________________________________________________________________________________
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 March 31, 2002
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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 March 31, 2002 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 8
Financial Condition and Plan of Operation
PART II. OTHER INFORMATION 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 11
2
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
VERITEC INC
BALANCE SHEETS
(unaudited)
31-Mar-02 30-June-01
Assets ------------ ------------
Current Assets
Cash -- $ 10,267
Receivables 181,596 3,938
Inventories -- --
Prepaids -- 9,792
------------ ------------
Total Current Assets 181,596 23,997
Fixed Assets (net) 11,981 17,740
Intangible assets (net) 103,339 133,336
------------ ------------
Total Assets 296,916 175,073
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Notes payable $ 37,362 $ 25,000
Notes Payable (secured) 397,374 397,374
Bank overdraft 46,584 5,862
Accounts payable & accrued expenses 183,741 516,030
------------ ------------
Total current liabilities 665,062 944,266
------------ ------------
Prepayment on stock & subscription 372,011 219,678
receivable ------------ ------------
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 (1,004,730) (1,106,271)
Additional paid in capital 11,720,147 11,613,478
Accumulated deficit (11,888,789) (11,929,044)
------------ ------------
Stockholders' equity (deficit) (740,157) (988,871)
------------ ------------
Total liabilities & stockholders' equity
(deficit) 296,916 175,073
============ ============
See Notes to Financial Statements.
3
VERITEC INC
STATEMENTS OF OPERATIONS
(unaudited)
For the 9 month period For the 3 month period
31-Mar-02 31-Mar-01 31-Mar-02 31-Mar-02
-------- -------- -------- --------
Total Revenues 494,538 148,297 117,897 43,771
Cost of Sales -- 51,921 -- 32,612
-------- -------- -------- --------
Gross Profit 494,538 96,376 117,897 11,159
Sales Commission -- 4,247 -- 1,760
-------- -------- -------- --------
Gross profit after commissions &
warranty 494,538 92,129 117,897 9,399
Expenses:
Administration 366,551 335,971 194,766 142,966
Sales & Marketing 9,455 8,905 2,050 8,905
Engineering & R&D 236,473 79,606 81,901 77,913
-------- -------- -------- --------
Total Operating Expenses 612,479 424,482 278,717 229,784
Income (loss) from operations (117,941) (332,353) (160,820) (220,385)
Debt Forgiveness 188,417 70,429
Interest Income (expense) net (30,221) (27,782) (9,795) (21,167)
-------- -------- -------- --------
Total other income (expense) 158,195 (27,782) 60,633 (21,167)
-------- -------- -------- --------
Net Income (loss) 40,255 (360,135) (100,187) (241,552)
Earning (loss) per share 0.01 (0.05) (0.01) (0.04)
See Notes to Financial Statements.
4
VERITEC INC
STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ending
31-Mar-02 31-Mar-01
-------- --------
Cash flow from operating activities
- -----------------------------------
Net income (loss) 40,255 (360,135)
Adjustments to reconcile net income (loss) to net cash from operating activities
Debt Forgiveness (188,417) --
Depreciation and amortization 35,756 22,162
(Increase) decrease in assets
Receivables (177,658) 40,113
Inventories -- 29,310
Prepaids 9,792 (400)
Increase (decrease) in liabilities
Accounts payable & accrued expenses (143,872) 69,116
Changes in secured liabilities 12,362 --
Bank overdraft 40,722 --
Purchase of tangible assets -- (3,238)
-------- --------
Net cash used by operating activities (371,059) (203,072)
Cash flow from financing activities
- -----------------------------------
Issuance of notes payable -- 36,686
Prepayment on subscription receivable 152,333 3,889
Subscription receivable 101,541 51,572
Issuance of stock 249 1,252
Additional Paid in Capital 106,669 116,334
-------- --------
Net cash provided by financing activities 360,792 209,733
Increase (Decrease) in Cash Position (10,267) 6,661
Cash at beginning of the period 10,267 3,964
-------- --------
Cash at the end of the period -- 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 nine-month period ended March 31, 2002
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.
