UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-QForm 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
for the quarterly period ended December 31, 2017
OR
☐TRANSITION REPORT PURSUANT TOUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2022
for☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________ __________ to ___________________.__________
Commission File Number. 0-15113Number: 000-15113
VERITEC, INC.
(Exact name of Registrantregistrant as Specifiedspecified in its Charter)charter)
| Nevada | 95-3954373 | |
(State or
| (I.R.S. Employer | |
| incorporation or |
| Identification No.) |
Registrant's2445 Winnetka Avenue N.
Golden Valley, MN55427
(Address of principal executive offices) (zip code)
(763)253-2670
(Registrant’s telephone number, including area code: (763) 253-2670code)
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.01 per share | VRTC | OTC Pink |
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 (§232.405 of this chapter) 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 or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule l2b-212b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☒ | |
| (Do not check if a smaller reporting company) | Emerging growth company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
AsIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of December 31, 2017, there were 39,538,007the Exchange Act).
Yes ☐ No ☒
The number of shares of the issuer’sregistrant’s common stock outstanding.
outstanding as of February 14, 2023, was .
VERITEC, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | |
| Item 4. Mine Safety Disclosures | 8 |
| Item 5. Other Information | 8 |
| Item 6. Exhibits | 8 |
Special Note Regarding Forward-Looking StatementsFORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"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,"“may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or "continue"“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"“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, and 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 II. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTSItem 1. Financial Statements
VERITEC, INC. AND SUBSIDIARIESCONSENSEDCONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2022 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 183,000 | $ | 66,000 | ||||
| Accounts receivable | 7,000 | 7,000 | ||||||
| Prepaid expenses | 6,000 | 6,000 | ||||||
| Total Assets | $ | 196,000 | $ | 79,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 288,000 | $ | 271,000 | ||||
| Accounts payable, related party | 109,000 | 102,000 | ||||||
| Accrued expenses | 58,000 | 59,000 | ||||||
| Customer deposits | 26,000 | 25,000 | ||||||
| Deferred revenues | 43,000 | — | ||||||
| Convertible notes and notes payable ($515,000 and $506,000 in default) | 560,000 | 550,000 | ||||||
| Convertible notes and notes payable, related parties ($238,000 and $223,000 in default) | 6,819,000 | 6,353,000 | ||||||
| Total Current Liabilities | 7,903,000 | 7,360,000 | ||||||
| Deferred revenue, net of short term | 157,000 | — | ||||||
| Contingent earnout liability | 155,000 | 155,000 | ||||||
| Total Liabilities | 8,215,000 | 7,515,000 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficiency: | ||||||||
| Convertible preferred stock, par value $; authorized shares, shares of Series H authorized, shares issued and outstanding | 1,000 | 1,000 | ||||||
| Common stock, par value $; authorized shares; and shares issued and outstanding at December 31, 2022, and June 30, 2022, respectively | 400,000 | 400,000 | ||||||
| Common stock to be issued, 145,000 shares to be issued | 12,000 | 12,000 | ||||||
| Additional paid-in capital | 18,143,000 | 18,143,000 | ||||||
| Accumulated deficit | (26,575,000 | ) | (25,992,000 | ) | ||||
| Total Stockholders’ Deficiency | (8,019,000 | ) | (7,436,000 | ) | ||||
| Total Liabilities and Stockholders’ Deficiency | $ | 196,000 | $ | 79,000 | ||||
December 31, 2017 (Unaudited) | June 30, 2017 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 64,536 | $ | 46,693 | ||||
| Accounts receivable | 9,709 | 8,139 | ||||||
| Prepaid expenses | 5,323 | 1,985 | ||||||
| Total Current Assets | 79,568 | 56,817 | ||||||
| Intangibles, net | — | 16,042 | ||||||
| Total Assets | $ | 79,568 | $ | 72,859 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 652,624 | $ | 647,946 | ||||
| Accounts payable, related party | 96,110 | 96,110 | ||||||
| Accrued expenses | 63,915 | 72,101 | ||||||
| Notes payable – in default | 588,792 | 575,323 | ||||||
| Notes payable, related party | 2,639,722 | 2,293,866 | ||||||
| Deferred revenues | 47,490 | 72,492 | ||||||
| Derivative liabilities | 21,589 | 728,000 | ||||||
| Total Current Liabilities | 4,110,242 | 4,485,838 | ||||||
| Contingent earnout liability | 155,000 | 155,000 | ||||||
| Total Liabilities | 4,265,242 | 4,640,838 | ||||||
| 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, 2017 and June 30, 2017 | 1,000 | 1,000 | ||||||
| Common stock, par value $0.01; authorized 50,000,000 shares, 39,538,007 shares issued and outstanding as of December 31, 2017 and June 30, 2017 | 395,380 | 395,380 | ||||||
| Common stock to be issued, 145,000 shares to be issued as of December 31, 2017 and June 30, 2017, respectively | 12,500 | 12,500 | ||||||
| Additional paid-in capital | 17,974,576 | 17,974,576 | ||||||
| Accumulated deficit | (22,569,130 | ) | (22,951,435 | ) | ||||
| Total Stockholders' Deficiency | (4,185,674 | ) | (4,567,979 | ) | ||||
| Total Liabilities and Stockholders’ Deficiency | $ | 79,568 | $ | 72,859 | ||||
SeeThe accompanying notes.
notes are an integral part of these condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended December 31, 2022 and 2021(UNAUDITED)
Three Months Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue: | ||||||||
| Mobile banking technology revenue | $ | 30,526 | $ | 37,130 | ||||
| Other revenue, management fee related party | 93,241 | 52,430 | ||||||
| Total revenue | 123,767 | 89,560 | ||||||
| Cost of sales | 52,880 | 90,300 | ||||||
| Gross profit (loss) | 70,887 | (740 | ) | |||||
| Operating Expenses: | ||||||||
| General and administrative | 149,874 | 186,558 | ||||||
| Sales and marketing | — | 390 | ||||||
| Research and development | 10,780 | 11,390 | ||||||
| Total operating expenses | 160,654 | 198,338 | ||||||
| Loss from operations | (89,767 | ) | (199,078 | ) | ||||
| Other Income (Expense): | ||||||||
| Change in fair value of derivative liabilities | 243,411 | — | ||||||
| Expense related to fair value of derivative liabilities | — | (182,000 | ) | |||||
| Interest expense, including $53,940 and $39,866, respectively, to related parties | (60,674 | ) | (46,600 | ) | ||||
| Total other income (expense) | 182,737 | (228,600 | ) | |||||
| Net Income (Loss) | $ | 92,970 | $ | (427,678 | ) | |||
| Net Income (Loss) Per Common Share - Basic and Diluted | $ | 0.00 | $ | (0.01 | ) | |||
| Weighted Average Number of Shares Outstanding - Basic and Diluted | 39,538,007 | 39,538,007 | ||||||
(Unaudited)
See
| Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue: | ||||||||||||||||
| Mobile banking technology revenue | $ | 70,000 | $ | 23,000 | $ | 90,000 | $ | 47,000 | ||||||||
| Other revenue, management fee related party | 37,000 | 58,000 | 118,000 | 150,000 | ||||||||||||
| Total revenue | 107,000 | 81,000 | 208,000 | 197,000 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Cost of revenue | 48,000 | 48,000 | 98,000 | 98,000 | ||||||||||||
| Selling, general and administrative expenses (1) | 209,000 | 165,000 | 451,000 | 355,000 | ||||||||||||
| Total operating expenses | 257,000 | 213,000 | 549,000 | 453,000 | ||||||||||||
| Loss from operations | (150,000 | ) | (132,000 | ) | (341,000 | ) | (256,000 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Gain on forgiveness of SBA PPP loan | — | 118,000 | — | 118,000 | ||||||||||||
| Interest expense (2) | (122,000 | ) | (109,000 | ) | (242,000 | ) | (217,000 | ) | ||||||||
| Total other income (expense) | (122,000 | ) | 9,000 | (242,000 | ) | (99,000 | ) | |||||||||
| Net Loss | $ | (272,000 | ) | $ | (123,000 | ) | $ | (583,000 | ) | $ | (355,000 | ) | ||||
Net Loss Per Common Share – Basic and Diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted Average Number of Shares Outstanding – Basic and Diluted | 39,988,007 | 39,988,007 | 39,988,007 | 39,988,007 | ||||||||||||
| (1) Includes expenses to related party | $ | 14,000 | $ | 14,000 | $ | 26,000 | $ | 26,000 | ||||||||
| (2) Includes interest expense to related parties | $ | 117,000 | $ | 105,000 | $ | 232,000 | $ | 207,000 | ||||||||
The accompanying notes.notes are an integral part of these condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSSTOCKHOLDERS’ DEFICIENCY(UNAUDITED)
| Three Months Ended December 31, 2022 (Unaudited) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | |||||||||||||||||||||||||
| Balance, September 30, 2022(Unaudited) | 1,000 | $ | 1,000 | 39,988,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (26,303,000 | ) | $ | (7,747,000 | ) | ||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | (272,000 | ) | (272,000 | ) | ||||||||||||||||||||||
| Balance, December 31, 2022 (Unaudited) | 1,000 | $ | 1,000 | 39,988,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (26,575,000 | ) | $ | (8,019,000 | ) | ||||||||||||||||
| Six Months Ended December 31, 2022 (Unaudited) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | |||||||||||||||||||||||||
| Balance, June 30, 2022 | 1,000 | $ | 1,000 | 39,988,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (25,992,000 | ) | $ | (7,436,000 | ) | ||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | (583,000 | ) | (583,000 | ) | ||||||||||||||||||||||
| Balance, December 31, 2022 (Unaudited) | 1,000 | $ | 1,000 | 39,988,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (26,575,000 | ) | $ | (8,019,000 | ) | ||||||||||||||||
Six Months Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue: | ||||||||
| Mobile banking technology revenue | $ | 61,117 | $ | 84,210 | ||||
| Other revenue, management fee related party | 173,493 | 75,330 | ||||||
| Total revenue | 234,610 | 159,540 | ||||||
| Cost of sales | 107,116 | 148,860 | ||||||
| Gross profit | 127,494 | 10,680 | ||||||
| Operating Expenses: | ||||||||
| General and administrative | 313,927 | 357,000 | ||||||
| Sales and marketing | — | 5,560 | ||||||
| Research and development | 19,938 | 22,130 | ||||||
| Total operating expenses | 333,865 | 384,690 | ||||||
| Loss from operations | (206,371 | ) | (374,010 | ) | ||||
| Other Income (Expense): | ||||||||
| Change in fair value of derivative liabilities | 706,411 | — | ||||||
| Expense related to fair value of derivative liabilities | — | (182,000 | ) | |||||
| Gain on settlement of note payable to former officer | — | 364,690 | ||||||
| Interest expense, including $104,267 and $80,131, respectively, to related parties | (117,735 | ) | (93,600 | ) | ||||
| Total other income | 588,676 | 89,090 | ||||||
| Net Income (Loss) | $ | 382,305 | $ | (284,920 | ) | |||
| Net Income (Loss) Per Common Share - Basic and Diluted | $ | 0.01 | $ | (0.01 | ) | |||
| Weighted Average Number of Shares Outstanding - Basic and Diluted | 39,538,007 | 39,538,007 | ||||||
SeeThe accompanying notes.
