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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB/A
(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, 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.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
95-3954373
----------------------------------
(IRS Employer Identification Number)
1430 Orkla Drive, 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)
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 August 8, 2003 the Company had:
Number of Shares of Common Stock
--------------------------------
6,946,849
1
Table of Contents
-----------------
FORM 10-QSB/A
VERITEC INC.
INDEX
Page
PART I. FINANCIAL INFORMATION 3
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of
Financial Condition and Plan of Operation 12
Item 3 Controls and Procedures 15
PART II. OTHER INFORMATION 15
Item 1 Legal Proceedings 15
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
VERITEC, INC.
BALANCE SHEETS
(Unaudited)
December 31, June 30,
2002 2002
ASSETS ------------ ------------
Current Assets:
Cash $ 27,425 $ 1,260
Receivables 158,577 98,287
Prepaids 6,214 2,517
------------ ------------
Total Current Assets 192,216 102,064
Fixed Assets (net) 7,484 11,234
Software costs (net) 73,334 93,333
Investment -Veritec Iconix Ventures, Inc 99,289 76,588
Notes Receivable-VIVI 76,730 10,300
------------ ------------
Total Assets $ 449,053 $ 293,519
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Notes payable related parties 280,000 100,000
Convertible note - related party 397,374 397,374
Current Maturities of Long Term Debt 16,271 23,533
Bank overdraft -- 35,523
Accounts payable & accrued expenses 450,513 217,492
------------ ------------
Total current liabilities 1,144,158 773,922
------------ ------------
Long Term Debt -- 8,163
------------ ------------
Prepayment on stock & subscription
receivable - related party 345,844 381,956
------------ ------------
Stockholders' equity (deficit):
Preferred stock, par value $1.00, authorized
10,000,000 shares, 275,000 shares of
Series H authorized 366,007 366,007
Common stock, par value $.01,
authorized 20,000,000 shares 69,469 69,469
Subscription receivable (926,478) (989,417)
Additional paid in capital 11,843,281 11,795,109
Foreign currency translation adjustments (824) --
Accumulated deficit (12,392,404) (12,111,690)
------------ ------------
Stockholders' equity (deficit) (1,040,949) (870,522)
------------ ------------
Total liabilities & stockholders'
Equity (deficit) $ 449,053 $ 293,519
============ ============
See Notes to Financial Statements
3
VERITEC INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the Three Month Period
-----------------------------
December 31, December 31,
2002 2001
----------- -----------
Total Revenues $ 272,983 $ 107,903
Cost of Sales -- --
----------- -----------
Gross Profit 272,983 107,903
----------- -----------
Operating expenses:
Administration 314,313 73,659
Sales & Marketing 1,368 3,589
Engineering & R&D 110,076 108,287
Amortization 10,000 10,000
----------- -----------
Total Operating Expenses 435,757 195,535
----------- -----------
Income (loss) from operations (162,774) (87,632)
----------- -----------
Earnings (loss) on Investment-VIVI 42,924 --
Debt forgiveness -- 117,988
Interest Income (expense) net (18,267) (9,977)
----------- -----------
Total other income (expense) 24,657 108,011
----------- -----------
Net Income (loss) $ (138,117) $ 20,379
=========== ===========
Earning (loss) per share $ (0.02) $ --
=========== ===========
STATEMENTS OF COMPREHENSIVE INCOME
Net income (loss) $ (138,117) $ 20,379
Foreign currency translation adjustment $ (824) $ --
----------- -----------
Comprehensive income (loss) $ (138,941) $ 20,379
=========== ===========
See Notes to Financial Statements
4
VERITEC INC.
