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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTON 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
Commission file No. 0-15113
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)
2445 Winnetka Avenue North, Golden Valley, MN 55427
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(Address of principal executive offices, zip code)
763-253-2670
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes X No
--- ---
[Please check appropriate response]
1
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 May 10, 2004
the Company had:
Number of Shares of Common Stock
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7,141,849
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Transition Small Business Disclosure Format (check one): Yes No X
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2
Table of Contents
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FORM 10-QSB
VERITEC INC.
INDEX
Page
PART I. FINANCIAL INFORMATION 4
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
3
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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VERITEC INC.
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2004 2003
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(Unaudited)
ASSETS
Current Assets:
Cash $ 459,833 $ 325,193
Accounts receivable, net 284,551 185,174
Inventories 40,379 11,585
Prepaid expenses 22,001 32,791
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Total current assets 806,764 554,743
Fixed assets, net 11,173 14,669
Technology and software costs, net 84,154 119,874
Other 28,418 7,827
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Total assets $ 930,509 $ 697,113
============ ============
Note: The balance sheet as of June 30, 2003, has been condensed from
the audited financial statements.
See Notes to Consolidated Financial Statements.
4
VERITEC INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
March 31, June 30,
2004 2003
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable - related parties $ 640,000 $ 340,000
Convertible notes - related party 497,374 497,374
Current maturities of long-term debt 117,569 109,878
Accounts payable and accrued expenses 1,272,046 1,038,019
Customer deposits 3,884 2,912
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Total current liabilities 2,530,873 1,988,183
Long-term debt 202,955 256,720
Prepayment on stock subscription receivable 75,367 242,033
Stockholders' equity (deficit):
Preferred stock, par value $1.00, authorized
10,000,000 shares, 275,000 shares of Series H
authorized, 76,000 shares outstanding, each
share convertible to 10 shares of common stock 366,007 366,007
Common stock, par value $.01, authorized
20,000,000 shares, 7,141,849 and 7,126,849
shares outstanding 71,418 71,268
Subscription receivable (754,712) (860,326)
Additional paid in capital 11,986,793 11,922,440
Accumulated deficit (13,562,025) (13,288,631)
Accumulated other comprehensive income (loss) 13,833 (581)
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Stockholders' equity (deficit) (1,878,686) (1,789,823)
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Total liabilities and stockholders' equity $ 930,509 $ 697,113
============ ============
Note: The balance sheet as of June 30, 2003, has been condensed from
the audited financial statements.
See Notes to Consolidated Financial Statements.
5
VERITEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
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2004 2003
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Revenues $ 678,701 $ 523,936
Cost of sales 53,473 196,885
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Gross profit 625,228 327,051
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Operating expenses
Selling, general and administrative 398,590 565,824
Research and development 42,745 79,407
Depreciation and amortization 11,857 11,650
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Total operating expenses 453,192 656,881
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Income (loss) from operations 172,036 (329,830)
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Other income (expense):
Interest expense, net (33,711) (73,691)
Other income, net 3,200 23,276
Minority interest in Veritec Iconix Ventures, Inc. -- 35,937
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Total other income (expense) (30,511) (14,478)
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Income before income taxes 141,525 (344,308)
Income tax expense 477 370
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Net income (loss) $ 141,048 $ (344,678)
============ ============
Net income (loss) per common share:
Basic $ 0.02 $ (0.05)
Diluted $ 0.01 $ (0.05)
See Notes to Consolidated Financial Statements.
6
VERITEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended March 31,
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2004 2003
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Revenues $ 1,631,068 $ 1,843,166
Cost of sales 224,952 639,814
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Gross profit 1,406,116 1,203,352
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Operating expenses
Selling, general and administrative 1,450,021 1,483,675
Research and development 153,683 277,403
Depreciation and amortization 35,567 35,169
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Total operating expenses 1,639,271 1,796,247
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Loss from operations (233,155) (592,895)
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Other income (expense):
Interest expense (96,701) (114,295)
Other income, net 57,848 70,497
Minority interest in Veritec Iconix Ventures, Inc. -- 12,413
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Total other expense (38,853) (31,385)
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Loss before income taxes (272,008) (624,280)
Income tax expense 1,384 1,113
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Net loss $ (273,392) $ (625,393)
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Net income (loss) per common share:
Basic $ (0.04) $ (0.09)
Diluted $ (0.04) $ (0.09)
See Notes to Consolidated Financial Statements.