notes are an integral part of these condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ DEFICIENCY (continued)
| Three Months Ended December 31, 2021 (Unaudited) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | |||||||||||||||||||||||||
| Balance, September 30, 2021(Unaudited) | 1,000 | $ | 1,000 | 39,998,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (25,718,000 | ) | $ | (7,162,000 | ) | ||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | (123,000 | ) | (123,000 | ) | ||||||||||||||||||||||
| Balance, December 30, 2021 (Unaudited) | 1,000 | $ | 1,000 | 39,988,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (25,841,000 | ) | $ | (7,285,000 | ) | ||||||||||||||||
| Six Months Ended December 31, 2021 (Unaudited) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | |||||||||||||||||||||||||
| Balance, June 30, 2021 | 1,000 | $ | 1,000 | 39,998,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (25,486,000 | ) | $ | (6,930,000 | ) | ||||||||||||||||
| Net loss for the period | — | — | — | — | — | — | (355,000 | ) | (355,000 | ) | ||||||||||||||||||||||
| Balance, December 31, 2021 (Unaudited) | 1,000 | $ | 1,000 | 39,988,007 | $ | 400,000 | $ | 12,000 | $ | 18,143,000 | $ | (25,841,000 | ) | $ | (7,285,000 | ) | ||||||||||||||||
(UNAUDITED)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Deficiency | |||||||||||||||||||||||||
| BALANCE, June 30, 2017 | 1,000 | $ | 1,000 | 39,538,007 | $ | 395,380 | $ | 12,500 | $ | 17,974,576 | $ | (22,951,435 | ) | $ | (4,567,979 | ) | ||||||||||||||||
| Net Income | — | — | — | — | — | — | 382,305 | 382,305 | ||||||||||||||||||||||||
| BALANCE, December 31, 2017 (Unaudited) | 1,000 | $ | 1,000 | 39,538,007 | $ | 395,380 | $ | 12,500 | $ | 17,974,576 | $ | (22,569,130 | ) | $ | (4,185,674 | ) | ||||||||||||||||
SeeThe accompanying notes.
notes are an integral part of these condensed consolidated financial statements.
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(UNAUDITED)
Six Months Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | 382,305 | $ | (284,920 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | — | 171 | ||||||
| Amortization | 16,042 | 32,088 | ||||||
| Gain on settlement of note payable to former officer | — | (364,690 | ) | |||||
| Change in fair value of derivative liabilities | (706,411 | ) | — | |||||
| Expense related to fair value of derivative liabilities | 182,000 | |||||||
| Beneficial conversion feature on issuance of convertible notes payable-related party | — | 16,250 | ||||||
| Interest accrued on notes payable | 117,734 | 83,346 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,570 | ) | 735 | |||||
| Prepaid expenses | (3,338 | ) | (5,093 | ) | ||||
| Accounts payable | 4,678 | 28,049 | ||||||
| Accrued expenses | (8,185 | ) | 6,806 | |||||
| Payroll tax liabilities | — | (238,718 | ) | |||||
| Deferred revenues | (25,002 | ) | (41,270 | ) | ||||
| Net cash used in operating activities | (223,747 | ) | (585,246 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from convertible notes payable-related party | — | 427,500 | ||||||
| Proceeds from notes payable-related party | 241,590 | 219,883 | ||||||
| Net cash provided by financing activities | 241,590 | 647,383 | ||||||
| NET INCREASE IN CASH | 17,843 | 62,137 | ||||||
| CASH AT BEGINNING OF PERIOD | 46,693 | 60,953 | ||||||
| CASH AT END OF PERIOD | $ | 64,536 | $ | 123,090 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Reclassification of customer deposit to accounts payable | $ | — | $ | — | ||||
See accompanying notes.
| Six Months Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (583,000 | ) | $ | (355,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest accrued on notes payable | 242,000 | 217,000 | ||||||
| Gain on forgiveness of SBA PPP loan | — | (118,000 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | — | (1,000 | ) | |||||
| Customer deposits | 1,000 | (41,000 | ) | |||||
| Deferred revenue | 200,000 | — | ||||||
| Accounts payable | 17,000 | (10,000 | ) | |||||
| Accounts payable – related party | 7,000 | — | ||||||
| Accrued expenses | (1,000 | ) | (11,000 | ) | ||||
| Net cash used in operating activities | (117,000 | ) | (319,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable-related party | 234,000 | 260,000 | ||||||
| Net cash provided by financing activities | 234,000 | 260,000 | ||||||
| NET INCREASE (DECREASE) IN CASH | 117,000 | (59,000 | ) | |||||
| CASH AT BEGINNING OF PERIOD | 66,000 | 238,000 | ||||||
| CASH AT END OF PERIOD | $ | 183,000 | $ | 179,000 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
VERITEC, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended December 31, 2022 and 2021
(Unaudited)(UNAUDITED)
NOTE 1 – NATURE OF BUSINESSOPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Veritec, Inc. (Veritec) was formed in the State of Nevada on September 8, 1982. Veritec’s wholly owned subsidiaries include Veritec Financial Systems, Inc., Tangible Payment Systems, Inc., and Public Bell, Inc. (collectively the “Company”).
Nature of Business
The Company is primarily engaged in the development, sales, and licensing of products and providing services related to its mobile banking solutions.
Mobile Banking Solutions
On January 12, 2009, Veritec formed Veritec Financial Systems, Inc., a Delaware corporation, to bring its Mobile Banking Technology, products and related professional services to market. In 2009 through 2016, the Company has had agreements with various banks, including Security First Bank (terminated in October 2010), Palm Desert National Bank (which was later assigned to First California Bank and subsequently Pacific Western Bank that terminated in June 2013), and Central Bank of Kansas City (“CBKC”). Late in the fiscal year ended June 30, 2016, the relationship between CBKC and the Company ended and the Company is currently seeking a bank to sponsor its Prepaid Card programs. As a Cardholder Independent Sales Organization, Veritec is able to promote and sell Visa brandedVisa-branded card programs. As a Third-Party Servicer, Veritec provides back-end cardholder transaction processing services for Visa brandedVisa-branded card programs on behalf of its sponsoring bank. The CompanyVeritec has a portfolio of five United States and eight foreign patents. In addition, the Company haswe have seven U.S. and twenty-eight foreign pending patent applications. Veritec has had agreements with various banks in the past and is currently seeking a bank to sponsor its Prepaid Card programs.
On December 31, 2015, the Company sold all of its assets of its barcode technology, which was comprised solely of its intellectual property, to The Matthews Group, a related party (see Note 6). The Company subsequently entered into a management services agreement with The Matthews Group to manage all facets of the barcode technology operations through June 30, 2023. The Company earns a fee of 35% of all revenues billed up to June 30, 2023, and recognizes management fee revenue as services are performed.
BASIS OF PRESENTATIONCOVID-19 Considerations
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that the COVID-19 pandemic could cause a local, national and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the economy as a whole, but it is presently unknown whether and to what extent further fiscal actions will continue. The magnitude and overall effectiveness of these actions remain uncertain.
The Company believes that its Mobile Banking revenues have been negatively affected due to the reduction in customer spending, which negatively impacts the amount of fees earned by the Company from its customers. The Company previously experienced a decline in revenues earned under the management services agreement with The Matthews Group, as The Matthews Group’s customer orders had been negatively impacted by the effects of COVID-19. The severity of the impact of the COVID-19 pandemic on the Company’s business will continue to depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of the Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
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.
| F-6 |
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 period ended December 31, 20172022, are not necessarily indicative of the results that may be expected for the year ending June 30, 2018.2023. The Condensed Consolidated Balancebalance Sheet information as of June 30, 20172022, was derived from the Company’s audited Consolidated Financial Statements as of and for the year ended June 30, 20172022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 10, 2017.7, 2022. These financial statements should be read in conjunction with that report.
