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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 (No fee required)
For the quarterly period ended December 31, 1999 -------------------------
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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)
1430 ORKLA DRIVE, GOLDEN VALLEY, MN 55427
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(Address of principal executive offices, zip code)
(612) 545-0224
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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 13 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 February 10, 2000 the Company had 6,495,572 shares of
common stock.
This document consists of 11 pages,
The Exhibit index is on page 10
1
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
VERITEC INC.
BALANCE SHEET
<TABLE>
<S> <C> <C>
December 31 June 30
1999 1999
ASSETS (Unaudited) (Audited)
---------------- ------------
Current Assets:
Cash 48,474 3,664
Accounts receivable 85,133 23,000
Inventories 21,892 14,463
------ ------
Total current assets 155,499 41,127
Intangible asset 193,333 -
Furniture and equipment, net 4,696 7,246
----- -----
353,528 48,373
LIABILITIES AND SHAREHOLDERS' ======= ======
EQUITY (DEFICIENCY):
Current Liabilities:
Notes payable on purchase order financing 100,000 -
Notes payable 50,000 45,000
Notes payable, secured by lien on assets, short term portion 219,835 198,704
Accounts payable and accrued expenses 86,440 134,764
Administrative costs per Plan of Reorganiz. 3,802 42,737
Accrued interest 80,231 60,262
Deferred compensation 22,120 301,406
Commissions payable 24,368 2,500
Total current liabilities 586,796 785,373
Commitments, contingencies and subsequent
events - -
Long term notes secured by lien on patent 66,618 87,749
------ ------
Total liabilities 653,414 873,122
------- -------
Prepayment on stock 240,198
-------
Prepayment on subscriptions receivable 67,798 -
------
Shareholders' equity (deficiency)
Subscriptions receivable -1,261,117 -
Preferred stock, par value $1.00, authorized 10,000,000
shares, 276,000 shares of Series H Preferred
authorized, 76,000 shares issued and outstanding 360,718 7,273
Common stock, par value $.01, authorized 20,000,000
shares, issued and outstanding, 6,495,572 at
December 1999, 1998 and 1997 respectively, and 64,955 35,988
Additional paid in capital 11,294,770 9,644,401
Accumulated deficit -10,827,010 -10,752,609
----------- -----------
Net shareholders' equity (deficiency) -367,684 -1,064,947
-------- ----------
353,528 48,373
======= ======
</TABLE>
See Accompanying Notes to the financial Statements
2
<PAGE>
VERITEC INC
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
For the three months ended For the six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
Revenues 186,800 8,879 232,652 51,280
Cost of Sales -63,347 -1,727 -66,930 -20,212
------- ------ ------- -------
Gross Profit 123,453 7,152 165,722 31,608
Commissions -42,357 - -56,142 -5,000
------- ----- ------- ------
Gross profit after commissions 81,096 7,152 109,580 26,068
------ ----- ------- ------
Expenses:
General and administrative 57,533 40,389 108,508 130,180
Sales and marketing 29,616 14,130 33,408 27,564
Engineering, research and
development 48,991 38,862 91,788 88,318
------ ------ ------ ------
Total expenses 136,140 93,381 233,704 246,062
------- ------ ------- -------
Gain or (Loss) from operations -55,044 -86,229 -124,124 -219,994
------- ------- -------- --------
Interest income 31,922 - 75,387 -
Interest expenses -11,578 -10,548 -25,663 -16,530
------- ------- ------- -------
Net interest income (expense) 20,344 -10,548 49,724 -16,530
------ ------- ------ -------
Net Gain or (Loss) -34,700 -96,777 -74,400 -236,524
======= ======= ======= ========
Net gain (loss) per common share -0.01 -0.03 -0.02 -0.07
===== ===== ===== =====
Weighted average common shares
outstanding 5,115,393 3,508,791 4,357,091 3,358,791
========= ========= ========= =========
</TABLE>
See Accompanying Notes to the Financial Statements
3
<PAGE>
VERITEC, INC
STATEMENTS OF
CASH FLOWS
(Unaudited)
For the six months ended December 31,
1999 1998
---- ----
Cash flow from operating activities:
Net loss -74,400 -236,524
