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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 March 31, 2000
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15113
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VERITEC INC.
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(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
95-3954373
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(IRS Employer Identification Number)
1430 ORKLA DRIVE, GOLDEN VALLEY, MN 55427
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(Address of principal executive offices, zip code)
(612) 545-0224
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(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 X No ___
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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, 2000 the Company had 6,501,572 shares of
common stock.
This document consists of 8 pages,
The Exhibit index is on page 8
1
Veritec Inc
Balance Sheet
March 31, 1999 March 31, 2000 June 30, 1999
(unaudited) (unaudited) (audited)
Assets
Current Assets
Cash $ 153 $ 13,416 $ 3,664
Accounts Receivable 293,857 23,000
Inventory 23,936 86,326 14,463
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Total Current Assets $ 24,089 $ 393,599 $ 41,127
Intellectual Property $ - $ 183,333 $ -
Furniture & Equipment (net) 9,979 12,267 7,246
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Note receivable Matthews Group $ 1,236,889
Total Assets $ 34,068 $ 1,826,088 $ 48,373
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Liabilities & Shareholder's Equity
Currents Liabilities
Note payable-factoring $ - $ 100,000 $ -
Note payable 50,819 50,000 45,000
Note payable-secured 156,128 241,495 198,704
Administrative cost-per chapter 42,737 3,802 42,737
Accounts payable & Accrued liabilities 79,099 61,943 134,764
Deferred Compensation 233,275 33,636 301,406
Accrued interest 38,119 94,826 60,262
Commissions payable 2,500 86,143 2,500
Deferred revenue - 22,767 -
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Total current liabilities $ 602,677 $ 694,612 $ 785,373
Secured notes payable-long term $ 130,325 $ 44,958 $ 87,749
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Subtotal $ 733,002 $ 739,570 $ 873,122
Prepayments on subscription receivable $ 207,735 $ 12,243
Prepayment on stock - - 240,198
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Total Liabilities $ 940,737 751,813 1,113,320
Shareholder's Equity
Subscriptions receivable $ - $ - $ -
Preferred Series H 360,718 7,273
Common stock 183,164 65,015 35,988
Additional paid in capital 9,504,498 11,297,710 9,644,401
Accumulated deficit (10,594,331) (10,649,168) (10,752,609)
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Net shareholder's equity $ (906,669) $ 1,074,275 $(1,064,947)
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Liabilities and Shareholder' s Equity $ 34,068 $ 1,826,088 $ 48,373
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2
Veritec Inc
Statement of Operations
Year Ending (Unaudited)
6/30/99 At 03/31/00
Revenue:
Product Sales $ 51,745 $ 1,000,393
Engineering Services 42,198 $ 23,785
Licenses & Royalties 22,405 $ 48,780
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Total Revenue $ 116,348 $ 1,072,958
Cost of Sales 39,298 $ 334,943
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Gross Profits $ 77,050 $ 738,015
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Sales Commissions 6,190 $ 301,809
Cross Profits after Commissions $ 436,206
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Operating Expenses
Administration $ 299,298 $ 155,943
Sales & Marketing 36,521 $ 73,953
Engineering Services & R&D $ 160,325
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Total Expenses $ 464,761 $ 390,221
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Profit (Loss) from Operations $ (393,901) $ 45,985
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Interest
Income $ 106,714
Expense (57,321) $ (49,742)
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Net Interest Income (Loss) $ 56,972
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Net Profit (Loss) $ (451,222) $ 102,957
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3
Veritec Inc
Statement of Cash Flow
March 31, 2000
Operating Activities (unaudited)
Gain from Operations $102,957
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation & amortization 20,187
(Increase) decrease in assets
Accounts receivable (270,857)
Inventory (71,863)
Other Assets (8,127)
Increase(decrease) in Liabilities
Accounts Payable & Accrued Expenses (111,756)
Accrued Interest 34,564
Deferred Compensation (267,770)
Commissions Payable 83,643
Deferred Revenue 22,767
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Total Adjustments $(569,212)
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Cash used by operating activities (466,255)
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Cash flow from investment activities
Purchase of intangible assets (200,000)
Net cash used by investment activities $(200,000)
Cash flow from financing activities
Issuance of notes payable $105,000
Conversion of debt to common stock 720,442
Payment on subscription receivable 78,470
Prepayment on subscription receivable 12,243
Issuance of preferred stock from advances (240,148)
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Net cash provided from financing activities $676,007
Change in cash position 9,752
Cash at beginning of period 3,664
Cash at end of period $13,416
4
VERITEC INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2000 (unaudited)
Basis of Presentation
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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, 1999. 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 which may be expected for the entire year.
PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis
Notes payable to a group of secured creditors - "The Gant Group"
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Included in the Plan of Reorganization was a secured note payable to "The
Gant Group" in the amount of $364,513. A payment of $60,000 was paid per note
Agreement on the scheduled effective date of the Plan and the balance was to be
paid in quarterly payments of $23,325.38 per quarter over a 4-year period. The
Gant Group was granted a lien on the patents of the company and ten percent
interest on the note. The first quarterly payment was made and then due to lack
of funds, additional payments became delinquent The Matthews Group paid
$182,345.87 on September 1, 1999 to bring the note with the Gant Group current
and has paid the quarterly payments to the Gant Group as they become due. The
Registrant owes the Matthews Group for the amounts paid to the Gant Group and
will owe additional amounts to the Matthews Group as they continue to pay on the
quarterly payments. The amounts owed to the Matthews Group are accruing interest
at 10%, the same as the interest being paid to the Gant Group. At March 31,
2000, the amount owed to the Gant Group was $131,691.21 and the amount owed to
the Matthews Group was $241,668.77.
