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CORRESP
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ITIS Holdings Corresp 05-02-2005

    ITIS HOLDINGS INC.

Information
Technology«
Information Services

P O Box
421566

Houston,
Texas 77242-1566

www.itisinc.com

    Joanna Hoover

      281.600.6000x102; fax
      713.462.1950

    Chief Financial
      Officer

      joanna.hoover@itisinc.com

May 2,
2005

Mr. David
R. Humphrey

Branch
Chief

Division
of Corporation Finance

United
States Securities and Exchange Commission

450 Fifth
Street N.W.

Washington,
D.C. 20549-0305

Re:
ITIS Holdings Inc.

Form
10-KSB for the year ended December 31, 2005

Commission
File Number: 001-07149

Dear Mr.
Humphrey:

We
received your letter of April 18, 2005 regarding the above referenced filing and
related comments. Upon review of your comments, we have determined that
reporting errors were made and that Forms 10-KSB for 2003 and 2004 should be
amended to correct these errors. We offer the following responses for your
review.

ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS

CRITICAL
ACCOUNTING POLICIES, PAGE 5

1.
Disclosure relating to Critical Accounting Policies will be amended to delete
the reference to significant events. In addition, the following description of
the Company’s policies relating to accounting policies, impairment charges, and
allowance for doubtful accounts will be included:

ITIS
prepares its financial statements inconformity with generally accepted
accounting principles in the United States of America (“GAAP”). The preparation
of GAAP financial statements requires certain estimates, assumptions, and
judgments to be made that may affect ITIS’ consolidated balance sheet and
results of operations. ITIS believes its most critical accounting estimates
relate to asset impairment and allowance for doubtful accounts.

      ·

      Asset
      impairment— We
      assess the impairment of long-lived assets whenever events or changes in
      circumstances indicate that their carrying value may not be recoverable
      from estimated future cash flows expected to result from their use and
      eventual disposition. Assets classified as held and used for the
      generation of revenue require the recognition of an impairment loss
      whenever events or circumstances have indicated than an asset may be
      impaired, and the future cash flows (undiscounted and without interest
      charges) from that asset are less than the asset’s carrying amount. Due to
      the inability of ITIS and its subsidiaries to achieve profitability and
      positive cash flow from the use and licensing of certain software and
      databases, impairment charges of $17,995
      and $346,533
      were recorded to software costs and other intangible assets during
      2004
      and 2003.

      ·

      Allowance
      for doubtful accounts—We
      provide an allowance for doubtful accounts based on specific receivables
      and management’s judgment regarding the likelihood of eventual collection.
      Because our customers are limited in number and generally well known to
      management, we rely most heavily on specific customer experience including
      payment practices and history. In 2004 we wrote off $59,086 in customer
      accounts receivable and $125,076 in notes receivable from third parties.
      Of this amount, $50,339 has been placed in the hands of a collection
      agency.

      ·

      Off
      balance sheet arrangements—ITIS
      is not party to any off balance sheet
arrangements.

2.
Disclosures in “Results of Operations” will be amended to read as
follows:

Cost
of Sales. Cost of
sales decreased by $106,027 from $226,781 for the year ended December 31, 2003
to $120,754 for the year ended December 31, 2004. Cost of sales reflects the
cost of pharmaceutical products sold by subsidiary PharmHouse, which ceased
operations on June 1, 2004. The decrease in costs of sales is the result of the
cessation of sales during the last half of 2004.

Sales
and Marketing Expense. Sales
and marketing expense decreased by $72,709 from $92,645 for the year ended
December 31, 2003 to $19,936 for the year ended December 31, 2004. Two contract
marketing positions were eliminated in March and May 2003 for a savings of
$27,000 and marketing related telephone expenses decreased by $40,513 as a
result of the elimination of these positions. The balance of the decrease,
$5,196, resulted from miscellaneous decreased marketing expense, including
reduced credit card fees as a direct result of reduced revenues during fiscal
2004.