7
VERITEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended March 31,
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2004 2003
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Cash flows from operating activities:
Net loss $ (273,392) $ (625,393)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 35,567 35,562
Changes in operating assets and liabilities:
Accounts receivable (99,378) 220
Inventories (28,794) 66,287
Prepaid expenses 28,655 (133,749)
Accounts payable and accrued expenses 234,030 341,656
Customer deposits 972 7,682
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Net cash used by operating activities (102,340) (307,735)
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Cash flows from investing activities:
Minority interest in Veritec Iconix Venture, Inc. -- (14,725)
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Cash flows from financing activities:
Proceeds from stock issuance, subscription
receivable, and prepayment on stock 3,451 75,000
Proceeds from notes payable - related parties 300,000 187,527
Proceeds from (payments on) long-term debt,net (46,075) 80,721
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Net cash provided by financing activities 257,376 343,248
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Effect of exchange rate changes (20,396) 33,252
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Increase in cash 134,640 54,040
Cash at beginning of period 325,193 158,760
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Cash at end of period $ 459,833 $ 212,800
============ ============
See Notes to Consolidated Financial Statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with United States of America generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, the financial statements do not
include all of the information and footnotes required by United States of
America 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, 2004 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 2004. For further information, refer to the financial statements
and footnotes thereto included in our Form 10-KSB for the year ended June 30,
2003.
Certain amounts presented in the 2003 financial statements, as previously
reported, have been reclassified to conform to the 2004 presentation.
Net Income (Loss) Per Common Share
- ----------------------------------
Basic net income (loss) per common share is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per common share, in
addition to the weighted average determined for basic earnings per share,
includes potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Potentially
dilutive instruments include stock options and warrants, Series H Preferred
stock, and convertible notes payable. For the three months ended March 31, 2003,
and the nine months ended March 31, 2004 and 2003, the stock options and
warrants, Series H Preferred stock, and convertible notes were antidilutive, and
therefore, were not included in the computations of diluted loss per common
share.
Basic and diluted net income per common share for the three months ended March
31, 2004, was as follows:
9
Basic Diluted
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Net Income $ 141,048 $ 141,048
Interest expense on convertible debt -- 18,428
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Net income for per share computation $ 141,048 $ 159,476
=========== ===========
Weighted average shares outstanding 7,141,849 7,141,849
Incremental shares from assumed exercise or
conversation of dilutive instruments:
Options and warrants -- 76,216
Series H Preferred Stock -- 2,750,000
Convertible notes -- 5,373,740
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Shares outstanding 7,141,849 15,431,805
=========== ===========
Net income per common share $ 0.02 $ 0.01
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Cash
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Cash balances are maintained in financial institutions in the United States and
Japan. The balances from time to time exceed the insured limits. We have
experienced no losses in these accounts and believe that we are not exposed to
any significant risk of loss on our cash balances. The cost approximates the
fair market value of the financial instruments.
Accounts Receivable
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The Company sells to domestic and foreign companies. The Company grants
uncollateralized credit to customers, but requires deposits on unique orders.
Management periodically reviews its accounts receivable and provides an
allowance for doubtful accounts after analyzing the age of the receivable,
payment history and prior experience with the customer. The estimated loss that
management believes is probable is included in the allowance for doubtful
accounts. While the ultimate loss may differ, management believes that any
additional loss will not have a material impact on the Company's financial
position.
Revenues
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The Company accounts for revenue in accordance with Staff Accounting Bulletin
(SAB) 101 "Revenue Recognition in Financial Statements." Revenues from software
sales, product sales and engineering are recognized when products are shipped or
services performed. License fees are recognized upon completion of all required
10
terms under the agreement. The process begins with a customer purchase order
detailing its hardware specifications so the Company can customize its software
to the customer's hardware. Once customization is completed, the Company
typically transmits the software to the customer via the Internet. Once the
software is transmitted, the customers do not have a right to refuse or return.
Revenue is recognized at that point. Under some agreements the customers remit
payment prior to the Company having completed customization or completion of any
other required services. In these instances the Company delays revenue
recognition and instead reflects the prepayments as customer deposits in the
financial statements.
