UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
l0-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for
the quarterly period ended December 31, 2013
OR
☐
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
VERITEC,
INC.
(Exact
name of Registrant as Specified in its Charter)
| Nevada |
95-3954373 |
(State
or Other Jurisdiction of
Incorporation
or Organization) |
(IRS
Employer
Identification
No.) |
| |
|
| 2445
Winnetka Avenue N. Golden Valley, MN |
55427 |
| (Address
of principal executive offices) |
(Zip
Code) |
Registrant's
telephone number, including area code: (763) 253-2670
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 ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule l2b-2 of the Exchange Act. (Check one):
| Large
Accelerated filer ☐ |
Non-accelerated
filer ☐ |
| |
|
| Accelerated
filer ☐ |
Smaller Reporting
Company ☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of December 31, 2013, there were 15,920,088 shares of the issuer’s common stock outstanding.
VERITEC,
INC.
FORM
10-Q
FOR
THE FISCAL QUARTER ENDED DECEMBER 31, 2013
TABLE
OF CONTENTS
| |
Page
No. |
| |
|
| PART
I |
3 |
| ITEM
1 |
FINANCIAL
STATEMENTS |
3 |
| ITEM
2 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
13 |
| ITEM
3 |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
17 |
| ITEM
4 |
CONTROLS
AND PROCEDURES |
17 |
| PART
II |
18 |
| ITEM
1 |
LEGAL
PROCEEDINGS |
18 |
| ITEM
1A |
RISK
FACTORS |
18 |
| ITEM
2 |
UNREGISTERED
SALE OF EQUITY SECURITIES AND USE OF PROCEEDS |
18 |
| ITEM
3 |
DEFAULTS
UP0N SENIOR SECURITIES |
18 |
| ITEM
4 |
MINE
SAFETY DISCLOSURES |
18 |
| ITEM
5 |
OTHER
INFORMATION |
18 |
| ITEM
6 |
EXHIBITS |
18 |
| SIGNATURES |
19 |
Special
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations"
in Item 2 of Part I of this report include forward-looking statements. These statements involve known and unknown risks, uncertainties
and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different
from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.
In
some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"proposed," "intended," or "continue" or the negative of these terms or other comparable terminology.
You should read statements that contain these words carefully, because they discuss our expectations about our future operating
results or our future financial condition or state other "forward-looking" information. There may be events in the future
that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence
of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial
condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could
lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no
duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual
results.
PART
I
ITEM
1 FINANCIAL STATEMENTS
VERITEC,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
| | |
December
31,
2013 | |
June
30,
2013 |
| ASSETS | |
(Unaudited) | |
|
| | |
| | | |
| | |
| Current Assets: | |
| | | |
| | |
| Cash | |
$ | 309,154 | | |
$ | 75,918 | |
| Accounts receivables,
net of allowance of $13,151 and $13,151, respectively | |
| 2,955 | | |
| 288,323 | |
| Inventories | |
| 7,944 | | |
| 4,815 | |
| Prepaid
expenses | |
| 9,457 | | |
| 32,887 | |
| Total Current Assets | |
| 329,510 | | |
| 401,943 | |
| | |
| | | |
| | |
| Restricted cash | |
| 38,163 | | |
| 499,277 | |
| Property
and Equipment, net | |
| 1,199 | | |
| — | |
| | |
| | | |
| | |
| Total
Assets | |
$ | 368,872 | | |
$ | 901,220 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’
DEFICIENCY | |
| | | |
| | |
| | |
| | | |
| | |
| Current Liabilities: | |
| | | |
| | |
| Notes
payable – in default | |
$ | 479,166 | | |
$ | 787,153 | |
| Notes
payable, related party – in default | |
| 2,555,235 | | |
| 2,525,948 | |
| Accounts
payable | |
| 513,298 | | |
| 497,518 | |
| Accounts payable,
related party | |
| 72,141 | | |
| 82,129 | |
| Customer
deposits | |
| 87,177 | | |
| 71,287 | |
| Deferred
revenues | |
| 370,723 | | |
| 1,026,675 | |
| Payroll
tax liabilities | |
| 651,679 | | |
| 680,461 | |
| Accrued
expenses | |
| 146,498 | | |
| 143,309 | |
| Total
Current Liabilities | |
| 4,875,917 | | |
| 5,814,480 | |
| | |
| | | |
| | |
| | |
| | | |
| | |
| Commitments and Contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders' Deficiency: | |
| | | |
| | |
| Convertible
preferred stock, par value $1.00; authorized 10,000,000 shares, 276,000 shares of Series H authorized, 1,000 shares
issued and outstanding as of December 31, 2013 and June 30, 2013 | |
| 1,000 | | |
| 1,000 | |
| Common stock, par
value $.01; authorized 50,000,000 shares, 15,920,088 shares issued and outstanding as of December
31, 2013 and June 30, 2013 | |
| 159,201 | | |
| 159,201 | |
| Common
stock to be issued, 175,000 and 125,000 shares and no shares, respectively | |
| 13,262 | | |
| 10,477 | |
| Additional paid-in
capital | |
| 14,594,181 | | |
| 14,594,181 | |
| Accumulated
deficit | |
| (19,274,689 | ) | |
| (19,678,119 | ) |
| Total
Stockholders' Deficiency | |
| (4,507,045 | ) | |
| (4,913,260 | ) |
