Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) |
For the quarterly period ended September 30, 2007
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-15113
VERITEC, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
95-3954373
(IRS Employer Identification Number)
2445 Winnetka Avenue North, Golden Valley, MN 55427
(Address of principal executive offices, zip code)
763-253-2670
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 15 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section
12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by
a court. Yes þ No o
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock as
of the latest practicable date. As of September 30, 2007, the Company had:
|
|
|
|
|
|
|
Number of Shares of Common Stock
|
|
|
|
|
|
|
|
|
|
15,113,088 |
|
|
Transition Small Business Disclosure Format (check one): Yes o No þ
FORM 10-QSB
VERITEC, INC.
INDEX
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
426,251 |
|
|
$ |
790,089 |
|
Accounts receivable, net |
|
|
15,195 |
|
|
|
11,927 |
|
Note receivable from RBA, net |
|
|
52,611 |
|
|
|
78,516 |
|
Inventories |
|
|
27,524 |
|
|
|
26,213 |
|
Prepaid expenses |
|
|
30,825 |
|
|
|
27,325 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
552,406 |
|
|
|
934,070 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net |
|
|
80,615 |
|
|
|
88,005 |
|
Software License, net |
|
|
75,000 |
|
|
|
83,333 |
|
Patent Costs |
|
|
18,756 |
|
|
|
18,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
726,777 |
|
|
$ |
1,124,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
54,988 |
|
|
$ |
56,072 |
|
Accrued expenses |
|
|
362,029 |
|
|
|
405,074 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
417,017 |
|
|
|
461,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
Convertible preferred stock, par value $1.00;
authorized 10,000,000 shares, 276,000 shares of
Series H authorized, 1,000 shares issued |
|
|
1,000 |
|
|
|
1,000 |
|
Common stock, par value $.01; authorized
20,000,000 shares, 15,113,088 and 15,096,088
shares issued |
|
|
151,131 |
|
|
|
150,961 |
|
Subscription receivable |
|
|
(142,743 |
) |
|
|
(193,876 |
) |
Additional paid-in capital |
|
|
13,617,395 |
|
|
|
13,575,926 |
|
Accumulated deficit |
|
|
(13,317,023 |
) |
|
|
(12,870,993 |
) |
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
309,760 |
|
|
|
663,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
726,777 |
|
|
$ |
1,124,164 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
1
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
License and other |
|
$ |
70,214 |
|
|
$ |
99,329 |
|
Infringement |
|
|
|
|
|
|
259,663 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
70,214 |
|
|
|
358,992 |
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
30,887 |
|
|
|
5,110 |
|
|
|
|
|
|
|
|
Gross Profit |
|
|
39,327 |
|
|
|
353,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
354,936 |
|
|
|
331,480 |
|
Research and development |
|
|
139,963 |
|
|
|
87,404 |
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
494,899 |
|
|
|
418,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
|
(455,572 |
) |
|
|
(65,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income: |
|
|
|
|
|
|
|
|
Interest income |
|
|
8,557 |
|
|
|
8,737 |
|
Gain on sale of property and equipment |
|
|
985 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income |
|
|
9,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(446,030 |
) |
|
$ |
(56,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Per Common Share |
|
|
|
|
|
|
|
|
Basic and Diluted |
|
$ |
(0.03 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
2
VERITEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(446,030 |
) |
|
$ |
(56,265 |
) |
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
7,390 |
|
|
|
1,666 |
|
Amortization of software license |
|
|
8,333 |
|
|
|
|
|
Stock options compensation |
|
|
9,766 |
|
|
|
73,502 |
|
Interest income added to note receivable from RBA |
|
|
(2,970 |
) |
|
|
|
|
Services applied to reduce note receivable from RBA |
|
|
28,875 |
|
|
|
|
|
Gain on sale of property and equipment |
|
|
(985 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(3,268 |
) |
|
|
31,776 |
|
Inventories |
|
|
(1,311 |
) |
|
|
(1,015 |
) |
Prepaid expenses |
|
|
(3,500 |
) |
|
|
(12,000 |
) |
Accounts payables and accrued expenses |
|
|
(16,679 |
) |
|
|
(137,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities |
|
|
(420,379 |
) |
|
|
(99,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds on subscription receivable (including $4,423 interest credited
to additional paid-in capital) |
|
|
55,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH |
|
|
(363,838 |
) |
|
|
(99,725 |
) |
CASH AT BEGINNING OF PERIOD |
|
|
790,089 |
|
|
|
898,424 |
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
|
$ |
426,251 |
|
|
$ |
798,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH ACTIVITIES |
|
|
|
|
|
|
|
|
Issuance of common stock for accrued expenses |
|
$ |
27,450 |
|
|
$ |
|
|
Applied prepayment on subscription receivable to subscription receivable |
|
$ |
|
|
|
$ |
55,556 |
|
See notes to condensed consolidated financial statements.
3
VERITEC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
The Company refers to Veritec, Inc. (Veritec) and its wholly owned subsidiary VCode Holdings,
Inc. (VCode).