STATEMENTS OF OPERATIONS
(unaudited)
For the Six Month Period
-----------------------------
December 31, December 31,
2002 2001
----------- -----------
Total Revenues $ 496,683 $ 376,641
Cost of Sales -- --
----------- -----------
Gross Profit 496,683 376,641
----------- -----------
Operating expenses:
Administration 523,909 151,785
Sales & Marketing 27,775 7,405
Engineering & R&D 197,716 154,572
Amortization 20,000 20,000
----------- -----------
Total Operating Expenses 769,400 333,762
----------- -----------
Income (loss) from operations (272,717) 42,879
----------- -----------
Earnings (loss) on Investment-VIVI 23,524 --
Debt forgiveness -- 117,988
Interest Income (expense) net (31,521) (20,426)
----------- -----------
Total other income (expense) (7,997) 97,562
----------- -----------
Net Income (loss) $ (280,714) $ 140,441
=========== ===========
Earning (loss) per share $ (0.04) $ .02
=========== ===========
STATEMENTS OF COMPREHENSIVE INCOME
Net income (loss) $ (280,714) $ 140,441
Foreign currency translation adjustment $ (824) $ --
----------- -----------
Comprehensive income (loss) $ (281,538) $ 140,441
=========== ===========
See Notes to Financial Statements.
5
VERITEC INC.
STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Month Period
---------------------------
December 31, December 31,
2002 2001
----------- -----------
Cash flow from operating activities:
Net Income (loss) $ (280,714) $ 140,442
----------- -----------
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Debt Forgiveness -- (117,988)
Depreciation and amortization 23,750 23,725
Earnings (loss) on investment - VIVI (23,524) --
(Increase) decrease in assets:
Receivables (60,290) (80,754)
Prepaids (3,697) 9,792
Increase (decrease) in liabilities:
Accounts payable & accrued expenses 233,020 (196,373)
----------- -----------
Net cash used by operating activities (111,455) (221,156)
----------- -----------
Cash flows from investing activities:
Notes receivable - VIVI (66,430) --
----------- -----------
Cash flow from financing activities:
Bank overdraft (35,523) 26,143
Proceeds of notes payable - related parties 180,000 --
Payments on notes payable - related parties -- --
Prepayment on subscription receivable (36,112) 67,889
Payments on subscription receivable 111,111 117,904
Payments on long-term debt (15,426) --
----------- -----------
Net cash provided by financing activities 204,050 211,936
----------- -----------
Increase (decrease) in Cash Position 26,165 (9,220)
Cash at beginning of the period 1,260 10,267
----------- -----------
Cash at the end of the period $ 27,425 $ 1,047
=========== ===========
See notes to financial statements
6
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, 2002 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2003. For further information, refer to the financial statements and
footnotes thereto included in our Form 10-KSB/A for the year ended June 30,
2002, as amended.
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.
Critical Accounting Policies and 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.
The majority of our income is generated from foreign customers and is earned in
a foreign currency. However, we record this income as U.S. dollars at the
exchange rate in effect on the date of remittance, so we are not susceptible to
translation gains or losses.
7
Cash
----
Cash balances are maintained in a single financial institution. The balances
from time to time exceed the federally insured limits of $100,000. 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 and fair market
value of any financial instruments held are approximately equal.
Accounts Receivable
-------------------
We sell to domestic and foreign companies. We grant uncollateralized credit to
customers, but require deposits on unique orders. Management deemed all accounts
receivable collectible and did not provide for an allowance for doubtful
accounts at December 31, 2002 and June 30, 2002.
Revenues
--------
We account for revenue recognition 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 are performed. License fees are recognized upon completion of all
required terms of the applicable license agreement. The process typically begins
with a customer purchase order detailing the customer's hardware specifications,
which allows us to customize our software to the customer's hardware. Once
customization is completed, we typically transmit the software to the customer
via the Internet or by mail. Upon transmittal, the customer has no right of
refusal or return, and we have no further obligations under the sale. Any
additional changes to the program are the responsibility of the customer and
would require a new billable order. We are under no obligation to perform future
product upgrades or enhancements without first obtaining a new billable order.
Under some agreements, the customers remit payment prior to our completion of
customization or other required services. In such instances, we delay revenue
recognition and reflect the prepayments as deferred revenue in the financial
statements.
Royalties are recognized as earned. To date these royalties have been earned in
a foreign currency. We record these revenues in U.S. dollars at the exchange
rate in effect at the date of remittance. Accordingly, we have historically not
been susceptible to translation gains or losses.