The accompanying Condensed Consolidated Financial Statements include the accounts of Veritec and its wholly owned subsidiaries.wholly-owned subsidiaries, Veritec Financial Systems, Inc., Tangible Payment Systems, Inc., and Public Bell, Inc. Inter-company transactions and balances were eliminated in consolidation.
Going Concern
GOING CONCERN
The accompanying Condensed Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the period ended December 31, 2017,2022, the Company incurred a net loss from operations of $206,371$583,000 and used cash in operating activities of $223,747,$117,000, and aton December 31, 2017,2022, the Company had a working capital deficit of $4,030,674 and a stockholders’ deficiency of $4,185,674.$8,019,000. In addition, as of December 31, 2017,2022, the Company is delinquent in payment of $744,076$753,000 of its convertible and notes payable. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on our June 30, 20172022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty be necessary should we beif the Company is unable to continue as a going concern.
The Company believes it will require additional funds to continue its operations through fiscal 20182023 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.
Use of Estimates
The preparation of Condensed Consolidated Financial Statementscondensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statementsconsolidated financial statements and 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, analysis of impairments of long livedlong-lived assets, accruals for potential liabilities, and assumptions usedmade in valuing derivativesstock instruments issued for services, and stock-based compensation, and the valuation of deferred taxes.tax assets. Actual results could differ from those estimates.
Revenue Recognition
Revenues for the Company are classified into management fee revenue and mobile banking technology.
The Company recognizes revenue in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying the Company’s performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
| F-7 |
Mobile Banking Technology Revenue
The Company, as a merchant payment processor and a distributor, recognizes revenue from transaction fees charged to 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.
Other Revenue, Management Fee – Related Party
On September 30, 2015, the Company sold all of its assets of its Barcode Technology, which was comprised solely of its intellectual property, to The Matthews Group (a related party, see Note 6). The Company subsequently entered into a management services agreement with The Matthews Group to manage all facets of the barcode technology operations through June 30, 2023. The Company earned a fee of 35% of all revenues billed up to December 31, 2022. The Company recognizes management fee revenue as services are performed.
Disaggregation of Net Sales
The following table shows the Company’s disaggregated net sales by product type:
| Disaggregated revenue | ||||||||||||||||
| Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Mobile banking technology revenue | $ | 70,000 | $ | 23,000 | $ | 90,000 | $ | 47,000 | ||||||||
| Other revenue, management fee related party | 37,000 | 58,000 | 118,000 | 150,000 | ||||||||||||
| Total revenue | $ | 107,000 | $ | 81,000 | $ | 208,000 | $ | 197,000 | ||||||||
The following table shows the Company’s disaggregated net sales by customer type for our Mobile banking technology:
| Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Medical | $ | 14,000 | $ | 17,000 | $ | 28,000 | $ | 35,000 | ||||||||
| Banking | 50,000 | — | 50,000 | — | ||||||||||||
| Associations | 3,000 | 3,000 | 6,000 | 6,000 | ||||||||||||
| Education | 3,000 | 3,000 | 6,000 | 6,000 | ||||||||||||
| Other revenue, management fee related party | 37,000 | 58,000 | 118,000 | 150,000 | ||||||||||||
| Total revenue | $ | 107,000 | $ | 81,000 | $ | 208,000 | $ | 197,000 | ||||||||
During the periods ended December 31, 2022 and 2021, all of the Company’s Mobile banking technology revenues were earned in the United States of America.
Other revenue, management fee - related party revenue was $37,000 and $118,000, and $58,000 and $150,000 for the three and six month periods ended December 31, 2022 and 2021, respectively, and realized from our management services agreement with The Matthews Group, a related party, which requires us to manage The Matthews Group’s barcode technology operations. The Matthews Group’s barcode technology customers are primarily manufacturing companies located in China.
| F-8 |
On July 4, 2022, the Company entered into an agreement (“Nugen Agreement”) with Nugen Universe, LLC (“Nugen”), a corporation located in Wrightsville Beach, North Carolina. Nugen seeks the Company to modify, create, or build a “private label” system for Nugen, with an initial interest in the Company’s blinxPay technology and Bio-ID verification system. Nugen paid the Company $50,000 at the Nugen Agreement signing date. During the period ended December 31, 2022, the Company delivered its obligations under the Nugen Agreement, and the $50,000 payment was recorded as Mobile banking technology revenue during the period ended December 31, 2022. The Nugen Agreement requires Nugen to pay the Company a 5% ongoing royalty for licensing the Company’s blinxPay technology and Bio-ID verification system. As of December 31, 2022, no royalties have been realized under the Nugen Agreement.
On October 10, 2022, the Company entered into a License and Distributor Agreement (“License Agreement”) with Nugen. The License Agreement became effective on receipt of $200,000 in December 31, 2022 and extends through August 31, 2027. The License Agreement grants Nugen a Worldwide license and distribution for the Company’s blinxPay Close-Loop Virtual Wallet and blinxPay Open-Loop Visa Debit and all hardware products of the Company. Per the terms of the License Agreement, Nugen agrees to pay the Company a one-time license payment of $1,000,000 for the right to market the Company’s products noted above, of which $200,000 was received by the Company in December 2022. The initial $200,000 has been recorded as deferred revenue in the Condensed Consolidated Balance Sheet and will be amortized to Mobile banking technology revenue over the remaining term of the License Agreement, which expires on August 31, 2027. The remaining balance of $800,000 is scheduled to be paid as outlined in the License Agreement. In addition to the one-time license payment, Nugen agrees to pay a minimum monthly support fee plus 5% royalty from all sales of products noted above. As of December 31, 2022, no royalty related revenues have been realized under the License Agreement.
Fair Value of Financial Instruments
FairThe Company determines the fair value measurements adopted by the Company areof its assets and liabilities based on the authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) which defines fair value as theexchange price in U.S. dollars that would be received to sellfor an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants aton the measurement date. FASB authoritative guidance establishesValuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which prioritizes the inputs used in measuringfirst two are considered observable and the last unobservable, to measure fair value into three broad levels as follows:value:
| • | Level 1 — Quoted prices in active markets for identical assets or liabilities. | |
| • | Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| • | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3 - Unobservable inputs based on the Company's assumptions.
The carrying amounts reported in the Condensed Consolidated Balance Sheet forof financial instruments such as cash, and cash equivalents, accounts receivable, and current liabilities, including notesaccounts payable and accrued expenses, approximate the related fair values due to the short-term maturities of these instruments. The carrying values of convertible notes and notes payable approximate their fair values because ofdue to the short period of time betweenfact that the origination of such instruments and their expected realization and their current marketinterest rates of interest.
At December 31, 2017 and June 30, 2017, the Company’s Condensed Consolidated Balance Sheet included the fair value of derivative liabilities of $21,589 and $728,000, respectively, which wason these obligations are based on Level 2 measurements.prevailing market interest rates.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the Condensed Consolidated Statements of Operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the earliest inception date sequencing method to prioritize its convertible securities. At each reporting date, the Company reviews its convertible securities to determine their classification is appropriate.
Net Income (Loss)Loss per Common Share
Basic earnings (loss) per share are 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 six monthsperiods ended December 31, 20172022 and 2016,2021, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. At December 31, 2017, the Company’s Series H Preferred Stock, Convertible Notes Payable and Options were antidilutive because their exercise prices and conversion prices were out of the money.
| F-9 |
As of December 31, 20172022, and 2016,2021, 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.
| Summary of securities excluded from EPS calculation | ||||||||
| As of December 31, | ||||||||
| 2022 | 2021 | |||||||
| Series H Preferred Stock | 10,000 | 10,000 | ||||||
| Convertible Notes Payable | 26,443,994 | 24,911,142 | ||||||
| Options | 900,000 | 3,400,000 | ||||||
| Total | 27,353,994 | 28,321,142 | ||||||
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Series H Preferred Stock | 10,000 | 10,000 | ||||||
| Convertible Notes Payable | 18,645,933 | 16,523,395 | ||||||
| Options | 2,500,000 | 2,500,000 | ||||||
| Total | 21,155,933 | 19,033,395 | ||||||
Concentrations
Concentrations
During the three monthsmonth period ended December 31, 2017,2022, the Company had three customers, one customer,that represented 47% of our revenue, one that represented 13% of our revenue, and one, a related party, that represented 75%35% of our revenues. During the three month period ended December 31, 2021, the Company had two customers, one that represented 21% of our revenue, and one, customer that represented 10% of our revenue. During the three months ended December 31, 2016, the Company had one customer, a related party, that represented 59%72% of our revenue. No other customer represented more than 10% of our revenues.
During the six month period ended December 31, 2022, the Company had three customers, one that represented 24% of our revenue, one that represented 13% of our revenue, and one, customer that represented 12% of our revenue.
During the six months ended December 31, 2017, the Company had one customer, a related party, that represented 74%57% of our revenues. During the six month period ended December 31, 2021, the Company had two customers, one that represented 18% of our revenue, and one, customer that represented 10% of our revenue. During the six months ended December 31, 2016, the Company had one customer, a related party, that represented 47%76% of our revenue, onerevenue. No other customer that represented 13% of our revenue, and one customer that representedmore than 10% of our revenue.revenues.