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with United States of America generally accepted accounting principles (GAAP) for
interim financial information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, the condensed
consolidated financial statements do not include all of the information and footnotes required
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating results for the three
month period ended September 30, 2007, are not necessarily indicative of the results that may be
expected for the year ended June 30, 2008. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included in our Form 10-KSB as of and for the year ended
June 30, 2007. The Condensed Consolidated Balance Sheet at June 30, 2007, has been derived from
the audited consolidated financial statements at that date, but does not include all of the
information and footnotes required by GAAP.
The accompanying condensed consolidated financial statements include the accounts of Veritec
and VCode. All inter-company transactions and balances were eliminated in consolidation.
C. NATURE OF BUSINESS
The Company is primarily engaged in the development, marketing, and sales of a line of
microprocessor based encoding and decoding systems that utilize Matrix Symbology technology, a
two-dimensional barcode technology originally invented by the founders of Veritec under United
States patents 4,924,078, 5,331,176, 5,612,524 and 7,159,780. The Companys encoding and decoding
systems allow a manufacturer, distributor, reseller or user of products, to create and apply unique
identifiers to the products in the form of a coded symbol. The coded symbol containing the binary
encoded data applied to the product enable automated manufacturing control, together with
identification, tracking, and collection of data through cameras, readers and scanners also
marketed by the Company. The collected data is then available for contemporaneous verification or
other user definable purposes. Veritec has also developed a Secured Identification System based
upon its proprietary VSCode and VeriCode® Symbology. The Companys Secured
Identification System enables the storage of images, biometric information and data for
contemporaneous verification of an individuals unique identity. In addition to its United States
patents, the Company holds patents in Europe (German Patent No. 69033621.7; French Patent No.
0438841; and Great Britain Patent No. 0438841); and has applications pending with the United States
Patent and Trademark Office for novel uses of its Multi-Dimensional Matrix Symbology.
In November 2003, Veritec formed VCode to which it assigned United States patents 4,924,078,
5,331,176 and 5,612,524, together with all corresponding patent applications, foreign patents,
foreign patent applications, and all continuations, continuations in part, divisions, extensions,
renewals, reissues and re-examinations thereof. VCode in turn entered into an Exclusive License
Agreement with VData LLC (VData), an Illinois limited liability company unrelated to Veritec. The
purpose of the Exclusive Licensing Agreement is to allow VData to pursue enforcement and licensing
of the patents against parties who wrongfully exploit the technology of such patents. VData is the
wholly owned subsidiary of Acacia Research Corporation (NASDAQ: ACTG).
The Exclusive License Agreement provides that all expenses related to the enforcement and licensing
of the patents will be the responsibility of VData. The Company and VData share the net proceeds
arising from the enforcement or licensing of the patents. Proceeds from this arrangement were
recorded as infringement revenue in the quarter the money was received. None of the infringement
revenue is refundable to any party once received.
These fees have been a primary source of revenue for the Company in recent periods. The patents
(4,924,078 and 5,612,524), which are the subject of the infringement claims, are currently being
reexamined by the U.S. Patent and Trademark Office and are the subject of a declaratory judgment
action seeking to declare the patents invalid. All infringement actions of these patents have been
suspended pending the outcome of these proceedings. Furthermore, the patents expire in November
2007. Therefore revenues from patent infringement claims will be significantly reduced or cease.
During 2007, VCode and VData filed several infringement complaints against alleged infringers
of the 5,331,176 patent.
4
D. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
The Company accounts for revenue recognition in accordance with SEC Staff Accounting Bulletin
(SAB) No. 101 Revenue Recognition in Financial Statements and related amendments. Revenues for
the Company are classified into four separate products; license revenue (Veritecs
Multi-Dimensional matrix symbology), hardware revenue, and identification card revenue (license and
other) and infringement revenue. Revenues from licenses, hardware and identification cards are
recognized when the product is shipped and all required payment terms have been completed. The
process typically begins for license and hardware revenue with a customer purchase order detailing
its hardware specifications so the Company can import its software into the customers hardware.
Once importation is completed, if the customer only wishes to purchase a license, the Company
typically transmits the software to the customer via the internet. Revenue is recognized at that
point. If the customer requests both license and hardware products, once the software is imported
into the hardware and the process is complete, the product is shipped and revenue is recognized at
time of shipment. Once the software and/or hardware are either shipped or transmitted, the
customers do not have a right of refusal or return. Under some conditions, the customers remit
payment prior to the Company having completed importation of the software. In these instances, the
Company delays revenue recognition and reflects the prepayments as customer deposits.
The process for identification cards begins when a customer requests, via the internet, an
identification card. The card is reviewed for design and placement of the data, printed and
packaged for shipment. At the time the identification cards are shipped and the customer has met
the required payment terms, the revenue is recognized.
The Company receives infringement revenue under an Exclusive License Agreement with VData.
The Exclusive License Agreement with VData provides that all expenses related to the enforcement
and licensing of the patents is the responsibility of VData. The Company and VData share the net
proceeds arising from enforcement or licensing of the patents. As a result, all infringement
revenue is recognized at the time it is received. None of the infringement revenue is refundable
to any party once received.
Software License
The software license from RBA International, Inc. (RBA) is capitalized at cost and amortized
using the straight-line method over an estimated useful life of three years.