------- --------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 9,216 3,174
(Increase) decrease in assets:
Accounts receivable -62,133 -
Inventory -7,429 8,782
Increase (decrease) in liabilities:
Accounts payable and accrued expenses -87,259 -813
Accrued interest 19,969 -
Deferred compensation -279,286 119,820
Commissions payable 21,868 -
Deferred revenue - -8,500
-------- ------
Total adjustments -385,054 122,463
-------- -------
Net cash used by operating activities -459,454 -114,061
-------- --------
Cash flow from investing activities:
Purchase of intangible assets (Software) -200,000 -
-------- -------
Net cash used for investing activities -200,000 -
-------- -------
Cash flow from financing activities:
Issuance of common stock for debt 717,422 -
Issuance of notes payable 105,000 23,665
Issuance of preferred stock from advances -240,198 218,182
Prepayment on subscriptions receivable 67,798 -
Payments on subscriptions receivable 54,242 -
Advances for stock purchases - -131,877
------- --------
Net cash provided by financing activities 704,264 109,970
------- -------
Increase (decrease) in cash position 44,810 -4,091
Cash at beginning of period 3,664 4,216
----- -----
Cash at end of period 48,474 125
====== ===
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest - 12,500
Income taxes 6,781 -
See Accompanying Notes to the Financial Statements
4
<PAGE>
VERITEC INC.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FISCAL YEARS ENDED JUNE 30, 1999,1998 AND SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additional
Preferred Stock Common Stock Subscript. Paid in Accumulated Shareholders
Shares Amount Shares Amount Receivable Capital Deficit Deficiency
------- ------- ------ ------ ---------- ----------- ------------ -------------
Balance at June 30, 1997 - - 3,298,770 32,988 9,411,440 -9,839,842 -395,414
Exercise of 10,020 warrants at $2.50 10,021 100 24,952 25,052
Loss from operations -461,545 -461,545
----------------- ----------- -------- --------
Balance at June 30, 1998 3,308,791 33,088 9,436,392 -10,301,387 -831,907
Issuance of Series H Preferred for cash 30,000 218,182 218,182
Conversion of Series H preferred to common-29,000 -210,909 290,000 2,900 208,009
------- -------- ------- -------
Loss from operations -451,222 -451,222
-------- --------
Balance at June 30, 1999 1,000 7,273 3,598,791 35,988 9,644,401 -10,752,609 -1,064,947
Post confirmation debt to equity 779,134 7,791 615,514 623,305
------- ----- -------
Issuance of Series H Preferred for assets 275,000 1,315,359 1,315,359
------- ---------
Subscriptions receivable -1,276,938 -1,276,938
Loss from operations - 4 months to 10/31/99 ---------- -21,866 -21,866
------- -------
Balance at October 31, 1999 276,000 1,322,632 4,377,925 43,779 -1,276,938 10,259,915 -10,774,476 -425,088
Conversionof Series H preferred tocommon -200,000 -961,914 2,000,000 20,000 941,914
-------- -------- --------- ------ -------
Payment on subscriptions receivable 7,878 7,878
----- -36,457 -36,457
------- -------
Balance at November 30, 1999 76,000 360,718 6,377,925 63,779 -1,269,060 11,201,829 -10,810,933 -453,667
------ -------
Issuance of stock for cash (Prepayment) 117,647 1,176 92,941 94,117
------- ----- ------
Payment on Subscriptions Receivable 7,943 7,943
-----
Loss from operations -16,077 -16,077
------- -------
Balance December 31, 1999 76,000 360,718 6,495,572 64,955 -1,261,117 11,294,770 -10,827,010 -367,684
</TABLE>
5
<PAGE>
VERITEC INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999
(unaudited)
Basis of Presentation
- ---------------------
The unaudited financial statements presented herein have been prepared by
the Company, without audit, pursuant to the rules and regulations for interim
financial information and the instructions to Form 10-QSB and Regulation S-B.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principals have been omitted. These unaudited consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Report on Form 10-KSB for the fiscal year ended June
30, 1999. In the opinion of management, the unaudited consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals
only), which are necessary to present fairly the consolidated financial
position, results of operations, and changes in cash flow of the company.