| | |
| | | |
| | |
| Total
Liabilities and Stockholders’ Deficiency | |
$ | 368,872 | | |
$ | 901,220 | |
See
notes to condensed consolidated financial statements
VERITEC,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | |
Three
months ended
December 31, |
| | |
2013 | |
2012 |
| | |
(Unaudited) | |
(Unaudited) |
| | |
| |
|
| License
and other revenue | |
$ | 305,653 | | |
$ | 129,302 | |
| Cost of Sales | |
| 70,087 | | |
| 51,344 | |
| Gross
Profit | |
| 235,566 | | |
| 77,958 | |
| | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | |
| General
and administrative | |
| 124,335 | | |
| 134,721 | |
| Sales
and marketing | |
| 29,429 | | |
| 17,270 | |
| Research
and development | |
| 45,342 | | |
| 35,200 | |
| Total
Operating Expenses | |
| 199,106 | | |
| 187,191 | |
| | |
| | | |
| | |
| Income
(Loss) from Operations | |
| 36,460 | | |
| (109,233 | ) |
| | |
| | | |
| | |
| Other Expense: | |
| | | |
| | |
| Interest income | |
| 27 | | |
| 28 | |
| Interest
expense, including $39,120 and $41,349, respectively, to related parties | |
| (46,080 | ) | |
| (86,276 | ) |
| Total
Other Expense | |
| (46,053 | ) | |
| (86,248 | ) |
| | |
| | | |
| | |
| Net
Loss | |
$ | (9,593 | ) | |
$ | (195,481 | ) |
| | |
| | | |
| | |
| Loss Per Common Share, | |
| | | |
| | |
| Basic
and Diluted | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
| | |
| | | |
| | |
| Weighted Average Number of Shares Outstanding, | |
| | | |
| | |
| Basic
and Diluted | |
| 15,920,088 | | |
| 15,920,088 | |
See
notes to condensed consolidated financial statements
VERITEC,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | |
Six
months ended
December 31, |
| | |
2013 | |
2012 |
| | |
(Unaudited) | |
(Unaudited) |
| | |
| |
|
| License
and other revenue | |
$ | 1,084,013 | | |
$ | 288,093 | |
| Cost of Sales | |
| 187,688 | | |
| 115,101 | |
| Gross
Profit | |
| 896,325 | | |
| 172,992 | |
| | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | |
| General
and administrative | |
| 258,344 | | |
| 317,256 | |
| Sales
and marketing | |
| 46,800 | | |
| 43,938 | |
| Research
and development | |
| 91,921 | | |
| 77,193 | |
| Total
Operating Expenses | |
| 397,065 | | |
| 438,387 | |
| | |
| | | |
| | |
| Income
(Loss) from Operations | |
| 499,260 | | |
| (265,395 | ) |
| | |
| | | |
| | |
| Other Expense: | |
| | | |
| | |
| Interest income | |
| 28 | | |
| — | |
| Interest
expense, including $76,927 and $80,026, respectively, to related parties | |
| (95,858 | ) | |
| (167,348 | ) |
| Total
Other Expense | |
| (95,830 | ) | |
| (167,348 | ) |
| | |
| | | |
| | |
| Net
Income (Loss) | |
$ | 403,430 | | |
$ | (432,743 | ) |
| | |
| | | |
| | |
| Income (Loss) Per Common Share, | |
| | | |
| | |
| Basic | |
$ | 0.03 | | |
$ | (0.03 | ) |
| Diluted | |
$ | 0.02 | | |
$ | (0.03 | ) |
| Weighted Average Number of Shares Outstanding, | |
| | | |
| | |
| Basic | |
| 15,920,088 | | |
| 15,920,088 | |
| Diluted | |
| 19,232,093 | | |
| 15,920,088 | |
See
notes to condensed consolidated financial statements
VERITEC,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2013
(Unaudited)
| ` |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
| |
Preferred
Stock |
|
Common
Stock |
|
Paid-in |
|
Common
Stock to be |
|
Accumulated |
|
|
| |
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Issued |
|
Deficit |
|
Total |
| Balance,
July 1, 2013 |
1,000 |
|
$
1,000 |
|
15,920,088 |
|
$159,201 |
|
$14,594,181
|
|
$10,477
|
|
$(19,678,119) |
|
$(4,913,260) |
| Shares
to be issued for services |
|
|
|
|
|
|
|
|
|
|
2,785 |
|
|
|
2,785 |
| Net
Income for the Period |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
403,430 |
|
403,430 |
Balance,
December 31, 2013 (Unaudited) |
1,000 |
|
$
1,000 |
|
15,920,088 |
|
$159,201 |
|
$14,594,181 |
|
$13,262 |
|
$(19,274,689) |
|
$(4,507,045) |
See
notes to condensed consolidated financial statements
VERITEC,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | |
Six
months ended
December 31, |
| | |
2013 | |
2012 |
| | |
(Unaudited) | |
(Unaudited) |
| CASH FLOWS FROM OPERATING
ACTIVITIES | |
| | | |
| | |
| Net income
(loss) | |
$ | 403,430 | | |
$ | (432,743 | ) |
| Adjustments to reconcile
net income (loss) to net cash provided by (used in) operating activities: | |
| | | |
| | |
| Depreciation | |
| 34 | | |
| 322 | |
| Amortization
of discount on notes payable | |
| — | | |
| 64,966 | |
| Shares
issued for services | |
| 2,785 | | |
| — | |
| Interest
accrued on notes payable | |
| 85,336 | | |
| 95,979 | |
| Changes
in operating assets and liabilities: | |
| | | |
| | |
| Accounts
receivable | |
| 285,368 | | |
| 9,366 | |
| Restricted
cash | |
| 461,114 | | |
| — | |
| Inventories | |
| (3,128 | ) | |
| 579 | |
| Prepaid
expenses | |
| 23,430 | | |
| — | |
| Deferred
revenues | |
| (655,952 | ) | |
| (27,500 | ) |
| Employee
advances | |
| — | | |
| 600 | |
| Payroll
tax liabilities | |
| (28,782 | ) | |
| 80,654 | |
| Customer
deposit | |
| 15,891 | | |
| (61,519 | ) |
| Accounts
payables and accrued expenses | |