Patent Costs
The patent application costs are capitalized and, when approved, will be amortized over its
estimated useful life. If not approved, or if considered impaired, these costs will be written off
when deemed impaired.
Income Taxes
The Companys adoption, on July 1, 2007, of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (as amended), did not have a
significant impact on the Companys consolidated financial position, results of operations, and
cash flows.
E. NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the loss available to common
stockholders by the weighted-average number of common shares outstanding. Diluted net loss per
common share, in addition to the weighted-average number of common shares outstanding determined
for basic net loss per common share, includes potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common stock.
5
The weighted average shares outstanding were 15,096,827 and 15,078,598 for the three months
ended September 30, 2007 and 2006, respectively. Potentially dilutive instruments include stock
options, preferred stock and stock bonus/compensation (Note I). For the three months ended
September 30, 2007, stock options (195,666 common shares), preferred stock (10,000 common shares)
and unpaid stock bonus/compensation were antidutive and, therefore, were not included in the
computation of diluted net loss per common share. For the three months ended September 30, 2006,
stock options (110,000 common shares) and preferred stock (10,000 common shares) were antidutive
and, therefore, were not included in the computation of diluted net loss per common share.
F. STOCK-BASED COMPENSATION
The Company has agreements with certain employees and consultants that provide for five years
of annual grants of options, on each employment anniversary date, to purchase shares of the
Companys common stock. The option price is 15% below the market price on the date of grant, the
options vest one year from the date of grant, and the options expire five years after vesting. At
September 30, 2007, the Company has commitments under these agreements to grant options to acquire
45,000 shares of the Companys common stock for fiscal year 2008, 82,000 shares each fiscal year
for 2009 through 2010, and 52,000 shares in fiscal 2011, totaling 261,000 shares.
A summary of outstanding stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
of |
|
Weighted - Average |
|
|
Shares |
|
Exercise Price |
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007 |
|
|
156,666 |
|
|
$ |
1.03 |
|
Granted |
|
|
39,000 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2007 |
|
|
195,666 |
|
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
The weighted-average remaining contractual life of stock options outstanding at September 30,
2007 is 4.9 years.
The weighted-average fair value of options granted for the three months ended September 30,
2007 and 2006 was $0.50 and $0.90, respectively. Stock-based compensation expense was $9,766 and
$73,502 during the three months ended September 30, 2007 and 2006, respectively. As of September
30, 2007, there was $20,494 of unrecognized compensation costs related to stock options. These
costs are expected to be recognized over the next three quarters.
The Company has an agreement with an employee to issue 2,000 shares of the Companys common
stock each year for fiscal 2008 through 2011.
The Board of Directors had authorized the Chief Executive Officer to issue up to 1,000,000
shares of the Companys common stock in the form of options or stock bonuses to employees and
consultants. At September 30, 2007, stock and stock options totaling 559,166 have been committed
under this authorization.
G. NOTE RECEIVABLE
In June 2007, the Company provided a $125,000 line of credit bearing interest at 10% to RBA.
RBA has borrowed the maximum $125,000. Due to the default by RBA on a prior note receivable, the
Company provided a $48,000 allowance on this note. The allowance is based on estimated services
RBA will perform for the Companys benefit through December 2007. The note was reduced by services
totaling $28,875 during the three months ended September 30, 2007.
6
H. SUBSCRIPTION RECEIVABLE
The Matthews Group, in the past, has made prepayments against the Companys subscription
receivable. These prepayments were nonrefundable and noninterest bearing. The prepayment on the
subscription receivable was applied against the subscription receivable during the three months
ended September 30, 2006.
I. OTHER SIGNIFICANT EVENTS
In November 2006, the Company entered into an agreement with a manufacturing company to design
and develop a line of readers to overcome the Companys dependence on outside suppliers. In Phase
One of the project, a proto-type cell phone reader designed by the manufacturing company was
evaluated and accepted. Phase Two of the project requires the manufacturing company to design and
manufacture four individual proto-type models of readers that work with Matrix Symbologies. The
agreement required a deposit of $30,000 and payments of $30,000 for each of the four defined
milestones with the total project cost not to exceed $150,000. The project is continuing to
progress but at this time no estimate as to the completion date has been determined. To date the
Company has made the required deposit of $30,000, a $20,000 advance and accrued another $50,000 for
a total cost of $100,000 against the maximum expenditure of $150,000. Payments under this agreement
are recorded as research and development expense as the service is provided.
On February 6, 2007, the Company authorized a $300,000 bonus to Van Tran, a Director and the
Chief Executive Officer of the Company (CEO). The bonus is payable in either cash or stock
equivalents to be determined at the sole discretion of the CEO. If the CEO elects to receive such
bonus in the form of restricted stock, the stock price to be used to calculate the number of shares
of restricted stock will be the closing market price on February 6, 2007, of $1.15 per share. The
timing of the bonus payment, either as partial payment or payment in full and the form of the bonus
is at the sole discretion of the CEO. The liability for the bonus is recorded based on the greater
of $300,000 or the value of the shares the CEO is entitled to receive based on the closing balance
sheet date stock price. As of September 30, 2007, $117,000 of the bonus was paid to the CEO in
cash. The remaining accrued bonus was $183,000.
