UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 September 30, 2003
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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)
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)
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
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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 October 15,
2003 the Company had:
Number of Shares of Common Stock
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7,071,849
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Transition Small Business Disclosure Format (check one): Yes X No
--- ---
[Please check appropriate response]
2
Table of Contents
FORM 10-QSB
VERITEC INC.
INDEX
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 10
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VERITEC INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
2003 2003
------------- ------------
ASSETS
Current Assets:
Cash $ 421,422 $ 325,193
Accounts receivable, net 148,204 185,174
Inventories 4,368 11,585
Prepaid expenses 54,365 32,791
------------ ------------
Total current assets 628,359 554,743
Fixed assets, net 9,408 14,669
Technology and software costs, net 112,659 119,884
Long-term prepaid expenses 12,613 7,827
------------ ------------
Total assets $ 763,039 $ 697,113
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable - related parties $ 340,000 $ 340,000
Convertible note - related party 497,374 497,374
Current maturities of long-term debt 111,641 109,878
Accounts payable and accrued expenses 1,150,230 1,038,019
Deferred revenue 3,185 2,912
------------ ------------
Total current liabilities 2,102,430 1,988,183
Long-term debt 248,539 256,720
Prepayment on stock subscription receivable 186,478 242,033
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 71,418 71,268
Subscription receivable (825,994) (860,326)
Additional paid in capital 11,946,964 11,922,440
Accumulated deficit (13,353,320) (13,288,631)
Accumulated other comprehensive income (loss) 10,090 (581)
------------ ------------
Stockholders' equity (deficit) (1,774,408) (1,789,823)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 763,039 $ 697,113
============ ============
See Notes to Financial Statements.
4
VERITEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
September 30,
----------------------
2003 2002
--------- ---------
Revenues $ 609,310 $ 622,309
Cost of sales 47,746 263,180
--------- ---------
Gross profit 561,564 359,129
--------- ---------
Operating Expenses
Selling, general and administrative 531,162 423,388
Research and development 57,916 87,640
Amortization 11,856 11,854
--------- ---------
Total operating expenses 600,934 522,882
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Loss from operations (39,370) (163,753)
--------- ---------
Other income (expense):
Interest income (expense), net 8,139 21,160
Other income (expense) (33,023) (17,197)
Minority interest in Veritec Iconix Ventures, Inc. -- 17,550
--------- ---------
Total other income (expense) (24,884) 21,513
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Loss before income taxes (64,254) (142,240)
Income tax expense (436) (367)
--------- ---------
Net loss $ (64,690) $(142,607)
========= =========
Basic and diluted net loss per common share (0.01) $ (0.02)
========= =========
See Notes to Financial Statements.
5
VERITEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
September 30,
-----------------------
2003 2002
---------- ----------
Cash flows from operating activities:
Net loss $ (64,690) $(142,607)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 11,856 11,854
Changes in operating assets and liabilities:
Accounts receivable 36,970 (134,736)
Inventories 7,217 71,895
Prepaid expenses (19,145) 23,618
Increase -decrease in liabilities:
Accounts payable and accrued expenses 120,474 (20,706)
Deferred revenue 273 6,342
--------- ---------
Net cash provided (used) by operating activities 92,955 (184,340)
Cash flow from investing activities:
Minority interest in Veritec Iconix Venture, Inc. -- (94,138)
--------- ---------
Net cash used by investing activities -- (94,138)
Cash flow from financing activities:
Proceeds (payments) from stock issuance, subscription
receivable, and prepayment on stock 3,451 (25,596)
Proceeds from notes payable - related parties -- 153,190
Proceeds (payments) on notes payable - related parties -- (307,374)
Proceeds (payments) on long-term debt payable (4,254) 393,434
--------- ---------
Net cash provided (used) by financing activities (803) 213,654
Effect of exchange rate changes 4,077 (7,861)
--------- ---------
Increase (decrease) in cash 96,229 (72,685)
Cash at beginning of period 325,193 158,760
--------- ---------
Cash at end of period $ 421,422 $ 86,075
========= =========
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 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 three-month period ended September 30, 2003
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 2002 financial statements, as previously
reported, have been reclassified to conform to the 2003 presentation.
Nature of Business
Veritec Inc. (the "Company") was incorporated in Nevada on September 8, 1982.
The Company is primarily engaged in development, marketing and sales of a line
of microprocessor-based encoding and decoding system products that utilize its
patented Vericode Symbol technology. The Company's 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.
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
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
The Company accounts 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 performed. License fees are recognized upon completion of
all required terms under the agreement. The process typically 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. Revenue is recognized at that point. Once the software is transmitted,
the customers do not have a right to refuse or return. 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 deferred revenue in
the accompanying financial statements.
