-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, POti2G5jHRGS9dgbjYXftIhqcmFnDJ8EcZD0gAuvg95LMGP5mySdbDjSAfJVSmkL B30lnKaF9Q8VaeEQfyJW4w== 0000773318-02-000005.txt : 20021118 0000773318-02-000005.hdr.sgml : 20021118 20021114173143 ACCESSION NUMBER: 0000773318-02-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERITEC INC CENTRAL INDEX KEY: 0000773318 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 953954373 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-15113 FILM NUMBER: 02826526 BUSINESS ADDRESS: STREET 1: 1163 KURSE ST CITY: WEST ST PAUL STATE: MN ZIP: 55118 BUSINESS PHONE: 6515529215 MAIL ADDRESS: STREET 1: 1163 KURSE ST CITY: WEST ST PAUL STATE: MN ZIP: 55118 10QSB 1 q10sep2002.txt 10QSB FOR SEPTEMBER 2002, VERITEC, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-QSB (Mark One) __X____ QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the quarterly period ended September 30, 2002 ________TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-15113 VERITEC INC. (Exact name of registrant as specified in its charter) NEVADA (State or other jurisdiction of incorporation or organization) 95-3954373 (IRS Employer Identification Number) 1430 Orkla Drive, Golden Valley MN 55427 (Address of principal executive offices, zip code) 763-253-2670 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 15 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes X__ No ____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of March 31, 2002 the company had: Number of Shares of Common Stock 6,946,849 Table of Contents FORM 10-QSB VERITEC, INC. INDEX Page PART I. FINANCIAL INFORMATION 3 Item 1 Financial Statements 3 Item 2 Management's Discussion and Analysis of Financial Condition and Plan of Operation 7 Item 3 Controls and Procedures 9 PART II. OTHER INFORMATION 9 Item 6 Exhibits and Reports on Form 8-K 10 SIGNATURES 10 PART I. FINANCIAL INFORMATION Item 1. Financial Statements VERITEC INC BALANCE SHEETS (UNAUDITED) 30-Sep-02 30-Sep-01 Assets Current Assets Cash - 1,260 Receivables 181,021 98,287 Inventories - - Prepaids 4,267 2,517 Total Current Assets 185,288 102,064 Fixed Assets (net) 9,380 11,234 Ingangible assets (net) 83,333 93,333 Investment - Veritec Iconixs Ventures, Inc. 57,189 76,588 Notes Receivable - VIVI 60,300 10,300 Total Assets 395,400 293,519 LIABILITIES & SHAREHOLDERS EQUITY (DEFICIT) Current Liabilities Notes Payable 190,000 100,000 Notes Payable (secured) 397,374 397,374 Current Maturities of Long Term Debt 23,888 23,533 Bank Overdraft 55,898 35,523 Accounts payable & accrued expenses 297,437 217,492 Total current liabilities 964,597 773,922 Long Term Debt 2,066 8,163 Prepayment on stock & subscription receivable 386,400 381,956 Stockholder's equity (deficit) Preferred stock, par value $1.00 authorized 10,000,000 shares, 275,000 shares of series H authorized 366,007 366,007 Common stock, par value $0.01, authorized 20,000,000 shares 69,469 69,469 Subscription receivable (958,339) (989,417) Additional paid in capital 11,819,586 11,795,109 Accumulated deficit (12,254,296) (12,111,690) Stockholders' equity (deficit) (957,573) (870,522) Total liabilities & stockholders equity (deficit) 395,400 293,519 See notes to financial statements. VERITEC INC STATEMENTS OF OPERATIONS (unaudited) For the 3 month period 30-Sep-02 30-Sep-01 Total Revenues 223,700 268,738 Cost of Sales - - Gross Profit 223,700 268,738 Sales Commission - - Gross profit after commissions & warranty 223,700 268,738 Expenses: Administration 219,597 88,402 Sales & Marketing 26,407 3,816 Engineering & R&D 87,640 46,265 Total Operating Expenses 333,644 138,483 Income (loss) from operations (109,944) 130,255 Earnings (Loss) on Investment- VIVI (19,400) Interest Income (expense) net (13,263) (10,449) Total other income (expense) (32,663) (10,449) Net Income (loss) (142,607) 119,806 Earning (loss) per share (0.02) .02 See Notes to Financial Statements. VERITEC INC. STATEMENTS OF CASH FLOWS (unaudited) For the Three Months Ending 30-Sep-02 30-Sep-01 Cash flow from operating activities Net Income (loss) (142,607) 119,806 Adjustments to reconcile net income (loss) to net cash from operating activities. Debt Forgiveness - Depreciation and amortization 11,854 11,997 (Increase) decrease in assets Receivables (82,734) (13,606) Inventories - - Prepaids (1,750) 9,129 Increase (decrease) in liabilities Accounts payable & accrued expenses 79,945 (151,590) Changes in secured liabilities (5,742) - Bank overdraft 20,375 - Investment in VIVI 19,400 - Notes Receivable VIVI (50,000) - Purchase of tangible assets - - Net cash used by operating activities (151,260) (24,264) Cash flow from financing activities Issuance of notes payable 90,000 (25,000) Prepayment on subscription receivable 4,444 (5,556) Subscription receivable 31,078 28,132 Issuance of stock - - Additional Paid in Capital 24,477 27,424 Net cash provided by financing activities 150,000 25,000 Increase (decrease) in Cash Position (1,260) 736 Cash at beginning of the period 1,260 4,405 Cash at the end of the period - 5,141 See notes to financial statements NOTES TO FINANCIAL STATEMENTS A. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended June 30, 2003. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-KSB for the year ended June 30, 2002. Nature of Business Our company was incorporated in Nevada on September 8, 1982. We design, manufacture and sell software related to our patented, proprietary VeriCode two-dimensional barcode. VeriCode writing software enables an identifying symbol to be placed on an item, and VeriCode reading software enables the symbol to be read, permitting identification of the item at a later time. For example, our software is used to help automate the computer screen (LCD) manufacturing process. We sell software that can read VeriCode symbols that are covered by "chrome," a material that makes the VeriCode symbol almost invisible to the naked eye. The VeriCode symbol is able to store a large amount of data in a small space. We are developing a product that encodes biometric data into a two-dimensional bar code, the VeriSecure symbol. After this symbol is printed onto an identification card, our software can be used to read the data off the card, and compare that data to the fingerprint of the person who is presenting the card. In this way the VeriSecure symbol can be used to confirm that the person who possesses the identification card is the person to whom the card was issued. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our present operations are limited and do not require use of estimates that are critical to a fair presentation of our financial position and results of operations. Cash Cash balances are maintained in a single financial institution. The balances from time to time exceed the federally insured limits of $100,000. The company has experienced no losses in these accounts and believes that it isnot exposed to any significant risk of loss on its cash balances. The cost and fair market value of any financial instruments held are approximately equal. Revenues Revenues from products and engineering sales are recognized when the products are shipped and services preformed. Royalties and license fees are recognized upon completion of the terms of the applicable agreement. Foreign-based revenue accounted for 100% of the revenues earned from sales of product and royalties during this quarter. All sales of products for the quarter were received in United States dollars. There was no currency exchange risk. Debt Forgiveness During the quarter ended March 31, 2002, the Company recognized debt forgiveness of $70,429 related to elimination of a liability that the Company disputes. It is the Company's position that if this liability was ever valid, it constituted pre-petition indebtedness. As such, the liability was subject to the Company's former bankruptcy proceedings. The individual claiming this obligation never filed a claim in the Company's bankruptcy proceedings. This individual has also failed to respond to the Company's requests for proof of the claim. As such, the Company determined that the liability should be eliminated. There can be no assurance that, in the future, this claim will not be renewed against the Company. Other Information None. Item 2. Management's Discussion and Analysis MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Liquidity and Capital Resources Debt owed by us at September 30, 2002 was as follows (unaudited) (unaudited) increase 30-Sep-02 30-Sep-01 (decrease) Notes Payable 190,000 - 190,000 Notes Payable (secured) 397,374 397,374 - Convertible note (secured) - - - Bank overdraft 55,898 - 55,898 Accounts payable & accrued expenses 297,437 364,260 (66,823) Total Liabilities 940,709 761,634 179,075 Our working capital is shown below. (unaudited) (unaudited) 30-Sep-02 30-Sep-01 Working Capital (deficit) (779,309) (520,764) We do not expect revenues from operations to be adequate to meet all of our costs and expenses for the remainder of the fiscal year. We must secure adequate and stable financing to allow us to meet the selling opportunities that exist. We are continuing to solicit present customers, develop future customers, add sufficient staff, and raise additional investment in order to increase our sales. However, there is no assurance that any of these efforts will result in additional sales sufficient to generate adequate revenues to meet the costs and expenses of operations. Financial and Operational Outlook Revenues for the three months ended September 30, 2002, and September 30, 2001, were $223,700, and $268,738, respectively. The decreased revenue for 2002 is a result of reduced royalties from Mitsubishi due to the arbitration suit. Results of Operations The quarter's revenue of $223,700 represents a 16.8% decrease from $268,738 in the same quarter in 2001. Purchases in this industry fluctuate, as new factories are opened, so significant quarterly fluctuations can be expected. Negotiations are currently in progress to establish Distributors for product sales. We feel the increased sales force of Distributors can more rapidly market Veritec products thus increasing sales volume despite having to sell at lower sales prices (discounts). We will be requiring each Distributor to pay an upfront fee for the right to purchase our software at the lower price and thereby help offset the lower sales price. Operating expenses increased for the quarter ended September 30, 2002, to $333,644. This represents a 241% increase from the same quarter in 2001. This increase includes an increase in Engineering and Research and Development, which was a result of additional contract labor. Sales and Marketing was also higher than the same quarter last year. This was caused by a $15,000 expenditure for some promotional work. Administration costs for the three months ended September 30, 2002were significantly increased as a result of $80,000 for court costs due to the Mitsubishi arbitration, $30,000 for legal costs also associated with the arbitration and the remainder due to additional legal and audit fees for the yearend SEC filings. Non-operating income for the three months ended September 30, 2002 shows a loss from investment of $19,400 from VIVI, our Japanese operation. Operating Expenses for the 3 months ended 30-Sep-02 30-Sep-01 Increase/ (decrease) General and Administrative 219,597 88,402 131,195 Sales and marketing 26,407 3,816 22,591 Engineering, R&D 87,640 46,265 41,375 Totals 333,644 138,483 195,161 Capital Expenditures and Future Commitments No capital expenditures for equipment were made during the period. On January 