Research and Development
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Research and development costs are charged to expense as incurred.
Intangible Assets
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In fiscal 2000, the Company purchased certain software, source code,
documentation, manuals and other written material for $50,000 and 187,500 shares
of restricted common stock valued at $.80 per share. The Company has recorded
this purchased software at cost, $200,000, and is amortizing it over five years
using the straight-line method.
In fiscal 2003, the Company, through VIVI (as defined below) acquired technology
rights for the Delphi scanner for $85,243 ($80,000 cash; 25,000 shares of the
Company's common stock at $.20 per share; and $243 in incidental costs). These
technology rights are recorded at cost in the accompanying financial statements
and are being amortized on a straight-line basis over their estimated useful
life of three years.
Stock-Based Consideration
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The Company has applied the fair value-based method of accounting for employee
and nonemployee stock-based consideration and/or compensation in accordance with
FASB Statement 123.
Going Concern
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The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company recorded net income of $141,048 during the quarter ended
March 31, 2004, but incurred a net loss of $273,392 for the nine-month period
ended March 31, 2004, and has lost $13,562,025 from inception to March 31, 2004.
At March 31, 2004, the Company had a $1,724,109 working capital deficiency and a
stockholders' deficit of $1,878,686. Those conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The Company has relied on receiving financing from The
Matthews Group LLC (see subscription receivable below).
11
Investment: Veritec Iconix Ventures, Inc. (VIVI)
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On January 30, 2002, Veritec Inc. and The Matthews Group LLC formed Veritec
Iconix Ventures, Inc. (VIVI), a Delaware corporation. Each owned 50% of the
outstanding shares of common stock of VIVI. In April 2002, The Matthews Group
LLC loaned the Company $100,000, of which $50,000 was subsequently used to make
the Company's initial capital contribution to VIVI. The promissory note to The
Matthews Group LLC bears interest at 10% per annum and is due December 31, 2004.
Additionally, the promissory note is convertible into common stock of the
Company at $0.25 per share.
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 the Company's common stock and
$100,000 in U.S. dollars. The 150,000 shares contributed by the Company
represented newly issued shares of the Company's common stock. The 150,000
shares contributed by The Matthews Group LLC represented a portion of the shares
already owned by The Matthews Group LLC.
On June 25, 2003, Veritec entered into an agreement with The Matthews Group LLC
to purchase The Matthews Group's 50% ownership of VIVI at the acquisition price
of $50,000 and 150,000 shares of stock, the original price paid by The Matthews
Group LLC on February 13, 2002. The Company issued 150,000 shares to The
Matthews Group LLC and a promissory note of $50,000. At the same time, the
Company agreed to sell VIVI's software developed for the textile industry and
certain intangible assets of its textile industry business to Com Techno Alpha
Inc., a Japanese corporation. As a part of the textile sale, Yoshihiro Tasaka,
the principal of Com Techno and a former employee and officer of VIVI, agreed to
return to the Company 120,000 shares of the Company's common stock. This stock
has been returned and was subsequently cancelled. In November 2003, the Company
finalized the agreement with Com Techno under which Com Techno will pay the
Company 8,100,000 yen at a rate of 225,000 yen per month for thirty-six months
($67,782 and $1,883 respectively in U.S. dollars). The agreement provides for
acceleration of payments to be received for each sale of a Tuft Controller by
COM Techno. The textile software business accounted for 33% of the Company's
sales in 2003 and 25% in 2002 (64% of VIVI's sales in 2003 and 69% in 2002).
Subscription Receivable
- -----------------------
In September 1999, the Company accepted a commitment from The Matthews Group LLC
to fund the $2,000,000 required under the Company's bankruptcy plan of
reorganization. This funding is in the form of a promissory note that requires
108 monthly payments of $18,519. These payments are non-interest bearing and
were to be collateralized by a pledge of properties controlled by principals of
The Matthews Group LLC. In July 2001, the principals of The Matthews Group LLC
granted to the Company a security interest in certain California and Minnesota
properties to partially collateralize the subscription. Imputed interest on the
subscription is excluded from operating results and is instead credited directly
to additional paid-in capital.