Segments
Recent Accounting Pronouncements
The Company operates in one segment, the mobile financial banking industry. In May 2014,accordance with the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606),“Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the FASB has since issued several amendments to this standard, which clarifies the principles for recognizing revenue. This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customerscountries in an amount that reflects the consideration to which the entity expectsholds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be entitledfound in exchange for those goods or services.the accompanying condensed consolidated financial statements.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard supersedes all existing U.S. GAAPsignificantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance on revenue recognition and is expected to requireeffective. As small business filer, the use of more judgment and result in additional disclosures. The new standard iswill be effective for us for interim and annual reporting periods beginning after December 15, 2017.2022. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method. Early adoption is permitted.permitted, but no earlier than January 1, 2021, including interim periods within that year. The Company plans to adoptis currently assessing the impact of adopting this standard on October 1, 2018. The Company has elected to adopt the new revenue recognition standard following the modified retrospective approach, as permitted by the standard. This approach will result in an adjustment to retained earnings for the cumulative effect of initially applying the new standard on its adoption date.
Company’s financial statements and related disclosures.
In February 2016,May 2021, the FASB issued ASU 2016-02, Leases2021-04, Earnings Per Share (Topic 842)260), which requires lessees to reflect most leases on their balance sheetDebt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as lease liabilities withwarrants) that remain equity classified after modification or exchange. An issuer measures the effect of a corresponding right-of-use asset, while leaving presentation of lease expense in the statement of income largely unchanged. The standard also eliminates the real-estate specific provisions that exist under current U.S. GAAP and modifies the classification criteria and accounting lessors must apply to sales-type and direct financing leases. The Company will be required to adopt ASU 2016-02 as of October 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. The standard requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset when the transfer occurs as opposed to when the asset is transferred to an outside party as required under current U.S. GAAP. The standard does not apply to intra-entity transfers of inventory, which will continue to follow current U.S. GAAP. The Company will be required to adopt ASU 2016-16 as of October 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-16 on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The standard simplifies the measurement of goodwill impairment by eliminating the requirement that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to measure impairment. Instead, goodwill impairment will be measuredmodification or exchange as the difference between the fair value of the reporting unitmodified or exchanged warrant and the carryingfair value of the reporting unit. The standard also clarifies the treatmentthat warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of the income tax effect of tax deductible goodwill when measuring goodwill impairment loss. The Company will be required to adopt ASU 2017-04 as of October 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2017-04 on the Company's consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggeredtransactions and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividendcorresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and a reduction of income availablemodifications unrelated to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance inequity issuance and debt origination or modification). ASU 2017-112021-04 is effective for all entities for fiscal years beginning after December 15, 2018, and2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted andfor all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance is toshould be applied using a full or modified retrospective approach.as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2017-11 is2021-04 did not expected to have a material impact on the Company’s financial statements because the embedded conversion feature of the Company’s convertible notes have features other than down round provisions that require the current accounting and classification as derivative liabilities.or disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company'sCompany’s present or future financial statements.
NOTE 2 – INTANGIBLE ASSETS AND CONTINGENT EARNOUT LIABILITY
InOn September 30, 2014, the Company acquired certain assets and liabilities of the Tangible Payments LLC. A portion of the purchase price for Tangible Payments LLC which developed online payment technology that encrypts sensitive information securely between customers and merchants during online transactions.
The purchase price for the acquisition was comprised of 250,000 shares of restricted common stock of Veritec valued at $37,500, and an earnout payment of $155,000 for an aggregate purchase price of $192,500.$155,000. The earnout payment is payable on a monthly basis from the net profits derived from the acquired assets commencing three months after the closing. The earnout payment is accelerated and the balance of the earnout payment shall be due in full at such time as Veritec receives equity investments aggregating $1,300,000. From the date$1,300,000. As of the acquisition and up to December 31, 2017,2022, there was no net profit derived from the acquired assets, and accordingly,the Company had not yet received the required equity investments. Accordingly, no payments were made on the earnout.
The Company assigned $192,500 of the purchase price to contract commitments which were amortized over a three year period. For the three and six months ended December 31, 2017 and 2016, the Company recorded $0, $16,042, and $16,042, $32,088, respectively, of amortization expense related to this intangible which is included in general and administrative expense in the Condensed Consolidated Statements of Operations.
NOTE 3 – CONVERTIBLE NOTES AND NOTES PAYABLE
Convertible notes and notes payable
Notes payable-in default
NotesConvertible and notes payable includes principal and accrued interest and consistsconsist of the following at December 31, 20172022 and June 30, 2017:2022:
| Convertible notes and notes payable - in default | ||||||||
| December 31, 2022 | June 30, 2022 | |||||||
| (a) Unsecured convertible notes ($20,000 and $20,000 in default) | $ | 65,000 | $ | 64,000 | ||||
| (b) Notes payable (in default) | 466,000 | 458,000 | ||||||
| (c) Notes payable (in default) | 29,000 | 28,000 | ||||||
| Total notes-third parties | $ | 560,000 | $ | 550,000 | ||||
| F-11 |
| December 31, 2017 | June 30, 2017 | |||||||||
| (a) | Convertible notes-in default | $ | 209,846 | $ | 205,116 | |||||
| (b) | Notes payable-in default | 378,946 | 370,207 | |||||||
| Total notes-third parties | $ | 588,792 | $ | 575,323 | ||||||
(a) The notes are unsecured, convertible into common stock at amounts ranging from $0.08$0.08 to $0.30$0.30 per share, bear interest at rates ranging from 5%5% to 8%8% per annum, were due through 2011 and are in default or due on demand.
At June 30, 2017,2022, convertible notes totaled $205,116.$64,000. During the periodsix months ended December 31, 2017,2022, interest of $4,730$1,000 was added to the principal leavingresulting in a balance owed of $209,846$65,000 at December 31, 2017. At2022. On December 31, 2017, $172,5062022, $20,000 of the convertible notes were in default and convertible at a conversion price of $0.30$0.30 per share into 575,021 shares of the Company’s common stock. The balance of $37,340$45,000 is due on demand and convertible at a conversion price of $0.08$0.08 per share into 466,746 shares of the Company’s common stock.
(b) The notes are either secured by the Company’s intellectual property or unsecured and bear interest ranging from 6.5%6.5% to 10%10% per annum, were due in 2012, and are in default.
At June 30, 2017,2022, the notes totaled $370,207.$458,000. During the periodsix months ended December 31, 2017,2022, interest of $8,739$8,000 was added to principal leavingresulting in a balance owed of $378,946$466,000 at December 31, 2017.2022. At December 31, 2017, $342,6632022, $420,000 of notes are secured by the Company’s intellectual property and $36,283$46,000 of notes are unsecured.
(c) The notes are unsecured and bear interest of 4% per annum and were due on March 17, 2020 and are in default.
NotesAt June 30, 2022, the notes totaled $28,000. During the six months ended December 31, 2022, interest of $1,000 was added to the principal resulting in a balance owed of $29,000 at December 31, 2022.
Convertible notes and notes payable-related partyparties
NotesConvertible and notes payable-related party includesparties include principal and accrued interest and consistsconsist of the following at December 31, 20172022 and June 30, 2017:2022:
December 31, 2017 | June 30, 2017 | |||||||||
| (c) | Convertible notes-The Matthews Group | $ | 1,290,863 | $ | 1,236,943 | |||||
| (d) | Notes payable-The Matthews Group | 1,090,132 | 805,195 | |||||||
| (e) | Convertible notes-other related-in default | 258,727 | 251,728 | |||||||
| Total notes-related party | $ | 2,639,722 | $ | 2,293,866 | ||||||
| Convertible notes and notes payable- related party | ||||||||
| December 31, 2022 | June 30, 2022 | |||||||
| (a) Convertible notes-The Matthews Group | $ | 1,912,000 | $ | 1,855,000 | ||||
| (b) Notes payable-The Matthews Group | 4,580,000 | 4,177,000 | ||||||
| (c)Convertible notes-other related parties ($238,000 and $233,000 in default) | 327,000 | 321,000 | ||||||
| Total notes-related parties | $ | 6,819,000 | $ | 6,353,000 | ||||
(c)(a) The notes are unsecured, convertible into common stock at $0.08$0.08 per share, bear interest at rates ranging from 8%8% to 10%10% per annum and are due on demand.
The Matthews Group is a related party (see Note 7)6) and is owned 50% by Ms. Van Tran, the Company’s CEO, and 50% by Larry Johanns, a significant shareholder of the Company. At June 30, 2017,2022, convertible notes due to The Matthews Group was $1,236,943.totaled $1,855,000. During the periodsix months ended December 31, 2017,2022, $57,000 of interest of $53,919 was added to principal, leavingresulting in a balance owedpayable of $1,290,863$1,912,000 at December 31, 2017.2022. At December 31, 2017, $1,290,863 of2022, the notes are convertible at a conversion price of $0.08$0.08 per share into 16,135,785 shares of the Company’s common stock.
