October 25, 2007
Ms. Kaitlin Tillan, Assistant Chief Accountant
US Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 6010
Washington, DC 20549
Re: Veritec, Inc.
Form 10-KSB for fiscal year ended June 30, 2007
Filed November 28, 2007
Dear Ms. Tillan:
The following information is provided on behalf of Veritec, Inc. ("Veritec") in
response to the comments contained in your letter to us, dated October 11, 2007
(a copy of which is attached). We have reproduced below the Staff's comments
contained in your letter, together with our responses.
FORM 10-KSB for the Fiscal Year Ended June 30, 2007
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Note 1 - The Company and Summary of Significant Accounting Polices, page 25
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Software License, page 27
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1. COMMENT: We note that you amortize the license by using the
straight-line method over an estimated useful life of three
years. In your response to prior comment 18 in our letter
dated June 14, 2007 you stated that the useful life was five
years. If this change in accounting estimate is material, you
should disclose the effect on income from continuing
operations, net income (or other appropriate captions of
changes in the applicable net assets or performance
indicator), and any related per-share amounts of the current
period consistent with paragraph 22 of SFAS 154. If a change
in estimate does not have a material effect in the period of
change but is reasonably certain to have a material effect in
later periods, a description of that change in estimate shall
be disclosed whenever the financial statements of the period
of change are presented.
RESPONSE: The software license was acquired at the end of
December of 2006 for $100,000, at which time the Company
determined that a five year life was a reasonable estimate.
When preparing its June 30, 2007, consolidated financial
statements the Company determined a three year life was more
appropriate. The disclosures required by paragraph 22 of SFAS
154 were not provided as the Company does not believe the
change was material to the current or future periods.
Ms. Kaitlin Tillan, Assistant Chief Accountant
United States Securities and Exchange Commission
Page 2
Shipping and Handling Fees, page 28
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2. COMMENT: We note that you changed your accounting policy for
shipping and handling fees. We note that for 2007 you netted
shipping and handling fees with costs and included the amount
in operating expenses. Your new policy does not appear to
comply with EITF 00-10. Please revise or tell us how your
accounting is consistent with U.S. GAAP. Please also discuss
your obligations under Exhibit 18 of Form 10-KSB.
RESPONSE: We agree with the above comment and will revert to
the 2006 policy. The June 30, 2007, consolidated financial
statements will not be restated as the amounts are not
material (shipping revenue and costs were approximately $6,700
and $9,400 for the year ended June 30, 2007, respectively).
Based on this response, the Company does not believe Exhibit
18 is necessary.
Note 7 - Stockholders' Equity, page 31
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3. COMMENT: Please refer to prior comment 2 from our August 23,
2007 letter. We note that you based your volatility
assumptions on "the historical volatility of certain
competitor companies for periods the Company was in
bankruptcy, and the volatility of the Company's common stock
for periods post bankruptcy". Please note that the selected
assumptions to compute historical volatility should produce an
estimate that is representative of your expectations about
future volatility over the expected term of your employee
share options consistent with Question 2 of SAB Topic 14.D.1.
Further, paragraph A32(a) of SFAS 123R, states that you should
consider historical volatility over a period generally
commensurate with the expected or contractual term, as
applicable, of the share option. Please discuss how your
estimate of volatility considered this guidance.
RESPONSE: The Company considered Question 2 of SAB Topic
14.D.1 and paragraph A32(a) of SFAS 123R in determining
volatility. As a result of the bankruptcy, and preceding
events, the Company believes using historical share prices of
the Company's common stock during this period would not
produce reliable estimates of volatility. Therefore, the
Company used historical volatility of three close competitor
companies for periods prior to the Company's emergence from
bankruptcy, and the volatility of the Company's own common
stock for periods post bankruptcy. Using this approach, the
Company computed historical volatility for five years, a
period which exceeded the expected or contractual terms of the
options. The Company believes using the above methodology
resulted in a reasonable estimate of the volatility of its
common stock over the expected or contraction terms of the
options.
As noted in your comment the disclosure in the June 30, 2007,
consolidated financial statements stated "the historical
volatility of certain competitor companies for periods the
Company was in bankruptcy..." This should have
Ms. Kaitlin Tillan, Assistant Chief Accountant
United States Securities and Exchange Commission
Page 3
stated "the historical volatility of certain competitor
companies for periods prior to the Company's emergence from
bankruptcy." The corrected language will be used in future
filings.
4. COMMENT: Further, please discuss how you considered the four
factors listed in Question 4 of SAB Topic 14.D.l in
determining that it is appropriate to rely exclusively on
historical volatility. In future filings, within your critical
accounting policies disclosure in MD&A include an explanation
of the method used to estimate the expected volatility,
including a discussion of the basis for your conclusions
regarding the extent to which you used historical volatility,
implied volatility or a combination of both.
RESPONSE: The Company considered question 4 of SAB Topic
14.D.1 in determining the appropriateness for its reliance on
historical volatility. The Company believes that historical
volatility is the best indicator about its future stock
volatility over the expected term of its options. In
conducting its analyses, the Company determined that:
A. It had no reason to believe that future volatility
over the expected term would differ significantly
from the historical calculated volatility,
B. The calculation of historical volatility used a
simple average calculation method,
C. The term used for the historical data exceeded the
expected term of the options, and
D. It consistently used the historical month-end stock
closing prices throughout the term as the
applicable observation point.
In future filings, the Company will thoroughly disclose in the
critical accounting policies section of its MD&A the
conclusions for using historical volatility.
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Veritec hereby represents that:
- Veritec is responsible for the adequacy and accuracy of the disclosure
in the filings;
- Staff comments or changes to disclosure in response to staff comments
do not foreclose the U.S. Securities and Exchange Commission (the
"Commission") from taking any action with respect to the filings; and
Ms. Kaitlin Tillan, Assistant Chief Accountant
United States Securities and Exchange Commission
Page 4
- Veritec 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.
Please feel free to contact me regarding the contents of this response.
Very truly yours,
/s/ Van Thuy Tran
Ms. Van Thuy Tran
Chief Executive Officer
Veritec, Inc.