| 8,980 | | |
| 78,102 | |
| | |
| | | |
| | |
| Net
cash provided by (used in) operating activities | |
| 598,506 | | |
| (191,194 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING
ACTIVITIES | |
| | | |
| | |
| Purchase
of fixed assets | |
| (1,234 | ) | |
| — | |
| Net
cash used in investing activities | |
| (1,234 | ) | |
| — | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING
ACTIVITIES | |
| | | |
| | |
| Proceeds
from notes payable | |
| — | | |
| 165,000 | |
| Repayments
on notes payable | |
| (364,036 | ) | |
| — | |
| Net
cash provided by (used in) financing activities | |
| (364,036 | ) | |
| 165,000 | |
| | |
| | | |
| | |
| NET INCREASE (DECREASE)
IN CASH | |
| 233,236 | | |
| (26,194 | ) |
| CASH AT BEGINNING
OF PERIOD | |
| 75,918 | | |
| 62,115 | |
| CASH AT END
OF PERIOD | |
$ | 309,154 | | |
$ | 35,921 | |
| | |
| | | |
| | |
| SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION | |
| | | |
| | |
| Cash
paid for interest | |
$ | 9,757 | | |
$ | 6,408 | |
| | |
| | | |
| | |
See
notes to condensed consolidated financial statements
VERITEC,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (UNAUDITED)
A. NATURE
OF BUSINESS
References
to the “Company” in this Form 10-Q refer to Veritec, Inc. (“Veritec”) and its wholly owned subsidiaries
Vcode Holdings, Inc. (Vcode®), and Veritec Financial Systems, Inc. (VTFS).
The
Company is primarily engaged in the development, marketing, sales and licensing of products and rendering of professional services
related thereto in the following two fields of technology: (1) proprietary two-dimensional matrix symbology (also commonly
referred to as “two-dimensional barcodes” or “2D barcodes”), and (2) mobile banking solutions.
The
Company’s two-dimensional matrix symbology technology will hereafter be referred to as the Company’s “Barcode
Technology”, and the Company’s mobile banking technology will hereafter be referred to as its “Mobile
Banking
Technology”.
The Company’s Barcode Technology was originally invented by the founders of Veritec under United States patents 4,924,078,
5,331,176, 5,612,524 and 7,159,780. Our principal licensed product to date that contains our VeriCode ® Barcode
Technology has been a product identification system for identification and tracking of manufactured parts, components and products
mostly in the liquid crystal display (LCD) markets. The VeriCode® symbol is a two-dimensional high data density machine-readable
symbol that can contain up to approximately 500 bytes of data.
The
Company’s VSCode® Barcode Technology is a derivative of the VeriCode® symbol with the ability to encrypt a greater
amount of data by increasing data density. The VSCode ® is a data storage “container” that offers a
high degree of security and which can also be tailored to the application requirements of the user. The VSCode ® symbol can
hold any form of binary information that can be digitized, including numbers, letters, images, photos, graphics, and the minutia
for biometric information, including fingerprints and facial image data, to the extent of its data storage capacity, that are
likewise limited by the resolution of the marking and reading devices employed by the user. VSCode ® is ideal for
secure identification documents (such as national identification cards, driver’s licenses, and voter registration cards),
financial cards, medical records and other high security applications.
In
its PhoneCodes™ product platform, Veritec developed software to send, store, display, and read a VeriCode® Barcode Technology
symbol on the LCD screen of a mobile phone. With the electronic media that provide the ease of transferring information over the
web, Veritec’s PhoneCodes™ technology enables individuals and companies to receive or distribute gift certificates,
tickets, coupons, receipts, or engage in banking transactions using the VeriCode ® technology via wireless phone or PDA.
On
January 12, 2009, Veritec formed VTFS, a Delaware corporation, to bring its Mobile Banking Technology, products and related professional
services to market. In May 2009 Veritec was registered by Security First Bank in Visa’s Third Party Registration
Program as a Cardholder Independent Sales Organization and Third-Party Servicer. As a Cardholder Independent Sales
Organization, Veritec was able to promote and sell Visa branded card programs. As a Third-Party Servicer, Veritec provided
back-end cardholder transaction processing services for Visa branded card programs on behalf of Security First Bank. As of October
2010 the Company’s registration with Security First Bank terminated. As of April 2011 the Company signed an ISO and processor
agreement with Palm Desert National Bank (which was later assigned to First California Bank) to market and processes the Company’s
Visa branded card program on behalf of the bank. First California Bank was sold to Pacific Western Bank and June 2013 Pacific
Western Bank closed its entire debit card division and transferred its contract with VTFS to Central Bank of Kansas City Bank.
