VERITEC,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
See
accompanying notes.
VERITEC,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended December 31, 2021 and 2020
(Unaudited)
NOTE
1 – OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Company
Veritec,
Inc. (Veritec) was formed in the State of Nevada on September 8, 1982.
Veritec
is primarily engaged in the development, sales, and licensing of products and providing services related to its mobile banking solutions.
As
a Cardholder Independent Sales Organization, Veritec is able to promote and sell Visa-branded card programs. As a Third-Party Servicer,
Veritec provides back-end cardholder transaction processing services for Visa-branded card programs on behalf of its sponsoring bank.
Veritec has a portfolio of five United States and eight foreign patents. In addition, we have seven U.S. and twenty-eight foreign
pending patent applications. 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 7). 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, 2022. The Company earns a fee of 35% of all revenues
billed up to June 30, 2022, and recognizes management fee revenue as services are performed.
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 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.
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, 2021, are not necessarily indicative of the results that may be expected
for the year ending June 30, 2022. The Condensed Consolidated balance Sheet information as of June 30, 2021, was derived from the Company’s
audited Consolidated Financial Statements as of and for the year ended June 30, 2021 included in the Company’s Annual Report on
Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 8, 2021. 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, Veritec Financial
Systems, Inc., Tangible Payment Systems, Inc., and Public Bell, Inc. Inter-company transactions and balances were eliminated in consolidation.
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, 2021, the Company incurred a net loss of $355,000 and used cash in operating activities of $319,000, and on December 31, 2021, the
Company had a working capital deficit of $7,130,000. In addition, as of December 31, 2021, the Company is delinquent in payment of $725,000
of its 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, 2021 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 be necessary if the Company is
unable to continue as a going concern.
The
Company believes it will require additional funds to continue its operations through fiscal 2022 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 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 consolidated financial statements and reported amounts of revenues
and expenses during the reporting period. Those estimates and assumptions include estimates for reserves of uncollectible accounts, analysis
of impairments of long-lived assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services,
and valuation of deferred 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.
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 7). 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, 2022. The Company earned a fee of 35% of all revenues
billed up to December 31, 2021. 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,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Mobile banking
technology revenue
|
|
$
|
23,000
|
|
|
$
|
22,000
|
|
|
$
|
47,000
|
|
|
$
|
46,000
|
|
|
Other
revenue, management fee related party
|
|
|
58,000
|
|
|
|
111,000
|
|
|
|
150,000
|
|
|
|
167,000
|
|
|
Total
revenue
|
|
$
|
81,000
|
|
|
$
|
133,000
|
|
|
$
|
197,000
|
|
|
$
|
213,000
|
|
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,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Medical
|
|
$
|
17,000
|
|
|
$
|
16,000
|
|
|
$
|
35,000
|
|
|
$
|
34,000
|
|
|
Associations
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
Education
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
Other
|
|
|
58,000
|
|
|
|
111,000
|
|
|
|
150,000
|
|
|
|
167,000
|
|
|
Total
revenue
|
|
$
|
81,000
|
|
|
$
|
133,000
|
|
|
$
|
197,000
|
|
|
$
|
213,000
|
|
During
the periods ended December 31, 2021 and 2020, 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 $58,000 and $111,000, and $150,000 and $167,000 for the three and six month periods
ended December 31, 2021 and 2020, 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.
Fair
Value of Financial Instruments
The
Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for
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 on the measurement date. Valuation 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 the first two are considered observable and the last unobservable, to measure fair 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.
|
The
carrying amounts of financial instruments such as cash, accounts receivable, and accounts 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 due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
Net
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 period ended December 31, 2021 and 2020, the calculations of basic and diluted loss per share are the same because potential dilutive
securities would have an anti-dilutive effect.
As
of December 31, 2021, and 2020, 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,
|
|
|
|
2021
|
|
2020
|
|
Series H Preferred
Stock
|
|
|
10,000
|
|
|
|
10,000
|
|
|
Convertible Notes Payable
|
|
|
24,911,142
|
|
|
|
23,372,615
|
|
|
Options
|
|
|
3,400,000
|
|
|
|
3,650,000
|
|
|
Total
|
|
|
28,321,142
|
|
|
|
27,032,615
|
|
Concentrations
During
the three and six month period ended December 31, 2021 and 2020, the Company had one customer, a related party, that represented 72%
and 76%, and 83% and 78% of our revenues, respectively. No other customer represented more than 10% of our revenues.
Segments
The
Company operates in one segment, the mobile financial banking industry. In accordance with the “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 countries in which the entity holds
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 found in 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 significantly 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 is effective. As small business
filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 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, but no earlier than January 1, 2021, including interim periods within that
year. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related
disclosures.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—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 warrants) that remain equity classified after modification or exchange. An issuer measures
the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value
of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories
of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and
modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal
years beginning after December 15, 2021, 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 for
all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance
should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected
to have a material impact on the Company’s financial statements 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's
present or future financial statements.
