewed your response letter dated January 20, 2006
and have following comments. 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 comment, we may ask
you to provide us with information so we may better understand
your
disclosure. 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 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 the Fiscal Year Ended December 31, 2004
Note 1 - Description of Business and Summary of Significant
Accounting Policies, Basic & Diluted Income/(Loss) per Common
Shares,
page 37
1. We note your response to our prior comment no. 2 in your letter
dated January 20, 2006 and your response to our prior comment no.
3
in your letter dated October 31, 2005. In the October 31, 2005
response letter you indicate that the Company determined the Class
B
common stock did not meet the definition of a participating
security
because the dividends are not based on a predetermined formula but
rather dividends are declared at the discretion of the Board. In
Issue 2 of EITF 03-6, however, the Task Force reached a consensus
that for purposes of applying paragraphs 60 and 61 of SFAS 128, a
participating security is a security that may participate in
undistributed earnings with common stock, whether that
participation
is conditioned upon the occurrence of a specified event or not
(i.e.
Board approval in the Company`s case). The Task Force further
observed that the form of the participation does not have to be a
dividend. It appears based on the Company`s Articles of
Incorporation, as amended in Exhibit 3.1(I) and filed in your May
8,
2001 Form 8-K that both the Class A and Class B common
shareholders
can participate in the Company`s undistributed earnings.
Therefore,
it is unclear how you considered the guidance in Issue 2 to EITF
03-6
in concluding that your Class B common stock did not qualify as
participating security. Please explain.
2. We note your response to our prior comment 3. We continue to
believe that it is not appropriate to exclude the dilutive impact
of
Class B shares in the calculation of fully diluted Class A net
income
(loss) per shares as of December 31, 2004. We again refer you to
your disclosures in the Form 10-KSB where you indicate that the
dilutive impact of the conversion of Class B common shares could
be
"materially significant." As indicated in our previous comment,
while the Staff understands that there is significant
subjectivity,
judgment and uncertainty involved in estimating the value of
Tracking
LLC, that information should be presented and disclosed in your
critical accounting policies and estimates in MD&A. In this
regard,
you should disclose the methodology and assumptions underlying
your
estimates, the effect the accounting estimates have on your
financial
presentation and the effect of changes in those estimates. With
regards to your response, please also address the following:
* You indicate that for the purposes of the conversion at the
election of the Class B shareholders, "the value of Tracking LLC
is
deemed to be the book value of Tracking LLC less the book value of
the associated patents at the time of conversion." According to
the
Company`s Articles of Incorporation, the conversion at the
election
of the Class B shareholders shall be based on "the value of
Centillion LLC (excluding the value attributed to U.S. Patent No.
5287270, U.S. Patent No. 5325290 and the Related Patents)..." It
is
not clear to the Staff how you determined that "value" as it is
stated in terms of the conversion at the election of the Class B
shareholders means book value. We refer you to the terms of the
Mandatory Conversion in Section 3(c) of your Articles of
Incorporation where the conversion formula also refers to the
"value
of Centillion LLC." Your response, however, indicates that for
the
purposes of the mandatory conversion, the value of Tracking LLC is
"deemed to be the market value of Tracking LLC at the date of
conversion." Please explain the differences in the conversion
calculations as this is not clear from your Articles of
Incorporation.
* You also indicate that "due to new favorable enforcement
activities, a positive book value of Tracking LLC was created" as
of
December 31, 2005 and you plan to disclose the book value of
Tracking
LLC and calculate the dilutive impact of Class B shares in the
Form
10-KSB for the fiscal year ended December 31, 2005.
Notwithstanding
your response to the previous bullet point, explain in detail what
type of enforcement activities occurred and how these activities
impacted the value of Tracking LLC. Also, provide us an analysis
that supports the book value of Tracking LLC and the calculation
of
the dilutive impact as of December 31, 2005 and December 31, 2004.
* Tell us if the majority of the Class B shareholders approved the
conversion by the February 12, 2006 deadline.
* With regards to calculating the conversion based on the market
value of Tracking LLC, we note that the Articles of Incorporation
allow for the use a qualified appraiser to determine such value.
Therefore, tell us how you determined the Company has not been
able
to reasonably estimate or determine the market value of Tracking
LLC
as you indicated in your October 21, 2005 response letter. Has
the
Company made any attempt to hire an appraiser to aid in the
valuation?
* We note your response where you indicate that in order to
"inform
the investors of the potential risk of dilution, even though
remote,
the Company inserted the language that conversion "will result in
material dilution." Explain in detail why you believe the
likelihood
of conversion was remote as of December 31, 2004.
As appropriate, please amend your filing and respond to this
comment 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 response 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 response to our comments.
You may contact Kari Jin, Staff Accountant, at (202) 551-
3481
or me at (202) 551-3730 if you have questions regarding these
comments.
Sincerely,
Kathleen Collins
Accounting Branch Chief
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Mr. John Birbeck
CTI Group (Holdings), Inc.
February 23, 2006
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