On February 5th, 2014 the entire relationship between Veritec and Pacific Western Bank ended and the new relationship
with Central Bank of Kansas City began.
Our
VeriSuite™ card enrollment system was released in July 2009. The VeriSuite™ system is a user
friendly and cost effective solution that gives governments and businesses the ability to provide cardholders with an identity
card containing Veritec’s VSCode® Barcode Technology. The VeriSuite™ system provides secure Bio-ID
Cards such as citizen identification, employee cards, health benefit cards, border control cards, financial cards, and more.
The
Company has a portfolio of five United States and eight foreign patents. In addition, we have seven U.S. and twenty-eight
foreign pending patent applications.
B.
BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States of America
generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form
10-Q. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required
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 and six month periods ended December 31, 2013 are not necessarily indicative
of the results that may be expected for the year ending June 30, 2014. The Condensed Consolidated Balance Sheet as of June 30,
2013 was derived from the audited consolidated financial statements as of such date, but does not include all of the information
and footnotes required by GAAP. For further information, refer to the Consolidated Financial Statements and footnotes thereto
included in our Form 10-K as of and for the year ended June 30, 2014.
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities and
assumptions made in valuing stock instruments issued for services.
The
accompanying condensed consolidated financial statements include the accounts of Veritec, VCode, and VTFS. All inter-company transactions
and balances were eliminated in consolidation.
C.
GOING CONCERN
The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.
At December 31, 2013, the Company had a working capital deficit of $4,546,407 and a stockholders’ deficiency of $4,507,045.
The Company is delinquent or in default of $3,034,401 of its notes payable and is delinquent in payment of certain amounts due
of $651,679 for payroll taxes and accrued interest and penalties as of December 31, 2013. The Company believes its cash and forecasted
cash flow from operations will not be sufficient to continue operations through fiscal 2014 without continued external investment.
The Company will require additional funds to continue its operations through fiscal 2014 and to continue to develop its existing
projects and plans to raise such funds by finding additional investors to purchase the Company’s securities, generating
sufficient sales revenue, implementing dramatic cost reductions or any combination thereof. There is no assurance that the Company
can be successful in raising such funds, generating the necessary sales or reducing major costs. Further, if the Company is successful
in raising such funds from sales of equity securities, the terms of these sales may cause significant dilution to existing holders
of common stock. The condensed consolidated financial statements do not include any adjustments that may result from this uncertainty.
D.
SIGNIFICANT ACCOUNTING POLICIES
Net Loss
per Common Share:
Basic
earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings (loss) per
share
is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares
outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares
had been issued, using the treasury stock method. Potential common shares are excluded from the computation as their effect is
antidilutive.
For
the three months ended December 31, 2013 and 2012 the calculations of basic and diluted loss per share are the same because potential
dilutive securities would have an anti-dilutive effect.
For the
six months December 31, 2013 the calculation of diluted earnings per share included stock options calculated under the treasury
stock method, and excluded preferred stock since the effect was antidilutive. For the six months ended December 31, 2012 the calculations
of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect.
The
calculation of weighted average shares outstanding – diluted is as follows for the six months ended:
| | |
December
31, |
| | |
2013 | |
2012 |
| | |
| |
|
| Net
income (loss) attributable to common stockholders | |
$ | 403,430 | | |
$ | (432,743 | ) |
| Denominator | |
| | | |
| | |
| Weighted average shares outstanding - basic | |
| 15,920,088 | | |
| 15,920,088 | |
| Effect of dilutive instruments: | |
| | | |
| | |
| Options | |
| 2,500,000 | | |
| — | |
| Convertible Notes
Payable | |
| 812,005 | | |
| | |
| Weighted average shares outstanding
- diluted | |
| 19,232,093 | | |
| 15,920,088 | |
As
of December 31, 2013 and 2012, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire
shares of common stock, from our calculation of earnings per share, as their effect would have been anti-dilutive.
| | |
December
31, |
| | |
2013 | |
2012 |
| Warrants | |
| 275,000 | | |
| 275,000 | |
| Series H Preferred Stock | |
| 10,000 | | |
| 10,000 | |
| Convertible Notes Payable | |
| 7,326,220 | | |
| 7,258,196 | |
| Options | |
| 631,500 | | |
| 717,249 | |
| Total | |
| 8,242,720 | | |
| 8,260,445 | |
Concentrations
During
the three months ended December 31, 2013 and 2012, the Company had 3 customers that accounted for approximately 30%, 19%, and
17% of sales in 2013, and three customers that accounted for approximately 10%, 15% and 64% of sales in 2012, respectively. During
the six months ended December 31, 2013 and 2012, the Company had two customers that accounted for approximately 21% and 18% of
sales in 2013, and two customers that accounted for approximately 22% and 41% of sales in 2012, respectively. No other customers
accounted for more than 10% of sales in either period. As of December 31, 2013 and June 30, 2013, the Company had approximately
$20,400 (64%) and $6,050 (19%) and $250,000 (83%) and $26,563 (9%), respectively, of accounts receivable due from its major customers.
For
the three months ended December 31, 2013 and 2012, foreign revenues accounted for 53% (30% Korea, 23% Taiwan and 0% Germany) and
77% (65% Korea, 2% Taiwan and 10% Germany) of the Company’s total revenues respectively. For the six months ended December
31, 2013 and 2012, foreign revenues accounted for 68% (47% Korea, 21% Taiwan, 0% Germany and 32% others) and 67% (56% Korea, 7%
Taiwan, 3% Germany and 1% others) of the Company’s revenues respectively.