Research and Development
------------------------
Research and development costs are charged to expense as incurred.
8
Intangible Asset
----------------
On October 12, 1999, we 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 stated value of our restricted common
stock per our bankruptcy plan of reorganization for which a final decree was
issued on October 21, 1999. We have recorded this purchased software at cost,
$200,000, and are amortizing it over five years using the straight-line method.
Stock-Based Consideration
-------------------------
We have applied the fair value-based method of accounting for employee and
nonemployee stock-based consideration and/or compensation in accordance with
FASB Statement 123 (based on reported market prices at the date of issuance
and/or as earned).
Going Concern
-------------
The accompanying financial statements have been prepared assuming we will
continue as a going concern. As shown in accompanying financial statements, we
incurred a net loss of $138,117 during the quarter ended December 31, 2002,
$280,714 during the six month period ended December 31, 2002, and have lost
$12,392,404 from inception to December 31, 2002. At December 31, 2002, we had a
$951,942 working capital deficiency and a stockholders' deficit of $1,040,949.
Additionally, our Independent Auditor's Report for our Annual Report on Form
10-K for the year ended June 30, 2002, contains an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Investment: Veritec Iconix Ventures, Inc.
-----------------------------------------
In June 2001, we entered into a tentative agreement to merge with Iconix, Inc.,
a Japanese company we had partnered with in the past. We could not complete this
merger on our own so we instead decided to form a new corporation with The
Matthews Group to complete this acquisition. On February 25, 2002, Veritec
Iconix Ventures, Inc. (VIVI) was incorporated under the laws of the State of
Delaware. In April 2002, we and The Matthews Group each contributed $50,000 and
150,000 shares of Veritec Inc. common stock for fifty percent ownership in VIVI.
The 150,000 shares of our common stock contributed by The Matthews Group was
previously owned by it.
In April 2002, VIVI completed the acquisition of Iconix, Inc. for consideration
of $100,000 and 300,000 shares of Veritec Inc. common stock. Iconix, Inc. was
formed in 1995 and is located in Osaka, Japan. Iconix, Inc. is a system
integrator and developer of two dimensional identification software, hardware
and solutions. We believe synergies with VIVI made the acquisition of a fifty
percent interest in VIVI desirable. We hold key patents in Europe and the United
States relating to two-dimensional barcode technology, and VIVI is currently the
sole licensee of the CP code patents in Asia.
9
Investment: Veritec Iconix Ventures, Inc. (Continued)
-----------------------------------------
The investment in Veritec Iconix Ventures, Inc. (VIVI) is recorded under the
equity method. No fair value information exists relating to this investment.
Business activities of VIVI are concentrated in Asia, primarily Japan, and all
assets of VIVI are in Japan. Our ability to realize the value of our investment
is dependent on future operating successes for VIVI. This investment is further
subject to foreign currency exchange rate changes.
Summarized Financial Information for VIVI is as follows:
-------------------------------------------------------
December 31, June 30,
2002 2002
----------- -----------
Balance sheet:
Current assets $ 617,647 $ 498,739
Fixed assets 6,490 7,526
Other assets 231,910 126,521
----------- -----------
Total assets $ 856,047 $ 632,786
=========== ===========
Current liabilities $ 101,675 $ 242,921
Long-term liabilities 476,853 236,689
Equity 277,519 153,176
----------- -----------
Total liabilities and equity $ 856,047 $ 632,786
=========== ===========
July 1, 2002 April 1, 2002
To To
December 31, June 30,
2002 2002
----------- -----------
Operating results (April 1, 2002
to June 30, 2002):
Revenue $ 819,988 $ 309,324
Cost of goods sold (448,855) (159,282)
Selling, general and administrative (372,494) (166,516)
Other income (expense) 48,297 1,079
Other tax expense (751) (429)
----------- -----------
Net loss $ 46,185 $ (15,824)
=========== ===========
10
Prepayment On Subscription Receivable
-------------------------------------
The Matthews Group has made prepayments against its Subscription Payable to us.
