-----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, OmWRkF9TOlrmnwmhe5d+FtLmq1rR54/ajMu91yUli4hoA3pRMiY48BQOmV3alU7B 8+ATrAHbDUm8k1RyOcH18A== 0001017386-99-000024.txt : 20000211 0001017386-99-000024.hdr.sgml : 20000211 ACCESSION NUMBER: 0001017386-99-000024 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19990930 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: SEC FILE NUMBER: 000-15113 FILM NUMBER: 99720500 BUSINESS ADDRESS: STREET 1: 16461 SHERMAN WAY STREET 2: STE 125 CITY: VAN NUYS STATE: CA ZIP: 91406 BUSINESS PHONE: 8187824500 MAIL ADDRESS: STREET 1: 16461 SHERMAN WAY STREET 2: SUITE 125 CITY: VAN NUYS STATE: CA ZIP: 91406 10QSB 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 - -------------------------------------------------------------------------------- FORM 10-QSB (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------- --- 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) 16461 SHERMAN WAY, #125, VAN NUYS, CA. 91406 ----------------------------------------------------------- (Address of principal executive offices, zip code) (818) 782-4500 ----------------------------------------------- (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 13 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 No X -- -- 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 October 31, 1996 the Company had 2,085,600 shares of common stock. This document consists of 18 pages, including 4 exhibit pages. The Exhibit index is on page 13. 1 PART 1. FINANCIAL INFORMATION ITEM 1. Financial Statements VERITEC INC. BALANCE SHEET (Unaudited) September 30, 1996 ---- ASSETS Current Assets: Cash 1,886 Inventories 20,572 ------ Total current assets 22,458 Intangible asset 11,250 Furniture and equipment, net (Note 2) 20,289 Note and interest receivable from officer 280,004 Deposits - ------- 334,001 ======= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY): Current Liabilities: Convertible subordinated notes payable 556,479 Notes payable 113,801 Notes payable (secured) 350,000 Accounts payable and accrued expenses 622,826 Accrued Interest (note) - Deferred compensation 773,662 Accounts payable - post bankruptcy 5,851 Notes payable - post bankruptcy 32,500 ------ Total current liabilities 2,455,119 Secured convertible notes payable 875,003 Junior subordinated convertible notes 1,889,108 --------- Total liabilities 5,219,230 --------- Shareholdrs' equity (deficiency) Preferred stock 441,836 Common stock; $.01 par value, authorized 20,000,000 shares 2,085,600 shares issued and outstanding 183,164 Additional paid in capital 4,104,721 Accumulated deficit -9,614,950 ---------- Net shareholders' equity (deficiency) -4,885,229 ---------- 334,001 ======= See Accompanying Notes to the Financial Statements 2 VERITEC INC. STATEMENT OF OPERATIONS (Unaudited) For the three months ended September 30, 1996 1995 ---- ---- Revenues 31,321 39,737 Cost of Sales 19,699 31,790 ------ ------ Gross profit 11,622 7,947 ------ ----- Expenses: General and administrative 25,708 28,172 Sales and Marketing 4,047 44,992 Engineering, research and development 18,370 36,030 ------ ------ 48,125 109,194 ------ ------- Gain (Loss) from operations -36,503 -101,247 Costs associated with bankruptcy 39,857 Interest expense, net - 54,805 ------- Net loss -76,360 -156,052 ======= ======== Net loss per common share -0.04 -0.07 ===== ===== Weighted average common shares 2,085,600 2,085,600 outstanding ========= ========= See Accompanying Notes to the Financial Statements 3 VERITEC INC. STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended September 30, 1996 1995 ---- ---- Cash flow from operating activities: Net loss -76,360 -156,052 ------- -------- Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 9,809 11,159 Notes and interest receivable from Officer - -3,218 Increase (decrease) in liabilities: Accounts payable and accrued expenses 5,851 22,080 Deferred compensation - 59,449 Accrued interest 58,023 ------ ------ Total adjustments 15,660 147,493 ------ ------- Net cash used by operating activities -60,700 -8,559 ------- ------ Cash flow from financing activities: Issuance of secured notes 28,661 - Issuance of notes payable 32,500 10,000 ------ ------ Net cash provided by financing activities 61,161 10,000 ------ ------ Increase (decrease) in cash position 461 1,441 Cash at beginning of period 1,425 364 ----- --- Cash at end of period 1,886 1,805 ===== ===== Supplemental disclosure of cash flow information: Cash paid during the period: Interest - - Income taxes - - See Accompanying Notes to the Financial