Recent
Accounting Pronouncements
On
May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue
from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance
under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require
that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also
will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill
a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted.
Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on
our ongoing financial reporting.
In
April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation
of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for
reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only
disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results
should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December
15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial
condition.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s
ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.
The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter,
with early adoption permitted.
Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities
Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's
present or future financial statements.
E. RESTRICTED
CASH
The
Company entered into Store Value Prepaid Card Sponsorship Agreements (the “Agreement”) with certain banks whereas
the Company markets and sells store value prepaid card programs (the “Programs”). The Programs are marketed and managed
daily at the direction of the Bank, for which the company receives a transaction fee. In connection with the agreements the Company
is required to establish a Reserve Account controlled by the bank. At December 31, 2013 and June 30, 2013, the restricted cash
totaled $38,163 and $499,277, respectively. Since this amount is restricted for the purposes related to the Programs, it is classified
as restricted cash on the consolidated balance sheet.
F. RELATED
PARTY TRANSACTIONS
During the
period ended December 31, 2013 and June 30, 2013 the Company received various unsecured, non-interest bearing, due on demand advances
from its CEO Ms. Van Tran, a related party. These advances have been classified as accounts payable, related party on the balance
sheet. The Company also leases its office facilities from Ms. Van Tran.
G. NOTES
PAYABLE
Notes payable
consist of the following:
| | |
December
31, 2013 | |
June
30, 2013 |
| | |
(UNAUDITED) | |
|
| Convertible
notes payable (includes $132,921 and $124,921, respectively, to non-related parties), unsecured, interest at 8%, due September 2010
through November 2010. The principal and accrued interest are convertible at a conversion price of $0.30. The principal
and interest is due immediately on the event of default or change of control. The holders also received warrants to purchase
one share of common stock for every $2 of investment. The Company recorded a $20,981 discount on the notes payable for the
value of the warrants issued. The discount was fully amortized over the term of the notes payable. There was no
unamortized discount as of December 31, 2013 and June 30, 2013, respectively. The notes are now in default. | |
$ | 696,840 | | |
$ | 739,815 | |
| | |
| | | |
| | |
| Convertible notes
payable to related parties, unsecured, principal and interest are convertible into common stock at $0.05 to $0.33 per share,
interest at 8 % to 10%, due on demand November 2010. | |
| 1,061,723 | | |
| 1,023,173 | |
| | |
| | | |
| | |
| Convertible note
payable to related party, secured by the Company’s intellectual property, principal and interest are convertible into
common stock at $0.25 per share subject to board of directors’ approval, interest at 8%. The note was due November 2010
and is now in default. | |
| 266,871 | | |
| 258,871 | |
| | |
| | | |
| | |
| Note payable to related
party, secured by the Company’s intellectual property, interest at 8% due August 2010 and is now is default. | |
| 517,948 | | |
| 502,578 | |
| | |
| | | |
| | |
| Notes payable to
related parties, unsecured, interest at 0% to 8%, due on demand. | |
| 138,504 | | |
| 134,430 | |
| | |
| | | |
| | |
| Note payable, unsecured,
interest at 10%, due January 2010 and is now in default. | |
| 29,702 | | |
| 27,167 | |
| | |
| | | |
| | |
| Notes payable, secured
by the Company's certificate of deposit with a financial institution and classified on the balance sheet as restricted cash,
interest at 5%, convertible into common stock at $0.08 per share, due on demand. | |
| 31,490 | | |
| 30,753 | |
| | |
| | | |
| | |
| Convertible note
payable, unsecured, principal and interest are convertible into common stock at $0.30 to $0.40 per share subject to board
of directors’ approval, interest at 5% to 8%, due January 2011 to December 2013 and $12,187 is now in default. | |
| 13,489 | | |
| 23,411 | |
| | |
| | | |
| | |
| Notes payable, unsecured,
interest at 5%, due January 2013. | |
| — | | |
| 301,228 | |
| | |
| | | |
| | |
| Note payable, secured
by the Company’s intellectual property, interest at variable rates starting September 2012, due December 2012 and now
in default. | |
| 277,834 | | |
| 270,150 | |
| | |
| | | |
| | |
| Convertible
note payable, unsecured, principal and interest are convertible into common stock at $1.00 per share subject to board of directors’
approval, interest at 8% due November 2009 and is now in default. | |
| — | | |
| 1,525 | |
| Grand
total | |
$ | 3,034,401 | | |
$ | 3,313,101 | |
For
the purposes of Balance Sheet presentation notes payable have been grouped as follows:
| | |
December 31, | |
June 30, |
| | |
2013 | |
2013 |
| Notes
payable | |
$ | 479,166 | | |
$ | 787,153 | |
| Notes
payable, related party | |
| 2,555,235 | | |
| 2,525,948 | |
| | |
$ | 3,034,401 | | |
$ | 3,313,101 | |
H. STOCK-BASED
COMPENSATION
Stock
options
The
Company has agreements with certain of its employees and independent contractor consultants that provide grants of options to
purchase the Company’s common stock.