In August 2007, the Company entered into an agreement with a consultant to purchase certain
intellectual property. The agreement requires the Company to make a $25,000 payment once it has
been proven that the intellectual property is patentable. It also requires the Company to issue
60,000 shares of the Companys common stock to the consultant once one or more patents have been
issued. At September 30, 2007, the intellectual property information has been submitted to the
Companys patent attorney and is being reviewed for patentablity.
J. RECENTLY ISSUED ACCOUNTING STANDARD
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements (as amended), which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosure about fair
value measurements. SFAS No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and therefore, does not expand the use of fair value in
any new circumstances. SFAS No. 157 will be effective for the Company beginning fiscal year 2009.
Management is currently evaluating the impact SFAS No. 157 will have on the consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (as amended), Including an Amendment of FASB Statement No. 115, which
permits entities to measure eligible financial assets, financial liabilities and firm commitments
at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be
accounted for at fair value under other generally accepted accounting principles. The fair value
measurement election is irrevocable and subsequent changes in fair value must be recorded in
earnings. SFAS No. 159 will be effective for the Company beginning fiscal year 2009. Management
is currently evaluating if it will elect the fair value option for any of the Companys eligible
financial instruments.
7
Item 2. Managements Discussion and Analysis or Plan of Operation
This Form 10-QSB contains various forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements represent the Companys expectations and beliefs
concerning the Companys outlook, future economic events, future performance and attainment of
future goals based on information available to the Company on the date of the filing of this Form
10-QSB, and are subject to various risks and uncertainties.
The Private Securities Litigation Reform Act of 1995 provides safe harbor for
forward-looking statements. These statements contain forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon
our current expectations and speak only as of the date hereof. Our actual results may differ
materially and adversely from those expressed in any forward-looking statements as a result of
various factors and uncertainties affecting technology companies, our ability to successfully
develop products, rapid technological change in our markets, changes in demand for our future
products, legislative, regulatory and competitive developments and general economic conditions.
Our SEC filings discuss some of the important risk factors that may affect our business, results of
operations and financial condition. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason except as required by law.
Critical Accounting Policies
Revenue Recognition
The Company accounts for revenue recognition in accordance with SEC Staff Accounting Bulletin
(SAB) No. 101 Revenue Recognition in Financial Statements and related amendments. Revenues for
the Company are classified into four separate products; license revenue (Veritecs
Multi-Dimensional matrix symbology), hardware revenue, identification card revenue and infringement
revenue. Revenues from licenses, hardware and identification cards are recognized when the product
is shipped and all required payment terms have been completed. The process typically begins for
license and hardware revenue with a customer purchase order detailing its hardware specifications
so the Company can import its software into the customers hardware. Once importation is completed,
if the customer only wishes to purchase a license, the Company typically transmits the software to
the customer via the internet. Revenue is recognized at that point. If the customer requests both
license and hardware products, once the software is imported into the hardware and the process is
complete, the product is shipped and revenue is recognized at time of shipment. Once the software
and/or hardware are either shipped or transmitted, the customers do not have a right of refusal or
return. Under some conditions, the customers remit payment prior to the Company having completed
importation of the software. In these instances, the Company delays revenue recognition and
reflects the prepayments as customer deposits.
The process for identification cards begins when a customer requests, via the internet, an
identification card. The card is reviewed for design and placement of the data, printed and
packaged for shipment. At the time the identification cards are shipped and the customer has met
the required payment terms, the revenue is recognized.
The Company receives infringement revenue under an Exclusive License Agreement with VData LLC
(VData). VData is a wholly owned subsidiary of Acacia Research Corporation (NASDAQ: ACTG). The
Exclusive License Agreement with VData provides that all expenses related to the enforcement and
licensing of the patents is the responsibility of VData. The Company and VData share the net
proceeds arising from enforcement or licensing of the patents. As a result, all infringement
revenue is recognized at the time it is received. None of the infringement revenue is refundable
to any party once received.
General
In February 2005, an adverse ruling was made against Veritec in favor of Mitsubishi
Corporation (Mitsubishi), resulting in a monetary award of $8,174,518 to Mitsubishi and enjoining
Veritec and by extension Veritecs customers from the future use or sale of Mitsubishis Error
Detection and Correction Technology. This ruling compelled Veritec to file a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court (Bankruptcy Court) for the District of Minnesota on February 28, 2005.
8
After reaching an agreement with Mitsubishi and other creditors, in April 2006, Veritecs
Third Amended Plan of Reorganization was confirmed by the Bankruptcy Court. On August 8, 2006, the
Bankruptcy Court entered an Order and Final Decree closing the Chapter 11 case in its entirety. As
a result of the Chapter 11 bankruptcy, Veritec settled $9,356,948 of debts including $7,874,518
owed to Mitsubishi. In connection with the settlement with Mitsubishi, we obtained a license to
certain Mitsubishi EDAC technology and granted Mitsubishi a license to VeriCode®.