Operating results for interim periods are not necessarily indicative of the
results which may be expected for the entire year.
PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis
Notes payable to a group of secured creditors - "The Gant Group"
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Included in the Plan of Reorganization was a secured note payable to "The
Gant Group" in the amount of $364,513. A payment of $60,000 was paid per note
Agreement on the scheduled effective date of the Plan and the balance was to be
paid in quarterly payments of $23,325.38 per quarter over a 4-year period. The
Gant Group was granted a lien on the patents of the company and ten percent
interest on the note. The first quarterly payment was made and then due to lack
of funds, additional payments became delinquent. This problem with the Gant
Group resulted in the Registrant being placed back into Chapter 7 bankruptcy.
The Matthews Group paid $182,345.87 on September 1, 1999 to bring the note with
the Gant Group current and has pledged to pay the quarterly payments to the Gant
Group as they become due. The Matthews Group paid the quarterly payment that was
due on October 1, 1999 as scheduled. The Registrant owes the Matthews Group for
the amounts paid to the Gant Group and will owe additional amounts to the
Matthews Group as they continue to pay on the quarterly payments. The amounts
owed to the Matthews Group are accruing interest at 10%, the same as the
interest being paid to the Gant Group.
At a meeting of the Board of Directors of the Registrant on June 14, 1999,
a date on which the Registrant was in Chapter 7 bankruptcy, the Board of
Directors approved a motion by the Matthews Group as follows:
" Due to the Matthews Group efforts and risk in salvaging Veritec, it
desires a resolution from the Board that: Should the Matthews Group acquire
Gant's interest, the Matthews Group will be able to elect, in its sole
discretion, to have the Gant note repaid in cash or to have the obligation
converted to Veritec stock at 10 cents per share."
The Company was not granted a Final Decree until October 21, 1999. The Plan
of Reorganization was to be Effective on August 8, 1997. Due to the inability of
HOMETREND and its Affiliates to provide the assets guaranteed in the Plan, the
6
<PAGE>
company was put in a difficult financial position. Administrative, Engineering
and Sales personnel were hired by the Company in anticipation of the funding
being in place. Operating activities were increased to position the Company for
increased sales. Due to this lack of funding, the engineering and sales
personnel left employment in the Company and the Company had little operating
activity for over a year.
Subsequent Events
- -----------------
The Matthews Group made the January 1, 2000 payment of $23,325.38 due the
Gant Group.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources - December 31, 1999, compared to June 30, 1999.
- -------------------------------
During the six months ended December 31, 1999, the Company received cash
from revenues totaling $232,652, collection of accounts receivable of $23,000,
$111,000 as payment on the note (Subscriptions) receivable and $8,839.90 as an
advance on notes receivable from the Matthews Group. Cash on hand at December
31, 1999 was $48,474.
Debt owed by the Company at December 31, 1999 was as follows:
<TABLE>
<S> <C> <C> <C>
Debt category Dec. 31, 1999 June 30, 1999 Incr./(Decr.)