A
summary of stock options as of December 31, 2013 and for the six months then ended is as follows:
| |
Number
of
Shares | |
Weighted
- Average
Exercise
Price |
| | | |
| | | |
| | |
| | Outstanding
at June 30, 2013 | |
| 3,165,583 | | |
| $
0.13 | |
| | Expired | |
| (94,083) | | |
| $
1.01 | |
| | Outstanding
at December 31, 2013 | |
| 3,071,500 | | |
| $
0.13 | |
| | Exercisable
at December 31, 2013 | |
| 3,071,500 | | |
| $
0.13 | |
The
weighted-average remaining contractual life of stock options outstanding and exercisable at December 31, 2013 is 2.50 years. The
options have no intrinsic value at December 31, 2013.
Stock-based
compensation expense was $0 and $0 during the three and six months ended December 31, 2013 and 2012, respectively. As of December
31, 2013, there was no unrecognized compensation costs related to stock options.
Warrants
In
connection with the issuance of certain convertible notes payable, the Company has outstanding 275,000 fully invested warrants
to acquire its common stock at an exercise price of $2.00 per share. The warrants expire in 2014. The warrants have no intrinsic
value at December 31, 2013.
I. LEGAL
PROCEEDINGS
From time
to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Our management evaluates our
exposure to these claims and proceedings individually and in aggregate and provides for potential losses on such litigation if
the amount of the loss is estimable and the loss is probable.
J. SUBSEQUENT
EVENTS
These unaudited
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended June 30, 2014 filed on October 20, 2014 with the Securities and Exchange Commission, which
contains additional information of events subsequent to December 31, 2013.
ITEM
2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results
of Operations – Three Months Ended December 31, 2013 compared to December 31, 2012
We
had a net loss of $9,593 for the three months ended December 31, 2013 compared to a net loss of $195,481 for the three months
ended December 31, 2012.
License
and other revenue
Details
of revenues are as follows:
| | |
Three
Months Ended December 31, | |
Increase
(Decrease) |
| | |
2013 | |
2012 | |
$ | |
% |
| | |
| |
| |
| |
|
| Bar Code
Technology | |
$ | 305,563 | | |
$ | 77,309 | | |
$ | 228,344 | | |
| 295.4 | |
| Mobile
Banking Technology | |
| — | | |
| 51,993 | | |
| (51,993 | ) | |
| (100.0 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total
Revenues | |
$ | 305,653 | | |
$ | 129,302 | | |
$ | 176,351 | | |
| 136.4 | |
License
and hardware revenues are derived from our Product Identification systems sold principally to customers in the LCD manufacturing
industry. Identification Card revenues in these periods were a result of sales of identification card and mobile banking systems.
The
license revenue increase or decrease was mainly attributable to the demand for LCD screens. Revenues from the LCD market remain
unpredictable as they are generated when customers open new production facilities or update production equipment; however, for
now the Company continues to experience relatively low demand for product identification product licenses in the LCD industry.
A large portion of our license sales are concentrated in the Asia-Pacific market, which decreased in Taiwan, Japan, Germany, and
increase in Korea and China. The largest increase of our license sales for the three months ended December 31, 2013 was in Korea.
Cost
of Sales
Cost
of sales for the three months ended December 31, 2013 and 2012, totaled $70,087 and $51,344, respectively. As a percentage of
revenue, for the three months ended December 31, 2013, cost of sales was 22.9% compared to 39.8% for the three months ended December
31, 2012.
Operating
Expenses
General
and administrative expenses for the three months ended December 31, 2013 were $124,334, compared to $134,721 for the three months
ended December 31, 2012, a decrease of $10,387. The decrease was the result of reduced payroll in R&D.
Sales
and marketing expense for the three months ended December 31, 2013 was $29,429 compared to $17,270 for the three months ended
December 31, 2012, an increase of $12,159. The increase was a result of additional travel for sales contacts.
Research
and development expense for the three months ended December 31, 2013 totaled $45,342 compared to $35,200 for the three months
ended December 31, 2012, an increase of $10,142. This increase was a result of additional programing and development.
Other
Expenses, net
Other
expense, net for the three months ended December 31, 2013 and 2012 was $46,053 and $86,248, respectively. The increase in expense
was the result of related programing and development not itemize or associated to R&D.
Results
of Operations – Six months Ended December 31, 2013 compared to December 31, 2012
We
had a net income of $307,605 for the six months ended December 31, 2013 compared to a net loss of $658,620 for the six months
ended December 31, 2012.
License
and other revenue
Details
of revenues are as follows:
| | |
Six
months Ended December 31, | |
Increase
(Decrease) |
| | |
2013 | |
2012 | |
$ | |
% |
| | |
| |
| |
| |
|
| Bar Code
Technology | |
$ | 1,081,982 | | |
$ | 219,538 | | |
$ | 862,444 | | |
| 392.8 | |
| Mobile
Banking Technology | |
| 2,031 | | |
| 68,555 | | |
| (66,524 | ) | |
| (97.0 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total
Revenues | |
$ | 1,084,013 | | |
$ | 288,093 | | |
$ | 795,920 | | |
| 276.3 | |
License
and hardware revenues are derived from our Product Identification systems sold principally to customers in the LCD manufacturing
industry. Identification Card revenues in these periods were a result of sales of identification card and mobile banking systems.
The
license revenue increase or decrease was mainly attributable to the demand for LCD screens. Revenues from the LCD market remain
unpredictable as they are generated when customers open new production facilities or update production equipment; however, for
now the Company continues to experience relatively low demand for product identification product licenses in the LCD industry.