For a more detailed discussion on the bankruptcy proceedings and Veritecs Third Amended Plan
of Reorganization, refer to Note A appearing in Part I Financial Information, Item I Financial
Statements and the Form 8-Ks identified as Exhibits hereto and filed with the Commission on
February 17, 2005, February 28, 2005, December 19, 2005, March 10, 2006, May 1, 2006, and August
11, 2006, incorporated by this reference.
Nature of Business
The Company is primarily engaged in the development, marketing, and sales of a line of
microprocessor based encoding and decoding systems that utilize Matrix Symbology technology, a
two-dimensional barcode technology originally invented by the founders of Veritec under United
States patents 4,924,078, 5,331,176, 5,612,524 and 7,159,780. The Companys encoding and decoding
systems allow a manufacturer, distributor, reseller or user of products, to create and apply unique
identifiers to the products in the form of a coded symbol. The coded symbol containing the binary
encoded data applied to the product enable automated manufacturing control, together with
identification, tracking, and collection of data through cameras, readers and scanners also
marketed by the Company. The collected data is then available for contemporaneous verification or
other user definable purposes. Veritec has also developed a Secured Identification System based
upon its proprietary VSCode and VeriCode® Symbology. The Companys Secured
Identification System enables the storage of images, biometric information and data for
contemporaneous verification of an individuals unique identity. In addition to its United States
patents, the Company holds patents in Europe (German Patent No. 69033621.7; French Patent No.
0438841; and Great Britain Patent No. 0438841); and has applications pending with the United States
Patent and Trademark Office for novel uses of its Multi-Dimensional Matrix Symbology.
The Company also seeks fees from the enforcement and licensing of it patents under an Exclusive
License Agreement with VData. These fees have been a primary source of revenue for the Company.
The patents (4,924,078 and 5,612,524), which are the subject of the infringement claims, are
currently being reexamined by the U.S. Patent and Trademark Office and are the subject of a
declaratory judgment action seeking to declare the patents invalid. All infringement actions of
these patents have been suspended pending the outcome of these proceedings. Furthermore, the
patents expire in November 2007. Therefore revenues from patent infringement claims will be
significantly reduced or cease.
During 2007, VCode and VData filed several infringement complaints against alleged infringers
of the 5,331,176 patent.
Results of Operations September 30, 2007 compared to September 30, 2006
Revenues
Revenues of $70,214 for the three months ended September 30, 2007, decreased by $288,778 from
the same period ended September 30, 2006.
The Company is continuing to see declining software license and hardware sales from our
distributors located in the Far East. The primary reason for the decline is that other companies
competing with our distributors have been able to improve their hardware to be equivalent or
superior to the hardware of our distributors, thus taking away an advantage our distributors once
enjoyed. A second reason for the decline in revenues is the volatility due to the fluctuation of
sales to Veritecs distributors who primarily service the LCD market. Revenues from this market are
unpredictable as they are generated when customers open new
production facilities or update production equipment. For the three months ended September 30, 2007, license and other
revenue declined $29,115 compared to license and other revenue for the three months ended September
30, 2006. We are continuing to seek new opportunities in which to grow revenue. We believe our
new product, PhoneCodes©, will be providing revenue to the Company in the coming months
along with our Identification (ID) Cards, which will recognize its first revenue in October 2007.
9
For the three months ended September 30, 2007 and 2006, the Company recognized infringement
revenues of $0 and $259,663, respectively, through its relationship with VData. The Company
recognizes infringement revenues upon the completion of all required terms under the agreement with
VData and when collection is assured. Patent Nos. 4,924,078 and 5,612,524, which are the subject
of the infringement claims, are currently being reexamined by the U.S. Patent and Trademark Office
and are the subject of a declaratory judgment action seeking to declare the patents invalid. All
infringement actions under the two patents have been suspended pending the outcome of these
proceedings. Furthermore the patents expire in November 2007. Therefore revenues from patent
infringement claims will be significantly reduced or cease.
Cost of Sales
Cost of sales was $30,887 for the three months ended September 30, 2007, compared to $5,110
for the same period in 2006, an increase of $25,777. However, as a percentage of license and other
revenues, cost of sales increased 39% for the three months ended September 30, 2007 compared to the
same three month period in 2006. The $25,777 increase in cost of sales was primarily from monthly
charges totaling $28,875 for a designated site and maintenance services of a computer database to
store information in conjunction with our Independent Sales Organization (ISO) license, purchased
from RBA in December 2006. These charges will continue to result in higher cost of sales and lower
margins until such time as the revenue generated from this expense becomes significant. There is
no cost associated with infringement revenue.
Selling General and Administrative
Selling, general and administrative expenses were $354,936 for the three months ended
September 30, 2007, versus $331,480 for the three months ended September 30, 2006, an increase of
$23,456 or 7%. The increase was the result of primarily two expenditures: 1) The Company
contracted with an individual to assist in promoting the Company and seeking sales opportunities.
2) Amortization costs of the software license totaling $8,333 for the three months ended September
30, 2007 compared to $0 for the three months ended September 30, 2006.