7
Revenues (continued)
Royalties are recognized as earned. To date these royalties have been earned in
a foreign currency. The Company records these revenues in U. S. dollars at the
exchange rate in effect at the date of remittance.
Research and Development
Research and development costs are charged to expense as incurred.
Intangible Assets
On October 12, 1999, 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; 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
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.
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in accompanying financial statements,
the Company incurred a net loss of $64,690 during the quarter ended September
30, 2003, and has lost $13,353,320 from inception to September 30, 2003. At
September 30, 2003, the Company had a $1,474,071 working capital deficiency and
a stockholders' deficit of $1,774,408. The Company has relied on its financing
from The Matthews Group LLC (see subscription receivable below). 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's management is pursuing new sales opportunities for the Company. On
June 25, 2003, the Company's management acquired the remaining 50% interest in
VIVI (as define below) from The Matthews Group LLC, a related party to increase
the Company's viability. Management believes that it will be successful in these
efforts, which will improve its ability to realize assets and settle liabilities
in the normal course of operations. However, there is no assurance that the
Company will succeed in these efforts or that the Company will continue as a
going concern.
Investment: Veritec Iconix Ventures, Inc. (VIVI)
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
our initial capital contribution to VIVI. The promissory note to The Matthews
Group LLC bears interest at 10% per annum and is due in one year. 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
8
for the purchase consisted of 300,000 shares of our common stock and $100,000 in
U.S. dollars. The 150,000 shares contributed by us represented newly issued
shares of our 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 their 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 us
120,000 shares of our common stock. This stock has been returned to us and was
subsequently cancelled. In November 2003, the Company finalized the agreement
with Com Techno under which Com Techno will pay us 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 to this customer. 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).
Prepayment On Subscription Receivable
The Matthews Group made prepayments against its subscription payable to the
Company. These prepayments are unsecured and non-interest bearing. It is assumed
the prepayment at September 30, 2003 will ultimately be applied against the
subscription receivable.
Subscription Receivable
In September 1999, the Company 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 requires for 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 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 LLC is scheduled to fund the subscription receivable with
monthly payments of $18,519. As we have 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 September 30, 2003, The Matthews Group LLC had made prepayments of $186,478
towards scheduled payments on the subscription receivable. At The Matthews Group
LLC 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,
we will 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 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. We have 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. We also have no assurance of The Matthews Group
LLC 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 our ability to meet our cash flow requirements.
9
Other Information
None.
Item 2. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
General
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 $13,353,320 as of September 30, 2003.
In our Form 10-KSB filed with the Securities and Exchange Commission for the
year ended June 30, 2003, we identified critical accounting policies and
estimates for our business.
Results of Operations - September 30, 2003 compared to September 30, 2002
Revenues
Revenues of $609,310 for the quarter ended September 30, 2003 were $12,999 or
2.1% lower than the quarter ended September 30, 2002. For the period ended
September 30, 2002, the Company's revenues consisted of $387,328 from the
Japanese subsidiary and $234,981 from Veritec Inc. For the period ended
September 30, 2003, the Company's revenues consist of $153,279 from the Japanese
subsidiary and $456,031 from Veritec Inc. On June 25, 2003, the Company sold
VIVI's textile software business to Com Techno Alpha which was included in 2002
revenues. Veritec's revenues have increased due to our major distributor Sung
Jin Neotech, our Korean distributor. Also, sales from other customers have also
increased. Our security software has gained acceptance in the Asian marketplace.
We are now providing both hardware and software to our customers.
We continue to concentrate our efforts in the Asian market where we believe we
have the best opportunities to grow revenue.
Cost of Sales
Cost of sales of $47,746 for the quarter ended September 30, 2003 were $215,434
or 82% lower than the quarter ended September 30, 2002. This lower cost of sales
primarily relates to the higher margin of our software products as compared to
the prior period that included VIVI's textile business that provided the Company
with lower margin. This portion of the business was sold to Com Techno Alpha on
June 25, 2003.
Operating Expense
Operating expenses for the quarter ended September 30, 2003 versus September 30,
2002 were as follows:
September 30, 2003 September 30, 2002
------------------ ------------------
Selling, general and administrative expenses $531,162 $423,388
Research and development 57,916 87,640
Amortization 11,856 11,854
10
Selling, general and marketing expenses for the quarter ended September 30, 2003
were $107,774 or 25% higher than the quarter ended September 30, 2002. The
increase is largely due to additional staffing and marketing campaigns to
promote public awareness about the Company and to market the new VSCode
technology.
Research and development expenses for the quarter ended September 30, 2003 were
$29,724 or 34% lower than research and development expense of for the quarter
ended September 30, 2002. The reduction in research and development expenses
relates to engineering projects in 2002 have now been completed or are near
completion. Thus the expenses of staffing and contract labor have that been
reduced. These research and development expense savings have shifted to the
sales and marketing department to pursue and market the new VSCode technology.
We anticipate the software, which authenticates an individual through the use of
fingerprints, will be marketed in fiscal this year.
We continued to amortize the cost of our purchased software and technology
rights.
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, of which $50,000 Veritec subsequently used 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 in one year.
Additionally, the promissory note is convertible into our 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 our common stock. The
150,000 shares contributed by The Matthews Group LLC represented a portion of
the shares of our common stock already owned by it.
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 Capital Resources
A number of uncertainties exist that may affect our future operating results.
These uncertainties include 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 2004
at a decreasing rate. 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 flows from The Matthews Group LLC. There is no assurance
that The Matthews Group LLC will complete the obligations or that the payment
required to be made by The Matthews Group LLC 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 certainties exist, we feel 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, we believe a percentage of these leads will agree
to purchase product. It is expected that cash from these new sales will be more
towards the first half of 2004 because of the long cycle in the selling process.
For 2004, the Company will be enlisting distributors to help market our
products. Several distributors have signed distributorship agreements in 2003
and several more have shown serious interest in 2004. Cash will be generated by
requiring distributors to pay a $200,000 license fee which will give the
distributors the opportunity of discounted software prices and allow the
distributors to be more competitive in their marketing region.
11
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.
Net cash provided by operating activities was $92,955 for the quarter ended
September 30, 2003, compared to $184,340 used by operating activities for
quarter ended September 30, 2002. Cash used by operating activities for the
quarter ended September 30, 2003, consisted primarily of net losses for the
quarter of $64,690, decreases in accounts receivable of $36,970, increases in
accounts payable and accrued expenses of $120,474, and increases in prepaid
expenses of $19,145. Cash provided by operating activities for the quarter ended
September 30, 2002, consisted primarily of net losses for the quarter of
$142,607, increases in accounts receivable of $134,736, decreases in inventories
of $71,895, decreases in accounts payable and accrued expenses of $20,706, and
decreases in prepaid expenses of $23,618. The Company made no capital
expenditures for the quarter and paid down long-term debt of $4,254. The
operating and investing cash flow for the quarter ended September 30, 2003 were
funded through proceeds from scheduled payments on the subscription receivable
of $55,555, of which all was received from prior prepayment. No additional
monies were received from The Matthews Group LLC on this agreement for this
period. As of September 30, 2003 the prepayment balance from The Matthews Group
LLC was $186,478. This prepayment could be used by The Matthews Group LLC to
cover 10 payments under the subscription receivable agreement or the remaining
scheduled payments for fiscal year 2004. From July 1, 2003 through the date of
our first quarter report, The Matthews Group LLC had used this prepayment to
satisfy all of its scheduled payments under the agreement, and no monies have
been received under the subscription receivable.
Management has taken steps to manage expense and believes that existing cash,
together with cash flows generated by product sales and raising capital will be
sufficient to fund operations through 2004 and until we achieve positive cash
flow.
Item 3. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer/Chief
Financial Officer, has evaluated the effectiveness of our 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) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive
Officer/Chief Financial Officer has concluded that, as of the end of such
period, our disclosure controls and procedures are effective.
Internal Control over Financial Reporting
There have not been any changes in our 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, our internal control
over financial reporting.
Our management, including our 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 our 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.
12
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On June 30, 2000 we were 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. The action was
brought against us, and various individuals 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. In December 2000, this case was
transferred to the United States District Court for the District of Minnesota.
This case is in the discovery phase, but no discovery has been undertaken to
date. We intend to defend this action vigorously.
On January 10, 2002, we initiated an arbitration against Mitsubishi, Inc. in Los
Angeles, California alleging, among other things, misappropriation of trade
secrets and breach of contract. Phase I of the arbitration was completed on July
2, 2003. Out of the five claims, the arbitration panels rule that Veritec can
move forward with two of the five. The final hearing will be held in the first
quarter of 2004.
We 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 contract seeking damages in excess of $75,000. We are unsure whether
we will be successful in this litigation, and we have not recorded any
receivables or made any other accounting adjustments with respect to any
potential recovery to date.
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.
a. Exhibits
31. CEO/CFO Certification required by Rule 13a14(a)/15d14(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.
The Company filed a current report on Form 8-K on October 30,
2003 relating to the resignation of the Company's auditors.
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The Company filed a current report on Form 8-K on November 12,
2003 relating to the appointment of the Company's auditors.
(1) Filed herewith.
(2) Filed herewith.
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: November 19, 2003 /s/ Van Thuy Tran
------------------ ---------------------------------------------
Van Thuy Tran
Chief Executive Officer and Chief Financial
Officer
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