30, 2002, Veritec, Inc. and the Matthews Group LLC formed Veritec Iconix Ventures, Inc. (VIVI), a Delaware corporation. Each company own 50% of the outstanding shares of common stock of VIVI. In April 2002, The Matthews Group loaned Veritec $100,000, $50,000 of which Veritec subsequently used to make its initial capital contribution to VIVI. The promissory note to The Matthews Group bears interest at a rate of 10% per annum and is due in one year. Additionally, the promissory note is convertible into common stock of the company at a price of $0.25 per share. Subsequent to the formation of VIVI, on February 13, 2002, VIVI entered into an agreement to purchase 100% of the outstanding equity securities of Iconix, Inc., a Japanese corporation, pursuant to a Stock Purchase Agreement, dated February 13, 2002, by and among VIVI, Iconix, Inc., Masayuki Kuriyama and Yoshihiro Tasaka. The total consideration for the purchase consisted of 300,000 shares of Veritec common stock and $100,000 in U.S. dollars. The 150,000 shares contributed by Veritec represented newly issued shares of the company. The 150,000 shares contributed by The Matthews Group represented a portion of the shares already owned. Although we continue to minimize spending for capital expenditures, we believe our need for additional capital equipment will continue because of the need to develop and expand our business. The amount of such additional capital is uncertain and may be beyond that generated from operations. Factors that may affect future results. The Matthews Group continues to make payments to the Company of $18,518.52 per month as required by its subscription agreement. The Matthews Group has, from time to time, advanced amounts in addition to the required monthly payment as needed to finance our continued operations, and we rely on these advances. We will require financing in excess of the Matthews Group's commitment until revenue increases sufficiently to cover our expenses. We are seeking capital from various sources, but there is no assurance that adequate capital can be raised. There is no formal commitment on the part of the Matthews Group or any other person to provide additional cash. We have begun an arbitration process with Mitsubishi regarding underpayment of royalties. An adverse outcome to this arbitration proceeding could lower our royalty receipts. Item 3. Controls and Procedures We currently employ 6 employees. All of our employees report directly to the CEO. We have regular meetings to review our business and operations. Our CEO and CFO have reviewed our disclosure controls and procedures and given the simplicity of our business they have concluded our current system is adequate to report all material events and information necessary to ensure compliance with our disclosure requirements. PART II OTHER INFORMATION Item 1. Legal Proceedings. On June 30, 2000 we were served as a defendant in the matter of Wolodymyr M. Starosolsky vs. Veritec, Inc., et al., in the United States District Court for the Central District of California (Case Number CV-00-7516DT ((Wx))). This suit was brought by a shareholder and former director of the corporation. The action was brought against Veritec, Inc., and various individuals claiming that certain corporate actions were taken without proper authority of the corporation's board of directors and/or contrary to the plan of reorganization the corporation filed and completed under Chapter 11 of the U.S. Bankruptcy Act. In December 2000, this case was transferred to the United States District Court for the District of Minnesota. This case is in the discovery phase, but no discovery has been undertaken to date. We intend to defend this action vigorously. In 2001, we filed a complaint against a former employee citing breach of contract. This year a settlement was reached. As part of this settlement, we obtained a software library that reads and decodes a wide range of one-dimensional and two-dimensional barcodes, including QR code and Data Matrix. This settlement agreement also relieved us of any future obligations to this former employee. This settlement resulted in a recognized gain from debt forgiveness of $75,988. We have begun an arbitration process with Mitsubishi Corporation in California claiming Mitsubishi failed to pay royalties due under the agreement, and failure to honor a letter of intent Mitsubishi Corporation has denied our claims, and, in addition, raised a counterclaim alleging that Veritec, Inc. misused certain information claimed by Mitsubishi to be confidential. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the period covered by this report. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. None. SIGNATURES In accordance with requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Veritec Inc. Date: November 14, 2002 s Van Tran CEO I, Van Thuy Tran, certify that: 1. I have reviewed this annual report on Form 10-Q for the quarter ended September 30, 2002 of Veritec, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November ___, 2002 ___________________________________ Van Thuy Tran Chief Executive Officer and Chief Financial Officer Exhibit Index Page Exhibit 99.1 Certificate pursuant to Section 906 13 of the Sarbanes-Oxley Act of 2002 Exhibit 99.1 VERITEC, INC. CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) The undersigned, Van Thuy Tran, the Chief Executive Officer and Chief Financial Officer of Veritec, Inc. (the "Company") has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2002 (the "Report"). The undersigned hereby certifies that: the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned has executed this Certification as of the __ day of November 2002. Van Thuy Tran Chief Executive Officer and Chief Financial Officer 3 -----END PRIVACY-ENHANCED MESSAGE-----