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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 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 December 31, 2001
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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 ________
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)
1163 Kruse St., WEST ST. PAUL MN 55118
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(Address of principal executive offices, zip code)
651-552-9215
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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 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 December 31, 2001 the company had:
Number of Shares of Common Stock
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6,720,849
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1
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 7
Financial Condition and Plan of Operation
PART II. OTHER INFORMATION 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VERITEC INC
BALANCE SHEETS
(unaudited)
31-Dec-01 30-June-01
ASSETS
Current Assets
Cash $10,267
$1,048
Receivables 84,692 3,938
Inventories 0 0
Prepaids 0 9,792
-------- --------
Total Current Assets 85,740 23,997
Fixed Assets (net) 14,011 17,740
Intangible assets (net) 113,338 133,336
-------- --------
Total Assets 213,089 175,073
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Notes payable 0 $25,000
Notes Payable (secured) $397,374 397,374
Bank overdraft 32,005 5,862
Accounts payable & accrued expenses 206,669 516,030
-------- --------
Total current liabilities 636,048 944,266
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Prepayment on stock & subscription 287,567 219,678
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Stockholders' equity (deficit)
Preferred stock, par value $1.00, 366,007 366,007
authorized 10,000,000 shares, 275,000
shares of Series H authorized
Common stock, par value $.01, authorized 67,208 66,959
20,000,000 shares
Subscription receivable (1,049,298) (1,106,271)
Additional paid in capital 11,694,159 11,613,478
Accumulated deficit (11,788,602) (11,929,044)
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Stockholders' equity (deficit) (710,526) (988,871)
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Total liabilities & stockholders' equity 213,089 175,073
(deficit) ======= =======
3
VERITEC INC
STATEMENTS OF OPERATIONS
(unaudited)
For the 6 month period For the 3 month period
ending ending
31-Dec-01 31-Dec-00 31-Dec-01 31-Dec-00
Total Revenues 376,641 125,023 107,903 43,771
Cost of Sales 0 51,921 0 32,612
-------- -------- -------- --------
Gross Profit 376,641 73,102 107,903 11,159
Sales Commission 0 4,247 0 1,760
-------- -------- -------- --------
Gross profit after commissions &
warranty 376,641 68,855 107,903 9,399
Expenses:
Administration 171,785 335,971 83,659 142,966
Sales & Marketing 7,405 8,905 3,589 8,905
Engineering & R&D 154,572 79,606 108,287 77,913
-------- -------- -------- --------
Total Expenses 333,762 424,482 195,535 229,784
Income (loss) from operations 42,879 (355,626) (87,632) (220,385)
Debt Forgiveness 117,988 117,988
Interest Income (expense) net (20,426) (27,782) (9,977) (21,167)
Total other income (expense) 97,562 (27,782) 108,011 (21,167)
Net Income (loss) 140,441 (383,409) 20,379 (241,552)
Earning (loss) per share 0.02 (0.06) 0.00 (0.04)
See Notes to Financial Statements.
4
VERITEC INC
STATEMENTS OF CASH FLOWS
(unaudited)
For the 6 month period ending
31-Dec-01 31-Dec-00
Cash flow from operating activities
Net income (loss) 140,442 (383,409)
Adjustments to reconcile net income (loss) to net cash from
operating activities
Debt Forgiveness (117,988)
Depreciation and amortization 23,725 22,162
(Increase) decrease in assets
Receivables (80,754) 40,113
Inventories 28,580
Prepaids 9,792
Increase (decrease) in liabilities
Accounts payable & accrued expenses (171,373) 92,720
Changes in secured liabilities (25,000)
Bank overdraft 26,143
Purchase of tangible assets 0 (3,238)
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Net cash used by operating activities (195,013) (203,073)
Cash flow from financing activities
Issuance of notes payable 0 36,686
Prepayment on subscription receivable 67,889 3,889
Subscription receivable 56,973 51,573
Issuance of stock 0 1,252
Added paid in capital 60,931 116,334
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Net cash provided by financing activities 185,793 209,734
Net cash increase for period (9,220) 6,661
Cash at beginning of the period 10,267 3,964
rounding
Cash at the end of the period 1,047 10,625
======== ========
See Notes to Financial Statements.
5
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 required by 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 six-month period ended December 31,
2001 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2002. 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, 2001.
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 is not
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 agreement.
Foreign-based revenue accounted for 94% 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.
Nature of Business
Veritec Inc. (the "Company") was incorporated in Nevada on September 8,
1982. The Company is primarily engaged in development, marketing and sales of a
line of microprocessor-based encoding and decoding system products that utilize
its patented Vericode Symbol technology. The Company's VeriSystem enables a
manufacturer or distributor to attach unique identifiers or coded symbols
containing binary encoded data to a product, which enables automatic
identification and collection of data. The Company has also developed its
Veritaggant Covert Identification System, which enables the application of a
label or tag to a product for subsequent verification of its authenticity. The
Veritaggant Covert Identification System is not currently being marketed by the
Company.