(d)(b) The notes are unsecured, accrue interest at 10%10% per annum, and are due on demand. The notes were issued relating to a management services agreement with The Matthews Group (see Note 7)6) dated September 30, 2015. At June 30, 2017,2022, notes payabledue to The Matthews Group totaled $805,195.$4,177,000. During the periodsix months ended December 31, 2017, $241,5902022, $234,000 of notes payable were issued and interest of $43,347$169,000 was added to principal, leavingresulting in a balance dueowed of $1,090,132$4,580,000 at December 31, 2017.2022.
(e)(c) The notes are due to a current and a former director, are unsecured, convertible into common stock at per share amounts ranging from $0.08$0.08 to $0.30,$0.30, and bear interest at rates ranging from 8%8% to 10%10% per annum.
At June 30, 2017,2022, convertible notes due to other related parties totaled $251,728.$321,000. During the periodsix months ended December 31, 2017,2022, interest of $7,000$6,000 was added to principal leavingresulting in a balance owed of $258,728$327,000 at December 31, 2017.2022. At December 31, 2017,2022, $238,000 of the notes were due in 2010 and are in default, and the balance of $89,000 is due on demand. At December 31, 2022, $238,000 of the notes are convertible at a conversion prices ranging from $0.08 per share to $0.30price of $0.30 per share into 1,409,619 shares of the Company’s common stock.
NOTE 4 - DERIVATIVE LIABILITIES
From time to time, the Company issues convertible notes payable with embedded conversion featuresstock, and options to purchase common stock. Pursuant to the FASB authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, when there are insufficient authorized shares, the obligation for the exercise of the convertible instrument should be classified as a liability and measured at fair value. During 2017, the Company determined that there were not sufficient authorized shares of common stock available for issuance upon conversion of certain of its convertible notes and recorded a charge for the fair value of the derivative liabilities, and at June 30, 2017, the total derivative liabilities were $728,000. During the three and six months ended December 31, 2017, the Company recorded a decrease in the fair value of the derivative liabilities of $243,411 and $706,411, respectively. At December 31, 2017, total derivative liabilities were $21,589. The conversion feature$89,000 of the notes is re-measuredare convertible at the enda conversion price of every reporting period with the change in value reported in the Condensed Consolidated Statements of Operations.
The derivative liability was valued at the following dates using a Black-Scholes-Merton model with the following assumptions:
December 31, 2017 |
June 30, 2017 | |||||||
| Conversion feature: | ||||||||
| Risk-free interest rate | 1.76 | % | 1.5 | % | ||||
| Expected volatility | 93 | % | 179 | % | ||||
| Expected life (in years) | 1 year | 1 year | ||||||
| Expected dividend yield | — | — | ||||||
| Fair Value: | ||||||||
| Conversion feature | $ | 21,589 | $ | 728,000 | ||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company used its own historical stock’s volatility as the estimated volatility. The expected life$0.08 per share into shares of the conversion feature of the notes or options was based on the estimated remaining terms of the notes or options, or expected settlement date for notes due on demand or that have matured. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its holders ofCompany’s common stock in the past and does not expect to pay dividends to holders of its common stock in the future.stock.
| F-12 |
NOTE 54 - STOCKHOLDERS’ DEFICIENCY
Common Stock to be Issued
As of bothAt December 31, 20172022 and June 30, 2017, 2022, shares of common stock to be issued with an aggregate value of $12,500$12,000 have not been issued and are reflected as common stock to be issued in the accompanying Condensed Consolidated Balance Sheets.condensed consolidated financial statements.
NOTE 65 – STOCK OPTIONS
Stock Options
A summary of stock options for the six months endedas of December 31, 20172022 is as follows:
| Summary of Stock Options | ||||||||
| Number of Shares | Weighted Average Exercise Price | |||||||
| Outstanding at June 30, 2022 | 900,000 | $ | 0.03 | |||||
| Granted | — | — | ||||||
| Expired | — | $ | — | |||||
| Outstanding at December 31, 2022 | 900,000 | $ | 0.03 | |||||
| Exercisable at December 31, 2022 | 900,000 | $ | 0.03 | |||||
| Number of Shares | Weighted - Average Exercise Price | |||||||
| Outstanding at June 30, 2017 | 2,500,000 | $ | 0.08 | |||||
| Granted | — | — | ||||||
| Forfeited | — | — | ||||||
| Outstanding at December 31, 2017 | 2,500,000 | $ | 0.08 | |||||
| Exercisable at December 31, 2017 | 2,500,000 | $ | 0.08 | |||||
At December 31, 2017, the Company had 2,500,000 of options outstanding and exercisable. The options expire in February, 2020, and are exercisable at $0.08 per share. There were no options granted during the six months ended December 31, 2017 and the Company recognized no stock-based compensation expense related to stock options during the three and six months ended December 31, 2017 and 2016, respectively. As of December 31, 2017, there was 2022, the Company had outstanding unvested options with future compensation costs related tocosts. At December 31, 2022 and June 30, 2022, the outstanding and exercisable stock options and had intrinsic value.
Additional information regarding options outstanding as of December 31, 20172022, is as follows:
| Options Outstanding at December 31, 2017 | Options Exercisable at December 31, 2017 | |||||||||||||||||||||
| Weighted | ||||||||||||||||||||||
| Average | Weighted | Weighted | ||||||||||||||||||||
| Number of | Remaining | Average | Number of | Average | ||||||||||||||||||
| Range of | Shares | Contractual Life | Exercise | Shares | Exercise | |||||||||||||||||
| Exercise | Outstanding | (Years) | Price | Exercisable | Price | |||||||||||||||||
| $ | 0.08 | 2,500,000 | 2.14 | $ | 0.08 | 2,500,000 | $ | 0.08 | ||||||||||||||
| 2,500,000 | 2,500,000 | |||||||||||||||||||||
The weighted-average remaining contractual life of stock options outstanding and exercisable at December 31, 2017 is 2.14 years.
| Additional information regarding outstanding options | ||||||||||||||
Options Outstanding and Exercisable at December 31, 2022 | ||||||||||||||
| Range of Exercise Price | Number of Shares Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | |||||||||||
| $ | 0.03 | 900,000 | $ | 0.03 | ||||||||||
NOTE 76 – RELATED PARTY TRANSACTIONS
The Matthews Group is owned 50%50% by Ms. Van Tran, the Company’s CEO/Executive Chair and a director, and 50%50% by Larry Johanns, a significant stockholder of the Company. The Company has relied on The Matthews Group for funding (see Note 3).
Management Services Agreement and Related Notes Payable with Related Party
On September 30, 2015, the Company sold all of its assets of its Barcode Technology comprised solely of its intellectual property to The Matthews Group. The Company’s Barcode Technology was originally invented by the founders of Veritec as a product identification system for identification and tracking of parts, components and products mostly in the liquid crystal display (LCD) markets and for secure identification documents, financial cards, medical records, and other high securityhigh-security applications. On September 30, 2015, the Company sold all of its assets of its Barcode Technology comprised solely of its intellectual property to The Matthews Group. The Company hasthen entered into a management services agreement with The Matthews Group to manage all facets of the barcode technology operations, on behalf of The Matthews Group, through July 31, 2018.June 30, 2023. The Matthews Group bears the risk of loss from the barcode operations and has the right to the residual benefits of the barcode operations.
| F-13 |
In consideration of the services provided by the Company earnsto The Matthews Group, the Company earned a fee of 20%20% of all revenues throughup to May 31, 2017, and 35%35% of all revenues fromup to June 1, 2017 to July 31, 201830, 2023, from the barcode technology operations. During the three and six months ended December 31, 20172022 and 2016,2021, the Company recorded management fee revenue related to this agreement of $93,241, $173,493$37,000 and $52,430, $75,330,$118,000, and $58,000 and $150,000, respectively. Pursuant
Additionally, pursuant to the management services agreement, all cash flow (all revenues collected less direct costs paid) of the barcode technology operations is retained by the Company and reflected as proceeds from unsecured notes payable due The Matthews Group. During the six months ended December 31, 20172022 and 2016,2021, cash flow loans of $241,590$234,000 and $219,883,$260,000, respectively, were made to the Company at 10%10% interest per annum and due on demand. At December 31, 2017,2022, cash flow loans of $1,090,132$4,580,000 are due to The Matthews Group (see Note 3).
Advances from Related Parties
From time to time, Ms. Tran, the Company’s CEO/Executive Chair, provides advances to finance the Company’s working capital requirements. As of December 31, 20172022 and June 30, 2017, $96,100 and $96,100 of2022, total advances due to Ms. Van Tran amounted to $109,000 and $102,000, respectively, and have been presented as accounts payable, related party on the accompanying Condensed Consolidated Balance Sheets, respectively.Sheets. The advances are unsecured, non-interest bearing, and due on demand.
Other Transactions with Related Parties
The Company leases its office facilities on a month-to-month basis from Ms. Tran.Tran, the Company’s CEO/Executive Chair. For the three and six monthsmonth periods ended December 31, 20172022 and 2016, rental2021, lease payments to Ms. Van Tran totaled $12,600, $25,200, $12,600$14,000 and $25,200,$26,000, and $14,000 and $26,000, respectively.