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(R)
two-dimensional barcode. VeriCode(R)-writing software enables an identifying
symbol to be placed on an item, and VeriCode(R)-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(R) symbols
that are covered by "chrome," a material that makes the VeriCode symbol almost
invisible to the naked eye.
The VeriCode(R) 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(TM) 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(TM) symbol can be used to
confirm that the person who possesses the identification card is the person to
whom the card was issued.
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.
6
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 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.
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Item 2. Management's Discussion and Analysis
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESUTS OF
OPERATIONS.
Liquidity and Capital Resources
- -------------------------------
Debt owed by us at March 31, 2002 was as follows
(unaudited) (unaudited) increase
31-Mar-02 31-Mar-01 (decrease)
-------- -------- --------
Notes Payable (secured) 434,737 397,374 37,363
Convertible note (secured)
Bank overdraft 46,584 -- 46,584
Accounts payable & accrued expenses 183,741 538,498 (354,757)
-------- -------- --------
Total liabilities 665,062 935,872 (270,810)
======== ======== ========
Debt forgiveness of $188,417, the elimination of hardware purchases as a result
of concentration on software development and the Company's efforts to reduce
debt through better management of cash has produced a significant reduction in
the Accounts Payable balance.
Our working capital is shown below.
31-Mar-02 31-Mar-01
(unaudited) (unaudited)
----------- -----------
Working capital (deficit) (474,180) (478,251)
=========== ===========
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.
8
Financial and Operational Outlook
- ---------------------------------
Revenues for the nine months ended March 31, 2002, and March 31, 2001, were
$494,538, and $148,297, respectively. The increased revenue for 2002 is a direct
result of the company's focus to develop new customer sales. Sales of
VeriCode(R) readers, software, and royalties from Mitsubishi generated these
revenues.
Results of Operations
- ---------------------
The quarter's revenue of $117,897 represents a 269% increase from
$43,771 in the same quarter in 2001. The nine-month revenue of $494,538
represents a 333% increase from the same period 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 35% of
revenue in the quarter ended March 31, 2001 to 0% for the most recent quarter.
This significant improvement reflects our goal to concentrate on selling
software rather than hardware.
Operating expenses increased for the quarter ended March 31, 2002, to
$278,717. This represents a 21% increase from the same quarter in 2001.
Operating expenses increased for the nine months ended March 31, 2002, to
$612,479. This represents a 44% increase from the same three quarters in 2001.
This increase includes a significant increase in Engineering and Research and
Development, which was a result of additional engineering staff, increased
travel costs and legal fees for defending the Company's patents. In the nine
months ended March 31, 2002 the company wrote off disputed payables totaling
$188,417 after receiving notification from the payees that the debts would not
be pursued, resulting in a positive impact to the statement of operations as
shown in the category "Other Income."
Operating Expenses for the 9 months ended
March 31,
Expense category 2002 2001 Increase/
(decrease)
General and Administrative 366,551 335,971 30,580
Sales and marketing 9,455 8,905 550
Engineering, R&D 236,473 79,606 156,867
------- ------- -------
612,479 424,482 187,997
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Capital Expenditures and Future Commitments
- -------------------------------------------
No capital expenditures for equipment were made during the period.
On January 30, 2002, the Company and The Matthews Group LLC formed
Veritec Iconix Ventures, Inc. ("VIVI"), a Delaware corporation. Each of the
Company and The Matthews Group LLC own 50% of the outstanding shares of common
9
stock of VIVI. The Matthews Group LLC, together with its affiliates, also owns
1,404,479, or 20.09%, of the outstanding shares of the Company. In February
2002, the Company advanced $500 to VIVI to open it's checking account. In April
2002 The Matthews Group loaned $100,000 to the Company, $50,000 of which the
Company subsequently used to makes its initial capital contribution to VIVI. The
Promissory Note to The Matthews Group LLC 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 common stock of the Company and $100,000 in U.S. dollars. The 150,000
shares contributed by the Company represented newly issued shares of the
Company. The 150,000 shares contributed by The Matthews Group represented a
portion of the shares already owned by it.
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.
10
PART II OTHER INFORMATION
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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.
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.
- -------------------------------------------------------------
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: May 14th, 2002 /s/ Van Tran
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Van Tran - CEO
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