A large portion of our license sales are concentrated in the Asia-Pacific market, which decreased in Taiwan, Japan, Germany, and
increase in Korea and China. The largest increase of our license sales for the six months ended December 31, 2013, was in Korea.
Cost
of Sales
Cost
of sales for the six months ended December 31, 2013 and 2012, totaled $187,688 and $115,101, respectively. As a percentage of
revenue, for the six months ended December 31, 2013, cost of sales was 17.3% compared to 40.0% for the six months ended December
31, 2012.
Operating
Expenses
General
and administrative expenses for the six months ended December 31, 2013 were $258,344, compared to $317,256 for the six months
ended December 31, 2012, a decrease of $58,912. The decrease was the result of travel and contact expenses for potential sales.
Sales
and marketing expense for the six months ended December 31, 2013 was $46,800 compared to $43,938 for the six months ended December
31, 2012, an increase of $2,862. The decrease was a result of the company having part-time an additional salesperson.
Research
and development expense for the six months ended December 31, 2013 totaled $91,921 compared to $77,193 for the six months ended
December 31, 2012, an increase of $14,728. This increase was a result of adjustments to additional programing of product with
added staff.
Other
Expenses, net
Other
expense, net for the six months ended December 31, 2013 and 2012 was $95,830 and $167,348, respectively. The decrease in expense
was the result of controlling excessive spending during travel and special initiatives.
Liquidity
Our
increase in cash and cash equivalent to $309,154 at December 31, 2013 compared to $75,918 at June 30, 2013 was the result of $598,506
in cash provided by operating activities and $364,036 used in financing activities. Net cash provided by operating activities
during the six months ended December 31, 2013 was $598,506 compared with $191,194 used in operating activities during the same
period in 2013. Cash provided by operations during the six months ended December 31, 2013 was primarily due to our increased sales
and corresponding net income. Net cash used in financing activities during the six months ended December 31, 2013 of $364,036
was from payments on notes payable. During the same period in 2012, the net cash provided by financing activities of $165,000
was from proceeds received from notes payable.
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. At December
31, 2013, the Company had a working capital deficit of $4,546,407 and a stockholders’ deficiency of $4,507,045. The Company
is currently in default of $3,034,401 of notes payable and is also delinquent in payment of certain amounts due of $651,679 for
payroll taxes and accrued interest and penalties as of December 31, 2013. The Company believes its cash and forecasted
cash flow from operations will not be sufficient to continue operations through fiscal 2014 without continued external investment.
The Company believes it will require additional funds to continue its operations through fiscal 2014 and to continue to develop
its existing projects and plans to raise such funds by finding additional investors to purchase the Company’s securities,
generating sufficient sales revenue, implementing dramatic cost reductions or any combination thereof. There is no assurance that
the Company can be successful in raising such funds, generating the necessary sales or reducing major costs. Further, if the Company
is successful in raising such funds from sales of equity securities, the terms of these sales may cause significant dilution to
existing holders of common stock. The consolidated financial statements do not include any adjustments that may result from this
uncertainty. Our auditor has issued a “going concern” qualification as part of their opinion in the Audit Report for
the year ended June 30, 2013.
The
Company has relied on The Matthews Group, LLC (TMG), a related party owned 50% by Van Tran, the Company’s CEO/Executive
Chair and a director, and 50% by Larry Johanns, a significant stockholder of the Company, for funding.
If
the Company is not successful in raising additional funds, generating sufficient revenues or implementing sufficient cost reductions,
the Company may be forced to suspend or discontinue its operations or seek relief from its debt obligations under the United States
Bankruptcy Code. Any of these actions is likely to result in a common stockholder’s loss of his or her complete investment
in the Company’s common stock.
Recent
Accounting Pronouncements
On
May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue
from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance
under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require
that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also
will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill
a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted.
Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on
our ongoing financial reporting.
In
April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation
of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for
reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only
disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results
should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December
15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial
condition.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s
ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.
The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter,
with early adoption permitted.
Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities
Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's
present or future financial statements.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
Critical
Accounting Policies
Stock-Based
Compensation:
The
Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services
and for financing costs. Stock-based compensation for employees is measured at the grant date, based on the fair value of
the award, and is recognized as expense over the requisite service period. Options vest and expire according to terms established
at the grant date. The value of the stock compensation to non-employees is based upon the measurement date as determined at either
(a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity
instruments is complete.
We
estimate volatility and forfeitures based upon historical data. As permitted by the authoritative guidance issued by the FASB,
we use the “simplified” method to determine the expected life of an option due to the Company’s lack of sufficient
historical exercise data to provide a reasonable basis, which is a result of the relative high turnover rates experienced in the
past for positions granted options. All of these variables have an effect on the estimated fair value of our share-based awards.
Revenue
Recognition:
The
Company accounts for revenue recognition in accordance with SEC Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition
in Financial Statements" and related amendments. Revenues for the Company are classified into four separate products; license
revenue (Veritec’s Multi-Dimensional matrix symbology), hardware revenue, identification card revenue, and debit card revenue. Revenues
from licenses, hardware, and identification cards are recognized when the product is shipped and collection is reasonably assured.