Research and Development
Research and development expense of $139,963 for the three months ended September 30, 2007,
increased by $52,559 over the three months ended September 30, 2006 or 60%. The increase was a
result of the Company expensing $50,000 towards the design and development of readers. To date
the Company has expensed $100,000 towards the contract with a manufacturing firm for the design and
development of readers. The contract with the manufacturing firm has a fixed maximum expenditure
of $150,000. The Company also expensed $20,000 for the three months ended September 30, 2007, for
the design and development of a banking kiosk by RBA. For the three months ended September 30,
2007, the Company reduced engineering consultant costs by $17,000 compared to the three months
ended September 30, 2006.
Liquidity and Capital Resources
The Company has relied on The Matthews Group for funding. Through September 30, 2007, The
Matthews Group has funded $1,851,852, of the original of $2,000,000 stock subscription receivable.
As of September 30, 2007 and 2006, the Company has recognized licensing revenue of $0 and
$259,663, respectively, through its relationship with VData. The Company has not received
additional licensing revenue from VData since the third quarter of fiscal year 2007. This license
revenue should not be viewed as unlimited and is likely to decline or cease in the near future
considering the potential adverse determination in regard to the Patent Reexaminations or the Declaratory Judgment being sought by Cognex of Patent Nos.
4,924,078 and 5,612,524.
10
Subsequent to September 30, 2007, the Company received additional licensing revenue from VData
of $445,349, including $195,349 that has not been recorded or deposited pending the Companys
verification that the amount is correct.
The Company believes its cash and forecasted cash flow from operations will be sufficient to
continue operations through fiscal 2008.
The Company will need to significantly increase its revenue or receive a significant infusion
of cash to continue operations beyond fiscal 2008. At this time, the Company has not received
interest from any investor to make a cash investment in the Company.
Quantitative and Qualitative Disclosures About Market Risk
The Company has not issued or invested in financial instruments or derivatives for trading or
speculative purposes. The Company is not actively involved in the trading of foreign currency and
fluctuations in currency exchange rates have had no material impact. Although the Company is
involved in the sales of its products to the Asian markets, all products are priced in United
States Dollars and, as such, sales are not subject to material foreign currency exchange rate risk.
Item 3. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer has evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this report. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such period, our
disclosure controls and procedures are effective.
Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during
the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On June 30, 2000, we were served as a defendant in the matter of Starsolsky vs. Veritec, Inc., et
al., in the United Stated District Court for the Central District of California. The suit was
later transferred to Minnesota. This suit was brought by a shareholder and former director of the
Company against Veritec and various individuals claiming that certain corporate actions were taken
without proper authority of the Companys Board of Directors and/or contrary to the Plan of
Reorganization the Company filed and completed under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court in the 1990s. The complaint sought equitable relief to
set aside the issuance of Series H preferred stock (now converted into common stock) issued to The
Matthews Group that was authorized by the previously approved bankruptcy reorganization plan in
1999, to prevent The Matthews Group from voting its stock at any meetings of stockholders and to
remove certain of the individual defendants as
directors of the Company. No damages were sought. In September 2007, judgment was entered in
favor of the Company and the other defendants dismissing with prejudice the Federal claims and
dismissing without prejudice the remaining State claims.
11
Vcode joined with VData as Plaintiffs in patent enforcement litigation filed on October 4, 2005,
against Brother Industries, Ltd., Sato Corporation, Toshiba Corporation and US Bank National
Association in the United States District Court for the District of Minnesota alleging violations
of the Companys patents. US Bank National Association has entered into a licensing agreement with
the Company and the case as to that defendant was dismissed. The remaining defendants, Brother
Industries, Ltd., Sato Corporation, and Toshiba Corporation, did not settle but were dismissed from
the case without prejudice. VData and the Company must wait for resolution of the patent
reexaminations, described below, before re-asserting claims against the remaining defendants.
On March 13, 2006, in response to notices of infringement sent to its customers by VData, Cognex
Corporation filed a preemptive action seeking a Declaratory Judgment against VData and the Company
in the United States District Court for the District of Minnesota. Amongst other remedies the
action seeks a ruling from the court that Vcodes United States Patent No. 5,612,524 is not
enforceable against Cognex Corporation and its customers, that the Company has defamed Cognex and
that the Company has engaged in unfair and deceptive business practices in violation of Minnesota
law. On December 27, 2006, an answer and affirmative defense was filed to contest the plaintiffs
allegations and claims for damages, injunctive relief, attorneys fees, and costs. A counterclaim
was also filed for infringement of United States Patent No. 5,612,524. A summary hearing on this
case is scheduled for December, 2007. This case is currently scheduled for trial on January 14,
2008.
On April 6, 2006, the U.S. Patent and Trademark Office granted a Third Party Request for an Ex
Parte Reexamination of Vcodes United States Patent No. 5,612,524. A response on behalf of the
Company rebutting the allegations in the Request for Reexamination has been filed with the U.S.
Patent and Trademark Office. The Company is awaiting a determination by the U.S. Patent and
Trademark Office on whether to proceed with the reexamination process or dismiss the request for
lack of merit. The Company has been advised by legal counsel that a preemptive filing of such a
request for Ex Parte Reexaminations is commonplace in the enforcement areas of patent law and
practice. Because, not all claims of the patent have been challenged, the Company believes that a
determination adverse to the patent would not be detrimental to the Companys ability to market its
products, but could be detrimental to the collection of licensing fees based upon this patent.