NOTE
2 – CONTINGENT EARNOUT LIABILITY
On
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 was an earnout payment of $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. As of December 31, 2021,
there was no net profit derived from the acquired assets, and the Company had not yet received the required equity investments. Accordingly,
no payments were made on the earnout.
NOTE
3 – CONVERTIBLE NOTES AND NOTES PAYABLE
Convertible
notes and notes payable
Convertible
notes and notes payable includes principal and accrued interest and consists of the following at December 31, 2021 and June 30, 2021:
|
Convertible notes and notes payable - in default
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2021
|
|
June
30,
2021
|
|
(a) Unsecured
convertible notes ($20,000 and $19,000 in default)
|
|
$
|
63,000
|
|
|
$
|
62,000
|
|
|
(b) Notes payable (in default)
|
|
|
449,000
|
|
|
|
440,000
|
|
|
(c)
Notes payable (in default)
|
|
|
27,000
|
|
|
|
27,000
|
|
|
Total
convertible notes and notes payable
|
|
$
|
539,000
|
|
|
$
|
529,000
|
|
(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, 2021, convertible notes totaled $62,000. During the period ended December 31, 2021, a nominal amount of interest was added to
principal, resulting in a balance owed of $63,000 at December 31, 2021. On December 31, 2021, $20,000 of the convertible notes were in
default and convertible at a conversion price of $0.30 per share into 65,286 shares of the Company’s common stock. The balance
of $43,000 is due on demand and convertible at a conversion price of $0.08 per share into 539,789 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, 2021, the notes totaled $440,000. During the period ended December 31, 2021, interest of $9,000 was added to principal resulting
in a balance owed of $449,000 at December 31, 2021. At December 31, 2021, $404,000 of notes are secured by the Company’s intellectual
property and $45,000 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, 2021, the notes totaled $27,000. During the period ended December 31, 2021, a nominal amount of interest was added to principal,
resulting in a balance owed of $27,000 at December 31, 2021.
Convertible
notes and notes payable-related parties
Convertible
notes and notes payable-related parties includes principal and accrued interest and consists of the following at December 31, 2021 and
June 30, 2021:
|
Convertible notes and notes payable- related party
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2021
|
|
June
30,
2021
|
|
(a) Convertible
notes-The Matthews Group
|
|
$
|
1,798,000
|
|
|
$
|
1,741,000
|
|
|
(b) Notes payable-The Matthews
Group
|
|
|
3,779,000
|
|
|
|
3,375,000
|
|
|
(c)
Convertible notes-other related parties ($229,000 and $224,000 in default)
|
|
|
314,000
|
|
|
|
308,000
|
|
|
Total
convertible notes and notes payable-related parties
|
|
$
|
5,891,000
|
|
|
$
|
5,424,000
|
|
(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 7) and is owned 50% by Ms. Van Tran, the Company’s CEO/Executive Chair and a director,
and 50% by Larry Johanns, a significant shareholder of the Company. At June 30, 2021, convertible notes due to The Matthews Group totaled
$1,741,000. During the period ended December 31, 2021, interest of $57,000 was added to principal, resulting in a balance owed of $1,798,000
at December 31, 2021. At December 31, 2021, the notes are convertible at a conversion price of $0.08 per share into 22,473,937 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 7) dated December 31, 2015. At June 30, 2021, notes due to The Matthews Group totaled $3,375,000.
During the period ended December 31, 2021, $260,000 of notes payable were issued and interest of $144,000 was added to principal, resulting
in a balance owed of $3,779,000 at December 31, 2021.
(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, 2021, convertible notes due to other related parties totaled $308,000. During the period ended December 31, 2021, interest of
$6,000 was added to principal resulting in a balance owed of $314,000 at December 31, 2021. At December 31, 2021, $229,000 of the notes
were due in 2010 and are in default, and the balance of $85,000 is due on demand. At December 31, 2021, $229,000 of the notes are convertible
at a conversion price of $0.30 per share into 762,081 shares of the Company’s common stock, and $85,000 of the notes are convertible
at a conversion price of $0.08 per share into 1,070,050 shares of the Company’s common stock.
NOTE
4 –LOANS PAYABLE
On
March 23, 2021, the Company was granted its first loan for $59,000 (the “PPP loan”) from Community Federal Savings Bank,
pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. On June 1, 2021, the Company was granted a second
PPP loan for $59,000 from Community Federal Savings Bank with similar loan terms. On October 22, 2021, the Company was notified that
its PPP loan forgiveness applications totaling $118,000 were approved, and the Company recorded a gain on PPP loan forgiveness on the
accompanying consolidated statements of operations for the three and six months ended December 31, 2021.