At a meeting of the Board of Directors of the Registrant on June 14, 1999,
a date on which the Registrant was in Chapter 7 bankruptcy, the Board of
Directors approved a motion by the Matthews Group as follows:
"Due to the Matthews Group efforts and risk in salvaging Veritec,
it desires a resolution from the Board that: Should the Matthews
Group acquire Gant's interest, the Matthews Group will be able to
elect, in its sole discretion, to have the Gant note repaid in
cash or to have the obligation converted to Veritec stock at 10
cents per share."
Subsequent Events
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The Matthews Group made the Apri1 1, 2000 payment of $23,325.38 due the
Gant Group and the promissory note with the Gant Group is current.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources - December 31, 1999, compared to June 30, 1999.
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Cash on hand at March 31, 2000 $13,416.
Debt owed by the Company at March 31, 2000 was as follows:
Debt category Mar 31, 2000 June 30, 1999 Incr./(Decr.)
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Notes payable $ 150,000 $ 45,000 $105,000
Notes payable, secured 286,453 286,453 0
Administrative costs per Plan 3,802 42,737 -38,935
Accounts payable and accrued expenses 61,943 134,764 -72,821
Accrued interest 94,826 60,262 34,564
Commissions payable 86,143 2,500 83,643
Deferred compensation 33,636 301,406 -267,770
Deferred Revenue 22,767 22,767
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$ 739,570 $ 873,122 $-133,552
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During the period ending March 31, 2000 the Company's liquidity improved
due the transfer of $717,422 debt to equity and the results of operations. The
Company's liquidity (working capital) is reflected in the table below, which
shows comparative working capital as of June 30, 1999 and March 31, 2000.
June 30, 1999 Mar 31, 2000
Working capital (deficit) $(744,246) $(301,013)
The Company does not expect revenues from operations to be adequate to meet
all costs and expenses of the Company for several months. The Company first must
stabilize its operations and then move aggressively in sales and marketing of
its products and services. The Company is developing a web site, contacting
prospective customers, and continuing to service current customers in order to
increase revenues. As shown in the Financial and Operational Outlook below, the
Company has had continuing business with an International company. There is no
assurance that future sales to these or other customers will occur or that the
Company will be able to obtain adequate revenues to meet costs and expenses of
operations.
Financial and Operational Outlook
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The Company received a purchase order of $880,000 from an International
company in December 1999 for product delivery in December 1999 through March of
2000. The royalty from Mitsubishi for sales in Korea and other countries is
expected to bring a gradually increasing stream of revenues, however, the
amounts are expected to be less than $30,000 per quarter during the next few
quarters. Sales to companies in Korea have provided the majority of revenues in
the quarter and six months ended December 31, 1999 and there is a possibility of
additional sales to these companies.
6
Results of Operations - The quarter and six months ended December 31, 1999
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compared to the quarter and six months ended December 31, 1998.
The Company had revenues of $102,957 during the nine months ended March 31,
2000, as compared to $65,383 for the same period in 1999. The revenues for all
periods were primarily from the sale 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 adequate revenues to make
the Company profitable.
Operating expenses for nine months ended March 31, 2000 increased over the
same period in the previous fiscal year.
For the nine months ended
Expense category Mar 31, 1999 Mar 31, 2000 Incr./(Decr.)
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General and administrative $ 168,668 155,943 $(12,725)
Sales and marketing 29,364 73,953 44,589
Engineering, research and development 94,405 160,325 65,920
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$ 292,437 $390,221 $ 97,784
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The increase in Sales and Marketing expense was due to the and increase in
the allocation of personnel costs to this account. The Company has added to its
sales personnel.
The increase in Engineering and research was the due to costs incurred in
fulfilling the order mentioned above.
Capital Expenditures and Commitments
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There were no Capital expenditures during the nine months ended March 31,
2000 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 equipment 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.
Factors that may effect future results
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The note receivable requires payment of $18,518.52 per month. This amount
is adequate to take care of the cost of engineering services, rent and supplies.
The Matthews Group has supplied finances in addition to the required monthly
amount on the note and has financed operations necessary to promote sales and
provide inventory for sales. In order for the Company to have an aggressive
sales and marketing program, it will require funds in excess of the monthly
amount of $18,518.52 until such time as the Company's profit from revenues and
the $18,518.52 is adequate to cover costs and expenses of the Company. The
Matthews Group has been willing to provide funding necessary to move the Company
forward in engineering, sales and marketing activities. Ms. Van Tran, President,
is a principle in the Matthews Group and is an integral part of managing the
operations of the Company.
7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K: None
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.
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(Registrant)
Date: May 15, 2000
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By: ____________________________________
Van Tran
President
8