NOTE 7 – LEGAL PROCEEDINGS
On September 21, 2016, the Company entered into a settlement agreement with an individual who was a former officer of the Company. The individual in prior years was also issued 500,000 shares of common stock for services. The Company alleged that the individual used the Company’s intellectual property without approval. Under the terms of the settlement agreement, the individual agreed to relinquish a convertible note payable and unpaid interest aggregating $365,000 and return shares of common stock previously issued to him. In turn, the Company agreed to release and discharge the individual against all claims arising on or prior to the date of the settlement agreement. As of December 31, 2022, the 500,000 shares have not been relinquished. When the Company receives the shares, it will record a cancellation of shares.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
On January 17, 2016, Veritec Inc. (the “Company”March 26, 2022, as amended on May 10, 2022, the Company and Es Solo Holdings Ltd (“Es Solo”), an England & Wales limited liability company, entered into an agreementa Prepaid Card Client Program Management Agreement (“Management Agreement”). Es Solo develops, markets, and operates prepaid card programs through its affiliations with Vietnam Alliance Capital (“VAC”), which is domiciled in Vietnam,issuing banks, and the Company desires to formhave Es Solo develop a joint venture (“JV’)prepaid card program to operatebe marketed by the Company for card issuing purposes, pursuant to the terms of the Management Agreement. Es Solo agreed to pay the Company $10,000 as a program setup fee. The Company and Es Solo agreed to a 50%/50% revenue share arrangement based on fees collected from customers using the Company’s prepaid, Bio-ID, and debit card business in Vietnam. The JV will be named Veritec Asia. The Company will be a 30% member of the JV and VAC will be a 70% member of the JV. Pursuant to the agreement, the Company will grant a license for certain products to the JV, and provide certain technologies and technological support to the JV. VAC will manage, control, and conduct its day-to-day business and development activities. In addition, VAC has agreed to raise all funds to capitalize the JV.products. As of December 31, 2017,2022, no revenues have been realized under the JV has not received funding andManagement Agreement.
On November 1, 2021, the Company is currently evaluatingand Elite Web Technology Inc. (“Marketer”) entered into a Sales and Marketing Agreement (“Agreement”). The Company agreed that Marketer can market and sale certain Company products as defined in the Agreement. The Company agreed to pay Marketer a sales commission of 15% of gross revenues, and to set aside shares of Company common stock, as a bonus, once Marketer achieves $2 million in gross revenues within the first year of the Agreement. In addition, the Company will issue stock options for each additional $1.0 million of gross revenues. As of December 31, 2022, the Marketer had not met any of its options related to the JV including its termination. revenue targets and no commissions or equity compensation was due.
| F-14 |
Incentive Compensation Bonus Plan
On December 5, 2008, the Company adopted an incentive compensation bonus plan to provide payments to key employees in the aggregated amount of 10%10% of pre-tax earnings in excess of $3,000,000$3,000,000 after the end of each fiscal year to be distributed annually to employees. As of December 31, 2017,2022, the Company had not achieved an annual pre-tax earnings in excess of $3,000,000.
NOTE 9 – SUBSEQUENT EVENT
On February 2, 2018,December 5, 2008, the Company’s BoardCompany entered into an employment agreement with Van Thuy Tran, its Chief Executive Officer, providing for an annual base salary of Directors voted$150,000 and customary medical and other benefits. The agreement may be terminated by either party upon 30 days’ notice. In the event the Company terminates the agreement without cause, Ms. Tran will be entitled to increase the Company’s authorized common shares$1,000,000 payable upon termination, and she will be entitled to 150,000,000 common shares.severance equal to 12 months compensation and benefits. The Company is inhas also agreed to indemnify Ms. Tran against any liability or damages incurred within the processscope of filingher employment. During the requisite documentation with the State of Nevada.six months ended December 31, 2022 and 2021, salaries paid to Van Thuy Tran under this agreement totaled $75,000 and $75,000.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed elsewhere in this report.
The following discussion and analysis of the Company’s financial condition and results of operations is based on the preparation of our financial statements in accordance with U.S. generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.
COVID-19 Considerations
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that the COVID-19 pandemic could cause a local, national and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the economy as a whole, but it is presently unknown whether and to what extent further fiscal actions will continue. The magnitude and overall effectiveness of these actions remain uncertain.
The Company believes that its Mobile Banking revenues have been negatively affected due to the reduction in customer spending, which negatively impacts the amount of fees earned by the Company from its customers. The Company is also currently experiencing a decline in revenues earned under the management services agreement with The Matthews Group, as The Matthews Group’s customer orders have been negatively impacted by the effects of COVID-19. The severity of the impact of the COVID-19 pandemic on the Company’s business will continue to depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of the Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
Inflation
Global inflation increased during 2021 and in 2022. The Russia Ukraine conflict and other geopolitical conflicts, as well as related international response, have exacerbated inflationary pressures, including causing increases in the price for goods and services and global supply chain disruptions, which have resulted and may continue to result in shortages in food products, materials and services. Such shortages have resulted and may continue to result in inflationary cost increases for labor, fuel, food products, materials and services, and could continue to cause costs to increase as well as result in the scarcity of certain materials. We cannot predict any future trends in the rate of inflation or other negative economic factors or associated increases in our operating costs and how that may impact our business. To the extent we are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our and their business, our revenues and operating results could decrease, and our financial condition and results of operations could be adversely affected.
| 1 |
Recent Events
On July 4, 2022, we entered a Memorandum of Understanding (the “MOU”) for the purpose of forming a strategic partnership between the Company and Nugen Universe, LLC (“Nugen”), a corporation located in Wrightsville Beach, North Carolina. Nugen seeks us to modify, create, or build a “private label” system for Nugen, with an initial interest in our blinxPay technology and Bio-ID verification system. Nugen paid us $50,000 at the date of the MOU signing and during the period ended December 31, 2022, we delivered our obligations, and recorded the $50,000 payment as Mobile banking technology revenue during the period ended December 31, 2022. Nugen further agreed to pay the us a 5% ongoing royalty for licensing the Company’s blinxPay technology and Bio-ID verification system. As of December 31, 2022, no royalties have been realized under the MOU.
On October 10, 2022, we entered into a License and Distributor Agreement (“License Agreement”) with Nugen. The License Agreement became effective on receipt of $200,000 in December 31, 2022 and extends through August 31, 2027. The License Agreement grants Nugen a Worldwide license and distribution for our blinxPay Close-Loop Virtual Wallet and blinxPay Open-Loop Visa Debit and all hardware products of ours. Per the terms of the License Agreement, Nugen agrees to pay us a one-time license payment of $1,000,000 for the right to market the Company’s products noted above, of which $200,000 was received by us in December 2022. The initial $200,000 has been recorded as deferred revenue in the Condensed Consolidated Balance Sheet and will be amortized to Mobile banking technology revenue over the remaining term of the License Agreement, which expires on August 31, 2027. The remaining balance of $800,000 is scheduled to be paid as outlined in the License Agreement. In addition to the one-time license payment, Nugen agrees to pay a minimum monthly support fee plus 5% royalty from all sales of products noted above. As of December 31, 2022, no royalty related revenues have been realized under the License Agreement.
Results of Operations –- Three months Endedended December 31, 20172022, compared to December 31, 2016
We had a net income of $92,970 during the three months ended December 31, 2017 compared to net loss of $427,678 during the three months ended December 31, 2016.2021
Revenues
Revenues
Details of revenues are as follows:
Three Months Ended December 31, | Increase (Decrease) | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Mobile banking technology | $ | 70,000 | $ | 23,000 | $ | 47,000 | 204.3 | |||||||||
| Other revenue, management fee - related party | 37,000 | 58,000 | (21,000 | ) | (36.2 | ) | ||||||||||
| Total Revenues | $ | 107,000 | $ | 81,000 | $ | 26,000 | 32.1 | |||||||||
| Three Months Ended December 31, | Increase (Decrease) | |||||||||||||||
| 2017 | 2016 | $ | % | |||||||||||||
| Mobile Banking Technology | $ | 30,526 | $ | 37,130 | $ | (6,604 | ) | (17.8 | ) | |||||||
| Other revenue, management fee related party | 93,241 | 52,430 | 40,811 | 77.8 | ||||||||||||
| Total Revenues | $ | 123,767 | $ | 89,560 | $ | 34,207 | 38.2 | |||||||||
• Mobile banking technology
Mobile Banking Technology
Mobile Banking Technology revenues include products such as the Company’s Blinx On-Off™ prepaid toggle Card and its Open Loop/Close Loop System and Bio ID Card Platform. Mobile Banking Technology uses web-based mobile technology to offer financial cardholders the very best technology in conducting secure financial transactions in real time, protecting personal identity, and financial account security. Mobile Banking Technology revenues for the three months ended December 31, 20172022, and 20162021 were $30,526$70,000 and $37,130,$23,000, respectively. The decreaseincrease in Mobile Banking Technology revenues was duerelated to botha development contract of the conclusion of certain long term contractsCompany’s blinxPay product that concluded during the period ended December 31, 2022. No similar sale occurred during the same period of the prior year andyear.
• Other revenue, management fee - related party
On December 31, 2015, the Company not havingsold all of its assets of its Barcode Technology, which was comprised solely of its intellectual property, to The Matthews Group, a bank to sponsor its mobile banking solutions (see Note 1 to Condensed Consolidated Financial Statements).