NOTE
5 - STOCKHOLDERS’ DEFICIENCY
Common
Stock to be Issued
At
December 31, 2021 and June 30, 2021, 145,000 shares of common stock with an aggregate value of $12,000 have not been issued and are reflected
as common stock to be issued in the accompanying condensed consolidated financial statements.
NOTE
6 – STOCK OPTIONS
A
summary of stock options as of December 31, 2021 is as follows:
|
Summary of Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at June 30, 2021
|
|
|
3,400,000
|
|
|
$
|
0.07
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding
at December 31, 2021
|
|
|
3,400,000
|
|
|
$
|
0.07
|
|
|
Exercisable
at December 31, 2021
|
|
|
3,400,000
|
|
|
$
|
0.07
|
|
As
of December 31, 2021, the Company had no outstanding unvested options with future compensation costs. At December 31, 2021 and June 30,
2021, the outstanding and exercisable stock options had an intrinsic value of $18,000 and $18,000, respectively.
Additional
information regarding options outstanding as of December 31, 2020, is as follows:
|
|
Additional information regarding outstanding options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding at
December
31, 2021
|
|
Options
Exercisable at
December
31, 2021
|
|
Range
of Exercise Price
|
|
Number
of Shares Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price
|
|
Number
of Shares Exercisable
|
|
Weighted
Average Exercise Price
|
|
$
|
0.03
|
|
|
|
900,000
|
|
|
|
2.98
|
|
|
$
|
0.03
|
|
|
|
900,000
|
|
|
$
|
0.03
|
|
|
$
|
0.08
|
|
|
|
2,500,000
|
|
|
|
0.11
|
|
|
$
|
0.08
|
|
|
|
2,500,000
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
3,400,000
|
|
|
|
|
|
|
|
|
|
|
|
3,400,000
|
|
|
|
|
|
NOTE
7 – RELATED PARTY TRANSACTIONS
The
Matthews Group is owned 50% by Ms. Tran, the Company’s CEO/Executive Chair and a director, and 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
The
Company’s Barcode Technology was 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-security applications. On December 31, 2015, the Company sold all of its assets of its
Barcode Technology comprised solely of its intellectual property to The Matthews Group. The Company then 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
June 30, 2022. The Company does anticipate the management services agreement will be extended prior to the June 30, 2022 expiration date,
and does not anticipate material changes to the terms of the agreement. The Matthews Group bears the risk of loss from the barcode operations
and has the right to the residual benefits of the barcode operations.
In
consideration of the services provided by the Company to The Matthews Group, the Company earned a fee of 20% of barcode technology operations
revenues through May 31, 2017. Subsequent to May 31, 2017 and up to June 30, 2022, The Matthews Group earns a fee of 35% from the barcode
technology operations. During the periods ended December 31, 2021 and 2020, the Company recorded management fee revenue related to this
agreement of $150,000 and $167,000, respectively.
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 as proceeds from unsecured notes payable due The Matthews Group. During the periods ended December
31, 2021 and 2020, cash flow loans of $260,000 and $269,000, respectively, were made to the Company at 10% interest per annum and due
on demand. At December 31, 2021, cash flow loans of $3,779,000 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, 2021 and June 30, 2021, total advances to Ms. Tran amounted to $96,000 and $96,000, respectively, and have been presented
as accounts payable, related party on the accompanying Condensed Consolidated Balance 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, the Company’s CEO/Executive Chair. For the three
and six months periods ended December 31, 2021 and 2020, lease and property tax payment to Ms. Tran totaled $14,000 and $26,000, and
$13,000 and $93,000, respectively.
NOTE
8 – 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 500,000 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, 2021, the 500,000 shares have not been relinquished. When the Company receives
the shares, it will record a cancellation of shares.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
On
November 1, 2021, the Company and 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 500,000 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 25,000 stock options
for each additional $1.0 million of gross revenues. As of December 31, 2021, the Marketer had not met any of its revenue targets and
no commissions or equity compensation was due.
On
December 5, 2008, the Company adopted an incentive compensation bonus plan to provide payments to key employees in the aggregated
amount of 10% of pre-tax earnings in excess of $3,000,000 after the end of each fiscal year to be distributed annually to employees.
As of December 31, 2021, the Company had not achieved annual pre-tax earnings in excess of $3,000,000.
On
December 5, 2008, the Company entered into an employment agreement with Ms. Tran, its Chief Executive Officer, providing for an annual
base salary of $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 $1,000,000 payable upon termination,
and she will be entitled to severance equal to 12 months compensation and benefits. The Company has also agreed to indemnify Ms. Tran
against any liability or damages incurred within the scope of her employment. During the three and six month periods ended December 31,
2021 and 2020, salaries paid to Van Thuy Tran under this agreement totaled $38,000 and $75,000, and $38,000 and $75,000, respectively.