On May 23, 2006, Vcode joined with VData as a Plaintiff in a pending patent enforcement litigation
filed against Aetna, Inc., PNY Technologies, Inc., Merchants Credit Guide Co., The Allstate
Corporation, and American Heritage Life Insurance Company in the United States District Court for
the District of Minnesota alleging violations of the Companys patents. The Allstate Corporation
and American Heritage Life Insurance Company have entered into a licensing agreement with the
Company and the case as to those defendants has been dismissed. Aetna, Inc., and Merchants Credit
Guide Co., have filed responsive pleadings in the action. PNY Technologies, Inc. has
counterclaimed with allegations of non-infringement, invalidity, and inequitable conduct and is
seeking attorneys fees and costs. Defendant Aetna, Inc. filed a Motion to Dismiss and a Motion
for Rule 11 Sanctions. The Court denied both of Aetnas motions. Defendant Merchants Credit
Guide Co. filed a Motion to Stay Alternative Motion for Sanctions. The Court granted Merchants
Motion to Stay and the case is currently stayed pending reexamination of the patents. This case
has not been set for trial.
On October 26, 2006, a Third Party Request for an Ex Parte Reexamination of Vcodes United States
Patent No. 4,924,078 was made. The Company was awaiting a determination from the U.S. Patent and
Trademark Office as to whether a grant of the request for reexamination was merited. On January
17, 2007, the reexamination for United States Patent No. 4,924,078 was ordered. The Company has
been advised by legal counsel that a preemptive filing of such a request for Ex Parte
Reexaminations is commonplace in the enforcement areas of patent law and practice. The Company
believes that a determination adverse to the patent would not be detrimental to the Companys
ability to market its products, but could be detrimental to the collection of licensing fees based
upon this patent.
12
On April 16, 2007, VCode and VData filed a patent infringement case in the Eastern District of
Texas against Cognex relating to United States Patent No. 5,331,176. Cognex moved to transfer
venue from Texas to Minnesota. VDatas brief to this motion was filed on May 18, 2007, with a
hearing scheduled for August 8, 2007. On August 3, 2007 the judge denied Cognexs motion to
transfer. Cognex has counterclaimed for non-infringement and invalidity. Due to the recent nature
of the case, the Company cannot render an opinion at this time with respect to the outcome of these
actions.
VCode joined with VData as Plaintiffs in patent enforcement litigation filed on August 21,
2007, against Data Logic, Inc., Hand Held Products, Inc. and Siemens Energy and Automation, Inc. in
the United States District Court for the District of Texas alleging violations of the Companys
Patent No. 5,331,176. An agreement has been reached with Hand Held Products, Inc. but due to the
recent settlement, limited information is available. No opinion can be rendered at this time with
respect to the outcome of this action as to the remaining defendants.
Item 1A. Risk Factors
Risk Factors
Investing in our Company entails substantial risk. In addition to the other risks and
uncertainties discussed herein or available from outside sources, a number of risks and
uncertainties that could cause actual results to differ materially from the plans, intentions and
expectations reflected in or suggested by forward-looking statements of the Company set forth
within the body and Exhibits hereof include amongst other things:
We Have a History of Operating Losses
We have a history of operating losses that were a substantial factor in the Company having been
twice placed in bankruptcy. Once from October 1995 through October 1999 and again from February
2005 through August 2006. To halt the continuation of these losses, we are developing new
products, entering new markets and developing strategic alliances to grow revenue. There can be no
assurance that we will be successful in these efforts, and even if we are, whether we can become
profitable. Unless revenues increase significantly or the Company receives a significant cash
infusion in addition to payment of the balance of The Matthews Group obligation, the Company may
not have sufficient cash to continue operations beyond fiscal 2008 and may be forced to cease
operations.
Loss of the Services of Key Employees Could Harm Our Operations
The Companys performance depends on the talents and efforts of our key management and technical
employees. The loss of certain key individuals could diminish our ability to maintain
relationships with current and potential customers or to meet development and implementation
schedules for existing technology and the technology that the Company intends to introduce in the
future. Our future success also depends on our continuing ability to identify, hire, train and
retain highly qualified technical and managerial personnel. If we fail to attract or retain these
key individuals in the future, our business could be disrupted.
Continuing Licensing Revenues from VData and Intellectual Property
The Company has been dependent on VData for a significant portion of its revenue. In the event of
an adverse determination either with regard to the Patent Reexaminations or the Declaratory
Judgment being sought by Cognex, our future ability to obtain licensing fees for the 4,924,078 and
5,612,524 patents could cease. In addition to Cognex, future challenges of our intellectual
property could be made by other claimants. Our business would be materially impacted in the event
such claims are raised and ruled against us.
Competition in the Asian Market
The Company currently relies heavily on its sales to the Asian markets. The cross-licensing
agreement we executed with Mitsubishi that allowed for our emergence from bankruptcy and rights to
use the Mitsubishi EDAC Technology, gave Mitsubishi a license to our VeriCode®
Technology that may result in increased competition. We believe competition in the Machine
Readable Information and symbology sector, coupled with the strain on our
relationships with our licensees and distributors while we were in bankruptcy may continue to
impact future sales.