General
and Administrative Expense.
General
and administrative expense decreased by $1,145,134 from $2,188,107 for the year
ended December 31, 2003 to $1,042,973 for the year ended December 31, 2004 as a
result of the following:

      ·

      Payroll
      and related costs decreased by $1,051,520 from $1,543,363 for the year
      ended December 31, 2003 to $491,843 for the year ended December 31, 2004.
      Corporate administrative staff was reduced by six employees in the second
      quarter of 2003, by three employees in the third quarter of 2003, by two
      employees in the fourth quarter of 2003, and by four employees prior to
      June 30, 2004. These reductions resulted in decreased payroll and payroll
      tax expense of $482,889 for the year ended December 31, 2004 as compared
      to December 31, 2003. The closing of the final PharmHouse location in June
      2004 eliminated three employees and resulted in $219,560 in decreased
      payroll and payroll tax expense for the year ended December 31, 2004
      compared to December 31, 2003. In addition, the Chief Executive Officer
      and Chief Financial Officer took salary reductions in 2004 that resulted
      in $188,750 in additional payroll cost savings. Due to the reduction in
      personnel, automobile expenses, dues and subscriptions, employee benefits
      including health insurance, and travel and entertainment were reduced by
      $160,321.

2

      ·

      There
      was no non-cash expense related to stock and option awards for the year
      ended December 31, 2004 as compared to $8,000 in expense for the year
      ended December 31, 2003.

      ·

      The
      expense of taxes other than income tax and insurance decreased by $69,175
      from $98,836 for the year ended December 31, 2003 to $29,661 for the year
      ended December 31, 2004. Property tax expense decreased by $20,536 and
      insurance expense decreased by $25,239 due to retirement of fixed assets
      and reduction in insurance coverage. Texas Franchise Tax expense decreased
      by $23,400 as a result of the decline in capital subject to the
      tax.

      ·

      Rent,
      utilities, and related expenses decreased by $87,505 from $173,134 for the
      year ended December 31, 2003 to $85,629 for the year ended December 31,
      2004. This was primarily a result of the move of our corporate offices to
      smaller space and the closing of the final PharmHouse location, both of
      which occurred in June 2004.

      ·

      Miscellaneous
      other general and administrative expenses, which include materials and
      supplies, were reduced by $63,308 from $78,231 for the year ended December
      31, 2003 to $14,923 for the year ended December 31, 2004. These reduced
      expenses primarily resulted from reductions in administrative and
      production personnel and the closing of the final PharmHouse location June
      2004.

      ·

      The
      expense of professional fees, contract services, and outside consulting
      services increased by $12,474 from $224,281 for the year ended December
      31, 2003 to $236,755 for the year ended December 31, 2004. The majority of
      the increase is due to increased legal fees relating to renegotiation of
      service contracts by a subsidiary.

      ·

      General
      and administrative expense increased by $121,900 from $62,262 for the year
      ended December 31, 2003 to $184,162 for the year ended December 31, 2004
      as a result of the write off of bad debts of $184,162 at December 31, 2004
      as compared to the write off of worthless stock in the amount of $62,262
      at December 31, 2003.

Production
and Computer Service Expense. Production
and computer service expense decreased by $192,522 from $215,850 for the year
ended December 31, 2003 to $23,328 for the year ended December 31, 2004 as a
result of the suspension of production and related costs of automated litigation
support by a subsidiary. $132,036 of the decrease is due to the elimination of
seven production and programming employees during the fourth quarter of 2003,
and $40,000 of the decrease is due to the elimination of one final production
employee in April 2004. In addition, the cost of ISP co-location costs decreased
by $15,320 and equipment repairs decreased by $ 5,166.

3. We
provide you with the following supplemental information relating to the year
ended December 31, 2004.

ITIS does
not currently have operating revenue from its historical operations and does not
expect to return to its previous operations. Accordingly, ITIS does not have
information available from which it can provide a discussion of industry trends
and believes any discussion of industry trends from these industries would not
provide useful disclosure regarding the business done or expected to be done by
ITIS in the future.

4.We
provide you with the following supplemental information relating to the
collectibility of long-term receivables.

As
mentioned in Note 1, page 14, Concentration
of Credit Risk,
management judged that no allowance for doubtful accounts was needed for our
long-term note receivable due to our steady collection experience with the
payor. The note, payable over a 60-month period, originated in August 2002 for
$2,423,750. At present date the outstanding balance due is $1,319,400, and
payments have been made consistently and on time during the 32 months of payment
history with this payor. Further, we are in frequent communication with the
payor, who is required to file monthly sales reports with us. Management
believes that the remaining balance of this receivable would be paid by the
obligor either to the Company or to its receiver, liquidator, or creditors if
the Company ceased to exist.

3

FINANCIAL
STATEMENTS

5. The
accountant’s report will be modified to refer to the correct reports in the
scope paragraph.

CONSOLIDATED
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS, PAGE
11

6. We
will reclassify Loss on Retirement of Assets to Operating
Income.

7. We
provide you with the following supplemental information relating to the Gain on
Sale of Investments and Equipment during the year ended December 31,
2004.