12
The Matthews Group LLC is scheduled to fund the subscription receivable with
monthly payments of $18,519. As the Company experienced cash shortfalls, The
Matthews Group LLC made payments on the subscription receivable in advance of
the due dates. Such advance payments are reflected as a liability in the
financial statements in the Prepayment on Stock Subscription Receivable account.
At March 31, 2004, The Matthews Group LLC had made prepayments of $75,367
towards scheduled payments on the subscription receivable. At The Matthews Group
LLC's discretion, the balance in this account may be used to satisfy any
scheduled payment due on the subscription receivable. When The Matthews Group
LLC does so, the Company reduces the Prepayment on Stock Subscription Receivable
account and credits the subscription receivable and additional paid-in-capital.
Historically, when the Company has experienced a cash shortfall, The Matthews
Group LLC has continued to make its monthly payments due on the subscription
receivable. However, there is no contractual obligation for it to do so as long
as prepayments exist to satisfy its scheduled payments. The Company has no
advance knowledge of whether, in any given month, The Matthews Group LLC may
make a scheduled payment on the subscription receivable or utilize the balance
in the Prepayment on Stock Subscription Receivable account. The Company also has
no assurance of The Matthews Group LLC's ability to continue to provide this
funding. Failure of The Matthews Group LLC to continue to make scheduled
payments on the subscription receivable could negatively impact the Company's
ability to meet its cash flow requirements.
The Matthews Group LLC's prepayments against the subscription receivable are
unsecured and non-interest bearing. The Company assumes that the prepayment
existing at March 31, 2004 will ultimately be applied against the subscription
receivable.
Item 2. Management's Discussion and Analysis or Plan of Operation
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
General
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Veritec Inc. (the "Company") was incorporated in Nevada on September 8, 1982.
The Company is primarily engaged in developing, marketing and selling a line of
microprocessor-based encoding and decoding system products that utilize its
patented Vericode Symbol technology. The Company's readers and scanners enable a
manufacturer or distributor to attach unique identifiers or coded symbols
containing binary encoded data to a product that enables automatic
identification and collection of data. The Company has also developed its
Secured Identification System with its VSCode that enables the storage of
biometric information of the two-dimensional VSCode for subsequent verification
of its authenticity.
The Company has incurred losses from operations since inception and has an
accumulated deficit of $13,562,025 as of March 31, 2004.
13
In the Company's Form 10-KSB filed with the Securities and Exchange Commission
for the year ended June 30, 2003, the Company identified critical accounting
policies and estimates for its business. The Company has not amended or changed
any of its critical accounting policies and estimates since the filing of its
Form 10-KSB.
Results of Operations - March 31, 2004 compared to March 31, 2003
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Revenues
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Revenues of $678,701 for the quarter ended March 31, 2004 were $154,765, or 30%,
higher than the quarter ended March 31, 2003. Revenues of $1,631,068 for the
nine months ended March 31, 2004, were $212,098, or 12%, lower than the nine
months ended March 31, 2003. The decrease in sales for the nine-months ended
March 31, 2004, compared to the nine-months ended March 31, 2003 is related to
the June 2003 sale of VIVI's textile software business to Com Techno Alpha, as
after the sale, the textile revenues ceased. For the quarter ended March 31,
2004, the Company's revenues consisted of $120,447 from VIVI (Japan) and
$558,254 from United States operations. Revenues from the United States
operation for the quarter increased 136% from 2003 and 2004 of $236,660 and
$558,254, respectively. Revenues from the United States operations for the
nine-months ended March 31, 2004 increased $499,668, or 67%, from the same
period ended March 31, 2003. The increase for the three months ended March 31,
2004 primarily relates to sales by the Company's major distributor Sun Jin
Neotech and new orders from the Liquid Crystal Display (LCD) manufacturers in
Asia.
The Company continues to concentrate its efforts in the Asian market where the
Company believes it has the best opportunities to grow revenue.
Gross Profit
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Gross profit of $625,228 for the quarter ended March 31, 2004 was $298,177, or
91%, higher than the quarter ended March 31, 2003. Gross profit of $1,406,116
for the nine months ended March 31, 2004 was $202,764, or 17%, higher than the
nine months ended March 31, 2003. Gross profit percentage was 92% and 62% for
the quarters ended March 31, 2004 and 2003, respectively. Gross profit
percentage was 86% and 65% for the nine months ended March 31, 2004 and 2003,
respectively. The increase in gross profit percentage is due to the higher
margin of our software products revenues in 2004. The prior period included
VIVI's sales of software to customers in the textile business that provided the
Company with lower margin. VIVI's textile business was sold to Com Techno Alpha
in June 2003.