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Use of 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
Debt Forgiveness
During the quarter the Company entered into a settlement agreement with
a former employee relating to breach of contract. As a part of this settlement
agreement the Company obtained the Pulnix software library it sought. This
settlement agreement also relieved the Company of any future obligations to this
former employee. The Company recognized a gain on debt forgiveness of $75,988
relating to this settlement.
During the quarter the Company further settled some remaining
pre-petition and bankruptcy period obligations through the issuance of 25,000
shares of the Company's common stock as provided for in the Company's plan of
reorganization. These settlements resulted in recognition of gains on debt
forgiveness totaling $42,000.
Other Information
Accounts Payable of $20,000 were settled through the issuance of 25,000
shares of common stock.
Item 2. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESUTS OF
OPERATIONS.
Liquidity and Capital Resources
Debt owed by us at December 31, 2001 was as follows:
(unaudited) (unaudited) increase
31-Dec-01 31-Dec-00 (decrease)
-------- -------- --------
Notes Payable (secured) 397,374 397,374 0
Convertible note (secured)
Bank overdraft 32,005 32,005
Accounts payable & accrued expenses 206,669 516,562 (309,893)
-------- -------- --------
Total liabilities 636,048 913,936 (277,888)
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Our working capital is shown below. Working capital for December 31, 2001, has
been adjusted by $79,713 to reflect payables recognized as liabilities on our
balance sheet, but the validity of which are disputed by the Company.
(unaudited) (unaudited)
31-Dec-01 31-Dec-00
-------- --------
Working capital (deficit) (470,595) (478,251)
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While revenues in our industry fluctuate significantly each quarter and are
difficult to predict, 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 quarter and six months ended December 31, 2001, were
$107,903 and $376,641 respectively. Sales of VeriCode(R) readers, software, and
royalties received from Mitsubishi generated these revenues.
Results of Operations
Revenues for the quarter and six months ended December 31, 2001, were
$107,903, and $376,641, respectively. The quarter's revenue is a 146% increase
from the $43,771 revenue in the same quarter in 2000. The six-month revenue of
$376,641 is a 201% increase from the same half of the previous year. Purchases
in this industry fluctuate, as new factories are opened, so significant
quarterly fluctuations can be expected. The cost of sales decreased from 41% of
revenue in the quarter ended December 30, 2000 to 0% for the most recent
quarter. This significant improvement reflects our goal to concentrate on
selling software rather than hardware.
Operating expenses decreased for the quarter ended December 31, 2001,
to $195,535. This represents a 54% decrease from the same quarter in 2000.
Operating expenses decreased for the two quarters ended December 31, 2001, to
$333,762. This represents a 21% decrease from the same two quarters in 2000.
This decrease includes a significant decrease in general and administrative
expenses, which were high in 2000 due to expenses associated with transferring
our business from California. In the quarter ended December 31, 2001 disputed
payables totaling $117,988 were resolved, resulting in a positive impact to the
statement of operations as shown in the category "Other Income".
8
Capital Expenditures and Future Commitments
No capital expenditures for office equipment were made during the
period. The Company has entered into a agreement, subject to Board approval, to
acquire a fifty percent interest in a company to be formed, Veritec-Iconix
Ventures, Inc. (VIVI). The Matthews Group, the Company's largest stockholder,
would acquire the other fifty percent interest in VIVI. VIVI, in turn, would
acquire Iconix, a Japanese company operating in a similar industry. If Board
approval is obtained it would require the Company to pay a cash payment of
$50,000 to VIVI and issue VIVI 150,000 shares of the Company's common stock. The
Matthew Group would also pay a cash payment of $50,000 to VIVI and transfer
150,000 shares of the Company's common stock it owns to VIVI. VIVI, in turn,
would pay $100,000 and 300,000 shares of the Company's common stock for one
hundred percent ownership of Iconix.
Should the VIVI acquisition occur, it would require additional capital
to fund the operations of VIVI. VIVI, with assistance from the Company and the
Matthews Group, would seek capital from various sources. There is no assurance
that adequate capital can be raised.
Factors that may affect future results.
The Matthews Group continues to make payments 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.
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.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
As explained more completely in our Form 10-KSB filed for the period
ending June 30, 2000, a shareholder is suing the company and various individuals
alleging that 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. This action is
currently pending.
9
We have filed a lawsuit against Veri-Code Systems, Inc. for trademark
infringement. This action is currently pending.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
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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.
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Date: February 14th, 2002 /s/ Van Tran
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Van Tran - CEO
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