These prepayments are unsecured and non-interest bearing. The prepayments as of
December 31, 2002 were applied against the subscription receivable.
Subscription Receivable
-----------------------
In September 1999, we accepted a commitment from The Matthews Group, LLC to fund
the $2,000,000 required under our bankruptcy plan of reorganization. This
funding is in the form of a promissory note that calls for 108 monthly payments
to us of $18,518.52. These payments are non-interest bearing and were to be
secured by a pledge of properties controlled by principals of The Matthews
Group. In July 2001, the principals of The Matthews Group granted to us 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.
The Matthews Group is scheduled to fund the subscription receivable with monthly
payments of $18,518.52. As we have experienced cash shortfalls, The Matthews
Group has made payments on the subscription receivable in advance of the
scheduled due dates. Such advance payments are reflected as a liability in the
financial statements in the Prepayment on Stock Subscription Receivable account.
During the three months ended December 31, 2002, The Matthews Group opted to use
the Prepayment on Stock Subscription Receivable account balance to make all but
$15,000 of the payments due on the subscription receivable. Accordingly, at
December 31, 2002, the Prepayment on Stock Subscription Receivable account
totaled $345,844. At The Matthews Group's discretion, the balance in this
account may be used to satisfy any scheduled payment due on the subscription
receivable. When The Matthews Group does so, we reduce the Prepayment on Stock
Subscription Receivable account and credit the subscription receivable and
additional paid-in-capital. Historically, when we have experienced a cash
shortfall, The Matthews Group has continued to make its monthly payments due on
the subscription receivable. However, there can be no assurances it will honor
this commitment and there is no contractual obligation for it to do so as long
as prepayments exist to satisfy its scheduled payments. We have no advance
knowledge of whether, in any given month, The Matthews Group may make a
scheduled payment on the subscription receivable or utilize the balance in the
Prepayment on Stock Subscription Receivable account. We also have no assurance
of The Matthews Group's ability to continue to provide this funding. Failure of
The Matthews Group to continue to make scheduled payments on the subscription
receivable could negatively impact our ability to meet our cash flow
requirements.
Other Information
-----------------
None.
11
Item 2. Management's Discussion and Analysis
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Liquidity and Capital Resources
-------------------------------
Our working capital is shown below.
31-Dec-02 31-Dec-01
(unaudited) (unaudited)
Working capital (deficit) (951,942) (470,595)
=========== ===========
Debt owed by us at December 31, 2002 was as follows
31-Dec-02 31-Dec-01 Increase
(Unaudited) (Unaudited) (Decrease)
Notes Payable 280,000 -- 280,000
Notes Payable (secured) 397,374 397,374 --
Bank overdraft -- 32,005 (32,005)
Accounts payable & accrued expenses 450,513 206,669 243,844
A number of uncertainties exist that may affect our future operating results.
These uncertainties include the uncertain economic conditions, market acceptance
of our products and our ability to manage expense growth. We have sustained
significant losses and expect the losses will continue through fiscal year 2003.
Our cash on hand is not sufficient to fund current operating needs. Therefore,
the continued operation of our company will continue to be dependent on cash
payments from The Matthews Group pursuant to the
Stock Subscription Agreement. While The Matthews Group has made payments to us
in excess of the required monthly payments, there is no assurance that The
Matthews Group will complete its obligations or that the payment required to be
made by The Matthews Group will be adequate. We are 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 our needs.
Although no certainties exist, we feel that cash flows from operations will at
least partially fund cash needs in 2003. Because of the long sales cycle related
to our products, it is expected that cash from these new sales will be weighted
toward the latter part of 2003. For 2003, we will be enlisting distributors to
help market our products. Several distributors have shown interest in
representing our products. We intend to generate cash by requiring distributors
12
Liquidity and Capital Resources (Continued)
-------------------------------
to pay a $200,000 license fee in exchange for allowing the distributors to sell
at discounted software prices. However, there is no assurance that distributors
will agree to pay this license fee. The balance of our cash requirements is
expected to be provided by The Matthews Group as stated in the previous
paragraph.