Statements 4 VERITEC INC. NOTES TO THE FINANCIAL STATEMENTS September 30, 1996 (unaudited) NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization and Operations - --------------------------- Veritec Inc. (the Company) was incorporated in Nevada on September 7, 1982, The Company is primarily engaged in development, marketing and sale of a line of microprocessors-based encoding and decoding system products that utilize its patented VERICODE(r) Symbol technology. The Company's VeriSystem(tm) enables a manufacturer or distributor to use unique identifiers or coded symbols containing binary encoded data with a product. The VeriSystem enables automatic identification and collection of a greater amount of data than conventional bar codes. Chapter 11 Bankruptcy - --------------------- On February 11, 1996 the Company received notice that a petition filed by creditors for Relief Under Chapter 7 of Title 11 of the United States Code was Granted and the Company was placed in Chapter 7 Bankruptcy. On April 11, 1996 the Bankruptcy court granted the Company's motion to convert the Chapter 7 to a chapter 11 Bankrutpcy. The Court set a date of August 14 for a scheduling order, when the Company is to have a Plan presented to the Judge. Basis of Presentation - --------------------- The unaudited financial statements presented herein have been prepared by the Company, without audit, pursuant to the rules and regulations for interim financial information and the instructions to Form 10-QSB and Regulation S-B. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been omitted. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Report on Form 10-KSB for the fiscal year ended June 30, 1997. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals only) which are necessary to present fairly the consolidated financial position, results of operations, and changes in cash flow of the company. Operating results for interim periods are not necessarily indicative of the results for interim periods are not necessarily indicative of the results which may be expected for the entire year. Per Share Computations - ---------------------- Loss per share is based upon the weighted average number of shares of common stock outstanding during the respective periods. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment on September 30, 1996 is comprised of the following: Equipment $ 271,559 Furniture and fixtures 60,773 -------- 332,332 5 Less accumulated depreciation and amortization 312,043 -------- $ 20,289 ======== NOTE 3 - COMMITMENTS AND CONTINGENCIES Contingencies - ------------- The Company has numerous commitments and contingent liabilities which are discussed in the Management Discussion and Analysis section of this Form 1--QSB, which are incorporated herein by reference. Pending Litigation - ------------------ As stated in Note 1, the Company is currently in Chapter 11 Bankruptcy, therefore, all pending litigation or threats of litigation will be addressed in conjunction with regular bankruptcy proceedings. Notes payable to a group of secured creditors - "The Gant Group" - ---------------------------------------------------------------- As discussed in the 1994 Form 10-KSB, the Company has outstanding an aggregate of $265,400 of notes payable with three common stock purchase warrants attached for each $10.00 loaned. These "Notes Payable with Warrants" bear interest at 7% per annum payable annually and mature on various dates from June 1995 to June 1997. The noteholders filed a collateral security interest with the U.S. Patent Office. At the end of the prior quarter, these notes were in default due to non-payment of accrued interest which was originally due June 30, 1994. In December 1994, the noteholders brought action against the Company in the Superior Court of California for the County of Riverside (case no. 257856) (the "Action") to foreclose on its alleged security and to sell the patents at public sale for payment of the amounts due under the Notes Payable with Warrants. On January 20, 1995, the Company entered into an agreement with the noteholders wherein the noteholders caused the Action to be dismissed without prejudice. As consideration for this dismissal, the Company admitted the amount and validity of the debt and the Security Agreement, and that it has no affirmative defenses, offsets or counterclaims to the noteholders claims. If the Note obligation, as defined in the Agreement, is not paid in full on or before October 1, 1995, the noteholders may cause the Action to be filed against the Company. However, on