13
Dependence on The Matthews Group
The Company has traditionally been dependent on The Matthews Group for its financial support.
Unless revenues increase significantly, management believes additional monies above the stock
subscription obligation described in our financial statements will be required in the future. The
Company cannot guarantee going forward that The Matthews Group will continue to provide additional
funding or that the Company will be able to obtain financing from another source to meet those
needs.
Ability to Obtain Access to Capital
Due to the Companys prior bankruptcies and history of losses, the Companys ability to raise
funds, may be difficult. The Company may need to raise additional capital for the development or
marketing of new products. If the Company cannot raise such capital, or if the cost of such
capital is too high, we may be unable to successfully develop and launch new products.
Effect of the Bankruptcy
The Company having been in bankruptcy has made it difficult for the Company to establish new trade
credit relationships with both vendors and customers. Although the Company believes it will
restore its credibility going forward, the lack of trade credit could impair the Companys ability
to grow and implement its plans.
Competition
Our VeriCode® and VSCode Matrix Symbologies compete with alternative
machine-readable codes such as conventional bar code systems, including UPC, EAN Code 39 and Code
49; and, alphanumeric systems such as OCR-A, OCR-B, PDF-417, Data Matrix and many others.
Competitors offering alternative symbologies include numerous well capitalized private and publicly
traded companies who offer a wide variety of bar code systems and solutions, as well as,
alternative product solutions such as Radio Frequency Identification (RFID) and Global Positioning
Satellite (GPS) technology. Our competitors include but are not limited to: Intermec (NYSE: IN);
Siemens Energy and Automation, Inc., a subsidiary of Siemens AG (NYSE: SI); Motorola Inc (NYSE:
MOT); and, Zebra Technologies Corporation (NASDAQ: ZBRA). These companies have more resources than
the Company, already have a strong customer base, and their products are widely used in the market
place. Competition from such companies may further reduce the future level of demand for the
Companys products and/or the Companys future margins of profit.
Effect of Bonus
On February 6, 2007, the Company authorized a $300,000 bonus to Van Tran, a Director and the Chief
Executive Officer of the Company (CEO). The bonus is payable in either cash or stock equivalents
to be determined at the sole discretion of the CEO. If the CEO elects to receive such bonus in the
form of restricted stock, the stock price to be used to calculate the number of shares of
restricted stock will be the closing market price on February 6, 2007, of $1.15 per share. The
timing of the bonus payment, either as partial payment or payment in full and the form of the bonus
is at the sole discretion of the CEO. The liability for the bonus is recorded based on the greater
of $300,000 or the value of the shares the CEO is entitled to receive based on the closing balance
sheet date stock price. As of September 30, 2007, $117,000 of the bonus was paid in cash to the
CEO. The remaining accrued bonus was $183,000.
14
General Conditions Beyond the Companies Control
The general economic condition of the United States and other regions of the world, work
disruptions, labor
negotiations both at the Company and with our licensees and distributors, actions of the U.S. and
foreign governments, foreign currency exchange rate fluctuations, inflation and other economic
events all to varying degrees do, could and would have an effect upon the Company some of which
could have a material adverse impact.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the period covered by this
report.
Item 5. Other Information
None.
Item 6. Exhibits
A list of exhibits included as part of this Form 10-QSB is set forth in an Exhibit Index that
immediately precedes the exhibits.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this quarterly report on Form 10-QSB for the quarter ended September 30, 2007 to be signed
on its behalf by the undersigned thereunto duly authorized on the November 14, 2007.
|
|
|
|
|
|
|
|
|
|
|
Veritec, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Van Thuy Tran |
|
|
|
|
|
|
|
|
|
|
|
|
|
Van Thuy Tran, Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Gerald Fors |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald Fors, Chief Financial Officer |
|
|
15
EXHIBIT INDEX
|
|
|
*3(i)
|
|
Restated Articles of Incorporation of Veritec, Inc. (filed as exhibit 3(i) to Veritecs
Quarterly Report on Form 10QSB for the quarter ended March 31, 2007, and incorporated herein
by reference). |
|
|
|
*3(ii)
|
|
Bylaws of Veritec, Inc. (filed as exhibit 3(ii) to Veritecs Quarterly Report on Form 10QSB
for the quarter ended December 31, 2006, and incorporated herein by reference). |
|
|
|
*13(a)
|
|
Form 10-KSB for the period ended June 30, 1999, filed on October
13, 1999, and is incorporated herein by this reference. |
|
|
|
*14.
|
|
Code of Ethics of Veritec, Inc. (filed as exhibit 14 to Veritecs
Annual Report on Form 10KSB for the year ended June 30, 2007, and
incorporated herein by reference). |
|
|
|
31.
|
|
CEO/CFO Certification required by Rule 13a14(a)/15d14(a) under the Securities Exchange Act
of 1934. |
|
|
|
32.
|
|
Veritec, Inc. Certification of CEO/CFO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. §1350). |
With respect to the documents incorporated by reference to this Form 10-QSB, Veritecs
Commission File Number is 0-15113.
16