| OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
1 – OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The
Company Veritec,
Inc. (Veritec) was formed in the State of Nevada on September 8, 1982. Veritec
is primarily engaged in the development, sales, and licensing of products and providing services related to its mobile banking solutions. As
a Cardholder Independent Sales Organization, Veritec is able to promote and sell Visa-branded card programs. As a Third-Party Servicer,
Veritec provides back-end cardholder transaction processing services for Visa-branded card programs on behalf of its sponsoring bank.
Veritec has a portfolio of five United States and eight foreign patents. In addition, we have seven U.S. and twenty-eight foreign
pending patent applications. Veritec has had agreements with various banks in the past and is currently seeking a bank to sponsor its
Prepaid Card programs. On
December 31, 2015, the Company sold all of its assets of its barcode technology, which was comprised solely of its intellectual property,
to The Matthews Group, a related party (see Note 7). The Company subsequently entered into a management services agreement with The Matthews
Group to manage all facets of the barcode technology operations through June 30, 2022. The Company earns a fee of 35% of all revenues
billed up to June 30, 2022, and recognizes management fee revenue as services are performed. COVID-19
Considerations The
Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic
on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and
governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by
the COVID-19 pandemic, and it is possible that the COVID-19 pandemic could cause a local, national and/or global economic recession.
Policymakers around the globe have responded with fiscal policy actions to support the economy as a whole, but it is presently unknown
whether and to what extent further fiscal actions will continue. The magnitude and overall effectiveness of these actions remain uncertain. The
Company believes that its Mobile Banking revenues have been negatively affected due to the reduction in customer spending, which negatively
impacts the amount of fees earned by the Company from its customers. The Company previously experienced a decline in revenues earned
under the management services agreement with The Matthews Group, as The Matthews Group’s customer orders had been negatively impacted
by the effects of COVID-19. The severity of the impact of the COVID-19 pandemic on the Company’s business will continue to depend
on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact
on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date
of issuance of the Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact
the Company’s financial condition, liquidity or results of operations is uncertain. Basis
of Presentation The
accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States of America generally
accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly,
the Condensed Consolidated Financial Statements do not include all of the information and footnotes required 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 period ended December 31, 2021, are not necessarily indicative of the results that may be expected
for the year ending June 30, 2022. The Condensed Consolidated balance Sheet information as of June 30, 2021, was derived from the Company’s
audited Consolidated Financial Statements as of and for the year ended June 30, 2021 included in the Company’s Annual Report on
Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 8, 2021. These financial statements should
be read in conjunction with that report. The
accompanying Condensed Consolidated Financial Statements include the accounts of Veritec and its wholly-owned subsidiaries, Veritec Financial
Systems, Inc., Tangible Payment Systems, Inc., and Public Bell, Inc. Inter-company transactions and balances were eliminated in consolidation. Going
Concern The
accompanying Condensed Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the period ended December
31, 2021, the Company incurred a net loss of $ 355,000 319,000 7,130,000 725,000 The
Company believes it will require additional funds to continue its operations through fiscal 2022 and to continue to develop its existing
projects and plans to raise such funds by finding additional investors to purchase the Company’s securities, generating sufficient
sales revenue, implementing dramatic cost reductions or any combination thereof. There is no assurance that the Company can be successful
in raising such funds, generating the necessary sales, or reducing major costs. Further, if the Company is successful in raising such
funds from sales of equity securities, the terms of these sales may cause significant dilution to existing holders of common stock. The
Condensed Consolidated Financial Statements do not include any adjustments that may result from this uncertainty. Use
of Estimates The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues
and expenses during the reporting period. Those estimates and assumptions include estimates for reserves of uncollectible accounts, analysis
of impairments of long-lived assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services,
and valuation of deferred tax assets. Actual results could differ from those estimates. Revenue
Recognition Revenues
for the Company are classified into management fee revenue and mobile banking technology. The
Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers Mobile
Banking Technology Revenue The
Company, as a merchant payment processor and a distributor, recognizes revenue from transaction fees charged to cardholders for the use
of its issued mobile debit cards. The fees are recognized on a monthly basis after all cardholder transactions have been summarized and
reconciled with third party processors. Other
Revenue, Management Fee - Related Party On
September 30, 2015, the Company sold all of its assets of its Barcode Technology, which was comprised solely of its intellectual property,
to The Matthews Group (a related party, see Note 7). The Company subsequently entered into a management services agreement with The Matthews
Group to manage all facets of the barcode technology operations through June 30, 2022. The Company earned a fee of 35% of all revenues
billed up to December 31, 2021. The Company recognizes management fee revenue as services are performed. Disaggregation
of Net Sales The
following table shows the Company’s disaggregated net sales by product type:
Disaggregated revenue
Three
months ended Six
months ended
2021 2020 2021 2020
Mobile banking
technology revenue $ 23,000 $ 22,000 $ 47,000 $ 46,000
Other
revenue, management fee related party 58,000 111,000 150,000 167,000
Total
revenue $ 81,000 $ 133,000 $ 197,000 $ 213,000 The
following table shows the Company’s disaggregated net sales by customer type for our Mobile banking technology:
Three
months ended Six
months ended
2021 2020 2021 2020
Medical $ 17,000 $ 16,000 $ 35,000 $ 34,000
Associations 3,000 3,000 6,000 6,000
Education 3,000 3,000 6,000 6,000
Other 58,000 111,000 150,000 167,000
Total
revenue $ 81,000 $ 133,000 $ 197,000 $ 213,000 During
the periods ended December 31, 2021 and 2020, all of the Company’s Mobile banking technology revenues were earned in the United
States of America. Other
revenue, management fee - related party revenue was $ 58,000 111,000 150,000 167,000 Fair
Value of Financial Instruments The
Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the
use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs,
of which the first two are considered observable and the last unobservable, to measure fair value:
• Level 1 — Quoted
prices in active markets for identical assets or liabilities.
• Level 2 — Inputs,
other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
• Level 3 — Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The
carrying amounts of financial instruments such as cash, accounts receivable, and accounts payable and accrued expenses, approximate the
related fair values due to the short-term maturities of these instruments. The carrying values of convertible notes and notes payable
approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates. Net
Loss per Common Share Basic
earnings (loss) per share are computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number
of shares of Common Stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss)
applicable to Common Stockholders by the weighted average number of common shares outstanding plus the number of additional common shares
that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential
common shares are excluded from the computation as their effect is antidilutive. For
the period ended December 31, 2021 and 2020, the calculations of basic and diluted loss per share are the same because potential dilutive
securities would have an anti-dilutive effect. As
of December 31, 2021, and 2020, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire
shares of common stock, from our calculation of earnings per share, as their effect would have been anti-dilutive.
Summary of securities excluded from EPS calculation
As
of December 31,
2021 2020
Series H Preferred
Stock 10,000 10,000
Convertible Notes Payable 24,911,142 23,372,615
Options 3,400,000 3,650,000
Total 28,321,142 27,032,615 Concentrations During
the three and six month period ended December 31, 2021 and 2020, the Company had one customer, a related party, that represented 72 76 83 78 Segments The
Company operates in one segment, the mobile financial banking industry. In accordance with the “Segment Reporting” Topic
of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who
reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance,
which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly
and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds
material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to
their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing
and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting”
can be found in the accompanying condensed consolidated financial statements. Recently
Issued Accounting Standards In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables.
The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies
will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As small business
filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022. The Company
is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures. In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number
of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted
net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in
an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are
accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception.
This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled
in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is
effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method
or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that
year. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related
disclosures. In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's
present or future financial statements. |