On July
29, 2002 ITIS sold a copy of its database containing federal and state
constitutions, statutes, regulations, case law, rules and legal briefs to
American Legal Data, LLC for $2 million, of which $91,000 was paid at or prior
to closing. The remainder ($1,909,000) was payable in minimum monthly
installments of $16,000 for 120 months beginning August 16, 2002. No gain on
sale was recorded during 2002 and 2003 except for the amounts collected. On
December 23, 2004, ITIS accepted $350,000 as a lump sum payment in full of this
note and recorded a corresponding gain on sale. The copy of the database had no
book value, so all of the proceeds were recorded as gain. This transaction
should be included in operating income. We will change the statements of
operations and comprehensive loss to reflect this change.

During
2004 a subsidiary sold shares of marketable securities with a book value of
$45,263 for $25,000, resulting in a loss on sale of marketable securities in the
amount of $20,263. This loss should not be included in operating
income.

8. We
provide you with the following supplemental information relating to the
presentation and classification of Discontinued Operations and SFAS
144.

SFAS 144,
paragraph 42 requires the results of a component of an entity that has been
disposed of to be reported in discontinued operations in accordance with SFAS
144, paragraph 43 if both of the following conditions are met: (a) the
operations and cash flows of the component have been (or will be) eliminated
from the ongoing operations of the entity as a result of the disposal
transaction and (b) the entity will not have any significant involvement in the
operations of the component after the disposal transaction. We feel the sale by
our subsidiaries, National
Law Library, Brief Reporter and Litidex of their data and Internet domains, as
well as the trademark for "ITISLAW," the pending application rights for National
Law Library, and the operations of Brief Reporter in Charlottesville, Virginia,
to JuriSearch Holdings, LLC meet these criteria. Furthermore we have followed
the requirements for disclosure of SFAS 144, paragraph 43, which requires the
income statement for current periods and prior periods to report the results of
operations of the component, including any gain or loss recognized in accordance
with SFAS 144 paragraph 37 in discontinued operations.

NOTE
1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MARKETABLE
SECURITIES, PAGE 14

4

9. The
footnote relating to Marketable Securities will be revised to comply with
paragraphs 19-22 of SFAS 115 as follows:

“Details
of ITIS’s marketable equity securities available for sale are as
follows:

      As
      of

      12/31/04

      Aggregate
      fair value

      $

      29,591

      Gross
      unrealized holding gains

      16,711

      Gross
      unrealized holding losses

      2,711

      Year
      Ended

      12/31/04

      12/31/03

      Proceeds
      from sales

      $

      25,000

      $

      767,301

      Gross
      realized gains

      -

      192,995

      Gross
      realized losses

      20,263

      66,041

      Other
      than temporary impairment

      99,524

      -

We
reviewed EITF 03-1 and specifically paragraph 18, and could not find a reference
to your request as indicated.

10. We
provide you with the following supplemental information relating to the
classification of certain unrealized losses from the sale of
securities.

After
further review and consideration, management determined one of our two
marketable securities with unrealized losses as of 12/31/04 was in fact other
than temporarily impaired. We will restate 2004 to show impairment of $39,000.
The other security has recovered in value as of today and the impairment is
believed to have only been temporary. A security written down to $0 in 2002 is
believed to be other than temporarily impaired. We will restate 2003 and 2004 to
show impairment for this security for $60,524.

11. We
provide you with the supplemental information in the attached
schedules.

NOTE
5-SHORT TERM RELATED PARTY NOTES PAYABLE, PAGE 16

12. We
provide you with the following supplemental information. Future disclosures will
include an explanation of how interest rates for imputed interest is
determined.

The
borrowings in question do not have stated interest rates. Management made an
estimate as to what the prevailing rates would have been if ITIS were to obtain
financing of a similar nature from other sources at the date of the
transactions. Management estimated that it would be required to pay interest at
the rate of 10% on borrowing from commercial sources based on budgetary
discussions with potential lending sources. However, since all other borrowings
from officers and directors of the Company bear interest at prime +2%, we will
restate our financials to reflect a change in this estimate
accordingly.

NOTE
9-INCOME TAXES, PAGE 17

13.
The income tax footnote disclosures mentioned in these paragraphs of SFAS 109
are not required
if the answers are all zeros, as here. As supplemental information,
we advise you that ITIS has never had nor is it likely to have in
the foreseeable
future, taxable income.

N