Operating Expense
- -----------------
Selling, general and administrative expenses for the quarter ended March 31,
2004 were $167,234, or 30%, lower than the quarter ended March 31, 2003.
Selling, general and administrative expenses for nine months ended March 31,
14
2004 were $33,654, or 2% lower than the nine months ended March 31, 2003. The
decrease in the third quarter is largely due to a reduction in legal expenses
slightly offset by additional staffing and marketing campaigns to promote public
awareness about the Company and to market the Company's new VSCode technology.
Research and development expenses for the quarter ended March 31, 2004 were
$36,662, or 46%, lower than research and development expense for the quarter
ended March 31, 2003. Research and development expenses for the nine months
ended March 31, 2004 were $123,720, or 45%, lower than the nine months ended
March 31, 2003. The reduction in research and development expenses relates to
reduced staffing and contract labor expenses for engineering projects in 2003
that have been completed or are near completion. These research and development
expense savings have shifted to the sales and marketing department to market the
new VSCode technology.
Capital Expenditures and Future Commitments
- -------------------------------------------
No capital expenditures for equipment were made during either period.
On January 30, 2002, Veritec Inc. and The Matthews Group LLC formed Veritec
Iconix Ventures, Inc. ("VIVI"), a Delaware corporation. Each company owned 50%
of the outstanding shares of common stock of VIVI. In April 2002, The Matthews
Group LLC loaned Veritec $100,000, and Veritec subsequently used $50,000 of this
amount to make its initial capital contribution to VIVI. The promissory note to
The Matthews Group LLC bears interest at 10% per annum and is due December 31,
2004. Additionally, the promissory note is convertible into the Company's common
stock at $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
Veritec common stock and $100,000 in U.S. dollars. The 150,000 shares
contributed by Veritec represented newly issued shares of its common stock. The
150,000 shares contributed by The Matthews Group LLC represented a portion of
the shares of the Company's common stock already owned by it.
Although the Company continues to minimize spending for capital expenditures, it
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
is uncertain and may be beyond that generated from operations.
Liquidity and Capital Resources
- -------------------------------
A number of uncertainties exist that may affect the Company's future operating
results. These uncertainties include general economic conditions, market
acceptance of the Company's products and the Company's ability to manage expense
growth. The Company has sustained significant losses and expects the losses to
continue through fiscal year 2004. The Company's cash on hand is not sufficient
to fund current operating needs. Therefore, the continued operation of the
Company will continue to be dependent on cash flows from The Matthews Group LLC.
15
There is no assurance that The Matthews Group LLC will complete the obligations
or that the payments required to be made by The Matthews Group LLC will be
adequate. The Company is seeking additional debt or equity financing, but there
is no assurance that additional financing will be obtained, or that any such
financing will be sufficient for the Company's needs.
Although uncertainties exist, management believes that cash flows from
operations will at least partially fund cash needs in 2004. Sales leads continue
to be strong. Based on past success rates, management believes a percentage of
these leads will purchase product. It is expected that cash from these new sales
will be more towards the second half of calendar 2004 through fiscal 2005
because of the long cycle in the selling process. For 2004, the Company will
continue to utilize distributors to help market its products. The Company
intends to generate cash by requiring distributors to pay a license fee that
will offer the distributors discounted software prices and allow each
distributor to be more competitive in its marketing region.
Continued competition may drive down the price at which the Company can sell its
products, and reduced capital expenditures by the Company's customers may also
have a negative impact.