The process typically begins for license and hardware revenue with a customer purchase order detailing its hardware specifications
so the Company can import its software into the customer's hardware. Once importation is completed, if the customer only wishes
to purchase a license, the Company typically transmits the software to the customer via the Internet. Revenue is recognized
at that point. If the customer requests both license and hardware products, once the software is imported into the hardware and
the process is complete, the product is shipped and revenue is recognized at time of shipment. Once the software and/or
hardware are either shipped or transmitted, the customers do not have a right of refusal or return. Under some conditions,
the customers remit payment prior to the Company having completed importation of the software. In these instances,
the Company delays revenue recognition and reflects the prepayments as customer deposits.
The
process for identification cards begins when a customer requests, via the Internet, an identification card. The card
is reviewed for design and placement of the data, printed and packaged for shipment. At the time the identification
cards are shipped and collection is reasonably assured, revenue is recognized.
The
Company, as a processor and a distributor, recognizes revenue from transaction fees charged cardholders for the use of its issued
mobile debit cards. The fees are recognized on a monthly basis after all cardholder transactions have been summarized and reconciled
with third party processors.
ITEM
3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller
reporting company is not required to provide the information required by this Item 3.
ITEM
4 CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures.
Our
management, with the participation of our chief executive officer and our chief financial officer, carried out an evaluation of
the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the
“Exchange Act”) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the “Evaluation
Date”). Based upon that evaluation, our chief executive officer and our chief financial officer concluded that,
as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management,
including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required
disclosure. As of December 31, 2013, our disclosure controls and procedures were not effective at the reasonable assurance
level due to the material weaknesses in our internal control over financial reporting described in our Form 10-K at June 30, 2013.
Changes
in Internal Control over Financial Reporting.
In
our Form 10-K at June 30, 2013, we identified certain matters that constitute material weaknesses (as defined under the Public
Company Accounting Oversight Board Auditing Standard No. 2) in our internal control over financial reporting as discussed on Management’s
Report on Internal Control Over Financial Reporting. We are undergoing ongoing evaluation and improvements in our internal
control over financial reporting. Regarding our identified weaknesses, we have performed the following remediation
efforts:
| • | We
have assigned our audit committee with oversight responsibilities. |
| • | Our
financial statements, periodic reports filed pursuant to the Securities Exchange Act
of 1934, as amended, our monthly bank statements and imaged checks are now continuously
reviewed by our chief financial officer and chief executive officer. |
| • | All
significant contracts are now being reviewed and approved by our board of directors in
conjunction with the chief executive officer. |
There
was no other change in our internal control over financial reporting that occurred during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART
II
ITEM
1 LEGAL PROCEEDINGS
The Company
is subject to various legal proceedings from time to time in the ordinary course of business, none of which is required to be
disclosed under this Item 1.
ITEM
1A RISK FACTORS
A smaller
reporting company is not required to provide the information required by this Item.
ITEM
2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3 DEFAULTS UPON SENIOR SECURITIES
The
Company is in default on its various notes payable totaling $3,034,401 representing principal and accrued interest as of the date
of filing this report.
TEM
4 MINE SAFETY DISCLOSURES
Not
applicable.
ITEM
5 OTHER INFORMATION
The
Company is delinquent in payment of $651,679 for payroll taxes and accrued interest and penalties as of December 31, 2013.
ITEM
6 EXHIBITS
| 31.1 |
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
| 32.1** |
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.1 |
The
following financial information from Veritec, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December
31, 2013 formatted in XBRL: (i) Consolidated Balance Sheets at December 31, 2013 and June 30, 2013; (ii) Consolidated
Statement of Operations for the three and six months ended December 31, 2013 and 2013; (iii) Consolidated Statement of
Stockholders’ Deficit as at December 31, 2013; (iv) Consolidated Statements of Cash Flows for the six months ended
December 31, 2013 and 2013; (v) Notes to the Consolidated Financial Statements.
|
| ** |
The certifications attached as Exhibits 32.1 accompany the Quarterly
Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed”
by Veritec, Inc. for purposes of Section 18 of the Securities Exchange Act. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
| Dated: June 26, 2015 |
|
VERITEC, INC. |
| |
|
|
| |
By: |
/s/ Van Tran |
| |
|
Van Tran |
| |
|
Chief Executive Officer |
| |
|
(Principal Executive Officer) |
Exhibit
31.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Van Tran, certify that:
| 1. | I
have reviewed this quarterly report on Form 10-Q of Veritec, Inc.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in
this 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 report; |
| 4. | As
certifying officer, I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d015f))
for the registrant and have: |
| (a) | designed
such disclosure controls and procedures, or caused such internal control over financial
reporting to be designed under our supervision, 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 report is being prepared; |
| (b) | designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation;
and |
| (d) | disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and |
| 5. | As
certifying officer, I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all
significant deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information;
and |
| (b) | any
fraud, whether or not material, that involves management or other employees who have
a significant role in the Registrant’s internal control over financial reporting.
|
| Dated: June 26, 2015 |
|
VERITEC, INC. |
| |
|
|
| |
By: |
/s/ Van Tran |
| |
|
Van Tran |
| |
|
Chief Executive Officer |
| |
|
(Principal Executive Officer) |
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Veritec, Inc. (the “Company”) on Form 10-Q for the period ended December
31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Van Tran,
Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
| • | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| • | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
| Dated: June 26, 2015 |
|
VERITEC, INC. |
| |
|
|
| |
By: |
/s/ Van Tran |
| |
|
Van Tran |
| |
|
Chief Executive Officer |
| |
|
(Principal Executive Officer) |
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