Other Revenue, related party
Effective October 1, 2015, theparty. The Company subsequently entered into a management services agreement with theThe Matthews Group for which the Company agreed to manage its previousall facets of the barcode technology business, on behalfoperations through June 30, 2022. The Company earns a fee of the Matthews Group, from October 1, 2015 to July 31, 2018. Per the terms of the management services agreement, the Company earned 20% of all revenues through May 31, 2017 and 35% of all revenues through Julybilled up to December 31, 2018.2022, and recognizes management fee revenue as services are performed. For the three months ended December 31, 20172022 and 2016,2021, revenue earned from the management services agreement was $93,241$37,000 and $52,430,$58,000, respectively.
| 2 |
Cost of SalesRevenue
Cost of salesrevenue for the three months ended December 31, 20172022 and 20162021 totaled $52,880$48,000 and $90,300,$48,000, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended December 31, 2022 and 2021 totaled $209,000 and $165,000, respectively. The decreaseincrease in cost of salesgeneral and administrative expenses was primarily from expense reductions, including bank sponsordue to increased legal and professional fees associated with our decline in Mobile Banking Technology revenues discussed above, as compared to the same period of the prior year.
Other Income (Expenses)
Operating ExpensesOn October 22, 2021, the Company was notified that its PPP loan forgiveness applications totaling $118,000 were approved. No similar activity occurred in the current year period.
General and administrative expensesInterest expense for the three months ended December 31, 20172022 and 2016 totaled $149,8742021, was $122,000 and $186,558,$109,000, respectively. The decrease in general and administrative expensesincrease was primarily from expense reductions implemented during the period due to the increase in our reduction in Mobile Banking Technology revenues discussed above.notes payable balance.
Net Loss
Sales and marketing expensesWe had a net loss of $272,000 for the three months ended December 31, 2017 and 2016 totaled $0 and $390, respectively. The decrease in sales and marketing expenses was primarily from expense reductions implemented during the period due2022, compared to our reduction in Mobile Banking Technology revenues discussed above.
Research and development expensesa net loss of $123,000 for the three months ended December 31, 2017 and 2016 totaled $10,780 and $11,390, respectively. The decrease in research and development expenses was primarily from expense reductions implemented during the period due to our reduction in Mobile Banking Technology revenues discussed above.2021.
Other Income (Expenses)
During the threeResults of Operations - Six months ended December 31, 2017, the Company recognized income related to the change in fair value of derivative liabilities that totaled $243,411 (see Note 4 to Condensed Consolidated Financial Statements). During the three months ended December 31, 2016, the Company recognized an expense related to the fair value of derivatives liabilities of $182,000 (see Note 4 to Condensed Consolidated Financial Statements). The change in fair value of derivative liabilities in 20172022, compared to 2016 is primarily due to the change in the Company’s stock price input used in its derivative valuation model.
During the three months ended December 31, 2017 and 2016, interest expense, which includes financing costs, totaled $60,674 and $46,600, respectively. The increase was the result of increased notes payable balances as compared to the same period of the prior year.
Results of Operations – Six Months Ended December 31, 2017 compared to December 31, 2016
We had a net income of $382,305 during the six months ended December 31, 2017 compared to net loss of $284,920 during the six months ended December 31, 2016.2021
Revenues
Revenues
Details of revenues are as follows:
Six Months Ended December 31, | Increase (Decrease) | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Mobile banking technology | $ | 90,000 | $ | 47,000 | $ | 43,000 | 91.5 | |||||||||
| Other revenue, management fee - related party | 118,000 | 150,000 | (32,000 | ) | (21.3 | ) | ||||||||||
| Total Revenues | $ | 108,000 | $ | 197,000 | $ | 11,000 | 5.6 | |||||||||
| Six Months Ended December 31, | Increase (Decrease) | |||||||||||||||
| 2017 | 2016 | $ | % | |||||||||||||
| Mobile Banking Technology | $ | 61,117 | $ | 84,210 | $ | (23,093 | ) | (27.4 | ) | |||||||
| Other revenue, management fee related party | 173,493 | 75,330 | 98,163 | 130.3 | ||||||||||||
| Total Revenues | $ | 243,610 | $ | 159,540 | $ | 75,070 | 47.1 | |||||||||
• Mobile banking technology
Mobile Banking Technology
Mobile Banking Technology revenues include products such as the Company’s Blinx On-Off™ prepaid toggle Card and its Open Loop/Close Loop System and Bio ID Card Platform. Mobile Banking Technology uses web-based mobile technology to offer financial cardholders the very best technology in conducting secure financial transactions in real time, protecting personal identity, and financial account security. Mobile Banking Technology revenues for the six months ended December 31, 20172022, and 2016 was $61,1172021 were $90,000 and $84,210,$47,000, respectively. The decreaseincrease in Mobile Banking Technology revenues was duerelated to botha development contract of the conclusion of certain long term contractsCompany’s blinxPay product that concluded during the period ended December 31, 2022. No similar sale occurred during the same period of the prior year andyear.
• Other revenue, management fee - related party
On December 31, 2015, the Company not havingsold all of its assets of its Barcode Technology, which was comprised solely of its intellectual property, to The Matthews Group, a bank to sponsor its mobile banking solutions (see Note 1 to Condensed Consolidated Financial Statements).
Other Revenue, related party
Effective October 1, 2015, theparty. The Company subsequently entered into a management services agreement with theThe Matthews Group for which the Company agreed to manage its previousall facets of the barcode technology business, on behalfoperations through June 30, 2022. The Company earns a fee of the Matthews Group, from October 1, 2015 to July 31, 2018. Per the terms of the management services agreement, the Company earned 20% of all revenues through May 31, 2017 and 35% of all revenues through July 31, 2018.billed up to June 30, 2023, and recognizes management fee revenue as services are performed. For the six months ended December 31, 20172022 and 2016,2021, revenue earned from the management services agreement was $173,493$118,000 and $75,330,$150,000, respectively.
Cost of SalesRevenue
Cost of salesrevenue for the six months ended December 31, 20172022 and 20162021 totaled $107,116$98,000 and $148,860,$98,000, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended December 31, 2022 and 2021 totaled $451,000 and $355,000, respectively. The decreaseincrease in cost of salesgeneral and administrative expenses was primarily from expense reductions, including bank sponsordue to increased legal and professional fees associated with our decline in Mobile Banking Technology revenues discussed above, as compared to the same period of the prior year.
Other Income (Expenses)
Operating ExpensesOn October 22, 2021, the Company was notified that its PPP loan forgiveness applications totaling $118,000 were approved. No similar activity occurred in the current year period.
General and administrative expensesInterest expense for the six months ended December 31, 20172022 and 2016 totaled $313,9272021, was $242,000 and $357,000,$217,000, respectively. The decrease in general and administrative expensesincrease was primarily from expense reductions implemented during the period due to the increase in our reduction in Mobile Banking Technology revenues discussed above.notes payable balance.
Net Loss
Sales and marketing expensesWe had a net loss of $583,000 for the six months ended December 31, 2017 and 2016 totaled $0 and $5,560, respectively. The decrease in sales and marketing expenses was primarily from expense reductions implemented during the period due2022, compared to our reduction in Mobile Banking Technology revenues discussed above.
Research and development expensesa net loss of $355,000 for the six months ended December 31, 20172021.
Liquidity and 2016 totaled $19,938 and $22,130, respectively. The decrease in research and development expenses was primarily from expense reductions implemented during the period due to our reduction in Mobile Banking Technology revenues discussed above.Capital Resources
Other Income (Expenses)
During the six months endedOur cash balance on December 31, 2017, the Company recognized income related2022 increased to the change in fair value of derivative liabilities that totaled $706,411 (see Note 4 to Condensed Consolidated Financial Statements). During the six months ended December 31, 2016, the Company recognized an expense related to the fair value of derivatives liabilities of $182,000 (see Note 4 to Condensed Consolidated Financial Statements). The change in fair value of derivative liabilities in 2017$183,000 as compared to 2016 is primarily due to the change in the Company’s stock price input used in its derivative valuation model.
During the six months ended December 31, 2016, the Company recorded a gain$66,000 on settlement of a note payable to a former officer of $364,690. No similar activity occurred during the same period of the current year.
During the six months ended December 31, 2017 and 2016, interest expense, which includes financing costs, totaled $117,735 and $93,600, respectively.June 30, 2022. The increase was the result of increased notes payable balances as compared to the same period of the prior year.
Capital Expenditures and Commitments
No capital purchases were made during the six months ended December 31, 2017.
Liquidity
Our$234,000 cash balance at December 31, 2017 increased to $64,536 as compared to $46,693 at June 30, 2017. The increase was the result of $223,747 inprovided by financing activities offset by $117,000 cash used in operating activities offset by $241,590 in cash provided by financing activities. Net cash used in operations during the six months ended December 31, 20172022, was $223,747$117,000, compared with $582,246$319,000 of net cash used in operations during the same period of the prior year. Cash used in operations during the periodsix months ended December 31, 20172022, was primarily duefrom our net loss of $583,000, and general net increases to our net income in the periodworking capital accounts of $382,305$224,000, offset by non-cash expensesinterest accrued on notes payable of $572,635. Net cash provided by financing activities of $241,590 during the period ended December 31, 2017 as due to proceeds received from notes payable. During the same period of the prior year, net cash provided by financing activities of $647,343 was from proceeds received from notes payable.$242,000.
The accompanying Condensed Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the periodsix months ended December 31, 2017,2022, the Company incurred a loss of $583,000 and used cash in operating activities of $223,747,$117,000, and at December 31, 2017,2022, the Company had a working capital deficit of $4,030,674 and a stockholders’ deficiency of $4,185,674.$8,019,000. In addition, as of December 31, 2017,2022, the Company is delinquent in payment of $744,076default on $753,000 of its convertible and notes payable. These factors, among others, raise substantial doubt about our ability to continue as a going concern.concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on our June 30, 20172022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty be necessary should we be unable to continue as a going concern.