----------------- ------------------- -------------------
Notes payable $ 150,000 $ 45,000 $ 105,000
Notes payable, secured 286,453 286,453 -
Administrative costs per Plan 3,802 42,737 (38,935)
Accounts payable and accrued expenses 86,440 134,764 (48,324)
Accrued interest 80,231 60,262 19,969
Commissions payable 24,368 2,500 21,868
Deferred compensation 22,120 301,406 (279,286
----------------- ------------------- -------------------
$ 653,414 $ 873,122 $ (219,708)
================= =================== ===================
</TABLE>
During the quarter ending December 31, 1999 the Company's liquidity
improved due the transfer of $717,422 debt to equity. The Company's liquidity
(working capital) is reflected in the table below, which shows comparative
working capital as of December 31, 1999 and June 30, 1999.
Dec. 31, 1999 June 30, 1999
-------------- -------------
Working capital (deficit) $ (431,297) $ (744,246)
The Company does not expect revenues from operations to be adequate to meet
all costs and expenses of the Company for several months. The Company first must
stabilize its operations and then move aggressively in sales and marketing of
its products and services. The Company is developing a web site, contacting
prospective customers, and continuing to service current customers in order to
increase revenues. As shown in the Financial and Operational Outlook below, the
Company has had continuing business with an International company. There is no
assurance that future sales to these or other customers will occur or that the
Company will be able to obtain adequate revenues to meet costs and expenses of
operations.
7
<PAGE>
Financial and Operational Outlook
- ---------------------------------
The Company received a purchase order of $880,000 from an International
company in December 1999 for product delivery in December 1999 through March of
2000. The royalty from Mitsubishi for sales in Korea and other countries is
expected to bring a gradually increasing stream of revenues, however, the
amounts are expected to be less than $30,000 per quarter during the next few
quarters. Sales to companies in Korea have provided the majority of revenues in
the quarter and six months ended December 31, 1999 and there is a possibility of
additional sales to these companies.
Results of Operations - The quarter and six months ended December 31, 1999
- -----------------------
compared to the quarter and six months ended December 31, 1998.
The Company had revenues of $186,800 during the quarter and $232,652 during
the six months ended December 31, 1999, respectively, as compared to $8,879
during the quarter and $51,280 during the six month period ended December 31,
1998. The revenues for all periods were primarily from the sale of products. The
Company is in discussions with several potential customers for systems sales but
cannot project future revenues, if any, at this time. The Company is also in the
discussion stage of potential licensing or partnering for product or industry
segment opportunities with several companies. Because of its cash flow and
liquidity problems, there are no assurances that the Company can ever generate
adequate revenues to make the Company profitable.
Operating expenses for six months ended December 31, 1999 decreased over
the relative six month period ended December 31, 1998 as shown in the following
table.
For the nine months ended
Expense category Dec. 31, 1999 Dec. 31, 1998 Incr./(Decr.)
-------------- -------------- -------------
General and administrative $ 108,508 $ 130,180 $ (21,672)
Sales and marketing 33,408 27,564 5,844
Engineering, research and development 91,788 88,318 3,470
=========== ============= ============
$ 233,704 $ 246,062 $ (12,358)
=========== ============= ============
The decrease in General and Administrative expenses was due a payment of
$20,000 to the Company's bankruptcy attorney recorded in the December 1998
quarter. Other costs and expenses remained about the same as those in the prior
year.
The increase in Sales and Marketing expense was due to the and increase in
the allocation of personnel costs to this account. The Company is in the process
of hiring additional sales personnel.
The increase in Engineering and research was the due hiring of an
additional Application Engineer in November 1999.
Capital Expenditures and Commitments
- ------------------------------------
There were no Capital expenditures during the six months ended December 31,
1999. Other than for nominal computer and office equipment needed to expand its
businesses, the Company has no current commitments for material capital
8
<PAGE>
expenditures in the next 12 months. The Company 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 required is uncertain and may be
beyond that generated from operations.
Factors that may effect future results
- --------------------------------------
The note receivable requires payment of $18,518.52 per month. This amount
is adequate to take care of the cost of engineering services, rent and supplies.