Because of our reduced reliance on selling hardware, we believe our primary
exposure to the risk of inflation is through wages. We do not believe that wage
inflation will play a material role in our expense.
Continued competition may drive down the price at which we can sell our
products, and reduced capital expenditures by our customers may also have a
negative impact.
Financial and Operational Outlook
---------------------------------
Revenues for the six months ended December 31, 2002, and December 31, 2001, were
$272,983, and $107,903, respectively. Revenues for the six months ended December
31, 2002 and December 31, 2002, were $496,683 and $376,641, respectively. The
increased revenue for 2002 is a result of increased software sales, primarily
overseas. Royalty income from Mitsubishi is down as a result of the arbitration
proceedings (See Part II, Item 1 - "Legal Proceedings").
Results of Operations
---------------------
The quarter's revenue of $272,983 represents a 152.9% increase from $107,903 in
the same quarter in 2001. Purchases in this industry fluctuate, as new factories
are opened, so significant quarterly fluctuations can be expected. Negotiations
are currently in progress to establish distributors for product sales. Although
we cannot provide any assurance, we believe that distributors will be able to
market Veritec products more effectively, and hope that the price discounts we
are providing to the distributors will be offset by increased sales volume. We
will also be requiring each distributor to pay an upfront fee for the right to
purchase our software at the lower price, but there is no assurance that
distributors will be willing to pay us this fee.
Operating expenses increased for the quarter ended December 31, 2002, to
$435,757. This represents a 122.9% increase from the same quarter in 2001. Sales
and marketing, engineering and development and amortization remained constant
between years. Administrative expenses increased in the three-month period to
$314,313 in 2002 versus $73,659. $188,902 of this increase related to legal fees
incurred in the Mitsubishi arbitration. Increases in professional fees also
resulted from increasing costs associated with complying with the Company's
public reporting requirements.
Non-operating income for the three months ended December 31, 2002 shows an
income from investment in VIVI, our Japanese operation, of $42,924.
13
Results of Operations (Continued)
---------------------
Operating Expenses for the 3 months
ended December 31, 2002
Increase/
Expense category 2002 2001 (decrease)
-------- -------- --------
General and Administrative 314,313 73,659 240,654
Sales and marketing 1,368 3,589 (2,221)
Engineering, R&D 110,076 108,287 1,789
Capital
-------
Expenditures and Future Commitments
-----------------------------------
No capital expenditures for equipment were made during the quarter ended
December 31, 2002.
On January 30, 2002, Veritec Inc. and The Matthews Group LLC formed Veritec
Iconix Ventures, Inc. ("VIVI"), a Delaware corporation. Each company owns 50% of
the outstanding shares of common stock of VIVI. In April 2002, The Matthews
Group loaned Veritec $100,000, $50,000 of which Veritec subsequently used to
make its initial capital contribution to VIVI. The promissory note to The
Matthews Group bears interest at a rate of 10% per annum and is due in one year
(April, 2003). Additionally, the promissory note is convertible into our common
stock at a price of $0.25 per share.
Although we continue to minimize spending for capital expenditures, we believe
our need for additional capital equipment will continue because of the need to
develop and expand our business. The amount of such additional capital is
uncertain and may be beyond that generated from operations.
Liquidity and Factors That May Affect Future Results
----------------------------------------------------
A number of uncertainties exist that may affect our future operating results.
These uncertainties include the uncertain general economic conditions, market
acceptance of our products and our ability to manage expense growth. We have
sustained significant losses and expect the losses will continue through fiscal
year 2003. Our cash on hand is not sufficient to fund current operating needs.
Therefore, our continued operation will be dependent on cash payments from The
Matthews Group. The Matthews Group continues to make payments to us 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.