October 1, 1995, as an alternative, the Company may at its election and by paying the accrued interest and one-half of the principal obligation of the notes, extend the payment to April 21, 1996. On or about October 10, 1995, the Gant Group filed a Complaint for default under the Security Agreement for a judicial foreclosure of the Patents. The complaint was captioned, Richard A. Gant Agent, v. Veritec, Inc., et al., Case No. 272019 in the Superior Court of the State of California, County of Riverside. However, on October 1, 1995, as an alternative, the Company had been given an election to pay the accrued interest and one-half of the principal obligation of the notes and could then extend the balance of payment to April 21, 1996. Since the Company is under the direction of a Chapter 11 Bankruptcy Court, the case filed by the "Gant Group" against the Company was remanded from the Superior Court to the Bankruptcy Court. In July 1996, the Gant Group filed a motion in the Bankruptcy Court for 6 Relief from the automatic Stay. This Relief from automatic stay was to allow the "Gant Group" to file the Stipulation of Judgment to Foreclose the Security Interest in the Company's Patents. On July 25, 1996 the Bankruptcy Court Judge denied the motion for Relief of Stay. Several other creditors and creditor groups opposed the granting of this automatic stay. The Company is currently a party to several material pending legal proceedings. The results of any litigation proceeding cannot be predicted with certainty. However, in the opinion of management, the company believes that the potential liability in connection with these proceedings could have a material effect on the current, already extended financial condition of the Company. The litigation proceedings are discussed under Part II, Item 1 of this Form 10-QSB and also in the 1994 Form 10-KSB, both of which are incorporated herein by reference. Default with West America Securities Corp. - ------------------------------------------ In May 1994, the Board of Directors committed to issue West America Securities Corp. ("West America"), a Los Angeles-based broker/dealer, 400,000 shares of common stock for services rendered. During the quarter ending September 30, 1994, West America agreed to cancel this consulting agreement. However, the Company is in default of certain provisions of this cancellation, primarily the repayment by the Company to West America and their referrals, of certain funds, aggregating approximately $50,000, which were invested in the Company by these respective parties. Some of the participants in the West America threatened legal action if they were not paid the amounts due them. Three of the creditors in the West America group were the ones who filed to put the Company into chapter 7 Bankruptcy. NOTE 4 - GOING CONCERN AND MANAGEMENT'S PLANS As stated in Note 3, the Company is in Chapter 11 Bankruptcy. In Chapter 11, the Company must have a Plan of Reorganization approved and confirmed by the Court. The proposed Plan must be approved by Creditors and Stockholders prior to confirmation by the Court. There is considerable expense and time involved in communicating with all of the creditors and stockholders in preparation to proposing a final plan to the Court. There is no assurance that the Company will be able to find a participating funding partner, have finances to complete a Plan of Reorganization and meet the qualifications required to have a Plan confirmed. Consolidated Industries, Inc., investment plan. - ----------------------------------------------- In July 1996, a newly formed company named Consolidated Industries, Inc., approached the Company regarding the financing of a Plan of Reorganization. They proposed by Letter of Intent the following criteria that was presented to the Company's Board of Directors on July 13, 1996: 1. That Veritec shall be authorized to immediately borrow the sum of $20,000.00 from Consolidated for emergency capital (the "Temporary Emergency Funding"). The Temporary Emergency Funding shall be allocated at $10,000.00 payable as a retainer against future charges to Veritec's Chapter 11 legal counsel, Smith & Stark, so that legal work can commence immediately to obtain court approval of all terms of the Letter of Intent and to prepare a Plan of Reorganization. 7 The remaining $10,000.00 of Temporary Emergency Funding shall be borrowed by Veritec from Consolidated on an as needed basis, based upon applications submitted by Jack Dahl to Consolidated. 2. That Smith & Stark shall be authorized to immediately prepare an emergency motion before the United States Bankruptcy Court to: (a) Obtain court approval for Veritec to borrow up to a total of $100,000.00 in Temporary Operating Funding from Consolidated (of which the $20,000.00 in Temporary Emergency Funding is a part) and to grant Consolidated a security interest in all post- petition assets of Veritec to secure said loan; (b) That Smith & Stark shall also be authorized to immediately work with representatives of Consolidated to prepare a Plan of Reorganization based upon the terms contained in the Letter of Intent. Those general terms are: (I) Consolidated will have available to Veritec a Five Hundred Thousand Dollar ($500,000.00) Standby letter of credit to be drawn by Veritec upon confirmation of the Reorganization plan by the U. S. Bankruptcy Court as proposed by Veritec. (ii)As part of the Letter of Intent, Consolidated will also provide to Veritec assets with an appraised Fair Market Value in excess of Two Million Dollars ($2,000,000.00) free and clear of any liens, mortgages or other encumbrances, to ensure Veritec's ability to issue new shares of stock for the reorganization. That Veritec appoint Mr. Herman Siegal, Mr. Patrick Zilliacus and Mr. Tom Fitzpatrick to its board of directors to form a seven-member board. That the board work closely with Consolidated in proposing a reorganization plan to bring Veritec out of bankruptcy. The Company's Board of Directors approved the above items. The Company did not make filings of 10KSBs for the fiscal years ending June 30, 1995 and 1996. For the fiscal year ending June 30, 1994, the independent auditor's report included an explanatory paragraph calling attention to a going concern issue. The accompanying quarterly unaudited financial statements have also been prepared contemplating continuation of the Company as a going concern. Change of Address - ----------------- In order to reduce operating costs to a minimum, the Company moved to a one room office and put the bulk of furniture, fixtures and equipment in storage. The new address was: 26540 Agoura Road, Suite 227 Calabasas, CA 91302 NOTE 5 - SUBSEQUENT EVENTS On October 9, 1996 Consolidated Industries, Inc., filed a motion with the 8 Bankruptcy Court to approve the Post Petition borrowing and to grant lender a senior security interest in the Company's assets. On November 3, 1996, the Court denied the motion. Consolidated had loaned the Company $28,000 at the time of the denial. Consolidated then came to the Company with a revised proposal that included only $150,000 to take care of the Administrative Expenses of the Plan and no additional funding for operations. Consolidated also proposed a change in their equity position that was totally unacceptable to the Company's Board of Directors. The above activity delayed the Company's ability to propose a Plan to the Court by the assigned date of October 4, 1996 and the Company requested a postponement of the filing date. This request was granted by the Court. Mr. Howard Behling had been working with Consolidated Industries, Inc., in their proposed plan. When Consolidated was either unwilling or unable to fund the plan accepted by the Company's Board of Directors, their proposed three Directors resigned from the Board and Mr. Behling introduced another company named HOMETREND as a possible supplier of the funding. PART I. FINANCIAL INFORMATION ITEM 2. Management' Discussion and Analysis MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - September 30, 1996 compared to June 30, 1996. - ------------------------------- During the quarter ended September 30, 1996, the Company received cash from revenues totaling $31,321. The only additional capital coming into the Company during the quarter ended September 30, 1995 was the $28,000 received from Consolidated Industries, Inc. Since the Company is in bankruptcy, there is no continuation of interest or other charges relating to past debt. The Company is in discussion with Mitsubishi Corporation regarding a possible license, Trade Mark or other arrangement for financing operations. Management expects to conclude a financing arrangement with Mitsubishi Corporation in the next 60 days. Regardless, unless the Company achieves significant cash flow from sales and revenues, there is no assurance that funding from other sources will be adequate to allow the Company to emerge from bankruptcy. Debt owed by the Company at September 30, 1996 is as follows: Debt category Sept.30,1996 June 30, 1996 Incr./(Decr.) ------------------ ------------------ ------------------- Convertible subordinated notes payable $ 556,479 $ 556,479 - Notes payable 146,301 113,801 32,500 Notes payable with warrants 350,000 321,339 28,661 Accounts payable and accrued expenses 628,677 622,826 5,851 Deferred compensation 773,662 773,662 - Secured convertible notes payable 875,003 875,003 - Junior subordinated convertible notes 1,889,108 1,889,108 - ================== ================== =================== 9 $ 5,219,230 $ 4,792,447 $ 67,012 ================== ================== =================== ================== ================== ===================
During the quarter ending September 30, 1995 the Company's liquidity continued to deteriorate due in part to continuing losses from operations. The Company's liquidity (working capital) is reflected in the table below which shows comparative working capital as of September 30, 1996 and June 30, 1996. Sept. 30, 1996 June 30, 1996 -------------- ------------- Working capital (deficit) $ (2,432,661) $ (2,366,110) Until a Plan of Reorganization is developed and confirmed, it is unknown what effect such a Plan will have on the current working capital position of the Company. Management is of the opinion that there will be significant adjustments of debt to equity under a Plan. Financial and Operational Outlook - --------------------------------- Although there is no assurance that the Company will generate any material revenues or cash flows from operations in the next fiscal year, management believes the Company has prospects for generating such revenues. Several developments occurred during the year which the Company believes have increased that potential. Discussions with Mitsubishi Corporation are progressing and Management expects to be able to obtain short term working capital from some agreement with them. At September 30, 1996 and continuing through the date of the filing of this report, the Company continued to have an extremely serious insolvency problem. Although management believes it is making progress in maintaining itself in the face of its severe financial problems, there is no assurance that the Company will be able to emerge from Bankruptcy. In order to do so, the Company must have an investing partner for a Plan of Reorganization and also have interim financing to keep operations and the Company active during this period. Results of Operations - The quarter ended September 30, 1996 compared to ---------------------- the quarter ended September 30, 1995. The Company had revenues of $31,321 during the quarter ended September 30, 1996 as compared to $39,737 for the period ended September 30, 1995.. The revenues for these periods were for engineering services and sale of products. The decrease in revenues for the 1995 period was due to reduced outside engineering services and sales of products. The Company is in discussions with several potential customers for systems sales but cannot project future revenues, if any, at this time. The Company is also in the discussion stage of potential licensing or partnering for product or industry segment opportunities with several companies. Because of its cash flow and liquidity problems, there are no assurances that the Company can ever generate revenues. For the three months ended Expense category Sept. 30, 1996 Sept. 30, 1995 Incr./(Decr.) ---------------- ---------------- ----------------- 10 General and administrative $ 25,708 $ 28,172 $ (2,464) Marketing and advertising 4,047 44,992 (40,945) Engineering, research and development 18,370 36,030 (17,660) ================ ================ ================= $ 48,125 $ 109,194 $ (61,069) ================ ================ =================
The decrease in general and administrative expenses for the comparable three month period, as shown in the above table, was due primarily to a decrease in salaries to executive officers and decrease in rent.. The decrease in sales and marketing expenses for the comparable three month period, as shown in the above table, was due to a reduction in the number of employees and limited sales and marketing travel and show expense. The decrease in engineering, research and development expenses for the comparable three month periods, as shown in the above table, was due primarily to the Company's engineering staff leaving employment with the Company and setting up a separate outside of the Company Engineering Group. This Engineering Group will work on a consulting basis with the Company if the Company has sales that require engineering services. Capital Expenditures and Commitments - ------------------------------------ The Company had no expenditures for capital assets during the quarter ended September 30, 1995. Other than for nominal computer and office equipment needed to expand its businesses, the Company has no current commitments for material capital expenditures in the next 12 months. The Company believes its need for additional capital will continue because of the need to develop and expand its business. The amount of such additional capital required is uncertain and may be beyond that generated from operations. There can be no assurance that the Company will be able to obtain any such capital on satisfactory terms. Factors that may effect future results - -------------------------------------- The major factor effecting future results is the current bankruptcy situation in the company. Since future operations of the Company are dependent on the Company emerging from bankruptcy, there is no assurance that the Company will be able to find a funder for the Plan or have the financial means to maintain operations and bear the expense of the Plan. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Notes payable to a group of secured creditors - "The Gant Group" - ---------------------------------------------------------------- As discussed in the 1994 Form 10-KSB, the Company has outstanding an aggregate of $265,400 of notes payable with three common stock purchase warrants attached for each $10.00 loaned. These "Notes Payable with Warrants" bear interest at 7% per annum payable annually and mature on various dates from June 1995 to June 1997. The noteholders filed a collateral security interest with the U.S. Patent Office. At the end of the prior quarter, these notes were in default due to non-payment of accrued interest which was originally due June 30, 1994. In December 1994, the noteholders brought action against the Company in the Superior Court of California for the County of Riverside (case no. 257856) (the "Action") to foreclose on its alleged security and to sell the patents at public sale for payment of the amounts due under the Notes Payable with Warrants. 11 On January 20, 1995, the Company entered into an agreement with the noteholders wherein the noteholders caused the Action to be dismissed without prejudice. As consideration for this dismissal, the Company admitted the amount and validity of the debt and the Security Agreement, and that it has no affirmative defenses, offsets or counterclaims to the noteholders claims. If the Note obligation, as defined in the Agreement, is not paid in full on or before October 1, 1995, the noteholders may cause the Action to be filed against the Company. However, on October 1, 1995, as an alternative, the Company may at its election and by paying the accrued interest and one-half of the principal obligation of the notes, extend the payment to April 21, 1996. On or about October 10, 1995, the Gant Group filed a Complaint for default under the Security Agreement for a judicial foreclosure of the Patents. The complaint was captioned, Richard A. Gant Agent, v. Veritec, Inc., et al., Case No. 272019 in the Superior Court of the State of California, County of Riverside. However, on October 1, 1995, as an alternative, the Company had been given an election to pay the accrued interest and one-half of the principal obligation of the notes and could then extend the balance of payment to April 21, 1996. Since the Company is under the direction of a Chapter 11 Bankruptcy Court, the case filed by the "Gant Group" against the Company was remanded from the Superior Court to the Bankruptcy Court. In July 1996, the Gant Group filed a motion in the Bankruptcy Court for Relief from the automatic Stay. This Relief from automatic stay was to allow the "Gant Group" to file the Stipulation of Judgment to Foreclose the Security Interest in the Company's Patents. On July 25, 1996 the Bankruptcy Court Judge denied the motion for Relief of Stay. Several other creditors and creditor groups opposed the granting of this automatic stay. Possible unasserted claims - -------------------------- The Company believes that it may be subject to certain, as yet unasserted, claims and assessments surroundings several events and circumstances including, among other matters, employees for unpaid compensation; collection agencies related to unpaid vendors and/or claims from other third parties, creditors or shareholders. It is expected that these matters will be addressed in conjunction with the bankruptcy proceedings. Default with West America Securities Corp. - ------------------------------------------ In May 1994, the Board of Directors committed to issue West America Securities Corp. ("West America"), a Los Angeles-based broker/dealer, 400,000 shares of common stock for services rendered. During the quarter ending September 30, 1994, West America agreed to cancel this consulting agreement. However, the Company is in default of certain provisions of this cancellation, primarily the repayment by the Company to West America and their referrals, of certain funds, aggregating approximately $50,000, which were invested in the Company by these respective parties. Some of the participants in the West America threatened legal action if they were not paid the amounts due them. Three of the creditors in the West America group were the ones who filed to put the Company into chapter 7 Bankruptcy. 12 SEC reporting obligations - ------------------------- The Company is subject to the continuing reporting obligations of the Securities Exchange Act of 1934 (the "1934 Act") which, among other things, requires the filing of annual and quarterly reports and proxy materials with the Securities and Exchange Commission ("the SEC"). The Company has not complied with timely filing of 10-KSB and 10-QSB reports and therefore is in violation with its obligations under the 1934 Act. To the Company's knowledge, there is no current inquiry or investigation pending or threatened by the SEC in regards to these reporting violations. However, there can be no assurance that the Company will not be subject to such inquiry or investigation in the future. As a result of any potential or pending inquiry by the SEC or other regulatory agency, the Company may be subject to penalties, including among other things, suspension of trading in the Company's securities, court actions, administrative proceedings, preclusion from using certain registration forms under the 1994 Act, injunctive relief to prevent future violations and/or criminal prosecution. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULT UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. There were no matters submitted to a vote of Security-Holders during the quarter ended September 30, 1996. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 1. Order denying motion for relief from stay. 2. Order denying debtors motion to approve post petition borrowing and permission to grant the lender a senior security interest in the debtor's assets to secure the loan. (b) Reports on Form 8-K: None 12 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VERITEC INC. ------------ (Registrant) Date: August 15, 1999 ---------------- By: ____________________________________ Jack E. Dahl Chief Financial Officer and Chief Accounting Officer 14 1||LARRY W. SMITH, ESQUIRE, No. 89148 -------------------------------- | ||Member of SMITH & STARK | FILED | | 2||Attorneys at Law | |--------------------------| | | ||3550 Wilshire Blvd., Suite 1760 | | JUL 25 1996 | | | 3||Los Angeles, CA 90010-2524 | |--------------------------| | | ||(213) 383-2222 | CLERK, U.S.BANKRUPTCY COURT | | 4|| |CENTRAL DISTRICT OF CALIFORNIA| | || | BY COUNTY CLERK| | 5|| Attorney for Debtor |------------------------------| | ||VERITEC, INC. -------------------------------- | 6|| | ENTERED | | || | |--------------------------| | | 7|| | | | | | || | |--------------------------| | | 8|| |CLERK, U.S.BANKRUPTCY COURT | | || |CENTRAL DISTRICT OF CALIFORNIA| | 9|| |BY COUNTY CLERK| | 10|| |------------------------------| | 11|| UNITED STATES BANKRUPTCY COURT | || | 12|| CENTRAL DISTRICT OF CALIFORNIA | || | 13|| In Re: ) CASE NO. SV95-17978-AG | || ) CHAPTER 11 | 14|| VERITEC, INC., a Nevada ) | || corporation, ) ORDER DENYING MOTION FOR | 15|| ) RELIEF FROM STAY | || Debtor. ) | 16|| -------------------------) Date: July 2, 1996 | || KATHERINE L. FITZPATRICK;) | 17|| B. SWEDENBORG; ROBERT ) | || HURNER; OWEN P. DOYLE; ) | 18|| FRANCIS M. WHITTAKER ) | || FAMILY TRUST AND ARNOLD ) | 19|| A. LORD, ) | || Movants, ) | 20||v. ) | || ) | 21|| VERITEC, INC., A Nevada ) | || Corporation, ) | 22|| Respondents) | ||__________________________) | 23|| | || The motion for relief from the Automatic Stay of movants came on for | 24|| | || hearing on the date, time and place set forth above. Scott Smylie, | 25|| | || Esquire, of Smylie, Van Dusen & Magliozzi appeared on behalf of Movants; | 26|| | || Larry W. Smith, Esquire, of Smith & Stark appeared on behalf of the | 27|| | || Debtor; Alan Sarver, Esquire, appeared | 28|| 1 | || | 15 || | || | 1|| on behalf of the petitioning creditors of the within bankruptcy | || | 2|| proceeding and Joseph Ore, Esquire, of Ortega & Ore, appeared on | || | 3|| behalf of interested unsecured creditors. | || | 4|| After reviewing the pleadings and opposition papers and the | || | 5|| court file, and hearing argument of counsel, the court orders as | || | 6|| follows: | || | 7|| 1. The motion of movants for relief from the automatic stay so | || | 8|| as to foreclose on the patents of the Debtor is denied. | || | 9|| 2. Movants have failed to established that cause exists under | || | 10|| 11 USC ~ 362 (d)(1) to giant relief from stay. Further | || | 11|| the Debtor's patents are necessary to an effective reorganitation. | || | 12|| | || | 13|| | || | 14|| | || | 15|| DATED: JUL 25 1996 ARTHUR GREENWALD (STAMP) | || ------------------------- | 16|| HONORABLE ARTHUR GREENWALD | || U.S. BANKRUPTCY COURT | 17||VERITEC\relief.ord | || | 18|| | || | 19|| | || | 20|| | || | 21|| | || | 22|| | || | 23|| | || | 24|| | || | 25|| | || | 26|| | || | 27|| | || | 28|| | || | || 2 | 16 || | 1||Scott A. Smylie, ESQ. -------------------------------- | ||State Bar Association No. 109943 | FILED | | 2||SMYLIE, VAN DUSEN & MAGLIOZZI | |--------------------------| | | ||401 "B" Street, Suite 2200 | | Nov - 3 1996 | | | 3||San diego, California 92101 | |--------------------------| | | ||Telephone: (619) 233-9199 | CLERK, U.S.BANKRUPTCY COURT | | 4|| |CENTRAL DISTRICT OF CALIFORNIA| | || | BY COUNTY CLERK| | 5|| Attorney for Secured Creditor-Noteholders, --------------------------| | || KATHERINE L. FITZPATRICK, et al. -------------------------------- | 6|| | ENTERED | | || | |--------------------------| | | 7|| | | ? 1996 | | | || | |--------------------------| | | 8|| |CLERK, U.S.BANKRUPTCY COURT | | || |CENTRAL DISTRICT OF CALIFORNIA| | 9|| |BY COUNTY CLERK| | 10|| |------------------------------| | 11|| UNITED STATES BANKRUPTCY COURT | || | 12|| CENTRAL DISTRICT OF CALIFORNIA | || | 13|| In Re: ) CASE NO. SV95-17978-AG | || ) CHAPTER 11 | 14|| VERITEC, INC., a Nevada ) | || corporation, ) ORDER DENYING DEBTOR'S MOTION TO APPROVE | 15|| ) POSTPETITION BORROWING OF THE DEBTOR AND | || ) PERMISSION TO GRANT THE LENDER A SENIOR | 16||__________________________) SECURITY INTEREST IN THE DEBTOR'S | || ASSETS TO SECURE THE LOAN | 17|| LODGED & RET PURSUANT TO TITLE 11, SECTION 364 (d) | || CLERK U.S. BANKRUPTCY COURT | 18|| CENTRAL DISTRICT OF CALIFORNIA DATE: October 9, 1996 | || (SIGNATURE) TIME: 2:00 p.m. | 19|| ----------- COURTROOM: 302 | || DEPUTY CLERK 21041 Burbank Boulevard | 20|| Woodland Hills, CA 91367 | || | 21|| The motion by Debtor to Approve Postpetition Borrowing of the Debtor | || | 22|| and for Permission to Grant the Lender a Senior Security Interest in the | || | 23|| Debtor's Assets to Secure the Loan pursuant to Title 11, Section 364(d), | || | 24|| came on regularly for hearing on October 9, 1996 at 2:00 p.m. in | || | 25|| courtroom 302 of the above-entitled Court, the Honorable Arthur Greenwald| || | 26|| Judge Presiding. Larry W. Smith, Esq., of smith & Stark appeared on | || | 27|| behalf of the Debtor; Scott A. Smylie, Esq., of Smylie, Van Dusen & | || | 28|| Magliozzi, appeared on | || In re: Veritec, Debtor (U.S.B.C. Case No.SV-95-17978-AG) | || ORDER DENYING DEBTOR'S MOTION TO APPROVE c:...clients:gant:order,1 | || POSTPETITION BORROWING OF THE DEBTOR | 17 || | 1|| 11 | || | 2|| behalf of Fitzpatrick, et al.; and, Allan Sarver, Esq., appeared on | || | 3|| behalf of the petitioning creditors of the within bankruptcy proceeding. | || | 4|| Other appearances are as noted on the record. | || | 5|| After reviewing the pleadings and opposition papers and the court | || | 6|| file, and hearing argument of counsel, the court finds that Debtor has | || | 7|| failed to meet its burden of proof on the issue of adequate protection | || | 8|| and, therefore, Debtor's motion is hereby DENIED. | || | 9|| DATED: 11/3/96 (Signature) | || ------------- --------------------------------- | 10|| HONORABLE ARTHUR GREENWALD, JUDGE | || U.S. BANKRUPTCY COURT | 11|| SUBMITTED BY: | || | 12|| SMYLIE, VAN DUSEN & MAGLIOZZI | || | 13|| | || By: (Signature) | 14|| -------------------- | || Scott A. Smylie, Esq. | 15|| Attorneys for Noteholders | || | 16|| | || | 17|| | || | 18|| | || | 19|| | || | 20|| | || | 21|| | || | 22|| | || | 23|| | || | 24|| | || | 25|| | || | 26|| | || | 27|| | || | 28|| In re: Veritec, Debtor (U.S.B.C. Case No.SV-95-17978-AG) | || ORDER DENYING DEBTOR'S MOTION TO APPROVE c:...clients:gant:order,1 | || POSTPETITION BORROWING OF THE DEBTOR | 2 18 -----END PRIVACY-ENHANCED MESSAGE-----