Net cash used in operating activities totaled $102,340 for the nine months ended
March 31, 2004 as compared to $307,735 of cash used for operating activities in
the nine months ended March 31, 2003. Cash used by operating activities for the
nine months ended March 31, 2004 consisted primarily of net losses of $273,392,
increases in account receivable of $99,378 and inventories purchases of $28,794,
offset by increases in account payable and accrued expenses of $234,030 and a
decrease in prepaid expenses of $28,655. The Company made no capital
expenditures for the quarter and paid down long-term debt of $46,075. The
operating and investing cash flow deficits in nine months ended March 31, 2004
were funded through proceeds from scheduled payments on the subscription
receivable of $166,671, all of which was received from prior prepayment, and
borrowing of $300,000 from the Company's Chief Executive Officer, The Matthews
Group and an investor. No additional monies were received from The Matthews
Group LLC on the subscription agreement for the nine months ended March 31,
2004. As of March 31, 2004, the prepayment balance from The Matthews Group LLC
was $75,367. This prepayment could be used by The Matthews Group LLC to cover
four future payments under the subscription receivable agreement or the
remaining scheduled payments for fiscal year 2004. From July 1, 2003 through the
date of this report, The Matthews Group LLC had used this prepayment to satisfy
all of its scheduled payments under the agreement.
Item 3. Controls and Procedures
- --------------------------------
Disclosure Controls and Procedures
- ----------------------------------
The Company's management, with the participation of its Chief Executive
Officer/Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
16
as of the end of the period covered by this report. Based on such evaluation,
the Company's Chief Executive Officer/Chief Financial Officer has concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective.
Internal Control over Financial Reporting
- -----------------------------------------
There have not been any changes in the Company's internal control over financial
reporting during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
The Company's management, including its Chief Executive Officer/Chief Financial
Officer, does not expect that its disclosure controls and procedures will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, control may become inadequate because of
changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
PART II OTHER INFORMATION
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Item 1. Legal Proceedings.
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On June 30, 2000 the Company was served as a defendant in the matter of
Wolodymyr M. Starosolsky vs. Veritec, Inc., et al., in the United States
District Court for the Central District of California (Case Number CV-00-7516DT
(Wx). This suit was brought by a shareholder and former director of the Company
and named the Company and various individuals as defendants, claiming that
certain corporate actions were taken without proper authority of the Company's
board of directors and/or contrary to the plan of reorganization the Company
filed and completed under Chapter 11 of the U.S. Bankruptcy Act. The Company
denied all allegations and in December 2000, forced the case to be transferred
to the United States District Court for the District of Minnesota. The Company
expects discovery in this case to conclude by late 2004, and any trial would not
occur until early 2005.
On January 10, 2002, the Company initiated arbitration against Mitsubishi, Inc.
in Los Angeles, California alleging five causes of action arising out of various
contracts and business dealings. Mitsubishi asserted several counterclaims.
Pursuant to various motions in "Phase I" of the arbitration, the arbitration
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panel dismissed three of the Company's five claims. On January 5, 2004, Phase II
of the arbitration, on the Company's remaining two claims (tortious interference
with prospective business opportunities and termination of a licensing
agreement) and on Mitsubishi's counterclaims, commenced. After three days, the
hearing was suspended due to procedural irregularities that may have
contaminated the entire arbitration. The parties are currently in discovery with
respect to this matter. No opinion can be given at this time as to the outcome
of this issue or of the arbitration proceeding as a whole.
The Company filed a lawsuit against Robotic Vision Systems, Inc. (RVSI) on March
20, 2003, in the United States District Court for the District of Massachusetts
for breach of a confidentiality agreement, seeking damages in excess of $75,000.
By agreement of both parties, this case has been dismissed without prejudice.
Item 5. Other Information.
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FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
securities laws. These forward-looking statements are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. All
statements other than statements of historical facts included in this report
regarding the Company's strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management are forward-looking statements. When used in this report, the words
"will," "believe," "anticipate," "intend," "estimate," "expect," "project" and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this report. The Company
does not undertake any obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Although the Company believes that its plans, intentions
and expectations reflected in or suggested by the forward-looking statements
that it makes in this report are reasonable, the Company can give no assurance
that such plans, intentions or expectations will be achieved. The cautionary
statements qualify all forward-looking statements attributable to the Company or
persons acting on its behalf.
Item 6. Exhibits and Reports on Form 8-K.
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a. Exhibits
31. CEO/CFO Certification required by Rule 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934.
32. Veritec Inc. Certification of CEO/CFO pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350).
b. Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the 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 17, 2004 /s/ Van Thuy Tran
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Van Thuy Tran
Chief Executive Officer
and Chief Financial Officer
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