14
Liquidity and Factors That May Affect Future Results (Continued)
-----------------------------------------------------
At December 31, 2002 The Matthews Group had made prepayments of $345,844 towards
scheduled payments due on the subscription receivable. The Matthews Group could
use this prepayment to satisfy the next eighteen scheduled payments due on the
subscription receivable at December 31, 2002. The Matthews Group has indicated
an intent to continue to make the scheduled payments due under the subscription
receivable, but there can be no assurances it will honor this commitment and
there is no contractual obligation for it to do so as long as prepayments exist
to satisfy its scheduled payments. We also have no assurance of The Matthews
Group's ability to continue to provide this funding. Failure of The Matthews
Group to continue to make scheduled payments on the subscription receivable
could negatively impact our ability to meet our cash flow requirements.
We are 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 our needs.
Although no certainties exist, we feel that cash flows from operations will at
least partially fund cash needs in 2003. Because of the long sales cycle related
to our products, it is expected cash from these new sales will be weighted
toward the latter part of 2003. For 2003 we will be enlisting distributors to
help market our products. Several distributors have shown interest in
representing our products. We intend to generate cash by requiring distributors
to pay a $200,000 license fee in exchange for allowing distributors to sell at
discounted software prices. However, there is no assurance that distributors
will agree to pay this license fee. The balance of our cash requirements is
expected to be provided by The Matthews Group as stated above.
We have begun an arbitration process with Mitsubishi regarding underpayment of
royalties. An adverse outcome to this arbitration proceeding could lower our
royalty receipts.
Item 3. Controls and Procedures
--------------------------------
We currently employ 6 employees. All of our employees report directly to the
CEO. We have regular meetings to review our business and operations. Our CEO and
CFO have reviewed our disclosure controls and procedures and, given the
simplicity of our business, they have concluded our current system is adequate
to report all material events and information necessary to ensure compliance
with our disclosure requirements.
PART II OTHER INFORMATION
-------------------------
Item 1. Legal Proceedings.
---------------------------
We were named in a suit brought by a stockholder and former director of the
company, Wolodymyr M. Starosolsky. The plaintiff in the pending litigation has
failed to prosecute the case. Consequently, it is unclear as to what relief
15
actually is being sought. The plaintiff originally filed suit in the Central
District of California claiming that we failed to act pursuant to our plan of
reorganization approved by the bankruptcy court. No monetary damages were
sought; rather, the plaintiff requested that any actions we took in violation of
the bankruptcy plan, or without proper board approval, be rescinded. In December
2000, that court granted our motion to transfer venue, and the case was
subsequently transferred to the District of Minnesota. However, the plaintiff
has failed to take any action to prosecute the case in Minnesota. Because of the
plaintiff's failure to prosecute the case for the last two years, and because
the only relief sought in the case is equitable, we believe the likelihood is
remote that this litigation will have any material adverse impact on us.
We are in arbitration with Mitsubishi Corporation. We believe that Mitsubishi
failed to pay past royalties due to us and failed to honor a letter of intent
the parties executed. In the event we prevail in this arbitration, we will
receive additional royalty payments from Mitsubishi. However, because we have
not received an accounting from Mitsubishi, we are unable to estimate the
royalties that may be due. We have not recorded a receivable for these claimed
royalties. Mitsubishi also raised a counterclaim against us, alleging that we
misused confidential information belonging to Mitsubishi. This counterclaim
asserts unspecified damages; therefore, we are unable to estimate the effect an
adverse decision regarding this claim may have on us.
Item 2. Changes in Securities and Use of Proceeds.
---------------------------------------------------
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.
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None.
16
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.
Date: August 12, 2003 /s/ Van Thuy Tran
---------------- ---------------------------
Van Thuy Tran
Chief Executive Officer and Chief Financial Officer
17
I, Van Thuy Tran, certify that:
1. I have reviewed this amended quarterly report on Form 10-QSB/A for the
quarter ended December 31, 2002 of Veritec Inc.;
2. Based on my knowledge, this amended quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this amended quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this amended
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this amended quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this
amended quarterly report (the "Evaluation Date"); and
c) Presented in this amended quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
amended quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 12, 2003
/s/ Van Thuy Tran
---------------------------------------------------
Van Thuy Tran
Chief Executive Officer and Chief Financial Officer
18
Exhibit Index Page
Exhibit 99.1 Certificate pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 20
19