VERTICAL COMPUTER SYSTEMS, INC.
201 MAIN STREET, SUITE 1175
FORT WORTH, TX 76102
June 22, 2006
VIA EDGAR AND FACSIMILE (202) 772-9210
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Mr. Daniel L. Gordon
Branch Chief
United States Securities and Exchange Commission
450 Fifth Street, N.W., Mail Stop 4561
Washington, DC 20549
RE: VERTICAL COMPUTER SYSTEMS, INC.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2005
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006
FILED 4/14/06
FILE NO. 0-28685
Dear Mr. Gordon:
This letter has been prepared in response to your request for Vertical
Computer Systems, Inc. ("Vertical" or the "Company") to respond to the comments
of the United States Securities and Exchange Commission (the "SEC" or the
"Commission") as memorialized in your June 14, 2006 letter to me (the "Comment
Letter") concerning the above-referenced Form 10-KSB for the fiscal year ended
December 31, 2005 (the "Form 10-KSB") and Form 10-Q for the quarter ended March
31, 2006.
The Company's responses to the Comment Letter appear below in boldface
capitalization after a recitation of the relevant comment.
General
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COMMENT 1: Please provide us with the acknowledgements that we have
requested at the end of this letter.
RESPONSE: THE COMPANY HEREBY ACKNOWLEDGES THE FOLLOWING TO THE
COMMISSION:
o THE COMPANY IS RESPONSIBLE FOR THE ADEQUACY AND ACCURACY
OF THE DISCLOSURES IN THE COMPANY'S FILING WITH THE
COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, (THE "FILINGS");
o STAFF COMMENTS, OR CHANGES TO DISCLOSURE IN RESPONSE TO
STAFF COMMENTS, DO NOT FORECLOSE THE COMMISSION FROM
TAKING ANY ACTION WITH RESPECT TO THE FILINGS; AND
o 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.
Mr. Daniel L. Gordon
June 22, 2006
Page 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 13. STOCK OPTIONS AND WARRANTS, PAGE F-33
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COMMENT 2: We note your response to comment 2. Please advise us of the
revisions you intend to make in all future filings to clarify
the terms of your outstanding stock options and warrants in
accordance with paragraph A240 or SFAS 123(R). It does not
appear that the requested disclosures were provided in the
Form 10-Q filed May 22, 2006.
RESPONSE: THE COMPANY ACKNOWLEDGES THE COMMISSION'S COMMENT 2. CERTAIN
DISCLOSURES REQUIRED BY SFAS 123(R), PARAGRAPH A240 WERE
OMITTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE
QUARTER ENDED MARCH 31, 2006 BECAUSE THEY WERE NOT APPLICABLE
OR WERE CONSIDERED IMMATERIAL OR NON-SUBSTANTIVE. FUTURE
FILINGS WILL BE REVISED TO INCLUDE AND CLARIFY THE TERMS OF
THE COMPANY'S OUTSTANDING STOCK OPTIONS AND WARRANTS IN
ACCORDANCE WITH PARAGRAPH A240 OF SFAS 123(R) AS FOLLOWS:
o THE COMPANY WILL INCLUDE A MORE DETAILED DESCRIPTION OF
THE SHARE-BASED PAYMENT ARRANGEMENTS, INCLUDING THE
GENERAL TERMS OF THE ARRANGEMENTS, SUCH AS THE REQUISITE
SERVICE PERIOD AND ANY OTHER SUBSTANTIVE CONDITIONS, THE
MAXIMUM CONTRACTUAL TERM OF EQUITY SHARE OPTIONS AND
WARRANTS, AND THE NUMBER OF SHARES AUTHORIZED FOR AWARDS
OF EQUITY SHARE OPTIONS AND WARRANTS. THE COMPANY WILL
ALSO DISCLOSE THE METHOD USED FOR MEASURING COMPENSATION
COST FROM SHARE-BASED PAYMENT ARRANGEMENTS WITH
EMPLOYEES.
o THE COMPANY WILL INCLUDE THE EXPECTED TERM, EXPECTED
VOLATILITY, EXPECTED DIVIDENDS, AND RISK-FREE RATES FOR
SHARE OPTIONS.
o THE COMPANY WILL ALSO USE A MORE DETAILED DISCLOSURE
CHECKLIST FOR ALL FUTURE FILINGS TO ENABLE THE COMPANY
TO INCORPORATE ALL REQUIRED DISCLOSURES UNDER SFAS
123(R), ALTHOUGH THE AFFECT ON THE FINANCIAL STATEMENTS
IS CONSIDERED IMMATERIAL.
Mr. Daniel L. Gordon
June 22, 2006
Page 3
Should you have any questions concerning this Response Letter, please
contact me at (323) 842-5241.
Very truly yours,
/s/ Richard Wade
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Richard Wade
President and Chief Executive Officer
cc: Clayton E. Parker, Esq ,Kirkpatrick & Lockhart Nicholson Graham, LLP