The Matthews Group has supplied finances in addition to the required monthly
amount on the note and has financed operations necessary to promote sales and
provide inventory for sales. In order for the Company to have an aggressive
sales and marketing program, it will require funds in excess of the monthly
amount of $18,518.52 until such time as the Company's profit from revenues and
the $18,518.52 is adequate to cover costs and expenses of the Company. The
Matthews Group has been willing to provide funding necessary to move the Company
forward in engineering, sales and marketing activities. Larry Matthews,
Chairman, and Ms. Van Tran, President, are principles in the Matthews Group and
are an integral part of managing the operations of the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
Since there has been a number of actions affecting both the common stock
and preferred stock during the quarter and six months ended December 31, 1999, a
schedule "STATEMENTS OF SHAREHOLDERS' DEFICIENCY" has been included in the
financial section of this report.
During the quarter ended December 31, 1999 there were 896,781 shares of
restricted common stock issued in satisfaction of Post Confirmation debt. The
Court approved this transfer of debt to equity with the Registrant's petition
for a Final Decree.
The Matthews Group received 275,000 shares of Preferred Series H stock in
payment for their promissory note of $2,000,000, per Plan of Reorganization. The
Matthews Group converted 200,000 shares of Preferred Series H Stock to 2,000,000
shares of restricted common stock under the provision in the Plan of
Reorganization, allowing for one share of Preferred Series H stock exchangeable
for 10 shares of common stock
Since the note receivable from the Matthews Group does not include an
interest factor, it has been recorded as Subscription Receivable in the Equity
section of the Balance Sheet. Of the monthly payment of $18,518.52, a computed
interest on the note is recorded as interest income and the balance recorded as
a reduction to the Subscription Receivable account.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company held its 1999 Annual Meeting of Shareholders on December 20,
1999. All director nominees were elected by the shareholders at this Annual
Meeting. In addition, the shareholders favorably approved engaging the services
of Callahan, Johnston & Associates, LLC as the Company's auditors for the fiscal
year ending June 30, 2000.
The matters voted on at this Annual Meeting and the shares cast for each
proposal is shown in the following table.
<TABLE>
<S> <C> <C> <C> <C>
Shares cast For Against Abstained
Election of Director Nominees:
Larry Matthews 2,719,620 1,857,105* 105,035 12,112
Ms. Van Thuy Tran 2,719,620 1,857,105 105,035 12,112
Dean Westberg 2,719,620 1,857,105 105,035 12,112
Votes for nominees proposed
At the meeting by Mr. Starosolsky:
Wolodymyr Starosolsky 2,719,620 745,368 0 0
Charles Hansel 2,719,620 745,368 0 0
James Mollitor 2,719,620 745,368 0 0
Votes for nominees proposed
At the meeting by Robert Anselmo:
Carl Anselmo 2,719,620 105,035 0 0
Roger Bailey 2,719,620 105,035 0 0
Ratify Callahan, Johnston
& Associates, LLC as the
Independent Auditors 2,719,620 1,841,524 863,905 14,159
</TABLE>
* The Matthews Group did not vote their stock
Total Shares Voted: 2,719,620 (57%)
Total Shares per American Securities Transfer & Trust, Inc. 4,739,185
ITEM 5. OTHER INFORMATION
Ms. Van Tran Bankruptcy
Ms. Van Tran, President of the Registrant, took out personal chapter 7
bankruptcy in 1995. This matter was not reported in prior filings with the
Securities and Exchange Commission nor in the Proxy information provided
shareholders in conjunction with the Annual Shareholders' Meeting. Ms. Van Tran
was not aware that this matter needed to be included in the Registrants reports
to the Securities and Exchange Commission and in Proxy material for
shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K: None
10<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERITEC INC.
------------
(Registrant)
Date: February 10, 2000
------------------ /s/ Jack E. Dahl
By: ____________________________________
Jack E. Dahl
Chief Financial Officer and Chief
Accounting Officer
11