The Company believes its cash and forecasted cash flow from operations will not be sufficient to continue operations through fiscal 20182023 without continued external investment. The Company believes it will require additional funds to continue its operations through fiscal 20182023 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.
| 4 |
The Company has traditionally been dependent on The Matthews Group, LLC, a related party, for its financial support. The Matthews Group is owned 50% by Van Tran, the Company’s CEO/Executive Chair and a director, and 50% by Lawrence J. Johanns, a significant Company stockholder.
Convertible notes and notes payable
Convertible and notes payable includes principal and accrued interest and consist of the following at December 31, 2022 and June 30, 2022:
| December 31, 2022 | June 30, 2022 | |||||||
| (a) Unsecured convertible notes ($20,000 and $20,000 in default) | $ | 65,000 | $ | 64,000 | ||||
| (b) Notes payable (in default) | 466,000 | 458,000 | ||||||
| (c) Notes payable (in default) | 29,000 | 28,000 | ||||||
| Total notes-third parties | $ | 560,000 | $ | 550,000 | ||||
(a) The notes are unsecured, convertible into common stock at amounts ranging from $0.08 to $0.30 per share, bear interest at rates ranging from 5% to 8% per annum, were due through 2011 and are in default or due on demand.
At June 30, 2022, convertible notes totaled $64,000. During the six months ended December 31, 2022, interest of $1,000 was added to the principal resulting in a balance owed of $65,000 at December 31, 2022. On December 31, 2022, $20,000 of the convertible notes were in default and convertible at a conversion price of $0.30 per share into 67,952 shares of the Company’s common stock. The balance of $45,000 is due on demand and convertible at a conversion price of $0.08 per share into 558,049 shares of the Company’s common stock.
(b) The notes are either secured by the Company’s intellectual property or unsecured and bear interest ranging from 6.5% to 10% per annum, were due in 2012, and are in default.
At June 30, 2022, the notes totaled $458,000. During the six months ended December 31, 2022, interest of $8,000 was added to principal resulting in a balance owed of $466,000 at December 31, 2022. At December 31, 2022, $420,000 of notes are secured by the Company’s intellectual property and $46,000 of notes are unsecured.
(c) The notes are unsecured and bear interest of 4% per annum and were due on March 17, 2020 and are in default.
At June 30, 2022, the notes totaled $28,000. During the six months ended December 31, 2022, interest of $1,000 was added to the principal resulting in a balance owed of $29,000 at December 31, 2022.
Convertible notes and notes payable-related parties
Convertible and notes payable-related parties include principal and accrued interest and consist of the following at December 31, 2022 and June 30, 2022:
| December 31, 2022 | June 30, 2022 | |||||||
| (a) Convertible notes-The Matthews Group | $ | 1,912,000 | $ | 1,855,000 | ||||
| (b) Notes payable-The Matthews Group | 4,580,000 | 4,177,000 | ||||||
| (c) Convertible notes-other related parties ($238,000 and $233,000 in default) | 327,000 | 321,000 | ||||||
| Total notes-related parties | $ | 6,819,000 | $ | 6,353,000 | ||||
| 5 |
(a) The notes are unsecured, convertible into common stock at $0.08 per share, bear interest at rates ranging from 8% to 10% per annum, and are due on demand.
The Matthews Group is a related party (see Note 6) and is owned 50% by Ms. Van Tran, the Company’s CEO, and 50% by Larry Johanns, a significant shareholder of the Company. At June 30, 2022, convertible notes due to The Matthews Group totaled $1,855,000. During the six months ended December 31, 2022, $57,000 of interest was added to principal, resulting in a balance payable of $1,912,000 at December 31, 2022. At December 31, 2022, the notes are convertible at a conversion price of $0.08 per share into 23,905,862 shares of the Company’s common stock.
(b) The notes are unsecured, accrue interest at 10% per annum, and are due on demand. The notes were issued relating to a management services agreement with The Matthews Group (see Note 6) dated December 31, 2015. At June 30, 2022, notes due to The Matthews Group totaled $4,177,000. During the six months ended December 31, 2022, $234,000 of notes payable were issued and interest of $169,000 was added to principal, resulting in a balance owed of $4,580,000 at December 31, 2022.
(c) The notes are due to a current and a former director, are unsecured, convertible into common stock at per share amounts ranging from $0.08 to $0.30, and bear interest at rates ranging from 8% to 10% per annum.
At June 30, 2022, convertible notes due to other related parties totaled $321,000. During the six months ended December 31, 2022, interest of $6,000 was added to principal resulting in a balance owed of $327,000 at December 31, 2022. At December 31, 2022, $238,000 of the notes were due in 2010 and are in default, and the balance of $89,000 is due on demand. At December 31, 2022, $238,000 of the notes are convertible at a conversion price of $0.30 per share into 792,081 shares of the Company’s common stock, and $89,000 of the notes are convertible at a conversion price of $0.08 per share into 1,120,050 shares of the Company’s common stock.
Commitments and Contractual Obligations
The Company has one annual lease commitment of $50,400 for theleases its corporate office building which is leased from Ms. Tran, our chief executive officer, with an expiration date of July 31, 2018.on a month-to-month basis, for $4,000 per month. The commitmentcorporate office is for the corporate officeslocated at 2445 Winnetka Avenue North, Golden Valley, Minnesota. As of December 31, 2017 and June 30, 2017, the total amount of the remaining lease commitment is $27,215 and $54,600, respectively.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Stock-Based Compensation
The Company periodically issues stock optionsManagement’s discussion and warrants to employeesanalysis of our financial condition and non-employees in capital raising transactions, for services and for financing costs. The Company accounts for stock option and stock warrant grants to employeesresults of operations are based on the authoritative guidance provided by the Financial Accounting Standards Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and stock warrant grants to non-employeesour financial statements, which have been prepared in accordance with the authoritative guidance of the Financial Accounting Standards Board where the value of the stock compensation is determined based upon the measurement date 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. Non-employee stock-based compensation chargesaccounting principles generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately vested and the total stock-based compensation charge is recordedaccepted in the periodUnited States. The preparation of these financial statements requires management to make estimates and judgments that affect the measurement date.
Thereported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities, fair value of warrant derivatives and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the Company’s common stock optioncircumstances, the results of which form the basis for making judgments about the carrying values of assets and warrant grantsliabilities that are estimated using a Black-Scholes option pricing model, which uses certainnot readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions relatedor conditions.
| 6 |
Our significant accounting policies are more fully described in Note 1 to risk-free interest rates, expected volatility, expected lifeour financial statements. The preparation of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions usedfinancial statements in conformity with accounting principles generally accepted in the Black-Scholes option pricing modelUnited States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosures of contingent assets and liabilities. Actual results could materially affect compensation expense recorded in future periods.differ from those estimates under different assumptions or conditions.
Revenue Recognition
The Company accounts for revenue recognition in accordance with guidance of the Financial Accounting Standards Board. Revenues for the Company are classified into mobile banking technology and management fee revenue, and barcode technology.revenue.
a. Mobile Banking Revenue
The Company, as a merchant payment processor and a distributor, recognizes revenue from transaction fees charged to 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.
b. Other revenue, management fee - related party
Prior to the year ended June 30, 2016, the Company entered into some long term agreements to provide application development and support. Some customers paid the agreement in full at signing and the Company recorded the receipt of payment as deferred revenue. The Company records revenue relating to these agreements on a pro-rata basis over the term of the agreement and reduces its deferred revenue balance accordingly.
On September 30,December 31, 2015, the Company sold all of its assets of its Barcode Technology comprised solely of its intellectual property to The Matthews Group a related party, and entered into a management services agreement with The Matthews Group to manage all facets of the barcode technology operations, on behalf of The Matthews Group, through July 31, 2018.June 30, 2023. The Company earnsearned a fee of 20%35% of all revenues billed from the barcode technology operations through Mayup to December 31, 2017 and then 35% of all revenues through July 31, 2018.2022.
Recently Issued Accounting Standards
See NoteFootnote 1 of the Condensed Consolidated Financial Statementscondensed consolidated financial statements for a discussion of recently issued accounting standards.
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, 2017,2022, 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 aton June 30, 2017.2022.
Changes in Internal Control over Financial Reporting.
In our Form 10-K aton June 30, 2017,2022, 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
On September 21, 2016, the Company entered into a settlement agreement with an individual who was a former officer of the Company. The individual in prior years was also issued 500,000 shares of common stock for services. The Company is subjectalleged that the individual used the Company’s intellectual property without approval. Under the terms of the settlement agreement, the individual agreed to various legal proceedings from timerelinquish a convertible note payable and unpaid interest aggregating $364,686 and return 500,000 shares of common stock previously issued to time inhim. In turn, the ordinary courseCompany agreed to release and discharge the individual against all claims arising on or prior to the date of business, nonethe settlement agreement. As of which is required to be disclosed under this Item 1.December 31, 2022, the 500,000 shares have not been relinquished. When the Company receives the shares, it will record a cancellation of shares.
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.
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
The Company is in default on its various notes payable totaling $744,076$753,000 representing principal and accrued interest as of December 31, 2017.2022.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 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 period ended December 31, |
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.
| VERITEC, INC. | ||
| February 14, | By: | /s/ Van Tran |
| Van Tran | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |